The Texas Supreme Court on Friday ended an eight-year legal battle between two midstream competitors, Energy Transfer Partners and Enterprise Products Partners, over whether they had legally formed a partnership that was not acknowledged as such in writing.
In a 15-page opinion, the court handed Houston-based Enterprise a unanimous win, reiterating its 2009 holding in Ingram v. Deere, that the Legislature did not intend to “spring surprise or accidental partnerships” on parties.
“Perhaps no principle of law is as deeply engrained in Texas jurisprudence as freedom of contract,” the opinion, written by Chief Justice Nathan Hecht said. “We hold that parties can contract for conditions precedent to preclude the unintentional formation of a partnership under Chapter 152 (of the Texas Business Code) and that, as a matter of law, they did so here.”
“We agree with the court of appeals that… ETP was required either to obtain a jury finding on waiver or to prove it conclusively. It has done neither,” the opinion says.
The hard-fought legal battle dates back to 2011, when Enterprise and Dallas-based Energy Transfer entered an agreement to explore pursuing a joint venture project together to build a pipeline from Cushing, Oklahoma to the Gulf Coast. Throughout the course of their JV exploration, the parties signed three agreements that established that neither was bound to the other until each company’s board of directors had approved executing a formal contract.
After two unsuccessful open seasons throughout the summer of 2011 that vied to secure committed shippers, the companies ultimately decided to no longer pursue their joint venture.
But ETP sued Enterprise later that year when it learned that Enterprise had been talking with Canada-based Enbridge behind its back during their alleged partnership period. At trial, ETP argued that the parties’ conduct—that they walked and talked like partners—held authority over the written agreements. The jury agreed and rendered a judgment that ended up being $535 million in ETP’s favor.
Enterprise appealed and won a reversal in Dallas’ Fifth Court of Appeals in 2017 that determined the Texas Business Organizations Code lets parties contract for conditions precedent that must be met before legally forming a partnership. It further determined that the conditions precedent in Enterprise and ETP’s agreement were not met.
ETP appealed the reversal, and at the supreme court phase of the arguments, argued that the 2009 Ingram opinion established the idea that proof of all five factors — conuct included — under the TBOC was not required to determine whether a partnership formed.
On Friday, the Texas Supreme Court disagreed.
“Against this statutory law is a well-developed body of common law that ‘strongly favors parties’ freedom of contract,’” Hecht wrote, referring to the court’s 2007 Gym-N-Playgrounds, Inc. v. Snider opinion. “Our decisions recognizing this policy are decades older than the TBOC or its predecessor statute.”
Kelly Hart partner David Keltner handled oral arguments for Enterprise at the Texas Supreme Court. Kirkland & Ellis partner Jeremy Fielding did so for ETP.
“We are grateful for the hard work of the Supreme Court of Texas and the Dallas Court of Appeals, which correctly reaffirmed the importance of written contracts,” Keltner said in a written statement issued by Enterprise. “This case needed decisive action because it had the potential to stand as one of the worst for business in Texas since the Texaco v. Pennzoil decision from the 1980s. Sophisticated parties need the right to rely on written contracts.”
Enterprise’s lead lawyer at trial was David Beck, and included Beck Redden colleagues Jeff Golub, Joe Redden Jr. and Jas Brar. Dallas lawyer Dick Sayles served as co-lead, whose team also included Shawn Long. In addition to Keltner, Enterprise’s appellate team includes Marianne Auld, also of Kelly Hart; Beck Redden’s David Gunn and Russell Post; Alexander Dubose Jefferson & Townsend’s Wallace B. Jefferson and Rachel Ekery; and Clark Hill Strasburger’s Michael Jung.
ETP’s lead lawyer at trial was Mike Lynn of Lynn Pinker Cox & Hurst. The trial team also included Fielding and LPCH’s Chris Akin and David Coale. ETP’s appellate team included ETP’s appellate team includes Haynes and Boone partners Nina Cortell, Karen Precella, Kelli Bills and Michael Hatchell as well as Enoch Kever’s Craig Enoch.
Lynn was not immediately available for comment.