Judge Delays Ruling in Texaco-Pennzoil Case

The judge who must decide whether to uphold the largest award of damages in U.S. history surprised an overflow courtroom audience Friday by delaying his decision until Tuesday.

Texas District Judge Solomon Casseb Jr., after hearing 75 minutes of closing arguments from a battery of prominent lawyers, said he needs that much time because “this court needs to continue reading some of the cases” presented by both sides. On Nov. 19, a Houston jury decided that Texaco should pay Pennzoil $10.53 billion in damages for luring Los Angeles-based Getty Oil out of a merger agreement with Pennzoil.

Casseb, who came out of retirement to preside over the case after another judge became ill during the 4 1/2-month trial, had been expected to question attorneys for both sides and make his ruling Friday. He did neither.

After the hearing, which Texaco has characterized as an arena to fight for its life and the future of business activity in Texas, obviously weary lawyers and executives for both sides expressed optimism, as well as a strong desire for an early ruling. Pennzoil Chairman and Chief Executive J. Hugh Liedtke’s comment was typical: “I’d like to get this behind us. I’m tired of not getting any sleep.”

Liedtke, who is said by close associates to have been outraged at Texaco last year when the nation’s third-largest oil company struck a deal with Getty just days after Pennzoil and Getty agreed in principle to merge, sat just 10 feet from Texaco President Alfred C. DeCrane Jr., who flew in from Texaco’s White Plains, N.Y., headquarters.

They and a bevy of about 40 lawyers from Houston and New York were among an estimated 175 people who crammed into the tiny Harris County courtroom, built to seat only 40.

At the two-day hearing, Texaco lawyers alternately described the $10.53 billion in damages recommended by the jury as “an incredible sum that bears no resemblance to reality” and as a figure that represents “the most devastating specter of disaster in all of legal history.”

The award is 20 times greater than the price Pennzoil offered to pay for 40% of Getty. But the award was based on an evaluation of Getty’s assets rather than on the market value of Getty’s stock, another point of contention between the two sides.

Texaco argues that it could be forced to file for bankruptcy protection if the judgment stands because it can’t get its hands on that much money.

“Pure baloney,” Pennzoil’s Liedtke said of that assertion after the hearing Friday. Texaco, he said, has $37 billion in assets, which would leave it with $26 billion after it paid off its debt to Pennzoil. “We’re entitled to the judgment,” he said.

The drama is all the more compelling because it pits two big oil companies against each other and raises questions about the proper behavior of corporations during merger dealings.

Texaco’s lawyers seemed to rise to the occasion Friday with passionate and animated pleas that companies contemplating merger deals have an obligation to their shareholders to get the best deal, which usually means shopping around for buyers. Hence, the Texaco legal team argued, an agreement in principle such as the one that Pennzoil and Getty announced Jan. 3, 1984, is only one stage in a merger negotiation, not a binding contract that would block a higher bidder.

Improper Inducement

Getty’s conduct in accepting Texaco’s offer, therefore, is a “model for how the process ought to work,” lawyer Gibson Gayle argued. “The fiduciaries acted as they should.”

But, during the trial, Pennzoil had successfully persuaded the jury that even “an oral agreement is enough” to constitute a binding contract. Thus, the jury ruled that Texaco improperly induced Getty to break its agreement with Pennzoil.

Texaco is pinning its hopes for a reversal of the jury verdict on some points in New York contract law that it says the jurors weren’t aware of because the Texas judge was wrongly advised by Pennzoil counsel. Thus, Texaco maintains, Casseb improperly instructed the jury.

Both sides agree that New York law supersedes Texas law in this case because that is where the alleged violation occurred. Nonetheless, Pennzoil, as the plaintiff, was free to file the case wherever it wanted, and it chose its hometown, Houston.

David Boies, a prominent New York lawyer who represented CBS in the recent libel case brought by Gen. William C. Westmoreland and who was hired to represent Texaco after the jury verdict, argued Thursday and Friday that, for a contract to be binding under New York law, “it must be a written agreement.” And for Texaco to be found guilty of breaching such an agreement, he argued, requires proof that there was a binding contract and that Texaco had “actual knowledge” of the existence of the contract and “actively induced” Getty to break it.

Would Take Minor Miracle

The consensus of several attorneys affiliated with neither side and interviewed outside the courtroom after Friday’s hearing is that it would amount to a minor miracle if the judge concedes that his instructions were improper and reverses the jury verdict or calls for a new trial. He does have that authority, however, as well as the power to reduce the judgment or merely affirm it.

“Texaco argued its points cogently,” said one prominent Houston lawyer who asked that his name not be used for fear of harming his relations with lawyers on either side, “but they aren’t really germane right now. What Boise had to say was eloquently put and an excellent point, but it’s too late, or too early. That should have been brought out at the trial or will have to wait for the appeal.”

Texaco attorneys devoted the bulk of their 56 minutes of arguments Friday to a passionate appeal to the judge to throw out the $3 billion in punitive damages that the jury awarded on top of $7.53 billion in actual damages.

“Where do they (the jurors) get off saying this is the penalty, and we want to send a message to the people?” asked an indignant Texaco attorney, Richard P. Keeton, gesticulating with the enthusiasm of a symphony conductor. “That’s shocking and unconscionable,” especially considering that “the contract itself is as questionable as it is.”

Independent attorneys interviewed after the hearing, however, said that, while the amount itself is indeed shocking, the ratio to actual damages isn’t out of line.