North Texas Leads Way with Big-Ticket Verdicts
Last March, a state court jury in Dallas delivered a whopping $319 million verdict in a high-profile pipeline dispute — the largest award in Texas in 2014 — stunning the oil and gas industry and turning the heads of attorneys and executives who follow partnership law.
The verdict in 298th District Judge Emily G. Tobolowsky's court ordered Houston-based Enterprise Products Partners LP to pay the jumbo sum to Dallas-based Energy Transfer Partners. The jury found that the two companies had a binding agreement to develop a pipeline to carry crude oil from Oklahoma to refineries on the Gulf of Mexico, and Enterprise breached the agreement by deciding instead to team up with the Houston unit of Canadian pipeline company Enbridge.
The verdict was the largest last year in Texas and No. 3 nationwide, according to legal research firm VerdictSearch. The verdict also ranks as Texas' fourth-largest ever reported to VerdictSearch and the largest ever in Dallas County.
Ten of the 50 highest verdicts of 2014 were in Texas, according to an examination of VerdictSearch's national data. While some of the verdict amounts likely will be reduced on appeal, the actual and punitive damages awarded by Texas juries totaled almost $775 million across the 10 cases.
The case types for the big-ticket Texas verdicts varied widely. The ETP-Enterprise dispute was categorized as a breach of fiduciary duty case. Others fell in the areas of patent and trade secret disputes, antitrust, breach of contract, business disparagement, employment retaliation, probate and deceptive trade practices.
Milan Markovic, associate professor at the Texas A&M University School of Law in Fort Worth, was not surprised that 10 of the 50 highest verdicts nationwide were in Texas.
"Many large corporations do business in Texas, so it's only natural that Texas courts will hear many high-stakes disputes," Markovic said. "States that have a lot of businesses — especially well-capitalized businesses — are going to be both the targets of litigation and are going to be more able to assert their rights (in court)."
It's difficult to draw conclusions about verdict trends in part because most cases are dismissed at the summary judgment phase or settled rather than going to trial, Markovic said.
"Looking at verdicts, you're looking at a very thin slice of the pie of litigation," he said.
"The fact that 20 percent of the nation's highest verdicts hailed from the Lone Star State doesn't mean that Texas juries are overly generous or that the courts are unfavorable toward business, he said. It might merely indicate that, for whatever reason, a number of high-stakes matters in Texas in 2014 didn't settle," he said.
"I certainly don't believe that Texas juries are anti-business," Markovic said.
The Energy Transfer Partners case focused on the question of whether Enterprise and ETP legally formed a business partnership in 2011 when they joined to consider building the oil pipeline.
Michael Lynn and David Coale, the lawyers from Lynn Tillotson Pinker & Cox in Dallas who represented ETP at trial and are doing so on appeal, asked jurors to compare the relationship between ETP and Enterprise to a common-law marriage. Like it or not, the companies were married in the eyes of the law, even if they never explicitly signed paperwork making them husband and wife, Lynn said.
"Partnership by conduct is very much like common-law marriage, and in this instance there are 47 other states that have precisely the same laws as Texas," Lynn said.
To drive home his theme of "if it walks like a duck," Lynn showed the jury a photo of a duck holding a sign that said, "I am not a partner."
"It looks like a partnership," Lynn told jurors. "It walks like a partnership and acts like a partnership. This duck was a partnership."
Enterprise contended it had no legal partnership with ETP and pointed to documents signed by the two companies stating that their cooperation on the project should not be deemed to create a partnership or joint venture.
David Beck, the lead lawyer for Enterprise, called ETP's lawsuit "partnership by ambush."
Lynn and Coale, however, pointed to dozens of instances in which leaders of the two companies said they were joint venture partners in marketing brochures, internal emails and other records.
Jurors heard testimony from more than 20 witnesses and pored over thousands of internal documents from the three giant oil and gas corporations during the four-week trial.
In addition to the verdict size, the decision in the ETP-Enterprise case is notable because the company's letter of intent disclaimed all intentions of forming a partnership, Markovic said.
"This decision suggests that boilerplate disclaimers in a letter of intent may not prevent a court from finding a partnership or joint venture exists if the parties' subsequent actions do, in fact, suggest a partnership," Markovic said.
"The decision reinforces the importance of carefully negotiating letters of intent and ensuring that employees don't act in a manner inconsistent with the letter of intent," Markovic said.
Nationwide, the ETP-Enterprise verdict was surpassed only by two multi-billion dollar blockbusters — a $23.6 billion jaw-dropper against R.J. Reynolds Tobacco Co. and a $9 billion stunner to Japanese drugmaker Takeda Pharmaceuticals International Inc. and its U.S. counterpart Eli Lilly and Co.
In the R.J. Reynolds case, a Florida jury awarded the widow of a chain smoker who died of lung cancer at age 36 punitive damages of more than $23 billion against the nation's second-largest cigarette maker. The case is on appeal.
A federal judge in Louisiana in October slashed the $9 billion punitive damages award to $36.8 million in the case against Takeda and Lilly over their Actos diabetes drug.
U.S. District Judge Rebecca Doherty in that case ruled the original $9 billion damages award was "excessive" and violated the companies' constitutional rights to due process. Jurors found that the drug companies failed to warn users that Actos could raise the risk for bladder cancer.
Although the case against Takeda and Lilly was tried in U.S. District Court in Lafayette, La., it had a Texas tie. Mark Lanier of The Lanier Law Firm PC in Houston served as lead plaintiff's attorney in the case.
The two verdicts of more than $1 billion nationwide in 2014 was down a bit from previous years. Juries awarded three verdicts of $1 billion or more in 2011, 2012 and 2013.
Even with one less, the $23.6 billion and $9 billion mega-verdicts in 2014 easily dwarfed the top three in 2013.
Those included a $1.2 billion award against Dow Chemical Co. and a $1.1 billion award against nursing home operator Trans Healthcare Inc. to the estate of a woman who died after multiple falls. Lennar Corp. won the third billion-dollar verdict nationally in 2013 — $1 billion exactly against a California developer and his company accused of defaming the home builder as part of an extortion scheme.
Markovic sees the diversity of cases in Texas resulting in high-dollar verdicts as a sign that the justice system is serving its function as a settler of disputes.
"When you think of large verdicts and you hear politicians speak, they're talking about medical malpractice and those kind of things," he said. "But what you've found is that these are oftentimes cases between large, sophisticated corporate actors, and that's not necessarily a bad thing. I think it's interesting that the narrative that's woven by politicians is that litigation is largely the product of frivolous trial lawyers. That certainly doesn't hold true for these cases."
By BILL HETHCOCK, Dallas Business Journal