Judge in N.Y. Gives Texaco Some Relief : Temporarily Blocks Enforcement of Texas Judgment by Pennzoil
Texaco won at least momentary relief Wednesday from its legal and financial quandary as a federal judge temporarily barred Pennzoil from enforcing the nearly $11.1-billion judgment that it won against Texaco from a state trial jury in Houston.
The temporary restraining order issued by U.S. District Judge Charles E. Brieant prevents Pennzoil, at least until Friday, from imposing liens on any of Texaco’s property. It also suspends the Texas court’s requirement that Texaco post a $12-billion bond while it appeals the jury’s decision.
Brieant set a hearing for Friday morning in his White Plains, N.Y., courtroom over whether to lift his order or issue a permanent injunction against enforcing the state jury award. Pennzoil attorneys said they will contest the temporary restraining order at that time.
“It’s absolutely unprecedented,” said G. Irvin Terrell, a Pennzoil lawyer, from his Houston office. “Federal courts are not to review state court rulings. Texaco’s just trying to find another judge who sees things its way.”
Brieant’s ruling is Texaco’s only legal victory, however slight, since the Houston jury last month found that the White Plains-based oil company had illegally interfered with Pennzoil’s planned 1984 acquisition of Los Angeles-based Getty Oil.
Investors grasped hungrily at the long-awaited ray of hope, driving Texaco shares up $1.875 to close at $29.625 in New York Stock Exchange trading. Texaco was the most active stock on the Big Board with 3.2 million shares changing hands. Pennzoil shares dropped $3.375 to close at $61.125 on the New York Stock Exchange.
Texaco acquired Getty in January, 1984, with a higher bid of $10.1 billion. The jury’s award to Pennzoil of $10.53 billion in damages was confirmed Dec. 10 by state Judge Solomon Casseb Jr., who had presided over the latter part of the case.
Since then, the credit ratings on Texaco’s long-term debt and short-term commercial paper have been slashed to speculative “junk bond” grades, as the company has raised the possibility that it might have to seek protection from creditors under Chapter 11 of the U.S. Bankruptcy Code to accommodate the judgment.
Texaco contends that the Texas bond requirement poses an insurmountable obstacle to appeal, since the $12 billion required is nearly equivalent to the company’s entire net worth and far outstrips the amount available from bonding sources.
“The company is staring bankruptcy in the face,” Texaco said in a memorandum supporting its request for the temporary injunction.
A number of Texaco partners and subsidiaries have also been affected. On Wednesday, the rating agency Standard & Poor’s placed the commercial paper and senior public debt of five petroleum pipeline companies partly owned by Texaco on its “creditwatch” list. The firm said it would review those companies’ contracts to determine if Texaco’s ills might endanger their own financial stability.
A spokesman for one of the companies, Atlanta-based Colonial Pipeline, said S&P;’s action was not entirely unexpected.
“We were always hopeful they’d forget about us,” Asst. Treasurer James Nelson said wryly. “But we don’t believe it would be appropriate to reduce our ratings simply on the basis of Texaco’s ownership.”
Nelson said that Colonial borrows money in the commercial paper market “on a fairly continual basis” but that its agent, the investment banking firm of Salomon Bros., does not anticipate any borrowing problems for now.
Like most of the other affected companies, Colonial is owned by several oil companies that pledge to provide a given amount of business or make up the difference in cash; Texaco holds 14.27%, with the largest stake, about 21%, held by Unocal.
The other companies placed on “creditwatch,” and Texaco’s percentage holdings, are: Badger Pipeline, 22%; Explorer Pipeline, 15.97%; Locap Inc., 30.8%, and Loop Inc., 26.6%.
Texaco lawyer David Boies said Wednesday that the company, in arguing late Tuesday for the temporary restraining order, told Brieant that it needed extraordinary protection to ensure that “Texaco is not prematurely crippled before its appeal.”
Judge Casseb had suspended Pennzoil’s right to the liens while the case remained before him, but Boies called that “very limited protection, both in duration and kind.”
Texaco argues that Pennzoil might be able to begin seizing its property as soon as its appeal motion is accepted and the trial court relinquishes the case.
Texaco also reiterated its arguments that the trial in Texas was stacked against it by, among other things, campaign contributions made by Pennzoil lawyer Joseph D. Jamail to the original judge in the case and the presiding judge in the county. Pennzoil, which is based in Houston, and Jamail have dismissed the assertion that the contributions affected the outcome.
