Sham Pleading Standard Requires Evidence of Fraud to Challenge Amount in Controversy
Read the Court's Opinion (PDF)
Judge Marialyn Barnard
In ET Gathering & Processing LLC v. Tellurian Production LLC, Judge Barnard denied Tellurian's plea to the jurisdiction challenging whether the amount in controversy exceeded the Business Court's $10 million threshold, holding that Tellurian failed to produce evidence that ET Gathering's jurisdictional allegations were fraudulent or a sham. The court reaffirmed that under Texas's plea to the jurisdiction standard, a plaintiff's pleadings are determinative unless the defendant specifically proves the amount was pleaded merely as a sham for the purpose of wrongfully obtaining jurisdiction.
Court Staff Summary
In a plea to the jurisdiction, Defendant challenged the Court’s authority to hear this case by arguing the amount in controversy pleaded by Plaintiff was merely a sham for the purpose of wrongfully obtaining this court’s jurisdiction. Applying Texas’s well-established plea to the jurisdiction standard, the Court concluded Defendant did not produce evidence that Plaintiff’s actions amounted to a sham and denied Defendant’s plea.
Background: Gas Gathering Dispute and Jurisdictional Challenge
ET Gathering & Processing LLC sued Tellurian Production LLC in the Texas Business Court for breach of a Gas Gathering Agreement. ET Gathering alleged that under the agreement, it was to gather and process natural gas from Tellurian's production at a contracted rate, and Tellurian was obligated to deliver all natural gas it owned or controlled from a dedicated area of land in Louisiana.
In its first amended petition, ET Gathering alleged that Tellurian breached the agreement by failing to deliver natural gas to it, resulting in foregone fees that alone exceed $10 million. To support its assertion, ET Gathering pleaded that two wells—the Graham and Scott wells—located on the dedicated acreage produced over 26,000,000 MCF as evidenced in certain gas volume statements.
Tellurian filed a plea to the jurisdiction, arguing that ET Gathering's amount-in-controversy allegation was "merely a sham for the purpose of wrongfully obtaining this court's jurisdiction." The court invited ET Gathering to file a response, held a hearing on March 6, 2025, and ultimately denied Tellurian's plea.
The Court's Analysis: Applying the Sham Pleading Standard
Judge Barnard applied Texas's well-established plea to the jurisdiction standard, under which a plaintiff's pleadings regarding the amount in controversy are determinative unless the defendant specifically alleges and proves that the amount was pleaded merely as a sham for the purpose of wrongfully obtaining jurisdiction.
The court concluded that Tellurian did not produce evidence that ET Gathering's actions amounted to a sham. Judge Barnard emphasized that Texas courts will not look behind jurisdictional pleadings absent evidence that the amount pleaded is fraudulent, and that a plea to the jurisdiction cannot be used to require the plaintiff to prove damages in order to show they exceed jurisdictional limits.
Significance for Texas Business Court Practice
This decision reinforces the high burden defendants face when challenging a plaintiff's amount-in-controversy allegations in the Texas Business Court. Mere disagreement with the plaintiff's damage calculations or litigation strategy is insufficient—defendants must produce actual evidence of fraud or sham pleading to defeat jurisdiction. The ruling provides important guidance on the limited circumstances under which the Business Court will look behind a plaintiff's jurisdictional allegations and confirms that plaintiffs' good-faith assertions regarding damages exceeding $10 million will generally be accepted at the pleading stage.