A federal appeals court judge warned attorneys for Pennzoil Co. today that it may "kill the goose that laid the golden egg" if it forces Texaco Inc. to post the full $13 billion bond that could be required following Texaco's defeat by Pennzoil in a Texas court last year.
Pennzoil's attorneys responded that the company is willing to accept a "package" of security instead of the $13 billion bond, including assurances that Pennzoil's claims on Texaco would remain at the top of the list of claims against the embattled oil company. But it wants that question handled by Texas state courts, not the federal court where Texaco has won its only major victory in the two-year-long battle that has raged since Texaco outbid Pennzoil for control of the Getty Oil Co.
Texaco's victory was a ruling by U.S. District Judge Charles L. Brieant in December that barred Pennzoil from enforcing an $11.1 billion judgment against Texaco, awarded by a Texas state court jury. Brieant called the award "absurd," saying that Pennzoil should not have been awarded more than $800 million. A bond of $1 billion would be sufficient, he ruled, and Texaco has posted that amount.
Today, a three-judge panel of the Second U.S. Circuit Court of Appeals here heard Pennzoil attorneys attack Brieant's ruling and Texaco's counsel defend it. At the conclusion of the hearing, the judges asked that a transcript be made available promptly, indicating that their ruling may come quickly.
At several points in the three-hour hearing, the judges seemed to be attempting to play the role of mediator. "Leaving aside the legality," wouldn't Texaco be forced into bankrupcty if it had to post the $13 billion bond required under the Texas court ruling? Judge Lawrence W. Pierce asked.
Judge Walter R. Mansfield said Pennzoil's legal pursuit of Texaco could "kill the goose" and, with it, the golden egg that Pennzoil covets. "You must have some idea what you want" in the way of a bond or other security, added Judge Walter R. Mansfield.
"No creditor has more interest in the viability of Texaco than Pennzoil," responded Pennzoil attorney Arthur L. Liman. But Liman insisted that Texaco should not be given a "fielder's choice" on the jurisdiction it preferred. He added it was "unfair" to try to pin Pennzoil down at today's hearing on the amount of security it requires.
"Pennzoil stipulates that it will not insist on its absolute right to attach liens or demand the bond. It instead wants a Texas court to impose the bond and provide security . . . We don't think a bond is a sensible way to deal with this. . . . We think a better way is an extended standstill agreement," Liman said.
Texaco attorney David Boies said the company had asked Pennzoil what it wanted in the way of security for the judgment, "and Pennzoil has refused to tell us."
Paul Curran, another Texaco attorney, argued that Pennzoil really wanted to hold the threat of the $13 billion bond over Texaco's head to force an out-of-court settlement on Pennzoil's terms. "It's blackmail," Curran said. "Pennzoil didn't waive its rights to liens" before Judge Brieant, he said. "It sought to fudge the issues. It argued for full enforcement. . . . It's blackmail. They want to bludgeon Texaco into a full settlement."
The issue at the heart of the dispute -- a January 1984 "agreement in principle" permitting Pennzoil to acquire 42 percent of Getty -- was not before the appellate court today. Before Getty and Pennzoil directors had signed the agreement, Texaco topped the Pennzoil offer and purchased all of Getty for $10.1 billion. The Texas trial court concluded that the Pennzoil-Getty agreement was a binding contract even though unsigned.
The questions before the appellate court today included: whether Texaco was obliged by Texas law to post the full $13 billion bond; whether the magnitude of that bond would wipe out its constitutional right of appeal by forcing it into bankruptcy; whether Brieant had overstepped his authority by improperly intruding on a state court matter, and whether Texaco's size entitled it to different treatment from other plaintiffs who face judgments and bonds they cannot pay?