Texaco Inc. raised the possibility yesterday that it might have to file for bankruptcy as a result of last week's $10.53 billion jury award against it, setting off a selling spree on Wall Street that forced a temporary suspension of trading in the stock of the nation's third-largest oil company.
Hoping to dispel fears that it was on the verge of seeking bankruptcy protection, Texaco quickly issued a statement saying that such a filing "would be a very extreme step that would only arise as a possibility after all other legal remedies had been exhausted."
But Texaco left the door open for such a step if Texas state Judge Solomon Casseb does not set aside or lower the $10.53 billion award to Pennzoil, which is by far the most expensive verdict ever in U.S. civil litigation. The company said that it was "not at this time ruling out any legal course of action" to protect its stockholders, employes, customers and creditors.
Wall Street analysts said yesterday that the prospect of bankruptcy by the $48.1-billion-a-year oil conglomerate was still somewhat remote, but not as far-fetched as some initially assumed.
Meanwhile, the chief trial lawyer for Pennzoil Corp. angrily attacked Texaco's comments as part of a "propaganda" campaign by the company aimed at pressuring the judge into setting aside the verdict.
After a 59-minute suspension in trading yesterday morning, Texaco closed at $31.37 per share, down $2.37 in unusually heavy trading. The company's stock has now dropped more than $7 since the Nov. 19 verdict.
The immediate trigger for yesterday's developments was a remark by Texaco President Alfred C. DeCrane Jr., quoted in yesterday's editions of The Dallas Morning News, that the oil firm may not be able to post the court bond needed to appeal the Pennzoil verdict through the Texas court system. Under Texas law, a defendant wanting to appeal a civil verdict must post a bond equal to the size of the award against him, plus attorneys' fees and interest. In Texaco's case, that would exceed $12 billion.
"If a $12 billion bond is required -- Texaco doesn't have $12 billion and, in my opinion, probably can't get it -- then we'd have to look for some heroic measure, whether it's Chapter 11 or whatever," DeCrane said.
Chapter 11 of the federal bankruptcy code allows a debtor to reorganize while being protected from its creditors.
In a verdict that caught most of the oil industry by surprise, a 12-member Texas jury awarded Pennzoil approximately $7.5 billion in compensatory damages and about $3 billion in punitive damages after finding that Texaco improperly obtained control of Getty Oil Co. in 1984. Pennzoil had claimed that it had a "handshake" agreement to buy Getty that was later violated when Texaco outbid Pennzoil and bought Getty for $10.1 billion, the second-largest corporate merger in U.S. history.
Joseph Jamail Jr., the colorful Houston lawyer who represented Pennzoil, said yesterday that DeCrane's remark was part of a "media onslaught" that Texaco is now conducting in Texas, including threatening massive layoffs if the verdict is allowed to stand.
"They're trying to get enough pity and sympathy from people . . . so they'll say, 'Let's let them off.' It's the same cry of every S.O.B. in the penitentiary. . . . Maybe they should have thought of this before. You can't let the wrongdoer set the punishment," said Jamail.
Jamail also said that there was no need for Texaco to actually post a cash bond in the case because the company could just as easily pledge its assets, which he estimated at $23 billion. Texaco has, instead, pointed to its stock market value of $8.6 billion, which would be insufficient to meet the bond.
But Texaco, in its statement, emphasized that it still had a number of legal options available before it must confront the bond problem. At a hearing scheduled before Judge Casseb for Dec. 5 and 6, Texaco said it first plans to ask that the jury verdict be overturned or reduced. If Casseb refuses, the company said it will ask for a new jury trial. "If Texaco's motions are granted, the question of a bond will not arise," the company said.
But if Casseb turns Texaco down -- and few lawyers expect him to completely overturn the verdict -- Texaco said it will argue that "there would be serious constitutional problems under both the Texas and U.S. constitutions, were the amount [of the bond] prohibitive.