Enterprise Products Loses $319 Million Pipeline Verdict

Energy Transfer Partners LP was awarded $319 million by a jury that found Enterprise Products Partners LP wrongly dropped the company from plans to build a pipeline to compete with the Keystone XL’s southern leg.

Enbridge Inc., Canada’s biggest crude oil transporter and a competitor with Keystone’s developer, TransCanada Corp., was also a defendant in the case. In a 10-2 verdict, the Dallas jury yesterday found Calgary-based Enbridge wasn’t liable to Energy Transfer Partners. Deliberations in state district court started March 3, capping a monthlong trial.

Enterprise’s total liability could be as much as $595 million if ETP pursues a disgorgement claim.

Dubbed the Double-E, the ETP-Enterprise pipeline would have carried crude oil from a Cushing, Oklahoma, hub to the Gulf of Mexico, vying for business with the Keystone’s southern leg.

TransCanada, that nation’s second-biggest pipeline company, is seeking U.S. government approval to build the American part of the 1,179-mile (1,897 kilometers) northern leg to link Hardisty, Alberta, with Steele City, Nebraska.

TransCanada’s plans were delayed last month when a Nebraska judge threw out the statute the state relied on to set the pipeline’s path. The state is appealing the decision.

Seek Reversal

“We do not believe the verdict is supported by the evidence or the law and we will promptly seek to reverse these findings,” James Cisarik, an Enterprise spokesman, said after the verdict.

Mike Lynn, an attorney for ETP, said the case resulted in one of the biggest damage awards in Dallas history.

In its 2011 lawsuit, ETP claimed it had an agreement with Houston-based Enterprise Products to build the Double E and a commitment from Chesapeake Energy Corp. to use it for shipping at least 100,000 barrels of oil a day. Enterprise announced it was pulling out of the project in August of that year.

The Chesapeake accord was worth $940 million in revenue, Lynn told the jury in closing arguments on Feb. 27.

Enterprise, which claimed a lack of commercial support for the proposed pipeline, later agreed with Enbridge to acquire the existing Seaway pipeline, which ran from the gulf to Cushing, reverse its flow and then build a twin alongside it.

‘Ambush’ Partnership

While ETP claimed it had a partnership-by-conduct under Texas law, the business equivalent of a common law marriage, defense lawyers called that contention a “partnership by ambush,” and the Double-E plan “a failure.”

The jury yesterday found a partnership existed between ETP and Enterprise. It rejected the notion that Enterprise and Enbridge conspired to take a business opportunity away from ETP.

The jury awarded Enterprise $814,000 on a counterclaim, finding ETP had failed to comply with a contractual provision.

Enterprise took the Chesapeake commitment with it when it joined up with Enbridge, Lynn told the jury last week.

“These folks on this side of the room stole something,” Lynn said. “They did it intentionally, they did it cold-bloodedly and they knew exactly what they were doing. They did it because they are greedy.”

Enterprise abandoned ETP for Enbridge because the latter company had access to oil shipments from Canada, according to Lynn. ETP was entitled to a 25 percent stake in the Enterprise-Enbridge project, he said.

Lynn’s co-counsel, Jeremy Fielding, asked the jury to award their client $594 million in compensatory damages, plus an unspecified amount of punitive damages.

Binding Agreement

David Beck, a lawyer for Enterprise, told the jury in his closing remarks that there was no binding agreement between those companies.

“Every agreement they signed was to avoid any binding obligation between these parties at all, including any partnership,” Beck said last week. “They didn’t have exclusivity and they deliberately chose not to.”

“The Double E was a failure,” Enbridge attorney Michael Steinberg said during his closing argument. Enbridge was accused of inducing the split between ETP and Enterprise. Steinberg said his client knew only that ETP and Enterprise had no binding contracts and they hadn’t recruited enough clients to make the Double-E project commercially viable.

“It’s wrong to sue in court for what ETP failed to achieve in the market,” the Enbridge attorney said.

Steinberg said yesterday he and his client were pleased with the outcome.

‘Nothing Wrong’

“They saw Enbridge had done nothing wrong,” he said.

Cisarik, who is senior vice president for governmental affairs at Enterprise, maintains there was no binding agreement between his company and Energy Transfer Partners.

“We do not have unintended corporations, LLCs or LLPs in business and we should not have unintended partnerships,” he said.

The jury’s finding that Enterprise breached its duty of loyalty gives ETP the option to pursue the $595 million it claims was the value of the benefit of that breach in lieu of the jury’s $319 million award, ETP lawyer David Coale said yesterday after the verdict was read.

That figure is subject to challenge and could be modified by the judge, the attorney said. ETP hasn’t decided which avenue it will take.

The case is Energy Transfer Partners LP v. Enterprise Products Partners LP, DC-11-12667, District Court, Dallas County, Texas (Dallas).

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