Jury to weigh billion-dollar pipeline case

By Natalie Posgate and Mark Curriden
The Texas Lawbook

DALLAS – A dozen jurors start Monday deliberating the billion-dollar dispute among three giant oil and gas companies over a joint effort to build a pipeline from Cushing, Okla. to the Gulf Coast.

Energy companies across Texas are closely watching the case as the verdict in state district court may determine the point at which a proposed joint venture becomes a legal partnership.

“Your verdict in this case will govern the morality of conduct in the oil and gas business in Texas for the next 10 or five years,” Mike Lynn, a lawyer representing Energy Transfer Partners, told jurors in closing arguments Thursday.

Dallas-based ETP claims that Houston-based Enterprise Products illegally broke its “Double E” partnership with ETP in 2011 to do a more financially rewarding deal with Enbridge, a Canadian-based corporation. ETP alleges Enbridge conspired with Enterprise to end the partnership with ETP.

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ETP is seeking $594 million in actual damages and double that amount in punitive damages from its two competitors.

“They stole something,” Lynn told jurors. “They did it intentionally. They did it maliciously. They did it cold-bloodedly, and they did it because they were greedy.”

Enterprise says there was never an official partnership with ETP and that the proposed joint venture  was not economically viable. Houston lawyer David Beck, the lead counsel for Enterprise, said ETP’s lawsuit is “nothing more than a partnership by ambush.”

To be sure, none of the three oil and gas companies are mom-and-pop shops desperate for money nor is this a bet-the-company case for any of them. The case and the legal issue of when proposed partnerships become legally binding joint ventures has attracted much attention among corporate general counsel and business lawyers throughout Texas.

“Many lawyers are watching this case very closely because it could have significant ramifications for corporations doing business in Texas,” says Jim Rice, a partner at Sidley Austin in Houston.

As jurors start deliberations, they have much evidence to consider. More than a dozen top executives with the three companies testified during the five-week trial, often giving conflicting views of the same meetings, phone calls and cooperation agreements.

Lawyers flooded jurors with hundreds of corporate documents, emails, memos, marketing materials and filings with federal regulators.

ETP CEO Kelcy Warren said if he had known that ETP would be eliminated from the Double E partnership, he would have asked Enterprise for a “bullet-proof jacket” when the two started talking.

“Show me a document [that says] any party has the right to eliminate another party,” Warren told jurors. “Have a moral compass. You’ve got to be kidding me.”

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ETP showed jurors marketing materials that both companies presented to potential shippers in summer 2011. “Enterprise and Energy Transfer have formed a Joint Venture LLC,” read one line.

“We’ve showed you more than 90 instances where the companies say they were involved in a joint venture,” Lynn told jurors. “You’re the only set of people in the world who they have not said they were joint venture partners to.”

But Beck pointed out that nearly all of those documents addressed the formation of a partnership or joint venture in the future tense. He pointed to an April 27, 2011, agreement signed by ETP and Enterprise that stated, “Nothing shall be deemed to create or constitute a joint venture, partnership” unless the corporate boards of both companies approved it.

And he pointed to internal emails and memos by ETP and Enterprise executives from the summer of 2011 saying they were still waiting for the joint venture or partnership to be finalized.

“What better expression of the parties’ intent than what they agreed to in writing,” Beck told jurors.

Enterprise CEO Michael Creel testified that he repeatedly wanted it emphasized in documents that there was no legal partnership with ETP and he said he was “stunned” when ETP filed its lawsuit.

Creel said joint operating agreements with ETP specifically stated there was no binding partnership and that it would require approval of the boards of directors of both companies to make it a binding joint venture.

Enterprise management never brought the project to the board because “we didn’t have a project that could stand alone,” Creel told jurors.

Creel and former Enterprise executive Mark Hurley testified that the words “joint venture” and “partnership” are common lingo terms in the oil and gas industry that mean two companies simply agreed to work together but are not intended to be interpreted in a legal sense.

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Hurley said that the agreements between ETP and Enterprise were always written so that either party could walk away at anytime.

“Both sides wanted to be able to walk away with no issues,” he told jurors. “It is the most common kind of relationship. What we had with ETP was a very standard situation.”

The problem for Enterprise, Lynn told jurors in closing arguments, is that business partnerships are legally formed under Texas law even when the parties do not intend to create a partnership. He compared it to common law marriages in which the couple may not want to be married but are still considered legally married because they live together, bank together or have children together.

Lynn said that ETP and Enterprise agreed to share profits and expenses for the proposed joint venture, made mutual expressions of intent to be partners, and agreed to participate in the control of the business – all definitions of a business partnership as defined by Texas law.

The Texas Lawbook is an online publication that covers business law in Texas. A longer version of this article is at texaslawbook.net.