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Texaco Loses Appeal in Merger Case but Portion of Fine Is Cut

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Times Staff Writer

A Texas appeals court Thursday trimmed $2 billion from the record $10.53-billion damage award against Texaco but upheld the basic 1985 jury verdict that Texaco had wrongfully interfered with Pennzoil’s plan to merge with Getty Oil three years ago.

The unanimous ruling by the special three-judge appeals panel wasn’t considered a surprise, but Texaco attacked it as “absurd,” “appalling” and “outrageous” and reiterated that it would appeal the case to the U.S. Supreme Court if necessary.

Details of the 162-page opinion weren’t immediately available, but court officials said the original jury verdict was upheld in all respects except the $3-billion portion of the award specified as punitive damages. The appeals court said $1 billion was punishment enough.

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The decrease of $2 billion isn’t much of a setback to Pennzoil because accrued interest since the jury verdict 15 months ago had raised the total owed Pennzoil to about $12.2 billion, said Pennzoil attorney Joseph Jamail of Houston. Thursday’s opinion reduces that figure to $10.2 billion.

“We’ve picked up another billion and a half in interest while they were appealing it,” said Jamail. Despite Thursday’s action, “We’re almost back to the original verdict.”

Texaco stepped in and acquired Getty Oil after Getty and Pennzoil had struck a supposed deal to merge, and Pennzoil sued for damages. The resulting verdict was the biggest in U.S. history and threatened Texaco’s survival.

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The legal dispute centers on whether Pennzoil and Getty had a binding contract to merge and what Texaco knew about that when it entered the picture. Texaco’s major claim in its appeal is that the Texas lower court misapplied New York contract law and left the jury little choice but to find as it did.

Jamail boasted that the appeals court rebuffed Texaco “at every turn” and that “every position Pennzoil took in the trial has been affirmed.” Texaco, meanwhile, took little comfort in the reduction of the punitive damages.

“The court’s reduction of the unlawful and outrageous punitive damage award cannot be allowed to mask the absurdity of today’s basic ruling,” Texaco’s new chief executive, James W. Kinnear, said in a lengthy statement. “It is appalling that the . . . decision today continues to misapply the law of New York on the basic issues of contract formation and illegal interference.”

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The sharp words reflect the hard feelings that have characterized the case ever since the jury verdict, but there has been speculation that Kinnear’s recent promotion to the top post at Texaco might improve the chances for an out-of-court settlement.

Jamail said flatly that “nothing is going on” on that front.

An important side issue--whether Texaco should be required to post a $12-billion bond while it appeals the jury verdict--was argued last month before the U.S. Supreme Court, and a decision is expected this summer. A federal court in White Plains, N.Y., last year held that Texaco had to put up only $1 billion.

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