What Is A Texas Partnership: The Answer To Come Soon In The Case Of ETP v. Enterprise Products Partners LP

The legal tension is building.  Private Texas companies and their owners are awaiting a court decision that may force them to say “Howdy, Partner” to companies with whom they have no written partnership agreement. The case on which business eyes are focused is ETP v. Enterprise Products Partners, which is before the Dallas Court of Appeals after a jury awarded $535 million in early 2014.  The case has been described as a corporate form of common law marriage to a company that the jury determined was jilted in favor of another. This is the hottest partnership case the Lone Star State has seen in years.

The Disputed Partnership at the Heart of the Case

Energy Transfer Partners LP (“ETP”) alleges that it formed a statutory (unwritten) partnership with Enterprise Products Partners LP (“Enterprise”) to build a crude oil pipeline that would carry oil from Cushing, Oklahoma to the Gulf of Mexico. Enterprise contended that no partnership arose because the boards of the companies never signed a definitive agreement. ETP countered that the actions of the companies confirmed their intent to work as partners and that their conduct met the five-factor test for determining partnership in the Texas Business Organizations Code.

After a five-week trial, a jury ruled in ETP’s favor and awarded $535 million in damages against Enterprise. The jury determined that the parties had, in fact, formed a partnership by their conduct, and that Enterprise had breached its fiduciary duty of loyalty to ETP by leaving their planned project to build a pipeline with a third party, a Canadian company called Enbridge, Inc.

Enterprise appealed, calling the jury’s verdict a “partnership by ambush,” and the Dallas Court of Appeals held oral arguments in the case in April 2016.  Court watchers expect a decision soon.

Semi-Bold Predictions (No Wagering Allowed)

Our firm has no role, relationship, or involvement with any of the parties in this case, and no inside knowledge regarding the court’s ruling, but if we were serving as odds-makers, this is our take on the probable outcome.

The Sure Bet – Appellate Ruling Will Not Be Last Word

Perhaps the only thing that ETP and Enterprise can agree on now is that whichever side comes out on the losing end of the appellate decision, there will be an appeal to the Texas Supreme Court. Thus, in all likelihood, the appellate court opinion will be the next, but not the final, chapter in this legal saga.

The Odds Favor – Appellate Advocacy at its Finest

The lead appellate attorneys for both companies are Texas legal titans, David Keltner and Nina Cortell, who were both former law partners of this blog post’s author at Haynes and Boone. They are gifted lawyers and just as importantly, incredibly caring and warm-hearted people.

Keltner formerly served as an appellate justice on the Fort Worth Court of Appeals. At oral argument, he was clear and forceful, emphasizing the harm to the business community that would result from sustaining the jury’s verdict upholding a partnership in disregard of the parties’ express, written disclaimers.

Cortell has long been regarded as one of Texas’ finest appellate advocates.  It is the rare lawyer who can sharply focus on legal arguments during an appellate argument while also conveying the poignancy of the issues that resulted in the jury’s verdict. Cortell masterfully displayed that rare talent in this case.  She is also a co-honoree this year of the Jack Pope Professionalism Award awarded by the TexasCenter for Legal Ethics, which annually honors one lawyer and one judge who “personify the highest standards of professionalism and integrity in the field of law.”

In light of the stellar arguments presented by both Keltner and Cortell, both in extensive briefs the parties submitted and in oral argument, there is a good chance the appellate court will find it appropriate to remark favorably on the quality of the superb advocacy it observed in the case.

The Closer Call – Relief Granted on Appeal

In 1985, a Houston jury awarded more than $10 billion to Pennzoil against Texaco based on claims that Texaco had improperly lured Getty Oil out of a planned merger.  For more than 30 years, Texas appellate courts have been making amends for this jury decision, which sent shock waves throughout the Texas business community and beyond.  For these past three decades, Texas trial and appellate lawyers in Texas know that they have to run a daunting gauntlet in seeking to uphold any large jury verdict, and the odds of success are slim, at best.

As a result, the odds do not favor ETP holding onto its verdict on appeal. Enterprise has appealed both the liability finding and the damages award, and history suggests that the appellate court will grant relief on both of these grounds on appeal, or failing to do so, that the Supreme Court will reverse the trial court’s judgment in whole or in part. .

In seeking to uphold the judgment, Cortell and her outstanding appellate team aggressively emphasized the conduct and statements of the parties supporting a claim of partnership that conflicted with the written disclaimers in a letter of intent (“LOI”) signed by both ETP and Enterprise. The evidence of a common law partnership that ETP presented at trial was extensive; the evidence clearly persuaded the jury that a partnership had been formed between the parties, and Cortell and her colleagues provided the appellate court with ample legal authority that would authorize it to uphold the jury’s findings.

Favoring a reversal of the judgment, however, are the written disclaimers set forth in the LOI that ETP and Enterprise signed when they first began doing business together. In this regard, the LOI stated that neither it “nor the JV Term Sheet create any binding or enforceable obligations … between the Parties.”  Further, the LOI also provided that no binding obligations would arise between the parties “unless and until” the parties had each 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.”

The odds thus suggest the appellate court will ultimately conclude that the disclaimers in the LOI control and that the parties’ later business dealings and statements did not eliminate the binding nature of their initial written agreement. While far from a sure bet, the court seems likely to be persuaded that allowing the judgment to stand would inject undue uncertainty in the business community, and lead to a host of litigation claims because parties’ written commitments and their LOI’s would no longer be binding.

On damages, the jury awarded $319 million in actual damages and $150 million in disgorgement of profits that Enterprise received after leaving the alleged partnership with ETP. The amount of the judgment will surpass $600 million, with interest, this year. Based on the manner in which the damages were calculated, the appellate court can find a number of ways to reduce or require remand and retrial of the damage awards. The odds similarly favor the court granting relief to Enterprise regarding the damages awarded to ETP, if the court does not moot the damages issue by reversing the liability finding for ETP in the judgment.

The Long Term Play – The Legislature Steps In

The Texas legislature is now in session, but there is no movement afoot to amend partnership law in response to this case, most likely due to the fact that the legal process has not yet run its full course. If the ETP judgment upholding an unwritten partnership between parties is sustained by the Texas Supreme Court, however, it is fair to expect that some legislators will want to take a hard look at codifying more clearly what the law should require for parties to form a partnership in Texas. Along these lines, the legislature may consider creating a new “safe harbor” provision, which would preclude a partnership finding in the absence of a written partnership agreement.


The large jury verdict awarded to ETP in 2014 raised a level of alarm among private Texas companies. As the business community awaits a ruling from the Dallas Court of Appeals, and likely the Texas Supreme Court, companies and their owners are cautioned not to use the word “partner” with each other or with third parties — unless they really mean it.