Justices Say Judge Was Wrong to Cut Texaco Bond to $1 Billion : Way Open for Court Appeal in Texas on Pennzoil Suit

The Supreme Court ruled today that a federal judge was wrong when he excused Texaco Inc. from posting a potentially ruinous $11-billion bond in its court battle with Pennzoil Co.

By a 9-0 vote, the justices overturned a federal court ruling that Texaco need put only $1 billion in security while the case is pending in the courts.

But today’s ruling left open the possibility that Texaco could avoid posting the $11-billion bond through a successful appeal in Texas state courts.

U.S. District Judge Charles Brient in White Plains, N.Y., “should have abstained” rather than reduce Texaco’s bond, said Justice Lewis F. Powell for the court.

State Court Priority

Powell said federal judges should not rule in such cases until state courts have the opportunity to review the issues raised.

He said the constitutionality of the $11-billion bond, which Texaco said could drive it out of business, is best left to the Texas courts for now.

“We cannot say that those courts, when this suit was filed, would have been any less inclined than a federal court to address and decide the federal constitutional claims,” Powell said.

Pennzoil spokesman Mickey Gentry said, “We’re not going to make any comment until we see the decision. We haven’t seen the actual decision yet. But of course, we’re very pleased.”

A lawyer for Texaco, Max R. Shulman, had no immediate comment.

Interference Conviction

A state court jury found in 1985 that Texaco improperly interfered with Pennzoil’s planned acquisition of an interest in Getty Oil Co. The jury awarded Pennzoil $11.1 billion against Texaco.

The appeals court reduced the jury award to $8.5 billion. But with interest payments, the total amount owed by Texaco is approximately $11 billion, Texaco lawyers said.

Texas, like most states, requires the losing side in such cases to post bond to protect the winning side. Texas requires a bond roughly equal to the judgment before the losing side is permitted to appeal.

Lawyers for Pennzoil, which is based in Houston, accused Texaco of going to federal court in White Plains, N.Y.--where Texaco is based--in an end run to avoid the Texas court ruling.

Right to Appeal

Brient ruled that a bond equal to the amount of the jury award could drive Texaco out of business, effectively denying it the right to appeal.

There has been speculation that a Supreme Court ruling favoring Pennzoil could pressure Texaco into settling the case.

A Texas appeals court last February upheld most of the multibillion-dollar award against Texaco.

In today’s ruling, the Supreme Court did not decide whether state laws that require the posting of such large bonds are constitutional.

“We express no opinions on the claims Texaco has raised . . . nor on the possibility that Texaco now could raise these claims in the Texas courts,” Powell said. “Today we decide only that it was inappropriate for (Brient) to entertain these claims.”