Tex. Court Waives Bond for Texaco in Pennzoil Dispute : Orders for Selling Stock in Both Flood Exchange
A state appeals court today declined to force Texaco Inc. to post a bond in its $11-billion legal dispute with Pennzoil Inc., saying Texaco’s bankruptcy filing during the weekend rendered the action meaningless.
Orders to sell stock in both companies swamped the New York Stock Exchange when it opened today, causing trading in the two stocks to be temporarily delayed. Once trading began, Texaco’s stock fell $3.12 1/2 a share to $28.75, and Pennzoil’s stock plunged $12.75 a share to $79.50.
In the legal action, Judge James F. Warren consulted briefly with two other judges of the 1st District Court of Appeals and agreed with Texaco that a hearing would serve no purpose.
“We believe the court is stayed from any action,” Texaco attorney James Sales told the court. “We believe any action has to be passed to the bankruptcy judge. It’s my understanding no action can be taken. It would be a meaningless action.”
Largest Ever in U.S.
The original $10.3-billion judgment, since swollen by interest, was the largest in U.S. legal history. It arose from a Texas jury’s decision in 1985 that Texaco illegally enticed Getty Oil Co. to renege on a merger agreement with Pennzoil. Texaco then purchased Getty for $10.1 billion in 1984.
Texaco and two financial subsidiaries Sunday filed for reorganization under the federal bankruptcy code, saying it was forced to do so by failure to reach a settlement on the record judgment and by uncertainty over how much bond it would have to post to continue appeals in Texas. (Story on Page 6.)
Pennzoil attorney Joe Jamail said Pennzoil will contest the bankruptcy action, filing court objections within the next two days.
“It’s a phony filing,” Jamail said. “They’re going to slide in their own manure.”
‘Had . . . No Other Choice’
Analysts said Texaco’s bankruptcy move could pressure both companies to settle their 2-year-old dispute, in which Pennzoil accused Texaco of illegally interfering in a planned merger between Pennzoil and Getty Oil Co.
“I think Texaco had absolutely no other choice,” said Philip Verleger, oil economist with the Institute for International Economics, a Washington think tank. “Pennzoil was looking for a quick kill.”
The filing under Chapter 11 of the U.S. Bankruptcy Code gives Texaco a reprieve from creditors while it arranges a way to pay debts. This does not mean that the country’s third-largest oil company is insolvent, and analysts said its day-to-day operations should be unaffected.
But the filing freezes Pennzoil’s attempts to seize Texaco assets and places Texaco under strict supervision of a federal court.
