About the Blogger

William's picture

William Wray is a 3L at Roger Williams Law. He attended Georgetown University and Brown University for undergraduate, graduating in 2010 with a degree in Middle East Studies. Throughout high school and college he was involved in Mock Trial, which kindled his interest in litigation. At Brown he...



William's Blog

Oil and Honor

Posted by William Wray on 09/20/2010 at 11:02 AM

“Conduct such as Texaco's is not made legal simply by protestations that the acts involved were, in fact, legal. All too often such assertions go unchallenged... and become accepted as the norm by default. Actions previously considered amoral somehow become clothed in respectability. Pennzoil's litigation challenges this mindless slip into acceptability. A contract is a contract. We used to say... business was done on a handshake. Should it now require handcuffs?” - Hugh Liedtke, summarizing the eventual theme of Pennzoil's lawsuit.

I've just finished reading 'Oil and Honor' WSJ journalist Thomas Petzinger’s narrative of the Texaco v. Pennzoil court case that resulted in a $10 billon verdict. I'm posting about it here because it struck me that 1) the majority of the legal issues in the case have already been taught to Roger Williams 1Ls, one month into 1L, 2) it provides a great introduction to the relationship between what’s legal vs. what matters to a jury, and 3) it is a pretty incredible story on its merits.

The first half concerns itself with the histories of the oilmen and oil companies involved in the trial, emphasizing J. Paul Getty (of Getty Oil) and his bizarre brood.

Despite the author's protestations that transcribing the plot of Dallas is necessary to understanding the deal-making intricacies of the latter half of the book, the exposition is too long. For 2010 readers, the theme of 'heirs have an uneasy relationship with their father's inimitable legacy' is hackneyed. Maybe for those fond of non-fiction, it is worth reading in order to acquaint oneself with the real-life counterparts to those curiously specific “billionaire family” archetypes that we now know so well from Billy Madison, Royal Tenenbaums, etc., to wit:

 

jpgetty

J. Paul Getty, oozing superiority.

1. The empire-building patriarch (J. Paul Getty) whose acerbic and remote relationship with his own children will redound throughout their lives, ultimately ending in the destruction and infamy of all that he built;

2. the grandmother (J. Paul's mother) who secretly pulls all of the strings in the family, by extracting a promise (i.e. setting the rather restrictive and illogical terms of the family trust) from J. Paul at a crucial moment;

3. the ambitious, neurotic tattle-tale son (first in line to take over), whose pent-up stress over struggling to live up to his father ends in his suicide;

4. the free-spirited, oddball son who is either terribly brilliant or helplessly idiotic who ends up sitting the throne against all of his father's wishes;

5. the dope-smoking hippy son who moves to Europe, wears tie-dyed clothing, and names his son Tara Gabriel Galaxy Gramophone Getty;

6. the board of directors and top management who attempt to oust #3 from his position at Getty Oil and enlist various minor children to do so;

7. the down-home Texas oilmen (Pennzoil) who buys Getty Oil and fulfills his lifetime dream with a 'handshake deal;'

8. and the sartorially impeccable NYC investment bankers and lawyers who rip it from his hands and put it in Texaco’s.

(As a sidenote, it's a pleasure to read a multi-biography that doesn't fetishize some bizarre theory of success [a la Malcolm Gladwell's Outliers, Tyler Cowen's Create your Own Economy, Levitt and Dubner's Freakonomics.] and insisting upon superimposing said theory over every famous person's accomplishments...)

My interest picked up as the takeover artists stepped in, and the recounting of the litigation is masterful; legally rigorous without being arid, lurid without being facile.

If someone had been commissioned to write a book conveying to 1Ls the importance of paying attention in class, he couldn't have done better than the second half of 'Oil and Honor.' Most of the crucial junctures in this case involved legal principles or methods well within our grasp.

Pennzoil initially filed for an injunction requesting specific performance in Delaware. The DE court wouldn't allow the injunction against Texaco, but suggested that Pennzoil may have a case for monetary damages if they brought the issue to trial.

The Delaware courts – long used to formalized NYC contract law and the somewhat double-, triple-, or quadruple-dealing machinations of investment bankers and M&A lawyers - would almost certainly rule against Pennzoil. The Pennzoil lawyers knew they had to refile the lawsuit in Texas, so that a certain charismatic personal injury lawyer could get in front of a jury.

But how could they refile? Pennzoil had started the lawsuit in DE and was bound by protocol to see the case through there. Texaco would fight to keep the case out of Texas, and the DE courts were likely to agree. It was then that a civil procedure guru for Pennzoil noted that Texaco hadn't filed a formal answer to the lawsuit yet, thus allowing Pennzoil to unilaterally and immediately drop the lawsuit.

This apt choice of battleground was key to Pennzoil's victory. After all, it's unlikely Jamail could've pulled of a Texas style trial in Delaware to much effect.

jamail

Contingency Fee Attorney Joe Jamail,

Shortly after earning a $600 million commission.

Texaco was charged with “tortious interference in a contract,” one of the elements being, of course, proof of the existence of a contract to be interfered with. And here anybody who'd read no more than what we've read in one month of Profesor Chu

ng's contract class could have hacked it in court.

Pennzoil and Getty had reached an “agreement-in-principle,” which included some essential terms (share price) but not others. There was no finalized, comprehensive contract that was signed, yet one could argue that based on the negotiations, the parties had intended to be bound. In any event, it was exceedingly strange to hear the words and principles we've been learning in our 1L contract case (Quake Construction Inc. v. American Airlines Inc., mostly) recited by highly paid lawyers arguing a $10 billion case,

Pennzoil hired personal injury lawyer Joe Jamail, who had tried mostly products liability and medical malpractice suits prior to this engagement. The closest he'd been to a corporate take-over was perhaps ignoring a story of one in a newspaper as he flipped to the obituary section. Based on what we learn of the trial, he probably didn't even understand the finer points of the very case he was trying. Joe Jamail failed torts in law school.

On the other side of the case was Texaco. They believed they had negotiated fairly and legally. Both Getty Oil and Texaco had Goldman, Sachs investment bankers swarming over the details of the acquisition like flies on a particularly putrid corpse, and both retained enough Harvard JD's to buy out a Wal-Mart's worth of white shoes. Every one of the experts assured Texaco that Getty and Pennzoil did not have a contract, that Getty was free to deal, and that there was no possible way that Texaco would be held liable for this.

Texaco relied on this advice to the extent that they indemnified Getty against any legal liability when they cut the deal. After all, they had the best lawyers in the country. People who understood contract law.

What Joe Jamail understood was a jury. He spun the question “At what point is a contract formed?” into an epic battle of fair-dealin' Texans vs. smarmy New Yorkers. When the foremost experts on corporate M&A's and contract law took the stand, he portrayed them as elitists (not a stretch of the truth) without honor (which was a stretch, most of the time) who didn't recognize that a man's handshake (which handshake never happened) was his bond (an agreement-in-principle certainly wasn’t a bond.) Jamail’s little tricks – leaving a newspaper in plain view of the jury table with the headline: TEXACO LAYS OFF WORKERS’ etc., are both amusing and completely frustrating.

He won the trial because he told a good story. When the jury retired to decide the ending, they felt that it was in their power to write a just ending. And that the only just ending would be a $12 billion verdict for Pennzoil.

It’s a great story, and one worth reading if you are not sure where you see yourself fitting into the limitless field of where law intersects with human endeavors.

 

If you find legal minutiae, business litigation, and 140-character updates on the ramifications of D.E. court decisions fascinating, follow William on twitter @wkwray or friend him on facebook.com/wkwray Also, seek help.