Federal Judge Backs Texaco, Slashes Bond
In a major courtroom victory for Texaco, a federal judge Friday overruled a Texas state mandate that the oil giant post a $12-billion bond before appealing a Houston jury’s $10.5-billion verdict in its takeover dispute with Pennzoil.
U.S. District Judge Charles L. Brieant in White Plains, N.Y., agreed to issue an injunction barring Pennzoil from seizing Texaco assets in order to enforce the jury award until Texaco has exhausted its appeals. He slashed the required Texas bond to $1 billion, including $1 million in security that Texaco has already placed with the federal court. That is the maximum in damages and costs he said he believes Pennzoil would be entitled to after appeals.
“The concept of posting a bond of more than $12 billion is just so absurd, so impractical and so expensive,” Brieant wrote, “that it hardly bears discussion. Texaco’s right to appeal the judgment . . . would be meaningless.”
Error Suggested
Brieant also suggested in his ruling that the Houston jury and judges in the case seriously erred in applying the New York state laws that governed their deliberations. Even if Texaco were found to be entirely at fault, he said, the damage award should not have exceeded $800 million.
Houston-based Pennzoil immediately said it will appeal to the U.S. Court of Appeals in New York on grounds that Brieant’s involvement in the case is inappropriate until Texaco completes its appeals in the Texas state courts.
“We don’t believe that the federal court can, consistent with Supreme Court authority, be involved in this decision,” said Mark A. Belnick, a Pennzoil attorney in New York. Pennzoil had no other immediate comment.
Texaco, in a statement issued over the name of Chairman and Chief Executive John K. McKinley, said it was “pleased” by the ruling. Alluding to its contention that the Texas bond requirement had already cost it access to the credit markets and damaged its relationships with suppliers and partners, Texaco said the injunction means it “will be able to exercise its right of appeal without excessive disruption of its affairs or crippling financial consequences.”
Brieant’s ruling clearly shifts the arena of the Texaco-Pennzoil imbroglio to the federal courts, where White Plains-based Texaco believes that it can get a fairer hearing than in the Texas system, which it considers Pennzoil’s home ground. Texaco argued that the trial judges in Houston consistently showed bias in Pennzoil’s favor during the 4 1/2-month trial late last year.
By suggesting that Texaco may prevail on appeal and that Pennzoil’s potential recovery is a fraction of the jury’s award in any event, Friday’s ruling may encourage the companies to resume negotiating an out-of-court settlement. Such talks broke down in acrimony this week after Texaco offered to buy Pennzoil outright.
Fight Over Getty Oil
The case had its origin in Pennzoil’s contention that Texaco illegally interfered with its planned 1984 acquisition of 43% of Los Angeles-based Getty Oil’s stock for $112.50 per share. Texaco took over Getty in February, 1984, with a higher bid of $128 per share for 100% of the company.
Last Nov. 15, a Houston trial jury awarded Pennzoil $7.53 billion in compensatory damages and $3 billion in punitive damages. Because Texas law requires civil appellants to post a preappeal bond equal to the judgment plus interest, Texaco faced the prospect of arranging a bond of about $12 billion, a sum the company argued was unavailable from any source.
Among the alternatives Texaco considered, company executives said, was seeking protection from creditors under Chapter 11 of the Bankruptcy Code. Some analysts thought Texaco would take that step if Brieant ruled against it Friday.
Brieant has no authority to overturn the Texas jury’s verdict itself. Instead, he said, in overruling the state bond rule and enjoining Pennzoil, “our only intention is to assure Texaco its constitutional right to raise claims (on appeal) that we view as having a good chance of success.”
Computed Under N.Y. Law
Nevertheless, to justify his finding that Texaco would probably prevail on appeal, the judge recomputed the damage award Pennzoil would have been granted if New York law had been properly applied according to his own interpretation. Both sides had stipulated that because their negotiations with Getty had occurred in New York, that state’s laws would govern the jury’s deliberations.
Brieant challenged Pennzoil’s key contention that it had been seeking not simply Getty’s stock but a share of its assets, which have a higher value than the stock alone and thus represented a greater loss when Texaco won the company.
Pennzoil “had not arranged for the purchase of oil reserves or any other specific Getty assets,” he said. “It would have had as much control over Getty’s oil assets as it would have had over the cable TV networks then partly owned by Getty.”
Sets Maximum Amount
Instead, Brieant found that the $800-million difference between the $6.1-billion market value of Getty’s outstanding stock as suggested by Pennzoil’s bid and the $6.9-billion market value set by Texaco’s offer is the maximum amount that Pennzoil was damaged, assuming Texaco’s conduct was improper.
