It's the biggest corporate breach of promise suit on record. The Pennzoil Company claimed that it had a binding agreement to buy the Getty Oil Co. The Getty directors had voted, there had been a handshake, and there had even been a press release. The engagement, so to speak, had been announced. But marriage? That, as a certain type of novel puts it, was not to be. Texaco made an offer that the Getty directors decided they liked better, and they sold their company to Texaco. Pennzoil sued in a Texas court, and the jury has now awarded it a swinging $10.5 billion in actual and punitive damages.
It's an absurd verdict -- the kind of verdict that is bringing the whole American tort system and its wide-open verdicts into disrepute. It's also a killer verdict, intended to put the defendant out of business. The amount is a good deal larger than the total value of all of Texaco's stock and comes to three-quarters of the company's net worth. The jury held that the actual damages suffered by Pennzoil were $7.5 billion. How that figure can be justified is unclear, since the total price for which Texaco bought Getty was $10.1 billion. No doubt Texaco can be accused of having alienated the affections of Pennzoil's betrothed. But it is hard to see any very substantial commercial damages in the usual meaning of the term.
Addressing a Houston jury, Pennzoil's lawyer laid heavy emphasis on the point that his client is a Houston company while Texaco's headquarters are, notoriously, in suburban New York. Heart-rending, wouldn't you agree? The honest, unsuspecting local boy proceeds happily toward the wedding when along comes big bad Mr. Moneybags from the city and snatches the girl from the very altar. To a sufficiently sentimental jury, $10.5 billion would be barely sufficient compensation in such a tragic affair.
No doubt the verdict will be reduced on appeal. No doubt a smaller figure -- and perhaps much smaller -- will eventually be negotiated between plaintiff and defendant. You can safely leave the rescue of Texaco to its well-paid and highly motivated lawyers. But this case reaches interests far broader than these oil companies'.
Has not something gone serious wrong in a legal system when it develops the custom of spilling out, at random intervals, this kind of jackpot award unrelated to any real damages? Does not the rising threat of this kind of verdict put a severe burden on business in general and consequently on consumers? The answers are, respectively, yes and yes.