Energy Transfer Partners, L.P. v. Enterprise Products Partners, L.P.

267 593 S.W.3d 732 (2020)

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Nature of the Case

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Facts

In 2008, new technology-enabled oil production in the Dakotas and Canada, resulting in oil being transported to Cushing from the north. No pipeline existed to move oil stored at Cushing south. An excess supply accumulated, driving down the price of oil sold there. Major pipeline companies began exploring ways to move oil south from Cushing. D co-owned with ConocoPhillips a pipeline called Seaway that sent oil north to Cushing from the Texas Gulf Coast. D lobbied ConocoPhillips to reverse the pipeline's direction, but ConocoPhillips refused. In March 2011, D approached P about converting a pipeline called Old Ocean into one that could move oil south from Cushing. Old Ocean transports natural gas. P owns the pipeline, but D holds a long-term lease on it. Converting the pipeline to one for transporting oil and extending it the rest of the way to Cushing would require a massive investment and committed customers willing to pay a sufficient tariff to justify the investment. In three written agreements, the parties reiterated their intent that neither party is bound to proceed until each company's board of directors had approved the execution of a formal contract. The Confidentiality Agreement, signed in March 2011, recited that they had 'entered into discussions for a possible transaction involving a joint venture to provide crude oil transportation. The Parties agreed that unless and until a definitive agreement between had been executed and delivered, and then only to the extent of the specific terms of such definitive agreement, no Party would be under any legal obligation of any kind whatsoever with respect to any transaction by virtue of this Agreement or any written or oral expression with respect to such a transaction by any Party or their respective Representatives, except, in the case of this Agreement. In April, the parties signed a Letter Agreement with an attached 'Non-Binding Term Sheet.' The Letter Agreement again recited that the parties were 'entering discussions regarding a proposed joint venture transaction. It stated: Neither this letter nor the JV Term Sheet creates any binding or enforceable obligations between the Parties and, except for the Confidentiality Agreement . . . , no binding or enforceable obligations shall exist between the Parties with respect to the Transaction 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. In April the parties signed a Reimbursement Agreement that provided the terms under which P would reimburse D for half the cost of the project's engineering work. That agreement, like the other two, recognized that the parties were 'in the process of negotiating mutually agreeable definitive agreements' for the project and stated that nothing in it would 'be deemed to create or constitute a joint venture, a partnership, a corporation, or any entity taxable as a corporation, partnership or otherwise.' By May, the parties had formed an integrated team to pursue the project. They needed to convince shippers that their pipeline would be the first to market. They marketed it to potential customers as a '50/50 JV' and prepared engineering plans for the project. The parties needed shipping commitments of at least 250,000 barrels a day for ten years at a tariff of $3.00 per barrel. They failed to reach the required commitments. D ended its relationship with P orally on August 15 and then in writing a few days later. The next month, ConocoPhillips announced that it would sell its interest in the Seaway pipeline. Enbridge bought it, making Enbridge co-owner of the pipeline with D. D and Enbridge obtained an anchor shipper commitment from Chesapeake, which resulted in their securing many additional commitments during the open season. D and Enbridge invested billions to reverse the direction of the pipeline and make other modifications needed to move oil from Cushing to the Gulf. The new pipeline opened in June 2012 and has been a financial success. P sued. P claims they had formed a partnership to 'market and pursue' a pipeline through their conduct, and D breached its statutory duty of loyalty by pursuing the project with Enbridge. The jury answered 'yes' to the creation of a partnership. The trial court reduced the disgorgement award to $150 million and otherwise rendered judgment on the verdict for ETP for a total of $535,794,777.40 plus post-judgment interest. The court of appeals reversed and rendered judgment for D. The Texas Business Organizations Code (TBOC) allows parties to contract for conditions precedent to partnership formation. Two that were created had not been met: (1) execution of 'definitive agreements memorializing the terms and conditions of the Transaction' that (2) have 'received [each party's] respective board approvals'; and that P had the burden either to obtain a jury finding that the conditions were waived or to prove waiver conclusively, which it failed to do. P appealed.