Tenneco Inc. v. Enterprise Products Co.

Citation925 S.W.2d 640,39 Tex. Sup.Ct. J. 907
Decision Date16 August 1996
Docket NumberNo. 95-0978,95-0978
Parties39 Tex. Sup. Ct. J. 907 TENNECO INC., Tenneco Oil Company, Enron Natural Gas Liquids Corporation, Enron Liquids Pipeline Company, Enron Liquids Pipeline, L.P., and Enron Corp., Petitioners, v. ENTERPRISE PRODUCTS COMPANY, Meridian Oil Hydrocarbons, Inc., Union Pacific Fuels, Inc., and Texaco Exploration and Production, Inc., Respondents.
CourtSupreme Court of Texas

Jack D. Ballard, Rosemarie Donnelly, Richard P. Keeton, Thomas M. Farrell, Solace H. Kirkland, Houston, for petitioners.

Murray Fogler, Albert R. Lohse, Houston, for respondents.

ABBOTT, Justice, delivered the opinion of the Court, in which PHILLIPS, Chief Justice, and GONZALEZ, HECHT, CORNYN, ENOCH, SPECTOR and BAKER, Justices, join.

This case poses a question of first impression concerning the effect of a stock sale on a right of first refusal. The dispute involves ownership rights in a natural gas fractionation plant. Respondents filed this lawsuit, contending that three transactions among several Tenneco and Enron entities violated the fractionation plant's operating agreement. The trial court granted summary judgment for Petitioners. The court of appeals reversed. We reverse the judgment of the court of appeals and render judgment for Petitioners.

I

Enterprise Products Company, Texaco Exploration and Production, Inc., El Paso Hydrocarbons Company, Champlin Petroleum Company and Tenneco Oil Company shared ownership in a natural gas liquids fractionation plant. Meridian Oil Hydrocarbons, Inc. and Union Pacific Fuels, Inc. later succeeded to the El Paso and Champlin interests. Plant operations were governed by a contract called the Restated Operating Agreement. This agreement provided the plant owners with a preferential right to purchase ownership interest in the plant. Under this preferential right, or "right of first refusal," a plant owner had to make its share available to the other owners before selling to a non-owner. Additionally, the agreement obligated each owner, under certain circumstances, to deliver raw natural gas liquids, or "raw make," to the plant for processing.

Enterprise, Texaco, Meridian and Union Pacific (collectively called "the Enterprise Parties") claim that three transactions, or "transfers," involving Tenneco Oil's ownership share of the plant breached the Restated Operating Agreement. In the First Transfer, Tenneco Oil conveyed its share to Tenneco Natural Gas Liquids Corporation. At the time of the First Transfer, the stock of Tenneco Natural Gas Liquids was wholly owned by Tenneco Oil. In the Second Transfer, Tenneco Oil sold all of Tenneco Natural Gas Liquids' stock to Enron Gas Processing Company, and Tenneco Natural Gas Liquids' name was changed to Enron Natural Gas Liquids Corporation. In the Third Transfer, Enron Gas Processing sold Enron Natural Gas Liquids' stock to Enron Liquids Pipeline Operating Limited Partnership. The Appendix to this opinion summarizes these transactions.

The Enterprise Parties sued Tenneco Oil and its parent corporation, Tenneco Inc. (the Tenneco Defendants), Enron Gas Processing and its parent, Enron Corp., as well as several other Enron affiliates (the Enron Defendants) for injunctive relief and damages for breach of contract, breach of fiduciary duty, and tortious interference with contract. The Enterprise Parties alleged that Tenneco Natural Gas Liquids did not comply with the raw-make delivery obligations that arose under the Restated Operating Agreement as a result of the First Transfer. The Enterprise Parties also claimed that the Second and Third Transfers violated the plant owners' right of first refusal.

II

In the First Transfer, Tenneco Oil conveyed its interest in the plant to its wholly owned subsidiary, Tenneco Natural Gas Liquids. The Enterprise Parties do not claim that this transfer triggered a right of first refusal because the Restated Operating Agreement allows transfers to wholly owned subsidiaries. Instead, the Enterprise Parties assert that this transaction invoked Section 12.2 of the Restated Operating Agreement. That Section provides:

No sale, transfer, or assignment of Ownership Interest authorized by Section 12.1 shall be effective hereunder until ... the assignee enters into an agreement with Operator to put through the Facilities a volume of raw make per day at least equal to the volume set forth opposite the name of the Selling Owner on Schedule C hereto.

The "Schedule C" referred to in Section 12.2 was actually preempted by "Exhibit A" under the terms of another contract, the Ratification and Joinder Agreement. The volume attributed to Tenneco Oil by Exhibit A was 31,000 barrels. To comply with Section 12.2, therefore, Tenneco Natural Gas Liquids (the assignee) should have agreed to deliver at least 31,000 barrels per day. At no point, however, did Tenneco Natural Gas Liquids either agree to provide, or actually deliver, the capacity attributed to it. The Enterprise Parties argue that Tenneco Natural Gas Liquids' failure to commit to the 31,000-barrel requirement is a breach of the Restated Operating Agreement.

The trial court granted the Tenneco Defendants' motion for summary judgment regarding the First Transfer without specifying the grounds. 1 The court of appeals reversed, holding that none of the bases upon which the Tenneco Defendants presented their motion supported the summary judgment. --- S.W.2d at ----, 1995 WL 412814. To reverse the court of appeals and reinstate the trial court's judgment, we need to sustain only one of the Tenneco Defendants' summary judgment grounds. Rogers v. Ricane Enterprises, 772 S.W.2d 76, 79 (Tex.1989).

One theory upon which the Tenneco Defendants sought summary judgment was the Enterprise Parties' waiver of any complaint about the First Transfer. The affirmative defense of waiver can be asserted against a party who intentionally relinquishes a known right or engages in intentional conduct inconsistent with claiming that right. Sun Exploration & Prod. Co. v. Benton, 728 S.W.2d 35, 37 (Tex.1987). A waivable right may spring from law or, as in this case, from a contract. Ford v. Culbertson, 158 Tex. 124, 308 S.W.2d 855, 865 (1958); see also Alford, Meroney & Co. v. Rowe, 619 S.W.2d 210, 213 (Tex.Civ.App.--Amarillo 1981, writ ref'd n.r.e.). A party's express renunciation of a known right can establish waiver. Rowe, 619 S.W.2d at 213. Silence or inaction, for so long a period as to show an intention to yield the known right, is also enough to prove waiver. Id.

The Tenneco Defendants included in their summary judgment evidence deposition excerpts from the plant owners' designated representatives. Those excerpts demonstrate the following: (1) various owners knew that Tenneco Oil had transferred its ownership interest to Tenneco Natural Gas Liquids; (2) Tenneco Natural Gas Liquids had not executed an agreement in satisfaction of Section 12.2; and (3) Tenneco Natural Gas Liquids was delivering substantially less than 31,000 barrels per day.

Other summary judgment evidence shows that the plant owners accepted Tenneco Natural Gas Liquids as a full-fledged fellow owner and that they had elected not to enforce any rights arising under Section 12.2. The Enterprise Parties executed several amendments and ratifications to the Restated Operating Agreement with Tenneco Natural Gas Liquids, not Tenneco Oil, as a signatory. The Enterprise Parties also afforded all incidents of ownership to Tenneco Natural Gas Liquids, including the right to attend owners' meetings, the right to receive a share of revenues, the obligation to pay a share of costs, and the right to vote on issues requiring owner approval.

The evidence also confirms that over a period of three years, from the date of the First Transfer until the filing of this lawsuit, no owner complained about Tenneco Natural Gas Liquids' failure to comply with Section 12.2. This extended inaction by the plant owners, coupled with their acceptance of Tenneco Natural Gas Liquids as a plant co-owner, establishes an intentional waiver of any rights concerning the First Transfer. See Rowe, 619 S.W.2d at 213.

In reversing the trial court's summary judgment, the appellate court stated that parts of the summary judgment proof raised a fact issue about whether the owners had only temporarily accepted Tenneco Natural Gas Liquids' failure to comply with Section 12.2. --- S.W.2d at ----. We disagree.

The court of appeals relied on the testimony of Enterprise Products Company's Charles Roth to support its assertion that the owners' waiver was "temporary." Id. at ----. To a question concerning whether Enterprise Products Company had chosen not to enforce Section 12.2 following the First Transfer, Roth replied: "I think it's correct to say that at that time they chose not to do it, yes." The court of appeals held that Roth's reply indicates that the Enterprise Parties did not intend to waive their rights under Section 12.2. --- S.W.2d at ----.

Placed in its proper context, however, Roth's testimony confirms the defense of waiver. Immediately following his "at that time" reply, Roth was asked if Enterprise Products Company ever, until the filing of this lawsuit, sought to enforce Section 12.2. Roth answered that it did not. His testimony does not raise a fact issue concerning the plant owners' acceptance of Tenneco Natural Gas Liquids as an co-owner or their election to forego the enforcement of Section 12.2.

Waiver is ordinarily a question of fact. See Caldwell v. Callender Lake Property Owners Improvement Ass'n, 888 S.W.2d 903, 910 (Tex.App.--Texarkana 1994, writ denied); Rowe, 619 S.W.2d at 213. Where the facts and circumstances are admitted or clearly established, however, the question becomes one of law. Id. In this case, the Tenneco Defendants have shown that until this lawsuit was filed, the plant's owners accepted Tenneco Natural Gas Liquids as a fellow...

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