“A letter of intent is the invention of the devil [that] should be avoided at all costs.” -- Stephen R. Volk, Esq. regarding the now (in)famous Texaco-Pennzoil case

by Akin Gump Strauss Hauer & Feld LLP

A Dallas jury recently reminded us why Mr. Volk lamented letters of intent. Enterprise Products Partners, L.P. is currently appealing that jury’s finding of $319MM in actual damages and $914MM for improper benefits due to breach of the duty of loyalty related to an aborted pipeline “joint-venture” with Energy Transfer Partners, L.P. The jury found that a statutory partnership existed between the two pipeline giants despite the absence of a definitive agreement and the presence of substantial written disclaimers and waivers in the nonbinding letter of intent (“LOI”) and related agreements.

In light of this mega-verdict, here are some important reminders for anyone who is considering entering into a letter of intent or memorandum of understanding:

  • DO have express, broad “nonbinding” language.
  • DO use a hybrid agreement with a clear separation between “binding” and “non-binding” portions of the LOI.

Parties should be very clear as to which terms in the LOI are binding and which are not. It is considered best practices for “nonbinding” portions of the LOI to include standard deal points (price, quantity, timing, etc.).  The “binding” section of the LOI should include standard provisions related to confidentiality and, if agreed upon, exclusivity.  In addition, the “binding” portion should include language that (1) explicitly disclaims the creation of a partnership or joint venture until the execution of a definitive agreements and receipt of requisite approvals, regardless of the subsequent actions of the parties; (2) explicitly waives fiduciary duties (to the extent permitted by law) that the parties may owe to one another; (3) mutually waives the right to sue for any breach of duty or to claim a partnership exists; (4) mutually waives the right to a jury trial and refers disputes arising out of or related to the agreement to arbitration; and (5) expressly includes any conditions precedent to creation of a binding agreement.

  • DO NOT publicly state that a partnership or joint venture exists.

Course of conduct is a critical piece of evidence a jury will consider when determining whether a party intended to be bound by a LOI. For example, Enterprise and ETP issued joint press releases and jointly solicited carriers for the proposed pipeline that was the subject of the alleged JV.  In the eyes of the jury – just as “marrying” someone on Facebook might be used as evidence of a common law marriage –  public actions appear to have overruled what was otherwise a tightly drafted “nonbinding” letter of intent.

  • DO make clear which party owns any property rights generated during the evaluation phase.
  • DO NOT characterize any property rights generated during the evaluation phase as “joint property” or agree to share profits or losses with the other party.

Under Texas law, one factor the trier of fact may use to establish the existence of a statutory partnership is the “right to receive a share of profits.”   Thus, it is important to clarify that any expense allocation arrangements entered into prior to execution of definitive agreements are limited in scope and narrowly drafted and to explicitly disclaim any intention to share in the profits and losses of the potential business until definitive agreements are executed.

  • DO, at each stage of evaluation of the project, reiterate in writing with the counterparty the nonbinding, non-partnership nature of the relationship.
  • DO NOT1 contribute money or other assets until the parties execute definitive agreements.

These points may seem trivial (and prior to this jury finding, may have seemed unnecessary), but the devil is in the details. In the excitement of a prospective business deal, parties may be eager to press forward as fast as possible. However, a little restraint, such as occasionally reiterating the non-partnership relationship of the parties to an LOI or resisting the urge to contribute assets to a joint account, can offer valuable legal protection if negotiations ever turn sour.

The jury verdict in the ETP v. Enterprise case has unquestionably put the energy community on alert regarding the issue of when certain relationships may be viewed as partnerships or joint ventures in the eyes of the law, even if the parties had originally agreed otherwise on paper. While careful drafting is important in minimizing the risk of creating a partnership where none is intended, diligent conduct throughout the relationship is just as important.

1 The blanket prohibition on joint accounts is a bit simplified. The reason a party should avoid contributing to a joint account is that a jury could find that the percentage of total assets in the account contributed by such party constitutes a surrogate for an agreement with respect to the division of profits between the joint account holders.



DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Akin Gump Strauss Hauer & Feld LLP | Attorney Advertising

Written by:

Akin Gump Strauss Hauer & Feld LLP

Akin Gump Strauss Hauer & Feld LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.