2 Rulings Clear Way for Texaco Appeal : Next Round of Pennzoil Suit Will Stay in Texas Courts; Motion for New Trial Fails

After several weeks of legal maneuvering, the biggest civil case in U.S. history is finally headed for appeal in Texas thanks to two separate decisions Thursday by courts in Texas and New York.

The stage was set for Texaco’s appeal of a multibillion-dollar damage judgment when a federal appeals court in New York excused Texaco from posting a $12-billion bond and a state court in Texas refused to hear the oil giant’s request for a new trial in its bitter two-year fight with Pennzoil over the acquisition of Los Angeles-based Getty Oil.

In the more anxiously awaited of the two decisions, a three-judge panel of the U.S. 2nd Circuit Court of Appeals in New York upheld a lower court ruling that Texaco need post only $1 billion. It also upheld the preliminary injunction issued last month by U.S. District Judge Charles L. Brieant Jr. prohibiting Pennzoil from trying to collect any part of the damages until the appeals process is finished.

Requiring a $12-billion bond “lacks any rational basis,” the judges decided, “since it would destroy Texaco and render its right of appeal in Texas an exercise in futility.”

Opinions Divided

The judges, who issued their ruling a week after hearing arguments from both sides, also equated the $12-billion security requirement to “a deprivation of (Texaco’s) property in violation of its right to due process under the Constitution.”

Expert opinion had been divided over which way the judges would rule. More-conservative legal scholars, furious that a federal court had intervened in a state court matter, had expected the appeals court to rely on what they regard as a well-established body of law and overturn Brieant’s ruling. But others considered Brieant’s a well-crafted and politically popular ruling since it served to keep one of the nation’s largest corporations out of bankruptcy proceedings.

What emerged was a mixed bag for constitutional law. The appeals court ruled that the federal judge was correct in stepping into the fray and cutting the security requirement but that he erred in commenting on the merits of the case and the wisdom of the jury’s verdict. Brieant had dubbed the judgment “absurd.”

“We hasten to note,” the judges said, “that our decision rests partly upon the extraordinary circumstances of this case, which are unlikely ever again to recur.” They cited as extraordinary the “private civil money judgment in an amount unprecedented in the annals of legal history,” the prospect of a company having to find and put up $12 billion before it could appeal and the likelihood that such a posting “would lead to irreversible destruction of the debtor before its appeal could be heard and decided on the merits.”

Case Will Stay in Texas

But the appeals court specifically said the case belongs back in Texas--not in the federal courts--and it ordered Texaco to avoid stalling and “promptly and diligently prosecute its appeal” in the Texas courts.

Chief executives for both companies claimed to be pleased by the decision. And, as has become characteristic of the increasingly bitter fight, both sides used the occasion to get in some digs at the other.

“This decision confirms Texaco’s ability to appeal the judgment of the appellate courts without the burden of oppressive bond and liens,” Texaco Chairman John K. McKinley said in a statement issued from the oil giant’s headquarters in White Plains, N.Y.

And Pennzoil Chairman J. Hugh Liedtke, in a phone interview from Houston, said he is “not that disappointed” over the ruling because the panel reversed Brieant on five of his seven rulings.

As for the decision that Texaco won’t have to post a $12-billion bond, Liedtke said: “We never have wanted them to have to do” that anyway. “That was never a central issue.”

He called the bond issue Texaco’s attempt to “use us as a stalking horse” and “stall, stall, stall.” And he said he is glad that the matter has been resolved so “they can’t be accusing us anymore.”

“Now we can get on with this thing,” he said, referring to the appeal, which the New York judges made clear belongs in the Texas courts. “And we’re gonna help them with their victory now. We’re going to try for an accelerated appeal in Texas.”

Liedtke said that, while he has not yet conferred with his lawyers, he doesn’t expect Pennzoil to appeal the New York decision.

Texaco chief counsel William C. Weitzel Jr., in a phone interview from Houston, called Liedtke’s assertion that the bonding ruling wasn’t all that important “absurd.”

“That’s what was being sought (by Texaco) and opposed by them,” Weitzel said. “That’s what counts. That’s the bottom line. How can they say that?”

He accused Pennzoil of ducking three times during hearings before the ruling the question of whether Pennzoil wanted the $12-billion requirement invoked. Finally, after being pressed, he said, they responded that they did indeed expect the full bond to be posted.

“At each step they claimed they wanted to be reasonable,” he said. “But the truth is they’ve only done it under duress.”

Separately, in Houston, state Judge Solomon Casseb refused to hear a request by Texaco for a new trial. The first trial, in which Pennzoil claimed that Texaco had illegally interfered in its acquisition of Getty, dragged on for 17 weeks. A jury eventually awarded Pennzoil $11 billion, the largest civil judgment ever recorded.

Casseb, whom Texaco has tried to have removed from the case, wasn’t expected to grant Texaco’s request. But he was expected to at least hear Texaco’s arguments, which included 320 objections to the handling of the first trial.

The hearing notice sent to lawyers for both sides noted that the hearing met with Casseb’s approval.

Instead, he asked each of the four law firms representing Texaco at the hearing to stand in turn and tell him whether they still objected to his overseeing the case. After each replied yes, Casseb, reportedly red-faced and clearly agitated, advised them that he would let the law take its course and walked out of the courtroom.

If he takes no further action by Monday, Texaco must, under Texas law, assume that its motion has been denied. It will then begin the appeal of the jury’s verdict.