(THE TEXAS LAWBOOK) The Dallas Court of Appeals has reversed the 2014 landmark Texas jury verdict that legally established a business version of common law marriage and resulted in a $535 million judgment against Houston-based Enterprise Products Partners.
In a unanimous 20-page opinion, the three-judge panel ruled that Dallas-based pipeline company Energy Transfer Partners “did not prove as a matter of law” that Enterprise’s actions with ETP as part of a planned joint venture superseded prior written agreements between the two companies that there would be no actual business partnership unless certain conditions were met.
Justice Lana Myers, writing for the court, said that the trial judge should have dismissed the case before the jury even started to deliberate because ETP had not met its burden of proof.
“There was no partnership between Enterprise and ETP,” Justice Myers wrote. “We reverse the trial court’s judgment as to ETP’s claims against Enterprise and render judgment that ETP take nothing on those claims.”
The five-year long billion-dollar legal dispute erupted in 2012 when ETP sued Enterprise for violating an alleged partnership the two oil and gas pipeline giants formed to build a pipeline from Cushing, Okla. to Houston and instead negotiated a secret identical deal with rival Enbridge Partners of Canada for $4.4 billion.
ETP argued that specific efforts and actions by the two companies – from promoting and marketing their proposed project as a partnership to forming joint work teams – demonstrated under the Texas Business Organizations Code that a business partnership existed and those actions took legal precedent over any initial agreements.
“If it looks like a duck and walks like a duck, it must be a duck,” Dallas lawyer Mike Lynn, who represented ETP in the case, told jurors in 2014. “Enterprise and ETP did all the things necessary that state law says forms a partnership.”
The Dallas appeals court ruled, however, that no duck ever existed between ETP and Enterprise.
“Because the conditions precedent were not performed and ETP did not conclusively prove the parties waived the conditions precedent, there was no partnership between Enterprise and ETP,” Justice Myers wrote. “We therefore conclude the trial court erred by denying Enterprise’s motions for directed verdict and JNOV.”
In a statement released Wednesday, Enterprise said that it is “grateful that the Dallas Court of Appeals correctly reaffirmed the importance of written contracts.”
“In April 2011, Enterprise and Energy Transfer signed a series of agreements disclaiming any partnership or joint venture absent executed definitive documents and board approvals of the two companies,” Enterprise states. “Definitive agreements were never executed and board approval was never obtained. The parties signed these disclaiming agreements precisely to avoid the type of lawsuit brought here.”
David E. Keltner, a partner at Kelly Hart & Hallman, said the appeals court’s decision is welcomed because the jury’s verdict “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,” said Keltner, a former appellate court judge who represents Enterprise in the case. “Partnership by ambush is a bad public policy and goes against the freedom to contract guaranteed by the Texas Constitution. The business world breathed a sigh of relief today when ‘partnership by ambush’ was ruled out of bounds in Texas.”
Lawyers familiar with the case say that ETP is almost certain to appeal the decision to the Texas Supreme Court.
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