Energy Transfer Partners, L.P. v. Enterprise Products Partners, L.P.

Energy Transfer Partners, L.P. (Transfer) (plaintiff) and Enterprise Products Partners, L.P. (Enterprise) (defendant) explored the possibility of retrofitting an oil pipeline. In connection with that possible project, the parties entered into three contracts, each of which expressly stated that the parties did not (if ever) intend to create any obligation to proceed with the project but were only investigating whether to do so. For example, the parties signed a confidentiality agreement, which stated that unless and until the parties reached a definitive agreement, neither party would be “under any legal obligation of any kind whatsoever with respect to any transaction by virtue of this Agreement.” Enterprise eventually decided not to go forward with a project with Transfer, instead deciding to work with another company. Transfer sued Enterprise, arguing that despite the contrary language in their contracts, Transfer and Enterprise had entered into a partnership and that Enterprise breached its duty of loyalty. Per Transfer, this was so because Texas Business Organizations Code (TBOC) § 152.051(b) provided that an association of two or more persons to carry on a business for profit as owners created a partnership. Under § 152.051(b), whether a partnership was formed depended on the totality of the circumstances, specifically the persons’ (1) receipts or rights to receive business profits, (2) expression of intent to form a partnership, (3) participation or rights to participate in controlling the business, (4) agreement to share or sharing of business losses or liabilities, and (5) agreement to contribute or contributing money or property to the business. The jury, which was instructed that parties can form a partnership even if they did not intend to and informed about the § 152.051(b) factors, found that Transfer and Enterprise were partners and that Enterprise violated its duty of loyalty. The court of appeals reversed, ruling that Texas law permitted the imposition of conditions precedent to the formation of a partnership and that Transfer and Enterprise did just that in their contracts. Transfer appealed, arguing that § 152.051(b)’s factors were the exclusive means of determining whether a partnership was formed and that Texas common law was irrelevant. Thus, per Transfer, the parties’ intent was just one relevant factor, and parties could not create contractual conditions precedent to partnership formation.