Texaco Ordered to Pay Pennzoil $10.5 Billion Over Getty Oil Dispute

In a stunning end to a four-month trial, a Texas jury on Tuesday ordered Texaco to pay Pennzoil Co. $10.5 billion, the largest award of damages ever made, for interfering with Pennzoil’s planned purchase of Getty Oil in 1984.

The jurors, who deliberated for nine hours over three days, decided that Texaco must pay Pennzoil $7.53 billion in actual damages and $3 billion in punitive damages, more than five times any amount ever previously awarded by a jury. Texaco, which eventually purchased Los Angeles-based Getty for $10.1 billion, vowed to appeal.

Before Tuesday’s judgment, the largest damage award by a jury was $1.8 billion to MCI Communications from American Telephone & Telegraph in a 1980 antitrust trial. After appeals, that case was eventually settled with a payment of $113 million by AT&T; in May, 1985.

“I think they’ve done Pennzoil and this nation a very big favor by reaffirming the standards by which American businesses conduct themselves,” Pennzoil Chairman J. Hugh Liedtke said after the verdict. Pennzoil had contended throughout the trial that it had signed an agreement to buy Getty last year, only to be outbid by Texaco in secret and unethical negotiations that it once called a “ruthless and predatory use of financial power.”

Pennzoil lawyer Joseph D. Jamail was even more emphatic about the effect of the verdict.

“The outcome of this trial is going to set the standards for the morality and integrity of business in America for years to come,” he said. “You cannot, after one has an agreement, secretly ‘shop’ that agreement. The jury is saying you do this at your own risk.”

Texaco said the jury’s findings were “unjustified and not supported by the evidence,” adding that it will immediately appeal to set aside or to reverse the verdict.

Despite Texaco’s tough words, however, those involved in the case were clearly shaken by the outcome.

“I think you could say we were surprised, shocked and astounded,” Texaco lawyer Richard Miller said. “I don’t think people really understand what a billion dollars is.”

After Texaco outbid Pennzoil for Getty in January, 1984, Pennzoil, which is based in Houston, filed the suit seeking $7.5 billion in actual damages and another $7.5 billion in punitive damages.

Pennzoil’s suit did not attempt to dissolve the merger but sought damages based on the argument that, if it had merged with Getty, it would have acquired the equivalent of 1 billion barrels of oil and natural gas reserves. Pennzoil said that it would have spent more than $10 billion in exploration costs to find that much oil and gas but that it could have acquired the same amount from Getty for just $2.7 billion.

Texaco claimed that Pennzoil had not entered into a binding agreement with Getty and that the Los Angeles oil company had eagerly sought higher bids.

The next step in the case will come Dec. 5, when visiting Judge Solomon Casseb will conduct a hearing to determine whether he will certify the verdict. Casseb has the option then of setting a lower figure for damages or possibly ordering a new trial. But Irvin Terrell, another Pennzoil lawyer, said he does not believe that the judgment will be reduced.

“It was a unanimous verdict,” he said. “There were eight questions the judge ordered answered, and all were favorable to Pennzoil.”

But Charles Ivie, a lawyer with the Los Angeles-based firm of Gibson, Dunn & Crutcher, said that, while ever-larger awards against corporations have been handed down by juries in recent years, they are often reduced in the appellate courts.

“I think there is clearly a trend toward higher awards in certain kinds of cases,” he said. “I think there has also been a tendency to have these awards that are very large scrutinized by the appellate courts.”