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January 10, 1986

TEXACO, INC., Plaintiff, against PENNZOIL COMPANY, Defendant

The opinion of the court was delivered by: BRIEANT

Brieant, J.

By a motion, pursuant to an Order to Show Cause, issued by this Court on December 17, 1985 and heard on January 9, 1986, plaintiff ("Texaco") seeks a provisional remedy in the nature of a preliminary injunction pending trial of the issues raised in its amended complaint, as follows: That defendant ("Pennzoil"), its employees, agents, attorneys and servants be jointly and severally enjoined and restrained from taking any action of any kind whatsoever to enforce or attempt to enforce the Judgment entered in an action in the District Court for the 151st Judicial District of Texas entitled Pennzoil Company v. Texaco Inc., (hereinafter "the Judgment") including, without limitation, attempting to obtain or file any judgment, lien or abstract of judgment related to the Judgment (pursuant to Tex. Prop. Code Ann. PP 52.001, et seq., or otherwise), or initiating or commencing any steps to execute on the Judgment.

 This Court issued a temporary restraining order to this effect on December 17, 1985 and extended it on consent of the parties by an order dated December 23, 1985. Following the hearing, that order remains in effect by oral direction of the Court.

 Pennzoil, by a cross motion filed on December 20, 1985, also heard January 9, 1986, seeks to dissolve this Court's temporary restraining order and to dismiss plaintiff's amended complaint for failure to state a claim upon which relief can be granted and for want of subject matter jurisdiction.

 Familiarity of the reader with the amended complaint filed December 13, 1985 must be assumed. In sum, Texaco's complaint pleads the following claims:

 1. That the Judgment and the legal principles underlying it impermissibly burden interstate commerce by deterring competitive tender offers and therefore violate the Commerce Clause and frustrate the purposes of the Williams Act. (Claims One and Two).

 2. That the Judgment conflicts with, and therefore is preempted by, the Securities Exchange Act of 1934, 15 U.S.C. §§ 78n(d), 78n(e) and 78bb, which promotes and provides a framework for competing tender offers. (Claim Four).

 3. That the Judgment fundamentally changes the New York law of tortious inducement of breach of contract, in derogation of fundamental New York policies and in violation of the Full Faith and Credit Clause. (Claim Five).

 4. That application of the supersedeas bond and lien provisions of Texas law effectively precludes Texaco from exercising its right to appeal in the Texas courts and, if necessary, to petition for certiorari to the United States Supreme Court, all in violation of the Due Process and Equal Protection Clauses of the Fourteenth Amendment. (Claims Three and Six).

 5. That the Judgment, as the result of a fundamentally unfair proceeding, violates the Due Process Clause of the Fourteenth Amendment. (Claim Seven).

 The Court makes the following findings of fact and conclusions of law after a hearing, and pursuant to Rule 65, F.R.Civ.P. *fn1"


 The amended complaint filed in this Court on December 13, 1985 alleges that the enforcement of the Texas state court judgment will infringe rights secured to Texaco by the Commerce, Supremacy and Full Faith and Credit Clauses of the United States Constitution, Articles I, section 8, Article VI, Clause 2, and Article IV, section 1, clause 1, and the Due Process and Equal Protection Clauses of the Fourteenth Amendment to the Constitution and by the Civil Rights Act of 1871, 42 U.S.C. § 1983; and the Securities Exchange Act of 1934, 15 U.S.C. § 78. As such, this complaint has plainly stated federal claims over which this court has subject matter jurisdiction under 28 U.S.C. §§ 1331(a) and 1343(3). Bell v. Hood, 327 U.S. 678, 682, 90 L. Ed. 939, 66 S. Ct. 773 (1946).

 Venue is proper in this District under all three grounds of 28 U.S.C. § 1391. The plaintiff has its principal office at White Plains, New York, and defendant does business in the Southern District of New York. The claims arose in this District. Personal jurisdiction over the defendant is satisfied by its presence in this District.

 Second Circuit Injunction Standard

 On a motion for a preliminary injunction in this Court, it is usually held that "the moving party has the burden of establishing: (a) irreparable harm; and (b) either (1) probable success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary injunctive relief." Kaplan v. Board of Education of the City School District of the City of New York, 759 F.2d 256, 259 (2d Cir. 1985) citing Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir. 1979) (per curiam).

 The mere fact that this case involves only private parties does not permit our inquiry with regard to irreparable harm to end with consideration only of the interests of Texaco and Pennzoil as parties before the Court. As our Court of Appeals, and the Supreme Court, have explained, "Courts of equity may, and frequently do, go much further both to give and withhold relief in furtherance of the public interest than they are accustomed to go when only private interests are involved." Stamicarbon, N.V. v. American Cyanamid Co., 506 F.2d 532 (2d Cir. 1974), quoting Virginian Railway Co. v. System Federation, 300 U.S. 515, 552, 81 L. Ed. 789, 57 S. Ct. 592 (1937). *fn2"

 Irreparable Harm

 Texaco is a very large corporation. It is said to be the fifth largest company in the United States and the third largest oil company. As such it has well established patterns of doing business, which have created a dependency upon it by not only a large number of employees throughout the nation, but also an even greater number of dealers and customers for its products and services, and suppliers. As the numerous letters from Congressmen and Senators docketed in this action and amicus curiae briefs from several states indicate, Texaco's death or insolvency would have a severe impact upon many people and regions throughout the country. In California, for example, Texaco employs over 4000 people (with aggregate annual salaries and wages in excess of $140 million) and conducts business with 16,000 suppliers. See letter of Rep. Glenn Anderson, M.C., dated Dec. 18, 1985. In Florida, Texaco pays approximately $6.7 million annually in state royalties and taxes. Brief of State of Florida, amicus curiae. at 2. Texaco contracts with over 4000 vendors in Louisiana and, during 1985, it expended over $1.4 billion in that state. See Letter of Louisiana Congressional delegation, dated December 16, 1985. Texaco employs about 55,000 people worldwide with a total payroll of $1.6 billion. In 1985 Texaco paid over $730 million in dividends to 319,000 shareholders. Affidavit of R. G. Brinkman, P3, (Dec. 17, 1985).

 The sudden death or dismemberment of a corporation, while it is not analogous to the sudden death of an individual, hurts the public interest. This corporation should not be squeezed through the bankruptcy court or stopped in its tracks through a levy of execution or sale of its various assets under judgment or have its normal access to credit cut off, at least until appellate finality has attached to the Judgment. Unless enforcement of the Judgment is stayed by this Court, Texaco will confront these evils. The consequent harm to Texaco will be shared by those members of the public whose welfare is dependent upon Texaco's continued existence as a vital wealth-generating economic organism. As the multitude of affidavits submitted by Texaco make clear, Texaco has found it increasingly difficult to obtain the financing necessary to conduct its ordinary business operations. See, e.g., Affidavits of Mr. R. G. Brinkman, dated December 17, 1985, December 19, 1985, and January 8, 1986.

 The judgment with its present interest and costs amounts to $11.12 Billion. As measured by the stock market, which is rarely far wrong in such matters, the entire going concern or net worth of Texaco before the Judgment, was valued at approximately $9.5 Billion. Various Pennzoil representatives have stated that this understates the true value of Texaco's assets. They assert that the actual value lies in the $23 to $37 Billion range. See Affidavit of Francis P. Barron, Esq. Exhibits 1 and 2. Even if these estimates are correct, there is no way in the world that Texaco could pay the Judgment without reorganizing or liquidating. This could only be accomplished pursuant to a consent plan or under a bankruptcy court's auspices because other creditors also have claims on Texaco's assets. Such relief does not provide an adequate remedy for Texaco. As the Supreme Court has found, the threat of bankruptcy adumbrates the irreparable harm necessary for the granting of a preliminary injunction. Doran v. Salem Inn, Inc., 422 U.S. 922, 932, 45 L. Ed. 2d 648, 95 S. Ct. 2561 (1975). Texaco would emerge as a fundamentally different company if it were obliged to reorganize pursuant to Chapter 11 of the Bankruptcy Code. This would be true even if the Pennzoil Judgment were later set aside.

 Imposition of an injunction admittedly presents some risk of harm to Pennzoil's position. The risk of such harm, however, is slight. Indeed, Pennzoil's successful insistence upon the bond requirement might drive Texaco into Chapter 11 proceedings and leave Pennzoil with a Pyrrhic victory. A number of corporations, both large and small, have recently found that Congress has created a rather pleasant and profitable harbor of refuge in the bankruptcy court, where they may gain time and other special considerations in dealing with litigation. However, as we have explained, the availability of Chapter 11 is not an adequate remedy at law for Texaco in this case, so as to preclude injunctive relief, and bankruptcy of Texaco would have a most adverse effect on the public interest.

 The imminent disruption to the national economy and to the interests of the public, supports a finding of irreparable harm, at least while the Texas judgment remains subject to appellate review. I include in the public Texaco's customers, suppliers, employees and others who would suffer from the sudden disruption in Texaco's day to day activities.

 It should go without very much elaboration that Texaco itself would be irreparably damaged, and I so find. Immediate enforcement of the Judgment will further limit Texaco's ability to compete in the marketplace and to maintain its current level of business. Accordingly, I find and conclude that irreparable harm to the Public and to Texaco will occur if the Judgment is enforced in any way and to any extent prior to achieving appellate finality.

 Likelihood of Success

 This Court finds and concludes that a direct appeal from the Judgment would certainly be non-frivolous. The Court also finds that Texaco as an appellant has a substantial likelihood of success on a number of its non-federal points for appellate review in Texas or on a ...

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