Originally published by Charles Sartain.
Enterprise Products Partners, L.P. et al v. Energy Transfer Partners, L.P. et al reversed one of the largest jury verdicts in Texas history. You will like this decision if:
- You believe a party has the right to rely on the sanctity of a written contract.
- You believe that it is proper for a court to be guided by “law and equity”.
You will not like it if:
- You favor “partnership by ambush”, as one of Enterprise’s lawyers put it.
- You regret that pesky pleading rules and required jury findings take the “Wild West” out of jury trials.
Enterprise and ETP agreed to work together to evaluate the viability of a crude oil pipeline from Cushing, Oklahoma to Houston to be called the Double E Pipeline. Toward that end, the parties entered into a Letter Agreement and Term Sheet. The Letter Agreement stated:
Neither this letter nor the JV Term Sheet create any binding or enforceable obligations between the Parties and . . . no binding or enforceable obligations shall exist … unless and until the Parties have received their respective board approvals and definitive agreements memorializing the terms and conditions of the Transaction have been negotiated, executed and delivered by both of the Parties.
The parties went about securing enough shipping commitments to ensure the pipeline’s viability. Two weeks before the Double E “open season” expired, Enterprise contacted Enbridge to discuss an alternative pipeline. Enbridge was considering extending its existing Alberta-to-Cushing pipeline system to Houston. Enterprise told Enbridge that if the Double E open season did not garner sufficient commitments, Enterprise was interested in a Cushing-to-Houston pipeline with Enbridge.
The Double E open season closed without sufficient shipping commitments, Enterprise terminated its participation in the project and agreed with Enbridge to work together on the alternative Cushing-to-Houston pipeline. Enterprise and Enbridge received sufficient commitments and announced plans for their pipeline.
Wasting no time in its pursuit of justice ETP, alleging a partnership to pursue a Cushing-to-Gulf Coast pipeline, sued Enterprise the very next day for:
- breach of joint enterprise,
- breach of fiduciary duty,
- usurpation of a business opportunity,
- damages equal to the present value of the profits Enterprise would receive during the life of the Enbridge pipeline.
The jury found for ETP and the trial court awarded $535 million in damages.
Problems on appeal
The problem with ETP’s theory: Before a joint venture could be formed, according to the contract these requirements had to be satisfied:
- both parties’ boards of directors had to approve the joint venture, and
- the parties had to execute definitive joint venture agreements.
Because these things never happened, Enterprise argued the conditions precedent to formation of a joint venture were never fulfilled and ETP’s claims should be dismissed.
ETP responded that whether a partnership was formed is controlled solely by the five-factor test set out in Texas Business Organizations Code §152.052(a) which includes, “an expression of an intent to be partners in [a] business.” The unfulfilled conditions precedent did not preclude the formation of the partnership because the Letter Agreement itself was an expression of such an intent. Thus, the jury was entitled to conclude a partnership was formed.
The Court disagreed. The factors in the Code are supplemented by the “principles of law and equity.” (see §152.003) One of those time-honored “principles” is the law of conditions precedent: An event that must happen or be performed before a right to enforce an obligation can accrue.
It was undisputed that the Letter Agreement’s conditions did not occur, so ETP bore the burden of proving Enterprise waived them. Because ETP didn’t request a jury finding on waiver, ETP had to prove waiver as a matter of law. ETP didn’t meet this burden. The Court reversed the trial court and entered a take-nothing judgment in favor of Enterprise.
Speaking of time-honored “principals”, in contrast to artists you haven’t heard of that we sometimes feature, here is one you might have forgotten.
from Texas Bar Today http://ift.tt/2uVVGcf
via Abogado Aly Website