Texaco told to seek Texas-style justice
Boston — The eyes - and the courts - of Texas will once again be on the much-publicized, multibillion-dollar Pennzoil-Texaco dispute as a result of a unanimous Supreme Court ruling on Monday. The justices sent the dispute back to the Lone Star State for resolution. They voted 9 to 0 to overturn a ruling by a federal judge in New York that Texaco only needed to place $1 billion in security while an $11 billion damage suit is being appealed.
While the high court decision was an important jurisdictional victory for Pennzoil, the opportunity is still open for Texaco to avoid posting the large - and potentially ruinous - bond through appeal in the Texas courts.
It also appears that the justices left open the possibility of a later Supreme Court action on the main issues in this case when all state court appeals are over.
Pennzoil had won almost $11 billion in court damages against Texaco in a Texas court in l984. The plaintiff claimed that Texaco intentionally induced the breach of a binding agreement between Pennzoil and Getty Oil Company.
In January 1984, Getty and Pennzoil announced an agreement in principle to merge. A few days later, Texaco reached an arrangement to acquire Getty.
During the trial, Texaco insisted that there was no evidence that it knew of any contact between Pennzoil and Getty. Pennzoil insisted, however, that it had an agreement with Getty and that Texaco was aware of it.
After a more than a four month trial, a state jury awarded Pennzoil $7.53 billion in compensatory damages and $3 billion in punitive damages.
An appeals court, last February, reduced the cash judgment to $8.5 billion. But with interest payments the total amount owed by Texaco is believed to approach $11 billion.
Texaco planned to appeal this mammouth judgment but said it would suffer disasterous economic consequences, meanwhile, if it was required to post an $11 billion bond required by a state statute.
In Texas, when a court judgment is for money damages, state rules of civil procedure require the bond to ``be at least the amount of the judgment, interest and costs.''
US District Judge Charles Brient in White Plains, N.Y., granted a preliminary injuction preventing Pennzoil from enforcing the Texas state court award and ordered Texaco to post a $l billion bond.
In reversing Judge Brient, Associate Justice Lewis F. Powell said Monday that the New York jurist ``should have abstained'' rather than reducing Texaco's bond.
Justice Powell added that federal judges should not rule in this type of case until state courts have the opportunity to review all the issues raised.
The constitutionality of the $11 million bond is best left to the Texas courts for now, he added.
``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 explained.
``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. Today we decide only that it was inappropriate for [Brient] to entertain these claims,'' he added.
Lawyers for Pennzoil, which is Houston-based, had accused Texaco of trying to circumvent the Texas ruling by going to a federal court in New York, where Texaco is based.