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Pennzoil-Texaco: A Lesson In the Law

"I want justice and my bond!" So said the villain of Shakespeare's Merchant of Venice, (whom I won't identify further for fear of finger pointing).

Texaco was convicted by a Houston jury of "tortious interference" in Pennzoil's  ongoing acquisition of Getty Oil, which would likely have netted the company approximately 1 billion barrels of oil, after concessions to other Getty shareholders.

The ECONOMIC value of the loss was $3 billion, using the $3-a-barrel valuation that prevailed in deals of the time. But Pennzoil sued for, and won, an award of $7.5 billion, plus damages. The reasoning?

Pennzoil had about the worst exploration program of any company its size or larger in America. Its historical finding costs were indeed, $7.53 a barrel, meaning it might have cost the company $7.5 billion to drill for one billion barrels.

But Pennzoil hadn't been proposing to drill. It had been proposing to buy. Meaning that the operative number was $3 billion. That was the amount that the case was settled for. That was the "fair" result, not the "legal" result.

Things looked pretty bad when Pennzoil moved to freeze Texaco's assets. But Texaco found a sympathetic judge, Charles Brieant, in Texaco's "home town" of White Plains, who quashed the motion, and required Texaco to put up only a $1 billion bond.

The wrangling dragged on for some time. But one of the main issues forcing Pennzoil to settle was that the company would be "mud" among its peers if it destroyed Texaco in the process. And since Pennzoil wanted to do another merger with another company, that wouldn't do.

And a contemporaneous "take" from Fortune was as follows:

(FORTUNE Magazine) – "JUST THINK what they must be saying in Tokyo. Or Paris. Or Riyadh. 'Strange people, those Americans."

"I want justice" strikes a chord with most people. But "I want justice and my bond" does not. In the case of the Merchant of Venice, the penalty (death by bleeding) was disproportionate to the "crime" (a defaulted loan.) Hence, the judge, Portia, freed the hero on a technicality--and threatened to put the plaintiff in the dock.

How does this apply to BP? The maximum liability figure I've seen is just over $100 billion. That's about $50-$60 billion for cleanup, with the remainder for enforcement and penalties.

BP could well end up paying up to $50 billion (or a little more), for cleanup. That would put BP America on the verge of bankruptcy. But it would probably balk paying the remainder out of the pockets of the parent.

I'm not a lawyer, and I'll admit that I don't know much about the law,. But I do know that laws and rulings are nullified, or overturned with considerable frequency, in order to obtain a "fair" result.

Laws are enforeable only within the context of the community in which they are applied. And beyond $50 billion, that community would NOT be the United States. It would be the rest of the world. Especially Great Britain.