DALLAS (TIP): Energy Transfer Partners of Dallas contends that Houston-based Enterprise Products Partners broke its commitment to jointly build a pipeline from Cushing, Okla., to Houston.
Energy Transfer Partners argues that Enterprise and Enbridge Inc. of Calgary, Alberta, conspired to cut Energy Transfer Partners out of the deal. Enterprise and Enbridge, in court documents, say Energy Transfer Partners’ lawsuit is without merit because there never was an actual partnership or joint venture with Energy Transfer Partners.
“Energy Transfer Partners is trying to get in the courthouse what it could not achieve in the marketplace,” lawyers for Enterprise said in court documents asking the judge to dismiss the case. Dallas County District Judge Emily Tobolowsky denied the request. Jury selection started Monday, and the trial is expected to last four weeks.
“This is going to be a great case because the issues are important and there are so many great lawyers involved,” said David Elrod, a Dallas trial lawyer whose practice focuses on energy litigation. The case pits some of Texas’ most prominent trial lawyers against each other. Dallas trial lawyer Mike Lynn of Lynn Tillotson Pinker & Cox represents Energy Transfer Partners. David Beck of Beck Redden in Houston and Dick Sayles of Sayles Werbner are defending Enterprise.
Dallas attorney Jeffrey Levinger and a team from Sullivan & Cromwell in California represent Enbridge. All of the lawyers declined to comment on the case. The trial is expected to provide insight into the business operations and strategic thinking of leaders at three of the largest and fastest-growing oil companies in North America. Top executives at all three companies are expected to testify. The issue is whether Energy Transfer Partners and Enterprise legally formed a partnership to build the pipeline from Cushing, which is a major oil hub, to Houston, where the crude could be refined or shipped.
Energy Transfer Partners says yes. The Dallas-based energy conglomerate, which has about $50 billion in oil and gas assets, claims that Enterprise majority owner and chairman Dan Duncan of Houston approached Energy Transfer Partners about a joint venture in the months before he died in 2010. Enterprise, which has an estimated $38 billion in assets, and Energy Transfer Partners renewed discussions in spring 2011 and signed a nonbinding agreement a few weeks later. “ETP and Enterprise shared joint control over the partnership’s commercial activities, jointly meeting with potential customers, jointly marketing the partnership to potential customers and jointly making operational decisions,” Energy Transfer Partners’ lawyers say in court records.
“The parties unequivocally and repeatedly told potential pipeline customers, regulators and investment banks in formal written materials that they had formed a joint venture and that the parties had agreed to share profits and losses on a 50-50 basis,” Energy Transfer Partners claims. The two companies, which called their new venture Double E Pipeline, even signed a deal in August 2011 with Chesapeake Energy to ship “at least 100,000 barrels of oil per day on the Double E Pipeline for a 10-year period.”
Less than a month later, Enterprise announced that it was ending its relationship with Energy Transfer Partners to do a similar partnership with Enbridge, which has about $30 billion in oil and gas assets and annual revenue of about $11 billion. Energy Transfer Partners claims that Enterprise and Enbridge conspired to end the joint venture with Energy Transfer Partners, which is seeking more than $1.2 billion in actual and punitive damages. Enterprise and Enbridge argue that Enterprise legally backed out of the proposed joint venture. Enterprise lawyers, in court documents, point to the April 21, 2011, letter between the two companies as proof that their partnership had not been finalized.
“No binding or enforcement obligations shall exist between the parties with respect to the [relationship] unless and until the parties have received their respective boards’ approvals,” the agreement stated. “The parties made crystal clear that they had not yet agreed to undertake the proposed joint venture,” Enterprise lawyers said in court records. “Despite months of hard work by Enterprise’s employees, Enterprise and ETP were unable to secure sufficient commitments from prospective shippers of crude oil to make the proposed joint venture with ETP commercially viable.” Energy Transfer Partners lawyers, in court documents, say the relationship between the two companies had moved well beyond the terms agreed to in the April 2011 letter. Lawyers for Energy Transfer Partners argue that Texas law liberally defines the existence of a business partnership, even in some cases in which the parties involved claim there is no such partnership, much like the existence of a common-law marriage under Texas family law.