© 2014 The Texas Lawbook.
By Mark Curriden, JD
Senior Writer for The Texas Lawbook
DALLAS (January 24) – When does a business relationship become a partnership?
That question is at the heart of a multibillion-dollar dispute involving three giant oil and gas companies that are in trial this week in Dallas. Opening statements are scheduled for Thursday.
Energy Transfer Partners (ETP) of Dallas claims that Houston-based Enterprise Products Partners broke its commitment to jointly build a pipeline from Cushing, Okla. to Houston that both companies initially estimated could bring them billions of dollars in revenues annually.
ETP argues that Enterprise and Canadian-based Enbridge conspired to illegally cut ETP out of the deal.
Enterprise and Enbridge, in court documents, say ETP’s lawsuit is “meritless” because there never was an actual partnership or joint venture with ETP.
“Energy Transfer Partners is trying to get in the courthouse what it could not achieve in the marketplace,” lawyers for Enterprise said in court documents asking the judge to dismiss the case.
Dallas County District Judge Emily Tobolowsky denied the request. Jury selection starts Monday with opening statements to the 12-person jury expected Thursday. The trial is expected to last four weeks.
“This is going to be a great case because the issues are important and there are so many great lawyers involved,” says David Elrod, a Dallas trial lawyer whose practice focuses on energy litigation.
The case, which has received very little public attention, pits some of Texas’ most prominent trial lawyers against each other.
Dallas trial lawyer Mike Lynn of Lynn Tillotson Pinker & Cox represents ETP. David Beck of Beck Redden in Houston and Dick Sayles of Sayles Werbner are defending Enterprise. Dallas attorney Jeffrey Levinger and a team from Sullivan & Cromwell in California represent Enbridge.
“Mike and Dick and David are some of the best lawyers practicing law today,” said Elrod.
All of the lawyers declined to comment on the case.
While most business contract disputes are mired in the arduous interpretation of highly technical legal language, this trial is expected to provide extraordinary insight into the business operations and strategic thinking of leaders at three of the largest and fastest growing oil companies in North America.
Top executives at all three energy companies are under subpoena and expected to testify.
But in court documents, the three companies say the primary issue at the heart of the case is whether ETP and Enterprise legally formed a partnership to build the pipeline from Cushing, which is a major oil hub, to Houston, where the crude could be refined or shipped.
ETP says yes. The Dallas-based energy conglomerate, which has about $50 billion in oil and gas assets, claims Enterprise majority owner and chairman Dan Duncan of Houston initially approached ETP about a joint venture in the months before he died in 2010.
Enterprise, which has an estimated $38 billion in assets, and ETP renewed partnership discussions in the spring of 2011 and signed a non-binding agreement a few weeks later.
ETP says the relationship quickly solidified and the partnership started taking shape.
“ETP and Enterprise shared joint control over the partnership’s commercial activities, jointly meeting with potential customers, jointly marketing the partnership to potential customers and jointly making operational decisions,” ETP’s lawyers state in court records.
“The parties unequivocally and repeatedly told potential pipeline customers, regulators and investment banks in formal written materials that they had formed a joint venture and that the parties had agreed to share profits and losses on a 50/50 basis,” ETP claims.
The two companies, which called their new venture Double E Pipeline, even signed a deal in August 2011 with Chesapeake Energy to ship “at least 100,000 barrels of oil per day on the Double E Pipeline for a 10-year period.”
Less than a month later, Enterprise announced it was ending its relationship with ETP to do a similar partnership with Enbridge, a company based in Calgary that has about $30 billion in oil and gas assets and annual revenues of about $11 billion.
ETP claims that Enterprise and Enbridge conspired to interfere with and end the joint venture with ETP, which is seeking more than $1.2 billion in actual and punitive damages.
Enterprise and Enbridge argue there was no actual partnership with ETP because the two sides never took the official steps to finalize the deal and that Enterprise legally backed out of the proposed joint venture.
Enterprise lawyers, in court documents, point to the April 21, 2011 letter between the two companies as proof that their partnership had not been finalized.
“No binding or enforcement obligations shall exist between the parties with respect to the [relationship] unless and until the parties have received their respective boards’ approvals,” the agreement stated.
“The parties made crystal clear that they had not yet agreed to undertake the proposed joint venture,” Enterprise lawyers said in court records. “Despite months of hard work by Enterprise’s employees, Enterprise and ETP were unable to secure sufficient commitments from prospective shippers of crude oil to make the proposed joint venture with ETP commercially viable.”
ETP lawyers, in court documents, say the relationship between the two companies had moved well beyond the terms agreed to in the April 2011 letter.
Lawyers for ETP argue that Texas law liberally defines the existence of a business partnership, even in some cases in which the parties involved claim there is no such partnership, much like the existence of a common law marriage under Texas family law.
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