U.S. Judge Reduces Texaco’s Bond : Firm Must Post $1 Billion, Not $12 Billion, in Pennzoil Case

WHITE PLAINS, N.Y. — Texaco Inc. will have to post only about $1 billion, not $12 billion, in security while it appeals a huge damage award won by Pennzoil Co. in a Texas court, a federal judge ruled Friday.

U.S. District Judge Charles Brieant also issued an injunction barring Pennzoil from seizing assets of Texaco, the nation’s third-largest oil company.

Under Texas law, where Pennzoil won its $11.1-billion damage case in November, Texaco would have been required to post a $12-billion bond, covering the judgment, court costs and interest, to appeal the verdict. Texaco said that amount could drive it into bankruptcy.

Brieant said Pennzoil should not have been awarded more than $800 million in damages, plus interest and costs, in the Texas suit.

Previous Merger Deal

The case arose out of Texaco’s acquisition of Getty Oil Co., which previously had agreed to a merger deal with Houston-based Pennzoil.

Pennzoil issued a statement at its Houston headquarters saying it will immediately file an expedited appeal with the U.S. 2nd Circuit Court of Appeals in New York.

Brieant gave Texaco 20 days to come up with a bond or some other type of security to protect Pennzoil’s interest from the damage award and said he would consider $1 billion a satisfactory amount.

He said the amount that would be required under Texas civil law would do irreparable harm to Texaco.

‘So Impractical’

“The concept of posting a bond of more than $12 billion is just so absurd, so impractical and so expensive that it hardly bears discussion,” Brieant said in his opinion.

Texaco, based in White Plains, had argued that the cloud cast by the case over control of its assets during a prolonged appeal had made it difficult to borrow money because of financial markets’ fears that the company would soon be insolvent.

Brieant, who had heard arguments in the case on Thursday, rejected Pennzoil’s contention that he had no jurisdiction in the case.

“This court finds there is no legal bar and no genuine issue of disputed relevant fact that prevents granting this injunction,” he said. “There is absolutely no reason in the world why it should not be granted.”

Long Trial

After a 4 1/2-month trial, a Houston jury ruled Nov. 19 that Texaco wrongfully interfered in the merger agreement between Pennzoil and Getty when Texaco acquired Getty two years ago. The jury awarded Pennzoil $7.53 billion in actual damages and an additional $3 billion in punitive damages.

In affirming the award on Dec. 10, Texas District Judge Solomon Casseb Jr. added $600 million in interest.

Texaco, claiming more than 300 errors in the trial, petitioned Casseb on Thursday for a new trial and asked that he be removed from the case. Casseb has 45 days to act on the motions.

Under Texas law, once the judgment was rendered, Pennzoil was free to place a lien on Texaco’s property, even though the case was subject to a new trial or appeal. To prevent such a seizure, Texaco would have had to post a bond at least in the amount of the judgment, plus court costs and interest--about $12 billion.

Temporary Order

Pennzoil agreed not to seize Texaco’s property while the case remained in Casseb’s hands, and Texaco agreed not to seek protection from creditors in bankruptcy court.

Brieant issued a temporary order protecting Texaco, then recessed the proceedings last month while the two companies attempted to negotiate a settlement. Those settlement talks broke down this week after Pennzoil’s board of directors rejected a merger proposal from Texaco.

On Thursday, Texaco’s attorneys argued that federal protection was needed to assure the company of its constitutional guarantees of due process and a fair trial.