“Saying nothing sometimes says the most.” – Emily Dickinson
I have to admit, I’m disappointed. The Texas Supreme Court delivered its long-awaited opinion in the continuing case of Texas common law business marriage a/k/a Energy Transfer Partners, L.P. v Enterprise Products Partners, L.P. I’m disappointed because the Supreme Court didn’t take a stand either positively affirming or rejecting the doctrine of de facto partnership in Texas. Instead, it simply affirmed the decision of the Court of Appeals.
Let’s review: Energy Transfer Partners and Enterprise Products entered three letter Agreements relating to the proposed development of the Double E pipeline from Cushing Oklahoma to the Texas Gulf Coast. The letter agreements provide that no partnership would be formed until certain conditions were met, including board approval and signature of a definitive agreement. Ultimately, Enterprise terminates the relationship with Energy Transfer and entered into a partnership with Enbridge. Energy Transfer sued Enterprise and won a $535,795 verdict based upon a jury finding that a partnership existed under the analysis dictated by the Texas Legislature and that Enterprise breached its fiduciary duties to Energy Transfer. Enterprise appealed and the verdict was reversed on the basis that the conditions precedent to the formation of a partnership were not satisfied and, therefore, no fiduciary duty existed.
In an opinion penned by Nathan Hecht, the Texas Supreme Court affirmed the opinion of the court of appeals and, relying on the sacred freedom of parties to contract, held that the parties could, by agreement, place conditions on the formation of a partnership. There are some interesting notes that the Supreme Court left unanswered:
- In footnote 34, the Supreme Court made the comment that such agreement between the parties would not bind third parties. As a result, the de facto partnership doctrine is, at least for now, alive and well with respect to the potential joint and several liability of partners to a third party.
- If the parties are free to impose conditions on the formation of a partnership why can’t they simply agree that no matter what happens a partnership isn’t formed? It seems form over substance to allow parties to agree that no partnership is formed unless one party stands on one leg and jumps up and down but cannot just agree that no partnership would be formed.
What have we learned? For now anyway, every letter of intent relating to a joint venture or the formation of a new business should include conditions precedent to the formation of a partnership. A simple “no partnership between the parties is formed” isn’t enough.
I guess every answer leads to three questions. That’s why you need a lawyer in your life.
To read his earlier viewpoint, click HERE.