In a tag-team closing argument Monday afternoon, two attorneys representing a client facing a $432.7 million damages request by Energy Transfer told Business Court Judge Grant Dorfman the amount being sought is both unfounded and a drastic overreach.
The closing arguments were delivered in a second-floor conference room at the Embassy Suites in downtown Houston, where testimony in the bench trial began March 30. The Business Court was created by lawmakers in 2023 and touted as a sophisticated venue for quickly and predictably adjudicating complex business disputes.
The Business Court divisions, currently operational in the state’s biggest metro areas, do not have permanent, dedicated courtroom space. While a bailiff was present for the bench trial, there was no security screening for the parties before entering the makeshift courtroom.
The bench trial will resolve claims lodged by an Energy transfer subsidiary, Lone Star NGL Product Services, against Kinetik predecessors, Eagle Claw Midstream Ventures and Caprock Midstream, over a series of agreements from 2016 through 2018 for the delivery of Y-grade gas.
The parties agreed at the close of arguments Monday (which lasted from about 1:30 p.m. until nearly 7 p.m.) to file proposed findings of fact and conclusions of law to Judge Dorfman by the end of the month. His ruling will follow.
The gas at issue in this dispute was to flow from Reeves County in the Permian Basin through 609 miles of pipeline — the Energy Transfer-operated Lone Star NGL Express Pipeline — and end up in Mont Belvieu, east of Houston. Lone Star NGL Product Services filed this lawsuit in September 2024, just the fourth case to be filed in the Business Court, after its business partner failed to deliver.
During closing arguments Monday, Andrew Price of Norton Rose Fulbright hit back against arguments Jean Frizzell of Reynolds Frizzell lodged March 30 during opening statements characterizing the lawsuit as, “at best,” a simple breach of contract dispute “for modest damages.”
“This was much more than a simple breach of contract case,” Price said, calling it a “systematic, intentional breach” of long-term agreements valued at more than $1 billion. “We held up our end of the bargain. They failed on theirs.”
Lone Star NGL has argued the agreements broke down after private-equity backed Eagle Claw decided to start sending volumes of Y-grade to Targa instead of Lone Star, in violation of the agreements. Price told the court during opening statements that Blackstone, which acquired Eagle Claw in April 2017, approached Targa with a deal that would entitle it to an ownership interest in the Targa-owned Grand Prix NGL pipeline.
Price displayed graphs for the court that he said showed that when amounts shipped to other companies increased, the amount his client received dropped accordingly. The culprit here, he argued, was the overly optimistic projection for the amount of Y-grade gas that would be available to go around.
“Aggressive projections turned out to be very wrong,” Price argued Monday. “And there weren’t enough volumes to go around.”
Another lawsuit against Eagle Claw based on similar allegations is currently pending in Harris County District Court. Targa Liquids Marketing and Trade filed that lawsuit in May 2023. It is currently set for trial in October.
During closing arguments, Price told Judge Dorfman that “the majority of the defendant’s C-suite” was involved in making the decisions that short-changed his client.
“This was tortious conduct involving all levels of the organization, and this court should not condone it,” he said. While the damages requested are large, Price said his client “is entitled to every penny.”
He tied the damages amount to the value of the shortfall of Y-grade, which he said was 65 million barrels, or 2.7 billion gallons.
But Frizzell told the court a different story, again pitching the case as a simple breach of contract dispute.
“We believe they overreached throughout this case and throughout this trial,” he said Monday, arguing the damages numbers aren’t supportable and neither are the other claims, aside from breach of contract.
“They have not even attempted to support a fraud claim,” he said. “We spent two weeks fighting shadows when this case is a breach of contract case.”
Beck Redden’s Garrett S. Brawley, who also represents the defendants, took aim at the damages model during his portion of closing arguments.
The defense has argued throughout trial that even if Energy Transfer wins every argument on liability, the damages do not come close to what the company is seeking. That’s because Lone Star Product Services only does three things:
- It purchases Y-grade gas from Eagle Claw and Caprock in Reeves County;
- It pays a pipeline affiliate to transport that product to Mont Belvieu; and
- It sells Y-grade gas to a marketing affiliate.
Because of the corporate structure of the Energy Transfer affiliate, the defense has told the court it makes very little money and the maximum damages it can recover in this case is $3.97 million.
Brawley told Judge Dorfman Monday that Energy Transfer is seeking “half a billion dollars more than they would have received had the Y-grade been delivered.”
“Product Services, as a whole, was designed to not make money … because of Energy Transfer’s intentional choices,” he said. “… I don’t fault Energy Transfer for doing this. That’s their right. But they can’t shuck the burdens.”
Two days before trial began, Judge Dorfman granted a motion for summary judgment filed by defendant Jamie Welch, CEO of Kinetik. Welch, who previously served as chief financial officer of Energy Transfer, had argued the claims lodged against him (fraud, money had and received and civil conspiracy) were barred by both the economic loss rule and the statute of limitations, were not supported by evidence and were brought to harass him.
In a brief order signed Thursday, Judge Dorfman granted Welch’s traditional and no-evidence motion for summary judgment.
“All claims against Welch are dismissed with prejudice,” the order reads.
Energy Transfer is also represented by Rafe A. Schaefer, Timothy Shinn, Ta’Chelle Jones and Kaileigh Mallin of Norton Rose Fulbright.
Kinetik is also represented by Fields Alexander, Thomas E. Ganucheau, Mary Kate Raffetto, Cassie Maneen and Parth S. Gejji of Beck Redden and Brandon Allen and Adi Sirkes of Reynolds Frizzell.
Welch is represented by Barrett Reasoner, Gabe Kaim, Conor McEvily and Sarah Chavey of Gibbs & Bruns.
Targa is being represented in the Harris County suit by Susman Godfrey lawyers Geoffrey L. Harrison, Weston L. O’Black and Jerry Klarinstenfeld. Eagle Claw is represented in that case by Steptoe’s Karima Maloney and Samatha J. Jarvis.
The Business Court case number is 24-BC11B-0004. The Harris County case number is 2023-30966.