by Coll, Steve;
“If the board approved this? No, I don’t think the board or the company was in any way bound if the board approved this.”
“Well, sir—”
“They didn’t approve it, but even if they had approved it, I don’t think they would be in any way bound by this document.”
“Well, sir, is this just a game that was going on up there for two days? Nobody is bound but Pennzoil?”
“No, absolutely not. It was not a game at all. It was a very serious thing involving, you know, close to ten billion dollars.”
“Well, sir, do you consider—you have told us that the museum would not be bound, the company would not be bound, nobody would be bound even if the board approved this plan. Is that right?”
“That’s correct, sir.”
“Mrs. Vlahakis is your colleague, as you put it, associate.”
“Yes, sir.”
And again, just moments later, Jamail capped off a similar exchange by remarking, “We are talking about in this discussion with Ms. Vlahakis—as you have pointedly told us was your colleague and not your partner—and we are talking about plaintiff’s exhibit number two.…”
In the end, even Dick Miller accepted that it had not gone well—one had only to look at the faces of the jurors as the cross-examination neared its conclusion to be certain that they disapproved of Marty Lipton. Obviously, it did not follow that the jurors disapproved of Texaco, and from this Miller and his client took hope. They had promised the jury during voir dire that each of Texaco’s four leading executives would take the stand to testify freely and openly about their involvement in the acquisition of Getty Oil. Even the Pennzoil attorneys readily conceded that Texaco’s top executives, particularly president Al DeCrane, general counsel William Weitzel, and vice-chairman James Kinnear, would provide strong and effective testimony refuting the notion that Texaco had interfered with Pennzoil’s contract. When Lipton stepped off the stand, the question remaining was whether that testimony would come too late.
30
“You Will Decide the Ethics”
Judge Anthony Farris, a conservative former Marine who liked to announce to the jury that the trial would reconvene at “0900 hours” in the morning, succumbed to the heart ailment that had been plaguing him for months and withdrew from Pennzoil v. Texaco late in October 1985. In part because Farris could tolerate only a modest courtroom schedule, the trial had dragged on for nearly four months, and there was no end in sight. Dick Miller had yet to call his most important witnesses, Texaco’s top executives, and he had scheduled a number of Getty Oil directors to testify even before DeCrane, Weitzel, and Kinnear took the stand.
With Farris so seriously ill that he was unable to involve himself in any aspect of the case, a retired Lebanese-Texan judge from San Antonio, Solomon Casseb, was appointed to preside over the remainder of the trial. Arguing that Casseb could never hope to familiarize himself with the record in the case—the trial transcript alone now numbered well over ten thousand pages—Miller moved for a mistrial. Predictably, Casseb denied the motion. He intended to finish the case. A natty dresser who apologized in open court for failing to bring his best clothes with him from San Antonio, Casseb listened to one day of summary arguments from Jamail, Miller, and their partners, and then plunged ahead with the trial. Casseb even declared that he would not read the testimony already presented in court, as if such abstention would somehow enhance his impartiality. He did, however, insist that the pace of the trial be rapidly accelerated—no more ninety-minute lunches and half-day recesses would be permitted.
As a result of Casseb’s stern prodding, the daily trial transcripts began to thicken; three and even four witnesses testified in a single day, some live, some by deposition. The case, which had begun in a mood of heat-induced lethargy, began to acquire a whirlwind energy, as if someone had pushed the fast-forward button. Confident that the appearances of Winokur, Boisi, and Lipton had turned the momentum in their favor, the Pennzoil lawyers tried merely to prevent slippage in their position. They felt now like relief pitchers called in to protect a ten-run lead; the challenge was simply to not blow the game.
A series of strong Texaco witnesses took the stand: Henry Wendt, the handsome, confident pharmaceuticals executive; Larry Tisch, the self-made titan of American finance; Chauncey Medberry, the retired Bank of America chairman. Medberry represented the old Getty Oil directors loyal to J. Paul Getty, Wendt the more recent appointees of Sid Petersen, and Tisch the nominees of Gordon Getty. All of them testified that they had made no contract with Pennzoil. Medberry was the least effective; his memory was frail and John Jeffers confused him repeatedly on cross-examination. But Wendt and particularly Tisch were unflappable and unintimidated. Jamail cross-examined Tisch, and he approached him in a manner far different from his examination of Tisch’s close friend Marty Lipton. Rather than attacking, Jamail coaxed and goaded gently. And when he did try to draw the witness into his thematic traps, Tisch was ready.
“You’re not friends with Gordon Getty?” Jamail asked.
“No, sir.”
“Did Gordon Getty think you were his friend?”
“Define ‘friend’ and I’ll answer the question.”
“Sir, I can’t define the New York friendship—”
“There’s no difference between a friend in Texas and a friend in New York, sir.”
Dick Miller recognized that after the cross-examination of Lipton he had ground to make up. At times, he felt that he was battling not only Pennzoil’s attorneys, but his own client and the judge as well. The performances of Wendt and Tisch encouraged him. But even at the defense’s lowest moments during Lipton’s testimony, Miller continued to express optimism to his client—his only caveat was concern about the demeanor and evidentiary rulings of the judge. At the beginning of the trial, Miller had felt that the jurors did not care much for Farris’ military bearing, but by the time Texaco’s case opened, he thought the judge had won the jury’s sympathy and that his attitude influenced the jurors’ perceptions of the witnesses.
During the ten-day hiatus in late October, following Farris’ collapse and before Casseb took charge, Miller traveled to White Plains to attend a Texaco board of directors meeting. Miller told the Texaco directors that he was optimistic, but he reiterated his concern about the lingering impact of Farris’ skeptical demeanor toward key Texaco witnesses such as Winokur and Lipton. In addition to the reports from Miller, McKinley and DeCrane heard daily evaluations from vice-chairman Jim Kinnear, who had been selected as Texaco’s official “corporate representative” at trial and who attended every day of testimony. Kinnear reported that the jurors seemed to like Dick Miller and that Texco’s witnesses, particularly the impressive Wendt and Tisch, seemed to be controlling the momentum of the case. Kinnear said that he was concerned about some of the evidentiary rulings—particularly the decision by Farris that information about Pennzoil’s Delaware lawsuits could not be imparted to the jury—but he expressed optimism that Texaco would win the lawsuit outright.
On both sides, evaluation of the trial’s progress was influenced by an inevitable kind of self-fulfilling prophecy. Since McKinley, De-Crane, Kinnear, and Weitzel adamantly believed that they had done nothing wrong, that Texaco had nothing to apologize for, they believed that the jurors would share their perceptions of the case. And since Jamail, Jeffers, and Terrell were equally confident that Pennzoil’s version of the Getty Oil deal was prevailing in court, they reported consistently to Hugh Liedtke that he would win the verdict; the only question, they said, was the amount of damages the jury would award.
The testimony of Texaco’s top executives, beginning on November 5, was something of an anticlimax. Jim Kinnear was ushered on and off the stand in a single afternoon. He seemed to have been called only to fulfill Miller’s original promise to the jury, during voir dire, that each important Texaco executive would testify in person before them. William Weitzel, who had negotiated the indemnity agreement with Marty Lipton in the early morning
hours of Friday, January 6, followed Kinnear. Weitzel had been impressive in depositions, and besides DeCrane, he was the defensive witness that the Pennzoil attorneys had most feared going into trial. Now they were not so worried; by saving the Texaco executives until the end, they believed, Miller had allowed Pennzoil to control the tone of the trial—Weitzel and DeCrane could not hope to undo the damage done by the Wall Street witnesses. There was a moment during John Jeffers’ cross-examination of Weitzel when the Texaco executive exploded in anger at Jeffers’ sarcastic implication that Weitzel agreed to the indemnity because he knew that a wrong was being committed. Weitzel said later that his eruption was calculated, that he wanted to impress the jury with his strong feelings about the case, but Jeffers and his partners thought the incident only strengthened their standing with the jurors. DeCrane’s appearance proceeded without incident. His direct testimony, a long narrative recounting the deliberations and negotiations of Texaco’s top executives from the time they first heard that Getty Oil might be available for acquisition, was smoothly and confidently delivered. On cross-examination, Irv Terrell badgered DeCrane about the handwritten notes he took during the meeting with First Boston’s bankers, but DeCrane argued convincingly that neither he nor McKinley followed the banker’s recommendations.
At last, early on the afternoon of Tuesday, November 12, the examination of the trial’s last live witness drew to a close. In a final show for the jury, Terrell and Miller batted DeCrane back and forth in short “recross” and “redirect” examinations, each attorney jockeying to get the last word.
“Mr. DeCrane,” Terrell intoned grandly, “if this jury believed that people had come in here and lied to it under oath, you’d want the full power of the court to redress that, wouldn’t you? Wouldn’t you?”
“I don’t think anyone has lied that I’m aware of.”
“If they have and the jury believes they have, you would want the full power of the court and the jury to put an end to that, wouldn’t you?”
“I believe that justice and truth should be what we would seek in this whole proceeding.”
“Thank you. That’s all we have.”
Miller stood up. “Would that apply to Liedtke?” he asked.
“That applies to everybody.”
“That’s all.”
Terrell rose. “Would it apply to Mr. Lipton?”
“It applies to everyone.”
“Mr. Boisi?”
“To everyone.”
“Thank you.”
So ended the testimony in Pennzoil v. Texaco. In all, thirty-three witnesses had appeared in person or by deposition, including several of the most celebrated names in American finance. And yet, almost everything about the trial remained obscure, hidden from the public. The national business press had not bothered to cover the proceedings; there had been some early stories about the gargantuan size of the damages being sought by Pennzoil, but news about the case quickly disappeared. It was just another contract case, the standard fare of commercial litigation. The takeover of Getty Oil, which had produced bold headlines and excited profiles of the participants, was long forgotten. And since nearly everyone outside of Pennzoil’s towering headquarters building in downtown Houston seemed to believe that Texaco would prevail, the trial held only cursory interest among those Wall Street deal-makers who had everything to win or lose by its outcome.
On the day following DeCrane’s departure from the witness stand, the lawyers began their critical arguments before Judge Casseb to hammer out the precise language of the judge’s charge to the jury. It was the unusual practice of the Texas state courts that the charge, in which the judge describes to the jury the legal standards governing a case, would be written down and distributed to the jurors during their deliberations. In most states, the charge was read out orally by the judge when the jury retired; thus, its impact dissipated once the jurors reached the deliberation room and began to talk about what they had seen and heard in court. In Texas, the charge was like a blueprint for the jurors, a series of carefully worded questions that provided a specific, limited framework for deliberations. Naturally, there was deep concern on both sides of the case about exactly what the charge would say. Both Pennzoil and Texaco retained legal scholars to help them draft language that would favor their presentation of the legal and factual issues at trial. To save time, each side submitted its preferred draft to Judge Casseb and then prepared for oral arguments where the final compromise language would be decided from the bench.
The arguments, which lasted a day and a half, went badly for Texaco. Casseb ruled consistently for Pennzoil. Richard Keeton, who took the lead for Texaco, tried to persuade the judge that he should define the terms of Pennzoil’s alleged contract. “We have in four months not been able to get any plaintiff or any representative of plaintiff to tell us what were the terms of the contract,” Keeton argued. “If they want to go with the ‘Memorandum of Agreement’ or the $112.50 price modification, which is the thrust of most of their questioning, that is one way. But we have to draw a circle around what is the contract or proposed contract that this jury is then going to consider.” But Pennzoil’s lawyers countered with arguments that “the ultimate issue in this case” was not the exact terms of a contract but “whether the parties, all four of the parties, intended to be bound to an agreement.” Such was the language submitted in Pennzoil’s proposed jury charge.
In fact, to Texaco’s deep consternation, the word “contract” never appeared in the final charge language. Instead, Casseb accepted Pennzoil’s proposed use of “agreement,” with its obvious linguistic ties to the “agreement in principle” at the center of the case. The question of whether or not that agreement in principle announced in the January 4 press release was a binding contract was the single most important factual and legal issue at trial. If Casseb employed the word “contract” in his charge, he would be asking the jury to decide whether an agreement in principle was a binding contract. But by using the word “agreement,” he was in effect fudging the issue, Texaco argued. It was a semantic question with billion-dollar implications.
“All through this case there has been testimony that an agreement in principle is some sort of an agreement, but it is not a binding agreement,” Keeton desperately argued. “There has been the use of the word ‘agreement.’ We are talking about a tortious interference with the contract. To focus on the word ‘agreement’ is to absolutely not let the jury understand the nature of all the testimony by every witness that’s come up who has either talked in terms of the words ‘binding agreement’ or has talked in terms of contract.… And by putting this not only very weak word, but a word that by itself has many meanings, you have made a change that makes it virtually impossible for this defendant to get a finding when the evidence is itself very, very clear that the issue at a minimum is contested. But you have chosen a word that does not let the jury understand that.”
The same chasm in the use and implications of language that had so affected the testimony of Texaco’s Wall Street witnesses had again taken on central significance in the case. Texaco wanted the charge to employ precise, narrow terms—the morally neutral language of the specialist. Pennzoil pressed for broad words that resonated with social and ethical meaning. A “contract” was usually a document, a corporeal entity that might or might not be legally enforceable, depending upon its adherence to specific, encoded rules and standards. An “agreement” was a state of mind, or, as one of Pennzoil’s lawyers put it, “an intention to be bound.” The existence of an agreement in a specific case depended not so much on the presence of objective, quantifiable elements, but on human motivations, human intentions. As it had been during important moments of testimony at trial, the debate between the two sides seemed to occur on separate levels that did not intersect. One either accepted Pennzoil’s view that what mattered in the taking of Getty Oil was a canvass of human psychology—ambition, greed, betrayal, honor—or one accepted Texaco’s view that only specific legal standards of
“contract” and “interference” were truly important. The witnesses who tried to argue Texaco’s position were ensnared by the predicament inherent in their argument, namely, that morality mattered less than law—as Boisi had put it, that “good faith” was subordinate to “fiduciary” responsibility.
Pennzoil defended its position before Casseb by arguing that simply because the Wall Street bankers and lawyers did not understand this contradiction, that did not let them off the hook. It was fine for Winokur, Boisi, Lipton and the rest to believe, in keeping with the rules of their merger game, that an agreement in principle was no agreement at all. But as the charge Casseb accepted put it, “It is not necessary that the actor appreciate the legal significance of the facts giving rise to the contract. If he knows those facts, he is subject to liability even though he is mistaken as to their legal significance and believes that the agreement is not legally binding or has a different legal effect from what it is judicially held to have.”
Casseb himself seemed to understand that with regard to the complex legal standards governing the issues in the case, it was possible that Pennzoil’s insistence on broad, inclusive language was unsupported by precedent. “I would like to go on record in stating that I am at a disadvantage because I did not read the full parts of this evidence,” he announced in the midst of the hotly contested arguments over the jury charge. “And I guess I’m going to have to assume the consequences of it because I guess it will be my error if any error is committed.” Nonetheless, assured by Jamail that “we think we’ve met our burden” with regard to the legal plausibility of Pennzoil’s proposed charge, Casseb plunged ahead. He decided on a charge that excluded the word “contract.”
Another important element of the charge arguments concerned damages. Pennzoil was seeking $14 billion; $7 billion in actual damages and $7 billion in punitive damages. During its affirmative case, the Pennzoil lawyers had put on two witnesses to support its claim for actual damages: a Pennzoil accountant named Ronald Lewis, and a retired oil executive named Thomas Barrow. Employing extravagant economic models and colorful charts, the two had argued that Pennzoil was entitled to monetary compensation equal to the long-term value of oil and gas reserves equivalent to those allegedly snatched from its grasp by Texaco. Barrow offered three formulas for this calculation. The first was a “replacement costs” theory arguing that if Pennzoil had acquired three-sevenths of Getty Oil, it would have bought oil and gas reserves at about $3.40 per barrel, whereas if it had to find that same amount of oil and gas, it would cost $10.80, and so Pennzoil was entitled to the difference. Barrow’s second model compared the proposed purchase of Getty Oil on a per-barrel basis with other purchases of oil companies. His third was a “present value” model which compared Pennzoil’s per-barrel proposed purchase price with the long-term estimated revenues that would flow from Getty Oil’s reserves, making assumptions about the future world price of oil and the cost of production. All three models showed an impressive bottom line owed to Pennzoil—approximately $7 billion in cash.