Texaco Asks Judge to Bar Huge Damage Award

A standing-room-only crowd squeezed into tiny State Court No. 151 here for nine hours Thursday, expecting barbed arguments and an intensity befitting a hearing in which the fate of oil giant Texaco is on the line.

Instead, the atmosphere was genteel. And the more than 130 lawyers, reporters and interested observers who packed the courtroom will have to wait another day for a judge’s decision on whether Texaco must pay Pennzoil the record $10.53 billion in damages awarded by a Houston jury last month.

Arguments in the increasingly bitter case will continue today, after which visiting state District Judge Solomon Casseb Jr. will decide whether to accept, reverse or reduce the huge judgment that the jury had recommended after finding that Texaco last year improperly interfered with Pennzoil’s deal to acquire Los Angeles-based Getty Oil.

Lawyers for Texaco, who in the days since the jury decision have maintained that the “astronomical” judgment would effectively put the nation’s third-largest oil company out of business, on Thursday asked the court to reverse the jury’s decision--thereby giving Pennzoil not so much as a penny--on grounds that Pennzoil did not have a “binding contract” with Getty and that, even if it did, Texaco didn’t have “actual knowledge” of the contract and didn’t “actively induce” Getty to break it.

All of those tests must be met, Texaco argued, under New York law. New York law applies in this case--even though the trial was held in Texas--because that is where the alleged violation occurred. The jury decided that there was a binding contract for Pennzoil to acquire Getty.

In an interesting twist, Texaco also argued that, if the judge upholds the jury’s verdict, he should at least reduce the award to no more than $500 million.

The $500-million figure is based on the market value of Getty’s stock rather than on the value of Getty’s assets, which is the formula that Pennzoil--and the jury--favored. Texaco arrived at the figure by finding the difference between the $128 per share that it paid to buy Getty last year and the $112.50 a share that Getty stock was trading for on the day Pennzoil agreed to buy part of Getty. It then applied that difference to the roughly 40% of the Getty stock that Pennzoil tried to buy from Getty.

Pennzoil, conversely, bases its claim on the 1 billion barrels of oil and gas that it would have had access to had its merger agreement with Pennzoil gone through. Pennzoil claims that it would have to spend more than $10 billion to find that much oil and gas--about $7.3 billion more than it would have paid by acquiring Getty. The jury on Nov. 19 recommended that Texaco pay Pennzoil $7.53 billion in actual damages and another $3 billion in punitive damages.

Calling the $3-billion punitive judgment “irrational” and not founded in law, Texaco lawyers argued that the company “had no desire to hurt” Pennzoil and therefore doesn’t deserve to be assessed punitive damages in any amount, much less the “extraordinary, incredible” $3 billion recommended by the jury. Texaco attorneys ascribed the punitive damages judgment to a jury “run amok” and “confused as to what it was they were finding.”

“It is fairly clear to all of us,” they argued, that the jurors meant to “send us a message” that they did “not like the way certain of the Getty entities were dealing” to get a higher bid for the company. “We were punished for the conduct of third parties for whom Texaco was not liable.”

Houston attorney Joe Jamail, representing Pennzoil, countered that the jury, far from “running amok,” was “highly attentive” throughout the 4 1/2-month trial. Texaco, he claimed, is just trying to “blame somebody.”

Jamail urged the court to give Pennzoil “some protection” from Texaco’s “propaganda and veiled threats in the media” that it might have to declare bankruptcy if the damage award is upheld and it has to post a $12-billion bond in order to appeal the decision--money that Texaco says it doesn’t have.

In that case, Pennzoil would become just another Texaco creditor--and not a primary one either, Jamail noted. So, the “entry of this judgment” as it stands, he argued, “is of some real urgency” for Pennzoil.

He also accused Texaco of “thinking they can get away with saying ‘if you steal big enough . . . don’t worry, brother corporate people, nobody will make you pay.’ ”