The Taking of Getty Oil

by Coll, Steve;

  The immediate difficulty, as Jeffers and his partner Irv Terrell saw it, was that obtaining an injunction in Delaware was a nearly insurmountable legal challenge. Under the law, such an injunction could be issued only if a judge was convinced that no other remedy was available to the injured party. That is, Pennzoil would have to prove to the Delaware judge that only by stopping Texaco’s merger with Getty Oil could Pennzoil be “made whole.” Thus, there were two barriers to overcome: first, Jeffers and Terrell would have to prove that their client had been wronged, that Texaco and the Getty Oil board of directors had breached a contract with Pennzoil; and second, they would have to demonstrate that the only way to compensate Pennzoil for this wrong would be to stop Texaco from merging with Getty. It was this latter test that was most difficult to meet. Even if the Delaware judge found that Pennzoil’s contract had been broken and that Liedtke was entitled to compensation, it did not follow that no other remedy was available. Pennzoil could sue for damages—money—and then use that money to buy enough oil to replace the barrels lost to Texaco. Hugh Liedtke’s attorneys tried to argue in Delaware that Getty Oil was a unique and irreplaceable target, that its oil reserves were so rich and politically secure that no amount of money could compensate for their loss, but the judge was, not surprisingly, unimpressed. He ruled on February 7 that Pennzoil’s case for breach of contract appeared strong to him, but that the damage remedy was indeed adequate to satisfy any injury Hugh Liedtke might have sustained in New York.

  Having failed to secure an injunction, the Baker & Botts lawyers were now confronted with a serious problem. Their client was determined to pursue a jury trial for damages, and wanted his friend Joe Jamail to run the show. But the lawsuit against Texaco, Getty Oil, the museum, and Gordon was pending in the Delaware courts. The lawyers also knew that Joe Jamail would be uninterested in trying any lawsuit in Delaware—Texas-born and -bred, rich, and successful, Jamail did not eagerly travel out of state, especially to a place like Wilmington—Delaware’s unglamorous legal capital. Even more germanely, the Delaware Chancery Court, where corporate disputes were heard, had evolved from the ancient English distinction between law and equity cases. And under Delaware equity court rules, it would be very difficult for a plaintiff to have his case heard by a jury, and even if a jury was impaneled, its verdict was not binding on the judge. Similarly, there were no provisions in the Delaware courts for awarding “punitive” damages. So the Baker & Botts lawyers tried to determine if there was some way they could move their lawsuit to a Texas state court, where Jamail would be in his element and where the court rules were more favorable.

  It was then, during the second week of February 1984, that the Baker & Botts lawyers discovered what one attorney involved later described as the “ten-billion-dollar boo-boo.”

  The mistake was a product of the chaotic atmosphere surrounding all the lawsuits and accelerated discovery programs sprouting up during the early weeks of 1984. And it was the result, in all probability, of a critical, if subtle, distinction between the types of law firms involved in this legal pandemonium.

  During the crucial two weeks following Pennzoil’s 20 percent tender offer for control of Getty Oil, Hugh Liedtke’s attorneys from Baker & Botts had been criticized by their counterparts in the large Wall Street firms for their lack of familiarity with the protocols of modern merger-making. The Baker & Botts lawyers specialized in corporate lawsuits, not mergers. They had some experience in deal-making, but they could hardly match the resumés of such Wall Street giants as Marty Lipton’s Wachtell, Lipton, Rosen & Katz, or Texaco’s firm, Skadden, Arps, Slate, Meagher & Flom. Even Pennzoil’s special New York retainer, Arthur Liman of Paul, Weiss, Rifkind, Wharton & Garrison, was known more for his criminal defense work than for his merger expertise. Liman’s New York law partners were respected for their abilities in drawn-out corporate litigation battles, not especially for their negotiating skills in fast-breaking merger deals. The fact was that Hugh Liedtke had no Wall Street specialists in his stable of legal advisors, and there were some who believed this was a central reason behind his defeat at the hands of Texaco. But now it was precisely Liedtke’s dependence on his hometown corporate litigation experts at Baker & Botts that turned things to Pennzoil’s advantage. Unlike the Wall Street merger lawyers, Liedtke’s attorneys did not think of lawsuits as short-term tactical devices. To them, a lawsuit was something to be won or lost. It was a game one played to the very end.

  After the judge in Delaware turned down their request for an injunction, the Pennzoil lawyers checked the court files in Wilmington, and what they found pleased them greatly. Getty Oil Company, the museum, and Gordon Getty’s family trust, had each “answered” Pennzoil’s breach-of-contract lawsuit—that is, they had filed papers denying Pennzoil’s charges and asserting counterclaims of their own. But Texaco, represented by the takeover specialists at New York-based Skadden, Arps, had asked for an extension, and as of Thursday, February 9, they had not yet filed a response. This was not because an answer was a complex or difficult brief to prepare—an experienced attorney could dictate an adequate one in thirty minutes. The Skadden, Arps lawyers explained later that they did not answer Pennzoil’s suit because they thought it was not necessary under Delaware law, that once a discovery program was undertaken, an answer was not needed. But it was also true that the Skadden, Arps lawyers did not ordinarily worry about answering lawsuits filed against their clients. They were in the takeover business, where lawsuits were like rockets: they took off in a fast and fiery explosion and then faded quickly from view. Only a handful ever survived beyond the preliminary injunction stage.

  “Their whole mind-set is the preliminary injunction, and then it’s over,” John Jeffers said later, speaking of Wall Street legal specialists generally. “In some ways, it’s a wonderful life, because all your cases are over in six weeks and you go on to the next thing. Nothing consumes your life for four or five years like it does for us mortal trial lawyers. I had a friend at one of the takeover firms, and I can remember him bragging about how he never had to file an answer because his cases were all over before the answer date. I think that’s sort of what happened here.”

  More precisely, what happened was that on Thursday, February 9, Jeffers and his partners at Baker & Botts dismissed their case against Texaco in Delaware and refiled it the same day in state court in Houston. They took advantage of something known in legal shorthand as “Delaware rule 41,” which permitted a plaintiff to dismiss his lawsuit “without prejudice” and refile it elsewhere as long as the defendant had not answered the original complaint. Since the lawyers for Getty Oil Company, the museum, and Gordon’s family trust had filed their answers to the Delaware suit by the appropriate date, Baker & Botts could successfully employ this maneuver only against Texaco. In its lawsuit against the other defendants, Pennzoil was stuck in Delaware—without a jury, without Joe Jamail, and without punitive damages. Texaco alone would have to face a jury trial in Houston. It was not everything the Baker & Botts lawyers might have wanted, but for Hugh Liedtke, it was enough.

  Embarrassed and outraged, Texaco and its Wall Street lawyers scrambled to block Pennzoil’s ploy. But a Delaware judge ruled that Liedtke was well within his rights. The attorneys at Skadden, Arps tried to explain to John McKinley and Texaco’s other top executives that their failure to answer in Delaware was an innocent error, that they followed reasonable assumptions and analysis, but the firm’s embarrassment was compounded by the fact that all of the other Delaware defendants had avoided Pennzoil’s trap by routinely filing their answers. Only Texaco had been hauled down to Houston to face justice in the Texas state courts.

  As winter yielded to spring, the question remaining was whether Texaco would additionally face the peculiar courtroom skills of Joe Jamail once a trial in Houston got under way. Despite repeated entreaties from his friend Hugh Liedtke, Jamail had not yet decided whether he would take on the case—complex corporate disputes did not excite him. Jamail figured that Liedtk
e was just smarting from a business deal gone sour and that his wounds would mend soon enough. So he kept putting Liedtke off. He told his friend to try to put the loss of Getty Oil behind him.

  Later on, Hugh Liedtke and his attorneys would talk a great deal about notions of honor and morality as they pertained to the case of Pennzoil v. Texaco and to the Byzantine entanglements at Getty Oil which preceded the lawsuit. They would describe their grievances against John McKinley, Sid Petersen, and the directors and advisors at Getty Oil in simple, virtuous language—the righteous, patriotic vocabulary of frontier myth. They talked about “handshake” deals and about the raw, honest culture of the Texas oil patch, where a man’s word was more important than his signature. Drawing on the powerful, coded, century-old rhetoric of Southern and Western populism in American politics, they talked in sinister tones about the concentrated power of New York lawyers and investment bankers.

  To anyone intimately familiar with the eighteen-month-long battle for control of Getty Oil, in which manipulation, deceit, ignorance, ego, and greed propelled the action from nearly every quarter, the application of such starkly moral concepts to the story seemed to require a long leap of the imagination. As Liedtke and his lawyers repeated this rhetoric about honor and morality, however, they seemed more and more to believe its every tenet. Liedtke, particularly, portrayed himself as a straight-dealing, plain-talking, white-hatted Texan who stepped into Manhattan that New Year’s Day of 1984 with the naïve expectation that folks there would do him right. With his philosophy degree from Amherst, his MBA from Harvard, and his law degree from the University of Texas, the Pennzoil chairman was perhaps overeducated for this role. But he was not cynical, either—at some important level, Liedtke clearly did believe in honor, morality, family, and the Republican Party. The question always was, as it is for every man, to what degree did these ideals comport with reality? To what degree were they relevant in a $10 billion hostile takeover battle? To what degree had Liedtke followed his professed moral precepts through the course of his own long and ambitious career in the oil business?

  The important issues had perhaps as much to do with class and culture as they did with abstract notions of business ethics. In his effort to secure a jury trial in Houston and to enlist Joe Jamail to his cause, Hugh Liedtke seemed to understand this point. While Liedtke’s career was divided in important ways between Texas and the Northeast, between entrepreneurialism and corporate consolidation, between the populist oil patch and the powerful Republican establishment, Joe Jamail embodied the unfettered, anti-authoritarian, incontinent spirit of Houston, Texas, the city in which he was born and raised. Liedtke wanted Jamail to take on his case against Texaco not simply because Jamail had a superb record in local jury trials, but because if anyone was capable of recasting the ethically convoluted, technically complex, economically gargantuan dispute over control of Getty Oil into a Texas morality play, it was Jamail. Joe Jamail would not have to plan such a strategy rationally, he would not have to think it out and write it down in outline form—he would know intuitively how to do it.

  He would know because it was the way he saw the world. It was the way he lived. The son of Lebanese immigrants to Texas, Jamail was a short, compact man with a prominent nose, strong eyes, and an explosive, deeply charismatic ebullience. He drank vodka like it was water, ogled women across the state, drove his black Jaguar at excessive speeds, cussed routinely, partied regularly with country singer Willie Nelson, and otherwise lived in easy companion with the most exaggerated Texas myths. He was fifty-eight years old when Hugh Liedtke first asked him to consider trying the case of Pennzoil v. Texaco, and he was slowing down only at the margins of his life—cutting back on the cigarettes, postponing the drinking sessions until later afternoons, and turning over some of his cases to the younger partners at his small, personal-injury, “sore back” firm in downtown Houston.

  One morning when it was all over, when Wall Street and Washington and executives at the nation’s largest corporations wanted to know who Joe Jamail was and where he had come from, the aging trial lawyer sat in a wooden rocking chair beside the floor-length window in his skyscraper office in Houston, sipped from a tall glass of iced tea, and told the story of his life in words only the most skillful provincial novelist could hope to produce:

  “My father had a confectionary store. You can’t see it from here now because the building was way down on the end of Main Street. There’s an old picture we had of it somewhere. They made cotton candy and divinities and shit like that. He also had the very first taxi company, which was run by mules. It was called Old Jitneys. I don’t remember any of this, but these are the tales my grandmother and great aunt used to tell.

  “My father was a big, handsome man. He and his brother started in the old market of Houston. You can see the spot from here. And he used to have a little table in there. Well, they grew, and finally they got a store and they built it up to where it was one of the biggest chains in the city. When they finally sold them, they had twenty-eight food stores in Texas. So he was very successful.

  “I went to grade school here and then I went to a Catholic high school for boys. I graduated from St. Thomas High School on a Sunday in 1943. I was sixteen. I was still young to get out of high school, and my mother was just insisting that I not go off to any kind of war. My brother had enlisted, my oldest brother, and he was a naval aviator in training overseas. There were four boys and one girl in the family. I’m second to the oldest. Anyway, my family told me when I got out of St. Thomas that I’m going to Texas A&M. All the Jamails go to A&M. Shit, I hated A&M. I’d been at boys’ school all my goddamn life, after grade school. I didn’t like it. Anyway, they took me up there on a Sunday, and I escaped on Wednesday. I just ran away from that sonovabitch and hitchhiked to Austin and enrolled at the University of Texas as a premed student taking biology, zoology, German—hard shit. And I never went to class. So I got five F’s.

  “So I came home. But before I came home, I had gone over and taken my physical and decided to join the Marine Corps. You had to get your mother and father’s permission if you were seventeen like I was. So I came home and I forged my mother and dad’s names and got this old drunk druggist to notarize it for fifty cents. And I was gonna go on off to war. It’s a cruel thing to do to your parents. So finally, right before I left, I went in and told ’em. My dad was thoroughly pissed off at me, but he just looked right at me.

  “He says, ‘Well, all I can tell you is that I’ve done what you’re going to do, I’ve been to war, and it’s not fun. You may think it is, but you’re going to wish you had never done it. There’s no point in me getting angry at you—you’re going to be mad enough at yourself. Try to be a good Marine.’

  “And my mother, of course, was just beside herself. I think she installed a stained-glass window in every Catholic Church in Harris County praying for my safe return. This was cruel. My mother and I were close. My father and I were close, too. My father just died last year. He was ninety-four.

  “Well, I regretted the Marines every fucking day, almost. I went over the hill every time I had a chance. My record looked like they took a bottle of red ink and dumped it on the sonovabitch. But I got out honorably discharged, served it, did it all in stride. So I’m out of that sumbitch and I’m not yet twenty. So I laid around here drunk for about two weeks, just hunting pussy all over town. Goofy. One day I get in about six in the morning, drunk. So my dad comes in.

  “He says, ‘You gotta get up.’ And I said, ‘I just got in.’ He said, ‘I know. You got to go. You’re worrying your mother. And I’m not going to put up with your being drunk. Two weeks is enough. And don’t give me that war shit—I’ve done that. I’ve been there, boy, you got that?’ I was ‘boy’ to him until he died.

  “He thought I ought to go to school. He said, ‘You can either help to run my business or you can go to school. You’re not going to lie around here drunk.’ So he gave me three hundred dollars, which was a lot of money. He said, ‘Take one o
f them cars and go off, go somewhere and think about it.’

  “So I started out for New Orleans—that’s where I really wanted to go. I made and then blew about three thousand dollars in a gambling dive down in Galveston on the way. I had a lot of money, then in two nights I blew it. Just whores and the rest of it. I stopped in Lafayette, Louisiana. It got late and I went in this bar. I remember it vividly—it was called the Buckhorn Bar. And I fell in love with the bar lady, a big, well-endowed lady. So I get about half-drunk, get me a room, and spend the night there. And I get talking to this guy who knew my family. He was a lawyer—name was Kaliste Saloon. He’s now a judge. He got to shooting the shit with me, and he says, ‘Stick around here tomorrow and I’ll show you my office.’ So we went over to his office the next morning, and I watched him on the phone doing all this stuff, lawyering.

  “I said, ‘Pretty neat action. This guy’s got a pretty good racket.’ So he took me to see the Southwest Louisiana Institute, where I could go to school. I enrolled. There were a lot of pretty young girls down there—the ratio was about two to one in the men’s favor—and all of them were Cajun, goddamn pretty girls. I went to school there for a year. And then, goddamn, I kind of caused a scandal. I moved some old girl I knew, a singer, into my room with me. They didn’t do that in them days.

  “I remember I took my English exam in the Buckhorn Bar. It was given by a fine, drunk professor who was expelled, I think, from one of the better schools in the East, and he just found himself a little place down in Lafayette. And he’d hustle them little girls. It was just beautiful to watch. Great big fellow, just Shakespearean. He gave me my English exam in the Buckhorn Bar and proclaimed that I had made an A and I now needed to buy a round. Which I did.

  “But after the scandal, I got the word from my family, ‘Get out of Lafayette.’ So I had to hoof it. I drove straight to Austin and enrolled in the summer session at the University of Texas, where I stayed for the rest of my schooling. I didn’t have anywhere to go, so I just walked over to the law school. I never took the entrance exam. It was a problem later. First year, I was on probation. I failed torts. I did as bad as you could fuck it up. But I was saved because I passed contracts. I came back that summer to Houston and I thought about not going back to school, but I said, ‘Bullshit.’ And I went back and I just changed my way of studying and thinking and then burned them up. I made good grades and finished probably in the upper twenty-five or thirty percent. But the first year was almost a disaster.