The Supreme Court, stepping into an increasingly bitter legal battle between two oil companies, agreed yesterday to decide whether Texaco Inc. may be forced to post a crippling $12 billion bond while appealing a judgment won against it in Texas last year by Pennzoil Co.
The justices, without comment, said they would review a New York federal appeals court ruling in February that said Texaco need not post a full $12 billion bond while appealing an uprecedented $11.1 billion Texas jury verdict last year. The jury found that Texaco had wrongfully interfered with Pennzoil's agreement to buy 42 percent of Getty Oil Co. Texaco bought Getty for $10.1 billion in 1984.
A central issue before the high court, which is to hear arguments next fall or winter and rule by July 1987, is a jurisdictional dispute: whether federal courts may intervene in ongoing state litigation, not whether Texaco was at fault in the underlying matter.
Texaco's liability is under review in the Texas courts and an appeals court there has set oral argument for July 31. The case could then be appealed to the Texas Supreme Court and eventually to the U.S. Supreme Court.
Under Texas law, similar to laws in most states, the losing side in such cases must post an appeal bond to protect the winning side. Texas law requires a bond equal to the judgment.
The case entered the federal courts when a district court judge in White Plains, N.Y., acting on an appeal by Texaco, found that such a high bond, which could wipe out Texaco, had the effect of depriving it of its right to appeal. The federal appeals court agreed.
The appeals court said the sheer size of the judgment, which it called "unprecedented in the annals of legal history," would force Texaco, the fifth-largest company in the country, into bankruptcy.
The federal courts set the bond at $1 billion, which Texaco posted by pledging stock in its Canadian subsidiary, and barred Pennzoil from trying to enforce the judgment.
Pennzoil called the federal court ruling an "unprecedented intrusion" into state court proceedings that flew in the face of all precedent and could not be tolerated.
Texaco said the case was "narrow and unusual," given the extraordinary amount of damages involved, and that as such it did not merit high court review.
Texaco's lawyers said Pennzoil's appeal of that ruling was only a tactic to keep settlement pressure on Texaco, hurting Texaco's commercial paper ratings and making it difficult for Texaco to obtain loans.
"Settlement negotiations are not in process at the moment," said Pennzoil attorney Laurence H. Tribe, who added that it was unclear whether the outcome of the case would affect such negotiations.
Market analysts yesterday were unsure what effect the high court's action would have on the situation. Texaco stock closed down $1 at $32.67 and Pennzoil was up $1.12 1/2 to $51.25.
Bruce Lazier, an analyst with Prescott, Ball & Turben, said, "The market is reading it as a slight setback for Texaco, but I'm not sure what it means." Lazier said word of the high court's action probably would not affect the market until today.
"Both sides have backed themselves into a corner where I don't see either of them settling," he said. "There is no incentive for Texaco to settle. They would drag it on for years. Pennzoil is asking for Texaco's corporate life, so why not drag it out?"
A Texaco spokesman said the company was confident it would win in the Supreme Court and also would succeed in reversing the damage judgment in the Texas appeals courts.