Energy Transfer loses 8 year legal battle over Cushing pipeline project

The Texas Supreme Court on Friday handed a victory to Houston-based Enterprise Products Partners in a lawsuit filed by Energy Transfer Partners over a planned pipeline at Cushing, Oklahoma.

The legal battle between the two midstream competitors finally came to an end after eight years when the court decided whether the firms had legally formed a partnership that was not acknowledged 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 according to the Texas Lawbook.

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, Okla., 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 — conduct 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,’” Chief Justice Nathan 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.”

Source: The Texas Lawbook

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