Oil And Gas Partnership By Ambush: The Challenges Of Disclaiming A Partnership Or Joint Venture In Texas

Do two companies form a joint venture if the companies preliminarily discuss forming one, but never enter into a formal joint venture agreement and execute contracts expressly disclaiming any formation of a joint venture or any binding obligation to do so? A Texas jury recently answered this question in Energy Transfer Partners, L.P. v. Enterprise Products Partners, L.P., No. 11-12667 (298th Dist. Ct., Dallas County, Tex.). The plaintiff in that case alleged that the parties' agreements were ambiguous and that the parties' subsequent conduct was sufficient to create a joint venture relationship. After a five-week trial, the jury agreed and awarded the plaintiff $319 million in damages, finding that despite the express contractual disclaimers, plaintiff Enterprise Transfer Partners, L.P. ("ETP") and defendant Enterprise Products Partners, L.P. ("Enterprise") had in fact formed a joint venture to build a crude oil pipeline from Oklahoma to Texas.

This case squarely addresses an important issue for companies: whether companies can effectively disclaim the existence of a joint venture or partnership, and the fiduciary obligations that these relationships entail, or whether Texas courts will disregard these disclaimers and look to the parties' course of conduct. As the ETP v. Enterprise case demonstrates, companies relying on disclaimers need to be aware that their subsequent conduct, particularly with respect to how the companies hold themselves out to third parties, may support an allegation that a joint venture or partnership existed and that the attendant fiduciary duties between the parties were violated. While the jury verdict is likely to be appealed, the case demonstrates that without clear disclaimers and, more importantly, careful monitoring and control of subsequent conduct, a company can be subject to costly and protracted fact-based litigation that may be difficult to defeat on summary judgment.

ETP v. Enterprise

In the spring of 2011, ETP and Enterprise entered into discussions regarding the construction and operation of a proposed crude oil pipeline that would run from Cushing, Oklahoma to the Houston, Texas market. The initial discussions culminated in the execution of three agreements, all of which had language disclaiming various legal obligations.

The April 21, 2011 Letter Agreement: This agreement attached a proposed joint venture term sheet but expressly stated the parties were "entering discussions regarding a proposed joint venture transaction." The agreement went on to state that "[n]either this letter nor the JV Term Sheet create any binding or enforceable obligations between the Parties and, except for the Confidentiality Agreement ... no binding or enforceable obligations shall exist between the Parties with respect to the Transaction unless and until the Parties have received their respective board approvals and definitive agreements memorializing the terms and conditions of the Transaction have been negotiated, executed and delivered by both of the Parties."

The March 10, 2011 Confidentiality Agreement: This agreement stated that "[t]he Parties agree that unless and until a definitive agreement between the Parties with respect to the Potential Transaction has been executed and delivered, and then only to the extent of the specific terms of such definitive agreement, no Party hereto will be under any legal obligation of any kind whatsoever with respect to any transaction by virtue of this Agreement or any written or oral expression...." The agreement goes on to state that "[a] Party shall be entitled to cease disclosure of Confidential Information hereunder and any Party may depart from negotiations at any time for any reason or no reason without liability to any party hereto."

The April 27, 2011 Letter Agreement: This agreement related to funding of preliminary design work and contained similar language as the above agreements, but also expressly stated that "[n]othing herein shall be deemed to create or constitute a joint...