State Officials Seek Power to Challenge Texaco, Getty Deal : Bid to Invoke 1907 Law Goes to California Supreme Court
State officials asked the California Supreme Court on Wednesday for sweeping new authority to use state antitrust law to challenge the multibillion-dollar 1984 merger of New York-based Texaco and Los Angeles-based Getty Oil.
“This deeply and seriously affects the interest of California . . . and the competitiveness of the industry and the prices to be paid by consumers,” Chief Assistant Atty. Gen. Andrea Sheridan Ordin told the justices.
“We’re not talking about some remote merger of two out-of-state firms. We’re talking about a $10.2-billion merger, of which the assets in California are $6 billion.”
But a lawyer for Texaco, the nation’s third-largest oil company, assailed the attorney general’s unprecedented attempt to invoke a 1907 law to challenge the merger. He said the statute was never intended for such use and that the state’s effort conflicted with federal authority over interstate commerce.
The court should not allow the state to “second guess” a merger that has already been approved by federal officials, said M. Laurence Popofsky, a San Francisco attorney.
Far-Reaching Test
“If you let attorneys general intrude on this process, you will be impeding the public interest in having these transactions--with their national and international concerns--be quickly reviewed and decided by federal authorities,” he said.
The case before the justices has gained attention as a far-reaching test of the Cartwright Act, the state’s antitrust law, against a merger that the state believes will reduce competition in the oil business and raise gasoline prices for consumers. The law, aimed originally at railroad trusts, prohibits “combinations of capital” that could allow anti-competitive pricing.
The issue arose from a suit filed in 1984 by state Atty. Gen. John K. Van de Kamp seeking to block Texaco from acquiring Getty.
Van de Kamp contended that Texaco’s acquisition of Getty’s vast crude oil reserves threatened to stop Getty’s supply of 100,000 barrels a day of surplus oil for use by independent refiners. The acquisition would give Texaco excessive control of petroleum markets in California and could force independents out of business, raising prices for consumers, he said.
A Superior Court judge in Sacramento refused to halt the merger and dismissed the suit. The state Court of Appeal upheld that decision, finding that state law was preempted by the Federal Trade Commission’s approval of the merger.
The state Supreme Court voted last year to review the case. But it was heard Wednesday before a court that now includes three new members--Justices John A. Arguelles, David N. Eagleson and Marcus M. Kaufman--who were appointed following the departure from office of Chief Justice Rose Elizabeth Bird and two other justices defeated in the November election.
The dispute has come before the new court as Texaco, in a separate case, is seeking to avoid posting an $11-billion bond as security while it appeals a verdict by a jury in Texas finding that Texaco had illegally acquired Getty after Pennzoil had announced an agreement to buy nearly half of that company.
Difficult to ‘Undo’
On Monday, the U.S. Supreme Court issued a ruling that appeared to move Texaco closer to filing for bankruptcy, holding that federal courts should not have intervened to free the company from posting the huge bond until it had exhausted its appeals in the Texas courts.
State officials said Wednesday that the outcome of the Texaco-Pennzoil case likely would not impede their effort to challenge the effects of the merger in California. But they conceded that if they win the case before the state Supreme Court, it would be very difficult to “undo” the merger in California.
“As they say, it’s hard to unscramble scrambled eggs,” Ordin said following the hearing before the justices. But she said it was possible the state would ask that Texaco be ordered to divest itself of at least some of its assets in California and to continue to comply with requirements imposed by the FTC in approving the merger in 1984.
The FTC said Texaco for five years must continue to sell crude oil to independent refiners, which produce gasoline for sale at discount prices by independent stations. The firm also must provide Getty’s customers with access to its pipelines to transport oil, the FTC said.
Leslie C. Randall of Universal City, another lawyer for Texaco, declined comment on the effect of the Texas case on the California dispute. But he expressed substantial doubt that state officials would be able at this point to dismantle the 4-year-old merger. “There is no question the two companies are merged together,” he said. “They are one company.”
In Wednesday’s hourlong hearing, Special Deputy Atty. Gen. Michael J. Strumwasser sought to assure the justices that the state could proceed with its antitrust case without conflicting with the FTC’s role in the case.
