In a move that could potentially boost Texaco Inc.'s fortunes in its long legal battle against Pennzoil Co., the Securities and Exchange Commission will file a brief before the Texas Supreme Court in the lawsuit that forced Texaco into bankruptcy earlier this year.
The SEC disclosed in a letter to Texaco and Pennzoil that it will offer the Texas high court the commission's interpretation of a securities law that Texaco contends exonerates it of liability in its contract dispute with Pennzoil. The SEC did not say, however, what its interpretation would be.
Texaco was found guilty by a Houston jury of interfering with a 1984 merger contract between Pennzoil and Getty Oil Co. The jury awarded Pennzoil a record $10.53 billion in damages.
In February, all but $2 billion of the award was upheld by the Texas Court of Appeals. In April, Texaco sought protection from its creditors under the federal bankruptcy laws after attempts to settle the case failed. The lawsuit is now before the Texas Supreme Court, which has not yet decided whether or not to consider it.
Among other arguments, Texaco has contended during its appeals that Pennzoil's alleged contract with Getty was void because Pennzoil violated an SEC law known as rule 10b-13. The law prohibits a corporate raider from making private deals to buy a target company's stock while a tender offer for the target's shares is outstanding.
While attempting to acquire Getty Oil, Pennzoil had outstanding a tender offer for 20 percent of Getty's shares. At the same time, the Houston jury found, Pennzoil negotiated a binding agreement with the Getty Oil board to purchase a majority of the company's shares.
The Texas Court of Appeals rejected Texaco's argument about the SEC rule, holding that Pennzoil's contract was not void because the SEC might have granted an exemption to the rule after final negotiations were completed.
Texaco now hopes that the SEC's decision to file a friend-of-the-court brief in Texas indicates that it will fully support Texaco's position on the issue. Even if the Texas high court rejects Texaco's argument, the SEC's brief could help the oil giant persuade the U.S. Supreme Court to hear the case. If the SEC argues that federal law was misapplied in Texas, that might convince the Supreme Court that an important federal issue was at stake .
Rosalind Cohen, SEC assistant general counsel , said it was common for the commission to file friend-of-the-court briefs when it feels an important issue of securities law is at stake.