A Texas trial judge today upheld a jury's $10.5 billion verdict against Texaco Inc. for luring Getty Oil Co. away from Pennzoil Co. two years ago.
To prevent a threatened bankruptcy filing by Texaco, District Judge Solomon Casseb Jr. also issued a temporary standstill order to both sides in the lawsuit that produced the largest damage award in history. His order bars Pennzoil from filing claims against Texaco's assets and prevents Texaco from selling major assets without the court's permission for several months.
The decision will give Texaco time to appeal the verdict. Judge Casseb said the standstill order was necessary "to permit the judicial process to operate in an orderly manner without the destruction of anyone's business. . . . "
Judge Casseb worked out the standstill order in a private meeting with both sides this afternoon while spectators in a jammed courtroom awaited his ruling. As the judge who presided in the trial, Casseb had the authority to approve, reduce or throw out entirely the jury's award. As a result of his decision to uphold the award, Texaco owes $11.12 billion -- the original $10.5 billion damage judgment plus interest since Jan. 5. Texaco could incur additional interest charges at an annual rate of 10 percent while the issue is being appealed.
Lawyers for the two sides had been unable to work out an agreement on how to proceed in the case during three days of negotiations that ended this morning.
Without Casseb's standstill order, Pennzoil could have filed liens against Texaco assets Wednesday. Texaco lawyers said that would have caused the company to file for protection under Chapter 11 of the federal bankruptcy law, putting the company under court protection while it attempted to negotiate a settlement.
Filing for bankruptcy protection would have imposed a long delay on any possible settlement of the battle between the two oil companies. According to investment bankers and Wall Street researchers, the size of Casseb's judgment may increase the odds of a negotiated settlement, perhaps involving the transfer of some of Getty's oil and gas reserves to Pennzoil.
The standstill order will last as long as Casseb has jurisdiction over the case. Texaco is expected to ask the judge for a new trial -- the next step in the appeals process -- and if he refuses, Texaco would have 30 days to file an appeal in the Texas courts. At that point, Texaco would have to post a bond equal to the judgment, plus interest and lawyers' fees, or face action by Pennzoil to take over assets to satisfy the award.
Lawyers for both sides estimated the standstill will last between 75 and 105 days.
Texaco spokesman Frank W. Miller had no comment on the judge's order today. "We certainly will follow the court's order," said Texaco attorney David Boies.
If Pennzoil violates the standstill order, Texaco gets a new trial. If Texaco violates it, the order is terminated and Pennzoil would be free to file liens against Texaco assets.
Pennzoil did not reject the possibility of a compromise, but didn't jump at the idea, either.
"I don't know. If we can find out who in Texaco to deal with, we're always willing to discuss matters with them," said Pennzoil Chairman J. Hugh Liedtke. "The problem is, dealing with Texaco is like trying to frisk a wet seal."
There was no sign of conciliation today from Texaco. Liedtke praised Casseb and the jury, and attacked what he called Texaco's "unconscionable . . . media blitz and the political pressures which they've been attempting to exert on the judicial system."
Liedtke referred to Texaco's public warnings that imposition of the full judgment would lead to a bankruptcy filing. "We're trying to keep them from committing hari-kari," said Liedtke. "They don't have to file bankruptcy."
"After paying off all the debts they owe . . . they still have $26 billion, very adequate to cover what they owe us," Liedtke said last week.
The jury imposed the judgment against Texaco last month after finding that it had unethically violated Pennzoil's right to acquire Getty Oil and 1 billion barrels of its oil and gas reserves.
Pennzoil and Getty had reached a preliminary agreement on their deal on Jan. 3, 1984. But before the agreement was signed, Texaco topped Pennzoil's bid and walked off with Getty for $10.1 billion.
The jury awarded Pennzoil $7.35 billion in damages based on the value of the Getty oil reserves Pennzoil lost, and added $3 billion in punitive damages after finding that Texaco acted in "willful and wanton disregard" of Pennzoil's rights. (Texaco's stock closed at $30.75 a share today, unchanged. Pennzoil closed at $66.25, up $3.)
Texaco stock has declined nearly $8 a share, or more than $2.1 billion, since the jury's award. In a separate move today, Texaco announced it was creating a new plan to protect the company against a hostile takeover while the firm's stock is depressed. Under the plan, Texaco shareholders will receive rights to buy shares of an acquiring company at a bargain price.
The January 1984 Pennzoil-Getty agreement in principle was struck during an all-night emergency meeting of Getty's board, which was badly split by internal differences over the company's future. Facing a take-it-or-leave-it ultimatum offer from Pennzoil, Getty's directors agreed to sell 3/7ths of the stock to Pennzoil for $112.50 a share, although some directors objected that a higher price might be available for Getty shareholders if there was time to "shop the company around."
Texaco officials testified that they were invited to make such an offer by Getty directors. Pennzoil said Texaco pushed its way in, and the jury sided with Pennzoil.
At the end of the trial last month, Casseb instructed the jury to decide whether they believed that Getty directors and Pennzoil "intended to be bound" to an agreement on Jan. 3, even though it was not signed. Such an agreement could be binding even though it left some major issues unresolved.
Texaco attorneys argued in seeking to have the verdict set aside last week that Casseb had incorrectly instructed the jury about the law governing contracts, but the judge stuck with his decision.
Richard Lawler, foreman of the jury and a spectator in the courtroom today, said he wanted to see first-hand what the judge did with the jury's award.