Tenneco Inc. v. Enterprise Products Company

925 S.W.2d 640 (1996)

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Nature of the Case

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Facts

Ps and D shared ownership in a natural gas liquids fractionation plant. Plant operations were governed by a contract called the Restated Operating Agreement. This agreement provided the plant owners with a preferential right to purchase ownership interest in the plant. Under this preferential right, or 'right of first refusal,' a plant owner had to make its share available to the other owners before selling to a non-owner. The agreement obligated each owner, under certain circumstances, to deliver raw natural gas liquids, or 'raw make,' to the plant for processing. Ps claim that three transactions, or 'transfers,' involving D’s ownership share of the plant breached the Restated Operating Agreement. D first conveyed its share to Tenneco Natural Gas Liquids Corporation. At the time the stock of Tenneco Natural Gas Liquids was wholly owned by D. In the Second Transfer, D sold all of Tenneco Natural Gas Liquids' stock to Enron Gas Processing Company, and Tenneco Natural Gas Liquids' name was changed to Enron Natural Gas Liquids Corporation. In the Third Transfer, Enron Gas Processing sold Enron Natural Gas Liquids' stock to Enron Liquids Pipeline Operating Limited Partnership. Ps sued Ds for injunctive relief and damages for breach of contract, breach of fiduciary duty, and tortious interference with contract. Ps alleged that Ds did not comply with the raw-make delivery obligations that arose under the Restated Operating Agreement as a result of the First Transfer. Ps claimed that the Second and Third Transfers violated the plant owners' right of first refusal. In the First Transfer, Tenneco Oil conveyed its interest in the plant to its wholly-owned subsidiary, Tenneco Natural Gas Liquids. Ps do not claim that the First Transfer from D to its wholly owned subsidiary triggered a right of first refusal because the Restated Operating Agreement allows transfers to wholly owned subsidiaries. P asserts that this transaction invoked Section 12.2 of the Restated Operating Agreement: No sale, transfer, or assignment of Ownership Interest authorized by Section 12.1 shall be effective hereunder until . . . the assignee enters into an agreement with Operator to put through the Facilities a volume of raw make per day at least equal to the volume set forth opposite the name of the Selling Owner on Schedule C hereto. Under the Ratification and Joinder Agreement the volume attributed to D was 31,000 barrels. To comply with Section 12.2, therefore, Tenneco Natural Gas Liquids (the assignee) should have agreed to deliver at least 31,000 barrels per day. Tenneco Natural Gas Liquids never agreed to provide, or actually deliver, the capacity attributed to it. The trial court granted D's motion for summary judgment regarding the First Transfer without specifying the grounds. The court of appeals reversed. D appealed.