A Night at the Opera
“Is this real life? Is this just fantasy?” Queen, Bohemian Rhapsody
When I go to the opera – which isn’t often or without duress – I always review the libretto first. That’s the only way I can understand the story.
The current production at the Texas Supreme Court is the highly anticipated Energy Transfer Partners, L.P. v Enterprise Products Partners, L.P. Here’s the summary:
Setting: 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. These letter agreements provided 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 enters into a partnership with Enbridge. There was no debate that the conditions the parties agreed upon had not occurred.
Act I: Energy Transfer sues Enterprise and wins a $460 million verdict based upon a jury finding that a partnership existed and that Enterprise breached its fiduciary duties to Energy Transfer.
Act II: Enterprise appeals and the verdict was reversed on the basis that the conditions precedent to the formation of a partnership were not satisfied.
Act III: After extensive briefing, the Texas Supreme Court hears oral arguments on October 8, 2019. A chorus of no fewer than 13 Amici appear to “help” the Supreme Court make a decision on a very basic question:
Are parties free to impose, by agreement, conditions on the formation of a partnership under Texas law?
In the simplest terms, this case pits two opposing forces against each other: those that favor the right to contract vs. those that favor the application of legislative guidelines. So far, sentiment among the “friends” is running EIGHT in favor of the right to contract and FIVE in favor of the legislative guidelines.
There’s a lot of suspense in this act. Most joint ventures begin life much like this one: with a letter of intent in which the parties agree to investigate whether there is an economic reason to go into business together. And most of those letters of intent, like this one, contain a statement that the parties are not undertaking any binding arrangement unless a definitive agreement is approved by the parties. I don’t know the statistics but I’d guess a majority of these gestational JVs never make it to the next phase and the parties go their separate ways.
Epilogue: The Supreme Court will pen the final scene, the disposition of the characters and the resolution of the drama. Imagine how our behavior will need to change if the disclaimer of a binding agreement is not effective. I know – intuitively – that there will be those that love the ending and those that hate it (sorta like the real opera). After the final curtain, we can read the reviews …