Cheniere Energy, Inc. v. Parallax Enters. LLC

585 S.W.3d 70

CHENIERE ENERGY, INC. and Cheniere LNG Terminals, LLC, Appellants

v.PARALLAX ENTERPRISES LLC, Parallax Energy LLC, Parallax Enterprises (NOLA) LLC, Live Oak LNG LLC, Live Oak LNG Pipeline LLC, Moss Lake LNG LLC, Louisiana LNG Energy, LLC, and Calcasieu LNG LLC, Appellees

NO. 14-17-00982-CV

Court of Appeals of Texas, Houston (14th Dist.).

Opinion on Reconsideration En Banc filed August 13, 2019

OPINION ON RECONSIDERATION EN BANC

Tracy Christopher, Justice

We grant the appellees' motion for reconsideration en banc, withdraw our opinion and judgment of December 27, 2018, and substitute the opinion and judgment of this date.

This is an interlocutory appeal from a temporary injunction preventing appellants Cheniere Energy, Inc. ("Cheniere Energy") and Cheniere LNG Terminals, LLC ("Cheniere Terminals") (collectively, "the Cheniere Parties") from non-judicially foreclosing on the equity interests of appellee Parallax Enterprises LLC ("Parallax") in its wholly owned subsidiary, appellee Live Oak LNG LLC ("Live Oak"). In our original memorandum opinion, we reversed the trial court's grant of injunctive relief and remanded the case for further proceedings. We grant the appellees' motion for reconsideration en banc, withdraw our opinion and judgment of December 27, 2018, and affirm the trial court's ruling.

I. BACKGROUND

The underlying dispute involves an alleged failed attempt by the Cheniere Parties and several Parallax-related entities¹ (collectively, "the Parallax Parties") to jointly develop two mid-scale liquefied natural gas ("LNG") facilities in Louisiana: Live Oak and the Louisiana LNG project. The Parallax Parties allege that they reached an agreement with the Cheniere Parties on all material terms for an "expanded joint development agreement, business association, and venture" to develop the two facilities.

The alleged venture changed over time. According to the Parallax Parties, the parties initially agreed Parallax Enterprises would take the leading role in developing the facilities, and the Cheniere Parties would provide funding of $120–130 million to develop the projects. The parties originally proposed equal co-ownership of the projects, but later proposed that the Parallax Parties develop the projects to the "investment-ready" point of construction, at which time the Cheniere Parties would pay the Parallax Parties a success fee and assume ownership.

The Parallax Parties allege that while the parties were working on the written terms of a final agreement, the Parallax Parties began incurring expenses to develop the projects. To obtain the funds to pay vendors in advance of a signed joint-venture agreement, Parallax signed a Secured Promissory Note which subsequently was amended several times. The Note was guaranteed by six of Parallax's wholly owned subsidiaries, including Live Oak. The Parallax Parties contend they signed the Note only to satisfy the Cheniere Parties' internal accounting department, and that all parties always intended the money to be considered a capital contribution—or equity—in the joint projects rather than a loan that had to be repaid. The Cheniere Parties additionally paid at least one of the vendors directly. The Cheniere Parties maintain the parties never reached a final agreement on the joint development of the projects and that the funds were advanced only as a short-term loan pursuant to the express terms of the Note. At the time they signed the Note, the Parallax Parties were not capitalized and had no assets or means to repay a loan.

Before the parties finalized the written terms of their agreement, the Cheniere Parties stopped funding the projects and demanded repayment of the $46 million paid under the Note. The Parallax Parties refused repayment, contending that the $46 million advanced under the Note was not debt but a capital contribution and that additional funds were due from the Cheniere Parties. Although the parties had not finalized a written agreement, the Parallax Parties contend that they proceeded to develop the project and incurred expenses—including the execution of the Note—based on the Cheniere Parties' assurances that the advanced funds would be considered equity and not debt. Live Oak alleged that it incurred substantial liabilities to third parties, though it has no assets to pay the debts. The Parallax Parties ceased development of the two projects and were left owing $10 million in debt to third parties.

The Parallax Parties—including Live Oak—sued the Cheniere Parties, alleging claims for breach of contract, breach of fiduciary duties, promissory estoppel, quantum meruit, and fraudulent inducement of the Note. The Parallax Parties also sought declaratory relief that the Note constitutes equity rather than debt, and that the Note lacks an enforceable security interest.

The Cheniere Parties counterclaimed, asserting the right to repayment of $46 million under the Note and bringing third-party claims against four individual defendants and four entities affiliated with those defendants. In addition, Cheniere Terminals served notice that it intended to non-judicially foreclose on all of Parallax's equity interest in Live Oak. The Cheniere Parties contend that Parallax's interest in Live Oak was included as collateral securing the Note.

In response, the Parallax Parties sought injunctive relief to prevent Cheniere from: (a) foreclosing on Parallax's interest in Live Oak; (b) interfering with or attempting to control the management, governance, or operation of any of the Parallax Parties; and (c) otherwise disrupting the normal course of business of any of the Parallax Parties. The Parallax Parties also asserted that their rights under the Note are the subject of the lawsuit and that allowing Cheniere Terminals to foreclose would undermine the trial court's jurisdiction because it would allow the Cheniere Parties a "self-help remedy" without proving any of their claims. The Parallax Parties maintain that the debt is not valid or enforceable, and that in any event, the Cheniere Parties do not have an enforceable security interest in Parallax's equity interest in Live Oak.

After an evidentiary hearing, the trial court granted the requested injunctive relief. The trial court's order states in pertinent part as follows:

[T]he Court finds and holds that [the Parallax Parties] have demonstrated claims against [the Cheniere Parties]; have shown a likelihood of success on the merits of their claims; and, absent injunctive relief, will suffer imminent irreparable injury by, including but not limited to, losing ownership and control over assets, including the limited liability company interest of [Live Oak], the rights to which are the subject of the parties' claims in this action, and through which claims are made by [the Parallax Parties] against [the Cheniere Parties]. Absent injunctive relief, [the Parallax Parties] also will be forced to defend their right to control claims made against [the Cheniere Parties], including defending against attempted dismissal of legal claims that [the Parallax Parties] make against [the Cheniere Parties] and with regard to claims that [the Cheniere Parties] state they intend to assert through ownership of the limited liability company interest in [Live Oak]. The Court finds that an injunction is necessary to avoid a party performing an act relating to the subject of the pending litigation, in violation of the rights of the applicant, and that the act would tend to render the judgment in the litigation ineffectual. As such, [the Parallax Parties] have established a right to injunctive relief pursuant to Tex. R. Civ. P. 683 and Tex. Civ. Prac. & Rem. Code §§ 65.011(1) and (2), and their application should be GRANTED.

Pursuant to the terms of the injunction order, the Parallax Parties posted a cash deposit in lieu of bond. This appeal followed.

II. ISSUES PRESENTED

In four issues, the Cheniere Parties ask us to reverse and render judgment denying the Parallax Parties' application for temporary injunction because (a) Cheniere Terminals has an express contractual right under the Note to foreclose on Parallax's equity interest in Live Oak; (b) Parallax failed to prove it faces imminent, irreparable harm for which it lacks an adequate remedy at law; (c) Parallax failed to prove a probable right to relief; and (d) Parallax failed to show that its entitlement to a temporary injunction under Texas Civil Practice and Remedies Code section 65.011. In a fifth issue, the Cheniere Parties contend that the trial court erred in excluding evidence relevant to "unclean hands," and they ask us to reverse the trial court's order granting the Parallax Parties' requested temporary injunction and to remand for a new evidentiary hearing.

III. TEMPORARY INJUNCTIVE RELIEF

The purpose of a temporary injunction is to preserve the status quo of the subject matter of the litigation pending a trial on the merits. Butnaru v. Ford Motor Co. , 84 S.W.3d 198, 204 (Tex. 2002). A temporary injunction is an extraordinary remedy and does not issue as a matter of right. Id. To obtain a temporary injunction under equitable principles, the applicant must plead and prove (1) a claim against the defendant, (2) a probable right to the relief sought, and (3) a probable, imminent, and irreparable injury in the interim. Id. ; Hsin-Chi-Su v. Vantage Drilling Co. , 474 S.W.3d 284, 295 (Tex. App.—Houston [14th Dist.] 2015, pet. denied). These equitable elements of injunctive relief likewise apply to a request for injunctive relief under section 65.011 of the Texas Civil Practice and Remedies Code. See TEX. CIV. PRAC. & REM. CODE § 65.001 ("The principles governing courts of equity govern injunction proceedings if not in conflict with this chapter or other law."); Town of Palm Valley v. Johnson , 87 S.W.3d 110, 111 (Tex. 2001) (per curiam) (applying irreparable-harm element to application under Section 65.011(1) ); City of El Paso v. Caples Land Co., LLC , 408 S.W.3d 26, 37 (...