High Court to Hear Aspect of Pennzoil Suit : Will Consider Jurisdictional Dispute Affecting Bond Posted by Texaco
Setting the stage for a jurisdictional showdown between the nation’s state and federal court systems, the U.S. Supreme Court on Monday agreed to review a federal court ruling that permits Texaco to pursue its multibillion-dollar legal battle with Pennzoil without posting the $12-billion bond that Texas law requires.
The court won’t hear the case until this fall at the earliest and has until July, 1987, to rule. That timetable prompted concern in some quarters Monday that the battle between the two oil giants now will drag on even longer than already anticipated.
A lawyer for Pennzoil on Monday predicted otherwise.
“I believe it will be (next) June at the earliest before this gets out of the state system,” said a “pleased” Joseph D. Jamail, Pennzoil’s chief trial lawyer on this case. “So the Supreme Court review will not draw this out, and its decision will not be moot.”
Oral arguments before a three-judge panel in the Court of Appeals for the First Supreme Judicial District of Texas are scheduled for July 31 in Houston, and Jamail predicts a ruling there in October at the earliest. After that, the loser has 60 days to appeal to the Texas Supreme Court.
Texaco, while expressing confidence that its “position on the merits of the case will be vindicated in the appeals process,” was as disappointed with the court’s decision as the Pennzoil side was elated--reactions mirrored in the companies’ stock prices. Pennzoil’s stock, after surging $1.50 a share immediately after the announcement, closed up $1.12 1/2 cents at $51.25 in New York Stock Exchange composite trading. Texaco’s stock price fell $1 a share to $32.62 1/2.
(Separately, Standard & Poor’s, a major securities rating service, said it will keep Texaco’s debt ratings on its creditwatch surveillance list because of the renewed possibility of bankruptcy if the Supreme Court finds in Pennzoil’s favor.)
But impartial law scholars familiar with the case said Monday that neither side could have been altogether surprised by the court’s agreement to review the federal court’s intervention on state court turf.
“The sheer size of the case is an important factor,” Yale Law School Prof. Jeffrey Hazard noted. “But more important, I . . . and a lot of other people, I think, remain puzzled as to how any federal right was infringed here” and therefore why federal court intervention was justified.
The court’s other options, observed Paul Mishkin, a specialist in federal jurisdictional law at UC Berkeley, were to affirm or summarily reverse the lower court ruling. Either choice, he said, would have been viewed as a precedent.
This way, Mishkin said, the Supreme Court doesn’t have to decide until July, 1987. And “it is entirely possible that by then this case will be settled” either in an appeals court or in an out-of-court settlement, and the sticky and precedent-setting matter of court jurisdictional rights can be avoided entirely.
The Texaco-Pennzoil feud has its roots in Pennzoil’s failed bid to acquire Los Angeles-based Getty Oil 2 1/2 years ago. Last year, a state court jury in Pennzoil’s hometown of Houston decided that Texaco had improperly interfered with Pennzoil’s planned acquisition and awarded the smaller company a record $11.1 billion in damages.
Texaco is appealing the verdict in Texas, which, like about 30 other states, requires the loser to first post a bond equal to the judgment. But Texaco, pleading to a federal court in its hometown of White Plains, N.Y., argued that such a requirement was improper in a case so large and that it might be forced into bankruptcy just to gain the right to appeal.
U.S. District Judge Charles L. Brieant Jr. agreed, as did the U.S. 2nd Circuit Court of Appeals, which reduced the bond to $1 billion, citing the “catastrophic” consequences of the Texas rule on the nation’s third-largest oil company. Texaco satisfied that requirement by pledging stock in its Canadian subsidiary.
Pennzoil blasted the intervention as “an unprecedented intrusion by a federal court into ongoing court proceedings” and “a total denigration of the principles of federalism.” It argued that the law should be applied no differently in a case “involving enormous sums” than in “routine cases” where the sums are smaller but the loser is just as incapable of posting bond.
