Pipeline Giants Take Battle to Courts
Any day now, three judges on the state appeals court in Dallas are expected to be secretly selected to review a case that legal experts say could be the biggest and most important business dispute between two Texas companies since Pennzoil clobbered Texaco in the mid-1980s for $10 billion.
The new case is slightly smaller — a mere $500 million is at stake. But the legal issue — whether there is a business version of common-law marriage — could have a significantly bigger impact on Texas companies seeking to do joint ventures or partnerships, according to lawyers following the case.
Enterprise Products Partners is asking the Fifth District Court of Appeals to reverse a Dallas jury’s landmark verdict in 2014, which found that the Houston-based pipeline company violated its duties in a multibillion-dollar business partnership with Energy Transfer Partners. Enterprise contends it didn’t want the partnership and never agreed to it.
Dallas-based ETP had sued Enterprise, claiming that the two midstream oil and gas giants had agreed to “market and pursue” a pipeline from Cushing, Okla., to the Gulf Coast but that Enterprise breached the partnership by secretly negotiating a nearly identical deal with a competitor that was valued at $4.4 billion.
The judge and jury agreed with ETP and awarded the company $500 million in damages.
Now, both companies have beefed up their legal teams with high-priced talent to do battle at the state appeals court in Dallas.
“Just about every Texas business and corporate lawyer is waiting with bated breath for the courts to answer this partnership question,” says Heather New, an appellate lawyer at Dallas-based Bell & Nunnally who is not involved in the case.
“This is a huge case in terms of the amount of the judgment, but it’s also huge because of the importance of the legal jurisprudence involved,” says Jeff Nobles, an appellate law specialist at Beirne Maynard & Parsons in Houston who has closely followed the case. “A lot of corporate general counsels, especially in the energy sector, are afraid of how it could turn out. I’m not sure most of their fears are justified.”
Neither ETP nor Enterprise permitted its lawyers to publicly discuss the case, but recently filed court documents show that they differ sharply on how they believe Texas courts should interpret the law and the facts.
Enterprise argues that there was no partnership because the two companies signed a letter of agreement on March 16, 2011, stating that “no binding obligations shall exist unless and until definitive agreements are signed and given board approval.”
No such agreement was ever signed.
“The phrase ‘unless and until’ constitutes the unmistakable language of condition,” David Beck, a Houston lawyer representing Enterprise, wrote in a brief to the appeals court filed earlier this month.
“ETP adheres to its position that contracts not to be partners are not enforceable,” Beck wrote. “ETP proposed a world in which parties have no way to be certain that they have prevented an accidental partnership. That is not the law.”
ETP’s lead lawyer, Mike Lynn, counters that the business relationship between the two companies matured far beyond the terms of the March letter. In legal briefs filed with the court, Lynn points out dozens of times between May and August 2011 when the two companies issued joint news releases and marketing brochures touting their joint venture or partnership.
“Enterprise and ETP did everything that creates a partnership under the Texas Business Organizations Code, including agreeing to share profits and losses, jointly controlling the partnership, contributing money and property, and expressing an intent to be partners,” Lynn, a partner at Lynn Tillotson Pinker & Cox in Dallas, wrote in briefs filed for ETP.
ETP also argues that the facts in this case are so outrageous that the Texas courts can uphold the $500 million award for ETP but also issue an opinion that limits the impact of the decision to cases in which the facts are so extreme.
New, the Dallas appellate lawyer, said she initially thought ETP could never win the case, but that was before she studied Texas law on business partnerships.
“I originally thought this would be a clear-cut win for Enterprise, but after actually reading the state business code, I must say that this is going to be a much more difficult decision for the appellate courts to reverse,” she says.
Nobles says many lawyers and businesses were surprised that Texas law states that a signed agreement is not necessary to form a partnership as long as other factors are met.
“Enterprise’s best argument is that it should be impossible for sophisticated businesses like these two companies to enter into an accidental partnership, especially when there’s a clearly well-documented intention to not have a partnership unless certain conditions are met,” Nobles says.
There is no evidence that either ETP or Enterprise is interested in settling the dispute out of court.
“Both sides are taking a ‘money is no object’ approach in trying to win this case,” says Chad Ruback, a Dallas appellate lawyer who is monitoring the case. “Both companies have put together dream teams of lawyers for the appeals. None of these lawyers are cheap.”
ETP hired Haynes and Boone appellate law specialist Nina Cortell and former Texas Supreme Court Justice Craig Enoch of Austin to join Lynn and his team of lawyers.
Meanwhile, Enterprise hired former Texas Supreme Court Chief Justice Wallace Jefferson, former Texas Appeals Court Judge David Keltner and Strasburger & Price partner P. Michael Jung to join Beck and his group of powerhouse lawyers at Beck Redden to try to have the case reversed.
“By hiring all these lawyers, both sides in this case are saying they are planning for a long and expensive fight,” says appellate lawyer Chris Johns, who practices in Houston and Austin. “Both sides recognize the court of appeals in Dallas is just a steppingstone, because this case will eventually have to be decided by the Texas Supreme Court.”
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