784 F.2d 1133 (2nd Cir. 1986), 883, Texaco Inc. v. Pennzoil Co.
|Docket Nº:||883, 884, Dockets 86-7046, 86-7052.|
|Citation:||784 F.2d 1133|
|Party Name:||TEXACO INC., Plaintiff-Appellee, v. PENNZOIL COMPANY, Defendant-Appellant, State of Texas, Intervenor.|
|Case Date:||February 20, 1986|
|Court:||United States Courts of Appeals, Court of Appeals for the Second Circuit|
Argued Feb. 11, 1986.
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Arthur L. Liman, New York City and Laurence H. Tribe, Cambridge, Mass. (Mark A. Belnick, Gerard E. Harper, Brad S. Karp, Stephen M. Merkel, Paul, Weiss, Rifkind, Wharton & Garrison, New York City, John L. Jeffers, Jr., G. Irvin Terrell, Baker & Botts, Houston, Tex., Paul M. Bator, Mayer, Brown & Platt, Chicago, Ill., of counsel), for defendant-appellant Pennzoil Co.
David Boies and Paul J. Curran, New York City (Thomas D. Barr, Max R. Shulman, Francis P. Barron, Stephen S. Madsen, William F. Duker, Stephen D. Poss, Robert B. Silver, Rosemary Q. Barry, Richard L. Crisona, Nicholas A. Gravante, Jr., Linda C. McClain, Dominic Surprenant, Cravath, Swaine & Moore, Milton J. Schubin, Randolph S. Sherman, Ira S. Sacks, David R. Garcia, J. Clark Kelso, Kaye, Scholer, Fierman, Hays & Handler, New York City, of counsel), for plaintiff-appellee Texaco Inc.
Jim Mattox, Atty. Gen., State of Tex., Austin, Tex. (Mary F. Keller, Executive Asst., J. Patrick Wiseman, W. Robert Gray, Asst. Attys. Gen., of counsel), for intervenor State of Tex.
Amici briefs have been received from the following: State of Ala., State of Alaska, State of Cal., State of Del., State of Fla., State of Kan., State of Mont., NAACP, State of N.M., State of N.Y., U.S. Senator Alfonse M. D'Amato, Rep. Hamilton Fish, Jr. and 24 Other Members of U.S. Congress from New York, The Business Council of New York, State of Okl., Atty. Gen. of State of Okl., Hon. Jack Brooks and 12 Other Members of U.S. Congress from Texas, State of Wash., State of Wyo., Henry Fowler, W. Michael Blumenthal, G. William Miller and William E. Simon, former Secretaries of the U.S. Treasury, and The Committee of Concerned Employees and Retirees (Stockholders) of Texaco Inc.
Before LUMBARD, MANSFIELD and PIERCE, Circuit Judges.
MANSFIELD, Circuit Judge:
Pennzoil Company ("Pennzoil"), a Delaware corporation with its principal place of business in Texas, appeals an order of the Southern District of New York, 626 F.Supp. 250, Brieant, Judge, granting to Texaco Inc. ("Texaco"), a Delaware corporation based in New York, a preliminary injunction restraining Pennzoil from seeking to enforce a judgment entered on December 10, 1985, by the Texas state court for the 151st Judicial District in the sum of $11.12 billion (including punitive damages, pre-judgment interest and costs) in Pennzoil's favor against Texaco. 1 The Texas judgment, handed down after a four-and-one-half month jury trial, was based on the jury's findings with respect to special issues propounded by the court.
In substance the jury found that Texaco had knowingly and intentionally interfered with a pending agreement between Getty Oil Co. ("Getty") and Pennzoil, which was negotiated in New York, for the latter's acquisition of approximately 3/7ths of Getty's outstanding shares at $110.00 per share plus certain additional consideration and that Pennzoil was entitled to $7.53 billion compensatory damages and $3 billion punitive damages. The stock was eventually sold by Getty to Texaco at a higher price ($128 per share) than that found to have been agreed upon between Getty and Pennzoil.
The present action was commenced by Texaco's filing of its complaint in the Southern District of New York on December 10, 1985. The complaint set forth seven claims (described infra at p. 1139)
alleging that the Texas judgment and enforcement of it through use of Texas lien and supersedeas bond provisions (described infra at pp. 1138-39) would violate its rights under the Commerce, Supremacy, Full Faith and Credit, Due Process and Equal Protection Clauses of our federal Constitution, as well as under the Civil Rights Act of 1871, 42 U.S.C. Sec. 1983, the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78a et seq., and Rules promulgated by the S.E.C. under the latter Act.
We hold that the district court had jurisdiction over the Third and Sixth Claims of Texaco's Amended Complaint (due process and equal protection) in the present action and that the grant of preliminary injunctive relief based on them does not represent an abuse of judicial discretion since it is supported by undisputed facts that satisfy well-established standards for preliminary injunctive relief. However, all other claims asserted in Texaco's complaint must be dismissed for lack of subject matter jurisdiction since they seek appellate review on the merits of the Texas judgment in violation of 28 U.S.C. Sec. 1257 as interpreted by the United States Supreme Court. 2 See District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983); Atlantic Coast Line R. Co. v. Brotherhood of Locomotive Engineers, 398 U.S. 281, 286, 90 S.Ct. 1739, 1743, 26 L.Ed.2d 234 (1970); Rooker v. Fidelity Trust Co., 263 U.S. 413, 44 S.Ct. 149, 68 L.Ed. 362 (1923). The injunctive relief issued by the district court on the Third and Sixth Claims of the Amended Complaint is affirmed. The case is remanded with directions to dismiss the First, Second, Fourth, Fifth and Seventh Claims.
The principal issues in the Texas case were whether Getty had entered into an agreement with Pennzoil, whether Texaco had according to the law of New York tortiously interfered with that contract, and, if so, what damages were suffered by Pennzoil as a result of Texaco's conduct. Following the jury's special findings in Pennzoil's favor on these issues the Texas trial judge, Hon. Solomon Casseb, denied Texaco's motion for judgment n.o.v., which was sought on various grounds, including all of those alleged in the present federal action except those alleged in the Third and Sixth Claims. On December 10, 1985, Judge Casseb entered judgment in favor of Pennzoil against Texaco in the sum of $7.53 billion compensatory damages, $3 billion punitive damages and $624,753,662 prejudgment interest to December 9, 1985, from which $33,777,551.17 was subtracted according to a stipulation filed by Pennzoil. The judgment totalled $11,120,976,110.83 and provided that post-judgment interest would be recoverable by Pennzoil at the rate of 10% per annum until the judgment was paid. Texaco's motion for a new trial remains pending before Judge Casseb.
With the consent of the parties, Par. 7 of the judgment, in order to preserve the status quo as long as the trial court had jurisdiction of the case, prohibited Pennzoil, during the pendency of the proceeding before the trial judge, from seeking to enforce the judgment and barred Texaco from encumbering its assets except "in the routine and ordinary course of business". The purpose of Par. 7 was to avoid the possible collapse and liquidation or bankruptcy of Texaco that might be precipitated by the sudden financial crisis it faced as a result of the astronomical amount awarded against it. However, this relief would be short-lived since it would expire when the Texas trial court lost jurisdiction over the case, which could occur as early as 30 days after the trial judge's denial of Texaco's motion for a new trial and at the latest on March 25, 1986. 3 Thus, Texaco could anticipate
that if Judge Casseb denied the motion on the same day it was filed, January 9, 1986 (as he did with respect to the motion for judgment n.o.v.), Par. 7 would expire by February 10, 1986.
Upon the expiration of Par. 7 of the Texas judgment, Texaco would, absent injunctive relief, again face a financial crisis of staggering proportions, which could not under Texas law be avoided without Pennzoil's consent. Rule 364 of the Texas Rules of Civil Procedure requires Texaco, in order to stay execution of the judgment against it pending its appeal, to post a supersedeas bond, payable to Pennzoil, "in at least the amount of judgment, interest and costs," 4 or more than $12 billion since interest accumulates at the rate of approximately $3 million per day. In addition, Tex.Prop.Code Ann. Secs. 52.001 et seq. (Vernon 1983), provides that an abstract of judgment presented by the judgment creditor (Pennzoil), when properly recorded and indexed, constitutes a lien "on the property of the defendant located in the county in which the abstract was recorded and indexed ...". Id. Sec. 52.001. Texaco's real property in the State of Texas is estimated to be worth $5 billion.
Needless to say, Texaco could not possibly meet the mandatory bond requirement. It is estimated that the world-wide surety bond capacity ranges from $1 billion to $1.5 billion under the best possible circumstances. In addition, full collateralization would be required for a bond of such huge proportions. Texaco does not have sufficient liquid or immediately-liquidatable assets to post $12 billion in cash or cash equivalents and still retain sufficient liquid assets to operate its business. Moreover, it would be unable, because of the terms of its unsubordinated debt securities, to borrow $12 billion by mortgaging or pledging its assets. A lien of such proportions would seriously impair its ability to carry on its business with the result that it would probably be forced into bankruptcy or liquidation.
Under Texas law, relief from the harsh strictures of Rule 364 is not immediately available to Texaco. The Rule's terms have repeatedly been declared by Texas courts to be mandatory, requiring that the supersedeas bond be in at least the amount of the judgment, interest and costs and prohibiting the requirement from being partially superseded. Mudd v. Mudd, 665 S.W.2d 128, 130...
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