REVERSAL OF $535 MILLION JUDGMENT AFFIRMED—NO PARTNERSHIP WHEN CONTRACTUAL CONDITIONS NOT SATISFIED OR WAIVED

Energy Transfer Partners, L.P. v. Enterprise Products Partners, L.P.
Supreme Court of Texas (January 31, 2020)
Opinion by Chief Justice Hecht (linked here)
The Supreme Court of Texas today affirmed the 2017 decision of the Dallas Court of Appeals to throw out a $535 million judgment for alleged breach of a partner’s fiduciary duty, holding no statutory partnership was created when contractual conditions precedent were not satisfied.

In 2015, ETP convinced a jury it had formed a partnership with Enterprise to develop a pipeline to transport oil from Cushing, Oklahoma to Houston, and that Enterprise had breached its duty of loyalty by contracting with another company on a similar pipeline project. The trial court entered judgment awarding ETP around $535 million in damages, interest, and disgorgement. The Dallas Court of Appeals in July 2017 held no partnership was formed because conditions stated in the parties’ written agreement had not been satisfied or waived. So it reversed and rendered a take-nothing judgment. See my previous blog post with a full discussion of the intermediate court’s opinion here.

The core issue in the case was the relationship between Chapter 152 of the Texas Business Organizations Code and the parties’ own prior written agreements. TBOC § 152.051(b) provides that “an association of two or more persons to carry on a business for profit as owners creates a partnership, regardless of whether … the persons intend to create a partnership.” Section 152.052(a) then provides a list of factors “indicating that persons have created a partnership.” But the parties’ agreements stated that no partnership obligations would arise without definitive written agreements negotiated, executed, and approved by both companies’ boards of directors. The Texas Supreme Court noted, “Section 152.003 expressly authorizes supplementation of the partnership-formation rules of Chapter 152 with other ‘principles of law and equity,’ and perhaps no principle of law is as deeply ingrained in Texas jurisprudence as freedom of contract.” It also reiterated its “view expressed decades ago in Ingram [v. Deere, 288 S.W.3d 886, 898 (Tex. 2009)] that the Legislature did not ‘intend[] to spring surprise or accidental partnerships’ on parties.” Accordingly, the Court held “that parties can contract for conditions precedent to preclude the unintentional formation of a partnership under Chapter 152 and that, as a matter of law, they did so here.” And, although conditions can be waived or modified, ETP failed to either “obtain a jury finding on waiver or to prove it conclusively.”

Print