Do Common Law Marriages Exist for Business? REDUX
The Fifth Court of Appeals weighs in: Enterprise Products v. Energy Transfer Partners
Reviewing a case brought by Energy Transfer Partners against Enterprise Products, the Fifth Court of Appeals found that a partnership to jointly develop a pipeline did not exist. But the court implied that the decision could have gone the other way if Energy Transfer Partners had pursued a different strategy at trial.
The case arose out of an agreement between Enterprise Products and Energy Transfer Partners to investigate the possibility of building a pipeline to transport crude oil from Cushing, Oklahoma, to the Gulf Coast. The parties entered into a Confidentiality Agreement, a Term Sheet and a Reimbursement Agreement, each of which provided in some way that no partnership existed. While reviewing the viability of the pipeline project, Enterprise Products began discussions with another entity to complete the same project. Eventually, Enterprise Products terminated its relationship with Energy Transfer Partners and proceeded to execute the project—albeit in a slightly different way—with its “mistress.”
Energy Transfer Partners brought suit claiming that the parties had a partnership to market and pursue the pipeline project, and by pursuing the pipeline project with a third party, Enterprise Products had breached its fiduciary duty as a partner of Energy Transfer Partners. The trial court (and 10 of 12 jurors) agreed and awarded Energy Transfer Partners more than $500 million in damages based upon the five factors of partnership established by Texas law (Texas Business Organizations Code §152.052(a)):
1. Receipt or right to receive a share of profits
2. Expression of an intent to be partners
3. Participation or right to participate in control
4. Agreement to share losses and obligations
5. Contribution or agreement to contribute money or property
The Fifth Court of Appeals reversed the trial court and rendered a judgment in favor of Enterprise Products. The decision acknowledges that a partnership can be formed by the activities of the parties (e.g., Common Law Business marriages do exist). But the Court also found that the language used by the Energy Transfer Partners and Enterprise Products created two conditions precedent to the formation of a partnership – approval by the parties’ respective boards of directors and execution of definitive agreements. No partnership existed because Energy Partners Transfer failed to establish as a matter of law that these conditions had been waived by Enterprise Products and had failed to submit the question to the jury.
With this decision, the court lays a trap for the unwary. A partnership may be formed if parties behave in a way that meets the partnership requirements established under Texas law. The parties may, by agreement, impose conditions on the formation of a partnership. However, those conditions may be waived by the parties and whether the actions of a party constitutes a waiver is a question for the jury