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Cheniere Energy, Inc. v. Parallax Enterprises LLC

Court of Appeals of Texas, Fourteenth District

August 13, 2019

CHENIERE ENERGY, INC. AND CHENIERE LNG TERMINALS, LLC, Appellants
v.
PARALLAX ENTERPRISES LLC, PARALLAX ENERGY LLC, PARALLAX ENTERPRISES (NOLA) LLC, LIVE OAK LNG LLC, LIVE OAK LNG PIPELINE LLC, MOSS LAKE LNG LLC AND CALCASIEU LNG LLC, Appellees

          Motion for Reconsideration En Banc Granted; Opinion and Judgment of December 27, 2018, Withdrawn

          On Appeal from the 61st District Court Harris County, Texas Trial Court Cause No. 2017-49685

          DISSENTING OPINION ON RECONSIDERATION EN BANC

          KEM THOMPSON FROST CHIEF JUSTICE.

         The trial court abused its discretion in issuing the injunction and in determining that appellees Parallax Enterprises LLC and Live Oak LNG LLC established two prerequisites for the extraordinary remedy of a temporary injunction: (1) a probability of success on the merits of a claim that could support the injunctive relief sought and (2) imminent, irreparable injury in the absence of immediate injunctive relief.

         I. Background

         Appellees Parallax Enterprises LLC and several related entities, Parallax Energy LLC, Parallax Enterprises (NOLA) LLC, Live Oak LNG LLC, Live Oak LNG Pipeline LLC, Moss Lake LNG LLC and Calcasieu LNG LLC (collectively, the "Parallax Parties") allege that they reached an agreement with appellants Cheniere Energy, Inc. and Cheniere LNG Terminals, LLC (collectively, "the Cheniere Parties") on all material terms for an "expanded joint development agreement, business association, and venture" to develop jointly two mid-scale liquefied natural gas (LNG) facilities in Louisiana. The proposed venture changed over time. According to the Parallax Parties, the two sides agreed Parallax Enterprises would take the front-line role in developing the facilities and the Cheniere Parties would supply funding of up to $120 million to develop the projects. The Parallax Parties allege the parties originally proposed to own the projects on a 50/50 basis, but later proposed that the Cheniere Parties would pay contractors directly to build the facilities and pay success fees to the Parallax Parties upon completion. The Parallax Parties allege that while the parties were working on the written terms of a final agreement, the Parallax Parties began incurring expenses to develop the project. The Parallax Parties hired Bechtel Corporation to begin engineering and constructing the facilities.

         The Note and Guaranties

         Cheniere LNG Terminals, LLC advanced about $46 million in development funds. To get the funds, Parallax Enterprises signed a secured promissory note, which the parties amended several times (the "Note"). Several of the Parallax Parties guaranteed the Note. Among the guarantors was Live Oak, a wholly-owned subsidiary of Parallax Enterprises.

         The Parallax Parties contend they signed the Note only to satisfy the Cheniere Parties' internal accounting department, and that the parties intended the Cheniere-supplied funds to be considered a capital contribution-or equity-in the joint project rather than a loan that had to be repaid. The Note and security documents do not reflect any of that. The documents show the transaction to be a secured loan. According to the loan documents, the Parallax Parties secured their obligations with collateral and promised to pay back the borrowed sums.

         Though the Parallax Parties allege they entered into a partnership agreement with Cheniere to pursue the liquefaction projects, the record contains documents in which the parties expressly disavowed the existence of any such agreement. The Cheniere Parties maintain the parties never reached a final agreement on the joint development of the projects and that Cheniere advanced the funds only as a short-term loan under the express terms of the Note. At the time the Note and Guaranties were signed, the Parallax Parties were not capitalized and had no assets or means to repay a loan.

         Before the parties finalized the written terms of their agreement, the deal fell through. Cheniere LNG Terminals, LLC demanded repayment of the $46 million due under the Note. The Parallax Parties failed and refused to pay.

         The Parallax Parties' Allegations Regarding the Note and Guaranties

         The Parallax Parties take the position that the $46 million advanced under the Note was not debt but a capital contribution and that the Cheniere Parties were due to advance even more under an unwritten agreement. According to the Parallax Parties, although the parties had not finalized a written agreement, the Parallax Parties proceeded to develop the project and incurred expenses- including the Note-based on the Cheniere Parties' assurances that the advanced funds would be considered equity and not debt. Live Oak alleged that it incurred substantial liabilities to third parties, and does not have any assets to pay the debts. The Parallax Parties ceased development of the two projects and allege they owe $10 million in debt to third parties.

         The Parallax Parties' Lawsuit

         The Parallax Parties-including Live Oak-sued the Cheniere Parties, asserting claims for breach of contract, breach of fiduciary duties, promissory estoppel, and quantum meruit. The Parallax Parties also asserted that the Cheniere Parties fraudulently induced them to sign the Note, under which Parallax Enterprises, LLC got about $46 million. The Parallax Parties sought declaratory relief that the Note constitutes equity rather than debt and that the Parallax Parties hold no enforceable security interest.

         The Cheniere Parties' Counterclaim and Third-Party Claims

         The Cheniere Parties filed a counterclaim against Parallex Enterprises, asserting the right to repayment of the $46 million advanced under the Note. The Cheniere Parties brought third-party claims against four individual defendants and four entities affiliated with those defendants. In addition, Cheniere LNG Terminals, LLC served notice that it intended to effect non-judicial foreclosure of all of Parallax Enterprises' equity interest in Live Oak. The Cheniere Parties contend that Parallax Enterprises' interest in Live Oak serves as collateral for the Note.

         Injunctive Relief

         The Parallax Parties sought injunctive relief to prevent Cheniere from: (1) foreclosing on Parallax Enterprises' interest in Live Oak; (2) interfering with or attempting to control the management, governance and/or operation of any of the Parallax Parties; and (3) otherwise disrupting the normal course of business of any of the Parallax Parties. The Parallax Parties also asserted that their rights under the Note are the subject of the lawsuit and that allowing Cheniere LNG Terminals, LLC to foreclose would undermine the trial court's jurisdiction because it would allow the Cheniere Parties a "self-help remedy" without proving any of their claims. The Parallax Parties maintained that the Note was not valid or enforceable, and that Cheniere LNG Terminals, LLC did not have an enforceable security interest in Parallax Enterprises' equity interest in Live Oak.

         The Parallax Parties argued they would suffer imminent, irreparable injury absent injunctive relief. They claimed monetary relief would not adequately remedy the interruption of Live Oak's operations, the loss of Parallax Enterprises' management and control of Live Oak, and loss of the court's jurisdiction to determine the claims brought.

         After an evidentiary hearing, the trial court granted the requested injunctive relief, finding that absent injunctive relief, the Parallax Parties would "suffer imminent irreparable injury by . . . losing ownership and control over assets, including the limited liability company interest of Live Oak LNG LLC, the rights to which are the subject of the parties' claims in this action, and through which claims are made by [the Parallax Parties] against [the Cheniere Parties]." The trial court also found that without injunctive relief, the Parallax Parties would "be forced to defend their right to control claims made against [the Cheniere Parties], including defending against attempted dismissal of legal claims that [the Parallax Parties] make against [the Cheniere Parties] and with regard to claims that [the Cheniere Parties] state they intend to assert through ownership of the limited liability company interest in Live Oak LNG, LLC." Under the terms of the injunction order, the Parallax Parties posted a cash deposit in lieu of bond.

         II. Reasons to Reverse the Temporary Injunction

         The law permits a court to grant a temporary injunction to preserve the status quo of the litigation's subject matter pending a trial on the merits.[1] Because the law views a temporary injunction as an extraordinary remedy, an applicant is not entitled to one as a matter of right.[2] To get a temporary injunction under equitable principles, the applicant must plead and prove (1) a claim against the defendant, (2) a probable right to the relief sought, and (3) a probable, imminent, and irreparable injury in the interim.[3] These equitable elements of injunctive relief likewise apply to a request for injunctive relief under section 65.011 of the Texas Civil Practice and Remedies Code.[4]

         The trial court abused its discretion in determining that the Parallax Parties met their burden of proving a probable right to relief and imminent, irreparable harm. In the absence of these showings - or either of them - the trial court abused its discretion in issuing injunctive relief under general principles of equity and under section 65.011 of the Texas Civil Practice and Remedies Code. Therefore, this court can and should reverse on one of these bases without reaching the Cheniere Parties' other issues.[5]

         No Showing of Probable Right to Relief

         The majority concludes the Note's collateral description fails to create a security interest in Live Oak's equity. The Uniform Commercial Code ("UCC") reflects a "broad policy of leniency for collateral descriptions."[6] Under the UCC, a description of personal or real property suffices, "whether or not it is specific, if it reasonably identifies what is described."[7] "[A] description of collateral reasonably identifies the collateral if it identifies the collateral by . . . category . . . [or] a type of collateral defined in [the UCC]."[8]

         The UCC identifies "general intangibles" as a collateral category, [9] defined as "any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money, and oil, gas, or other minerals before extraction."[10] The majority undertakes to draw a legal distinction between "general intangibles" and "intangible property." Though the majority acknowledges that Live Oak's equity is a general intangible under the UCC, the majority reasons that "intangible property" is too general a description of Live Oak's equity to satisfy the UCC's sufficiency standard.

         The description of collateral, though broad, is sufficiently specific. Courts uphold broad descriptions of collateral.[11] Rather than view the description through the UCC's lens of leniency, as the UCC commands, the majority assesses it with a less-forgiving eye and concludes that the description falls short. When read in proper context, using the proper standard, the description reasonably identifies what it describes. So, it suffices.

         In assessing the adequacy of the collateral description, the court should begin with the text of the agreement. Yet, the majority does not cite or discuss the Note's key provision. Section 6.5(a) of the Note expressly creates a security interest in Parallax Enterprises's "general intangibles":

Each Loan Party hereby assigns, grants and pledges to Payee a first priority security interest in and Lien on all of such Loan Party's right, title and interest in, to and under the assets and properties described on Exhibit A hereof (the "Property"), including all accessions to, substitutions for and replacements, proceeds and products of the foregoing, together with all materials and records related thereto and any general intangibles at any time evidencing or relating to any of the foregoing.[12]
Exhibit A of the Note states:
Description of the Property
All of Loan Party's right, title and interest in and to the following, whether now owned or hereafter acquired by such Loan Party and whether now existing or in the future coming into existence:
1. All deposit, securities and other accounts and investment property
2. All instruments, documents and chattel paper
3. All inventory, equipment, fixtures and goods
4. All contracts and permits
5. All letter-of-credit ...

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