Image source: Getty Images.

What: Shares of Energy Transfer Equity (NYSE:ET) spiked on Tuesday, up 20% by 3:45 p.m. EDT. Fueling the rally was a comment made by the judge hearing a trial between the company and its merger partner, Williams Companies (NYSE:WMB)

So what: The legal battle between Energy Transfer Equity and Williams Companies appears to be coming down to a single issue. That issue is whether the lawyers for both companies acted in "good faith" when working together to resolve a tax dispute, according to comments by Judge Sam Glasscock,

What it boils down to is whether Energy Transfer Equity is just using the tax issue to get out of the deal because of buyer's remorse, or if it actually cannot resolve the problem. If it's the latter, then it's more likely that Judge Glasscock will rule in its favor and terminate the merger agreement. However, if Energy Transfer's lawyers did not act in good faith, the company could be forced to move forward with the deal, which is no longer as appealing as it was when the agreement was signed last year.

Now what: The market seems to be interpreting the judge's comments very positively for Energy Transfer Equity. They see the judge ruling that because the company can not close the deal due to an unresolvable tax issue, the merger must be terminated. That would get the company off the hook for a deal the market did not like from the day the companies put ink to paper.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.