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Enterprise Products Partners, L.P. v. Energy Transfer Partners, L.P.

Court of Appeals of Texas, Fifth District, Dallas

July 18, 2017

ENTERPRISE PRODUCTS PARTNERS, L.P. AND ENTERPRISE PRODUCTS OPERATING L.L.C., Appellants
v.
ENERGY TRANSFER PARTNERS, L.P. AND ENERGY TRANSFER FUEL, L.P., Appellees

         On Appeal from the 298th Judicial District Court Dallas County, Texas Trial Court Cause No. DC-11-12667-M

          Before Justices Myers, Stoddart, and Whitehill

          OPINION

          LANA MYERS JUSTICE.

         In this case, the jury found Enterprise Products Partners, L.P. ("Enterprise") was in a general partnership with Energy Transfer Partners, L.P. ("ETP") and that Enterprise breached its duty of loyalty as a partner to ETP. The trial court's judgment awarded ETP actual damages of $319, 375, 000 and disgorgement of $150 million. Enterprise[1] brings four issues on appeal contending: (1) the trial court erred by denying Enterprise's motions for directed verdict and JNOV because the parties' written agreements contained unperformed conditions precedent that as a matter of law precluded the forming of the disputed partnership;[2] (2) the jury charge omitted a necessary instruction and wrongly imposed the burden of proof on Enterprise; (3) the award of actual damages was not supported by legally and factually sufficient evidence; and (4) the disgorgement award was unsupported by the evidence, unauthorized by statute, and contrary to principles of equity. As discussed below, we conclude that:

1. The unfulfilled conditions precedent in the parties' written agreements precluded forming the alleged partnership unless ETP obtained a jury finding that the parties waived those conditions precedent;

2. ETP's failure to request such a finding meant that it had to establish waiver of the conditions precedent as a matter of law; and

3. ETP did not prove as a matter of law that the parties waived the conditions precedent. Accordingly, we reverse the trial court's judgment as to ETP's claims against Enterprise and render judgment that ETP take nothing on those claims.

         BACKGROUND

         ETP and Enterprise are builders and operators of oil and gas pipelines. At the beginning of 2011, there was a glut of crude oil in storage facilities in Cushing, Oklahoma, but there were no pipelines running south from Cushing to the refineries in the Houston area. The Seaway Pipeline, which carried oil north from Houston to Cushing, was jointly owned by Enterprise and ConocoPhillips. ConocoPhillips refused Enterprise's requests that they modify the pipeline to carry oil south from Cushing to Houston.

         In early 2011, [3] Enterprise approached ETP about potentially working together to build a pipeline transporting crude oil from Cushing to Houston. ETP owned the Old Ocean Pipeline, which was a natural-gas pipeline running north from Houston to just south of Dallas. Enterprise thought the Old Ocean Pipeline could be converted to carry crude oil south, which would save considerable expense and time in building the Cushing-to-Houston pipeline. ETP agreed to work with Enterprise on determining the viability of the project. They called the proposed pipeline the Double E Pipeline.

         Before beginning work, the parties signed three agreements. The March 10 Confidentiality Agreement provided safeguards for the parties to exchange confidential information. The April 21 Letter Agreement stated the parties were "entering discussions" concerning building and operating a pipeline between Cushing and Houston, and the parties included an attached Term Sheet that contained the general terms for the potential transaction. The Term Sheet stated the ownership structure for the construction and operation of the pipeline would be a limited liability company with equal representation between ETP and Enterprise. The April 27 Reimbursement Agreement provided that the parties were still negotiating "definitive agreements" but provided that Enterprise could begin the engineering-design work before the parties executed definitive agreements. The Reimbursement Agreement also provided that ETP would reimburse Enterprise for half the expenditures to third parties. All three agreements contained provisions purporting to limit the parties' obligations to one another.

         After executing the three agreements, ETP's and Enterprise's engineering and marketing executives worked together to determine whether the pipeline would be economically feasible. They agreed that, before building the pipeline, they would need oil shippers to commit during an "open season"[4] to shipping at least 250, 000 barrels per day for ten years at certain rates. The companies' marketing executives then traveled around the country trying to convince shippers to commit to ship on the proposed pipeline. Enterprise and ETP learned that shippers were not interested in shipping oil from Cushing to Houston on a stand-alone pipeline at the offered rates. Instead, shippers wanted the pipeline to be part of a larger network that could ship oil from Canada to Houston. Enterprise and ETP also learned that their rates were higher than those of other pipeline builders that were considering building a Cushing-to-Houston pipeline.

         Enterprise suggested to ETP that instead of using ETP's Old Ocean Pipeline, they build a new, larger pipeline in the Seaway Pipeline right-of-way and that they consider adding a third participant to the project. ETP agreed to these changes.

         Despite the efforts of ETP's and Enterprise's marketing executives, the open season closed on August 12 with only one shipper agreeing to ship on the Double E Pipeline, and it committed to ship 100, 000 barrels per day for ten years, well below the parties' agreed minimum-commitment requirement of 250, 000 barrels per day. On August 15, Enterprise contacted ETP and terminated its participation in the Double E project.

         About two weeks before the end of the open season, Enterprise had discussions with Enbridge (US) Inc., which operated a pipeline system from Alberta, Canada to Cushing and was in the process of determining whether to extend its network with a pipeline running from Cushing to Houston. Enterprise told Enbridge that if the open season failed to garner sufficient shipping commitments, then Enterprise was interested in pursuing a Cushing-to-Houston pipeline with Enbridge. Enterprise did not disclose these communications to ETP. The day after Enterprise withdrew from the Double E Pipeline project with ETP, Enterprise's executives met with Enbridge's executives, and Enterprise and Enbridge agreed to work together on the pipeline. Before they began construction on the pipeline, however, ConocoPhillips announced it would sell its half of the Seaway Pipeline. Enterprise and Enbridge agreed that Enbridge would purchase ConocoPhillips's interest in the Seaway Pipeline. They then changed their plan from building a new pipeline following the Seaway Pipeline to using the Seaway Pipeline itself and modifying it to flow south from Cushing to Houston. Once that was accomplished, Enterprise and Enbridge planned to build a second pipeline in the Seaway Pipeline right-of-way. Enterprise and Enbridge received sufficient commitments from shippers for their project, and they began operating the pipeline from Cushing to Houston.

         The Litigation

         On September 30, ETP sued Enterprise for breach of joint enterprise and breach of fiduciary duty.[5] ETP's case against Enterprise, as presented in its live petition, the evidence, and the jury charge, was that ETP and Enterprise had a partnership to "market and pursue a pipeline from Cushing, Oklahoma to the Texas Gulf Coast." Their work on the Double E project imbued both ETP and Enterprise with knowledge about the pipeline market, the requisites for a successful pipeline venture between Cushing and the Gulf Coast, and the identities of shippers interested in transporting oil on such a pipeline and at what terms. According to ETP, if Enterprise or ETP was to use its knowledge of these matters to build a pipeline between Cushing and the Gulf Coast, the construction and operation of the pipeline would constitute a business opportunity of the Double E partnership. ETP asserted that Enterprise usurped that business opportunity by teaming with Enbridge to build the pipeline while not disclosing its use of the business opportunity to ETP. As an equal partner with Enterprise in the Double E partnership, ETP argued that Enterprise owed a duty of loyalty to ETP to account for the profits from its usurpation of Double E's business opportunity. ETP asserted that Enterprise breached this duty and owes ETP fifty percent of the discounted net profits that Enterprise would receive during the lifetime of the Seaway Pipeline with Enbridge.

         At the end of the four-week trial, the jury found that ETP and Enterprise "create[d] a partnership to market and pursue a pipeline project to transport crude oil from Cushing, Oklahoma to the Gulf Coast"; Enterprise failed to prove it complied with its duty of loyalty as a partner; Enterprise withdrew from the partnership on August 15, 2011; $319, 375, 000 would compensate ETP for its damages proximately caused by Enterprise's breach of its duty of loyalty; and the benefit to Enterprise from its breach of its duty of loyalty was $595, 257, 433.

         The trial court awarded ETP the damages of $319, 375, 000 found by the jury, plus interest. The court also awarded ETP disgorgement against Enterprise of $150 million.

         PRECLUSION OF PARTNERSHIP BY CONDITIONS PRECEDENT IN WRITTEN AGREEMENTS

         In its first issue, Enterprise contends that the trial court erred by denying Enterprise's motions for directed verdict and for JNOV because its written agreements with ETP prohibited the formation of a partnership without approvals by the parties' respective boards of directors and executed and delivered definitive agreements, neither of which occurred.

         A directed verdict or judgment notwithstanding the verdict is warranted when the evidence is such that no other verdict can be reached and the moving party is entitled to judgment as a matter of law. Blackstone Med., Inc. v. Phoenix Surgicals, L.L.C., 470 S.W.3d 636, 645 (Tex. App.-Dallas 2015, no pet.); see City of Keller v. Wilson, 168 S.W.3d 802, 823 (Tex. 2005) ("[T]he test for legal sufficiency should be the same for summary judgments, directed verdicts, judgments notwithstanding the verdict, and appellate no-evidence review.").

         Deciding this issue requires the interpretation and application of statutory and contractual provisions. When construing statutes, we attempt to ascertain and effectuate the legislature's intent. City of San Antonio v. City of Boerne, 111 S.W.3d 22, 25 (Tex. 2003). We start with the plain and ordinary meaning of the statute's words. Id. If a statute is unambiguous, we generally enforce it according to its plain meaning. Id. We read the statute as a whole and interpret it so as to give effect to every part. Id.; see also Phillips v. Bramlett, 288 S.W.3d 876, 880 (Tex. 2009) ("We further try to give effect to all the words of a statute, treating none of its language as surplusage when reasonably possible.").

         Likewise, when construing a contract, our primary goal is to determine the parties' intent as expressed in the terms of the contract. Chrysler Ins. Co. v. Greenspoint Dodge of Houston, Inc., 297 S.W.3d 248, 252 (Tex. 2009); Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). Contract language that can be given a certain or definite meaning is not ambiguous and is construed as a matter of law. Chrysler Ins. Co., 297 S.W.3d at 252; Coker, 650 S.W.2d at 393. A contract is ambiguous when its meaning is uncertain and doubtful or it is reasonably susceptible to more than one meaning. Coker, 650 S.W.2d at 393; United Protective Servs., Inc. v. W. Vill. Ltd. P'ship, 180 S.W.3d 430, 432 (Tex. App.-Dallas 2005, no pet.). We review an unambiguous contract de novo. Chrysler Ins. Co., 297 S.W.3d at 252.

         The three documents relied on by Enterprise are (1) the Confidentiality Agreement effective March 10, (2) the Letter Agreement with the attached Term Sheet signed April 21, and (3) the Reimbursement Agreement signed April 27. The Letter Agreement contains the clearest language, so that is the one we will consider.

         The Letter Agreement stated the parties were entering negotiations to form a joint venture for constructing and operating a pipeline, and the Term Sheet attached to the agreement set out the proposed terms they expected would govern the joint venture, including that the parties would form a limited liability company to build and operate the pipeline. The Letter Agreement also stated,

Neither this letter nor the JV Term Sheet create any binding or enforceable obligations between the Parties and . . . no binding or enforceable obligations shall exist between the Parties with respect to the Transaction unless and until the Parties have received their respective board approvals and definitive agreements memorializing the terms and conditions of the Transaction have been negotiated, executed and delivered by both of the Parties. Unless and until such definitive agreements are executed and delivered by both of the Parties, either [Enterprise] or ETP, for any reason, may depart from or terminate the negotiations with ...

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