Turned down in Texas, Texaco appeals to Supreme Court

In trying to reverse the largest contract-law case in history, Texaco's only hope is to put the Texas court system on trial. In 1985, a Texas jury ordered Texaco Inc. to pay Pennzoil Company $10.53 billion, saying Texaco had illegally snatched Getty Oil Company away from Pennzoil. Ever since then, Texaco has been hit with one legal defeat after another.

The most recent came Monday night, when the Texas Supreme Court stunned both sides in the case and refused to hear Texaco's appeal. In so doing, the court affirmed that Texaco still owed Pennzoil $11.1 billion (the original award plus interest), which is 40 times larger than any final judgment ever awarded.

Now Texaco's only resort is the United States Supreme Court. The No. 3 oil company, which filed for bankruptcy in April after its string of defeats, has said it will appeal immediately to the court. Texaco officials say they are relieved that their case is finally out of the Texas courts. In the past, they have said that New York-based Texaco would get a fairer trial outside of Texas, where Pennzoil is based.

The trick is to get onto the Supreme Court's docket. To do that, Texaco must show that there are some federal issues involved, not just state issues with a big price tag.

``If there ever was a case with `US Supreme Court' written on it, this is it,'' says William Tell, a senior vice-president at Texaco.

He says that there are at least three federal issues the Supreme Court should be interested in. First, the Securities and Exchange Commission has said that Pennzoil's contract to buy Getty violated federal securities law. Second, Texaco claims that the Texas courts misinterpreted New York and Delaware laws governing contracts.

Third, there were ``numerous due-process violations'' which denied Texaco its constitutional rights, Mr. Tell says.

One involves the integrity of the Texas courts. Texaco has publicized the fact that lawyers for Pennzoil have contributed heavily to the election campaigns of Texas judges. Texaco admits that its lawyers have contributed as well but says the amounts are smaller and implies that the state courts are biased against it. That strategy of charging bias has backfired in Texas, but Texaco hopes it will win points in the Supreme Court.

Others are not so sure. ``My sense is they may have an uphill fight in getting to the Supreme Court,'' says Harvey Goldschmid at Columbia University Law School in New York.

The federal issues that Texaco is bringing up are tenuous at best, he and others say. And as for the original issue - whether there was a contract for Pennzoil to buy Getty, and whether Texaco got Getty to breach the contract - Texaco is on shaky ground, Dr. Goldschmid says. ``Contract law is one of the centerpieces of state law jurisdiction,'' he says.

The Texaco case serves as an almost philosophical warning to other companies, lawyers say. Texaco ``pooh-poohed'' the suit when it was still small, and thus gave up its chances to nip it in the bud, says oil analyst Rosario Illacqua at Nikko Securities. For example, when Pennzoil was telling the Texas jury that it should get $7.5 billion in compensation - a figure that made the legal community gasp - Texaco didn't bother to make any counter assessments of what the damage was to Pennzoil, because that would imply guilt. The jury came back with the $7.5 billion in damages, and added another $3 billion.