Appeals court rules for Enterprise in pipeline case

A state appellate court on Wednesday overturned a $535 million judgment against Houston's Enterprise Products Partners, which had been sued by Energy Transfer Partners in a case with undertones of the landmark Pennzoil v. Texaco court battle of the 1980s.

The decision by the Fifth Circuit Court of Appeals in Dallas reverses a 2014 ruling that created a Texas legal precedent equating a preliminary business agreement to a common-law marriage between two businesses. The legal fight pitted two of the nation's largest pipeline companies against each other.

Enterprise and Dallas-based Energy Transfer planned to partner on an oil pipeline project from Cushing, Okla., to the Houston area. But Enterprise nixed the deal because it couldn't line up enough customers. Instead, Enterprise teamed up up with Calgary, Alberta-based Enbridge on a more profitable deal for a similar pipeline. Energy Transfer Partners sued in 2012, alleging Enterprise violated a binding agreement and won a state district court ruling in 2014.

Enterprise argued the agreement was never binding and the signed disclaimer agreements ensured that nothing would be definitive until the boards of directors approved the deal or project documents were made final. Neither happened.

The unanimous appellate court ruling determined the 2014 jury decision "wrongly imposed the burden of proof on Enterprise" and that the evidence against Enterprise was "legally and factually" lacking.

Energy Transfer contended that Texas law allows binding business partnerships without formal contracts on paper, similar to the argument that Pennzoil used in its suit against Texaco in the 1980s. Pennzoil, which contended a handshake agreement was binding on the parties, won a jury award of $10.5 billion, which was the largest civil verdict in the nation's history at the time and created a chill over deal-making.

The court, however, ruled that the state law doesn't apply to this case because Enterprise and Energy Transfer did not decide to "carry on a business for profit." They only agreed to research whether it was possible to build a profitable pipeline together, according to the ruling.

"This case needed decisive action because it had the potential to stand as one of the worst for business in Texas since the Texaco v. Pennzoil decision from the 1980s," Enterprise appellate lawyer David Keltner said. "Sophisticated parties need the right to rely on written contracts."

"We are disappointed in the ruling and will likely appeal the decision to the Texas Supreme Court," Energy Transfer spokeswoman Vicki Granado said.

Back in 2011, Enterprise and Energy Transfer determined that potential customers wanted to be able ship oil from Canada to Houston, and their proposed pipeline couldn't offer that option.

Enbridge, however, could because of a pipeline project from Canada to Cushing.

Enterprise and Enbridge ended up building the expanded Seaway Pipeline, which runs from Cushing to Freeport. They complected the project in early 2015.