UNITED STATES TAX COURT

T.C. Memo. 1992-92

.

UNITED STATES TAX COURT

EXXON CORPORATION AND AFFILIATED COMPANIES, ET AL., Petitioners

v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 18618-89 _24855-89,

18432-90.

Held:

Filed February 13, 1992.

Evidentiary motions addressed.

Robert L. Moore, II, Jay L. Carlson, John B. Magee, Gerald

Goldman, Thomas D. Johnston, Joseph O. Luby, and Craig D. Miller,

for petitioner in docket Nos. 18618-89 and 18432-90.

Cases of the following petitioners were consolidated for

.purposes of trial, briefing, and opinion of the so-called

"Aramco Advantage" issue on December 17, 1990, as amended by

Order of January 7, 1991: Exxon Corporation and Affiliated

Companies, docket No. 18618-89; Texaco Inc. and Subsidiaries,

docket No. 24855-89; and Exxon Corporation and Affiliated

Companies, docket No. 18432-90.

HERVED FEB 131992

Buford P. Berry, Emily Ann Parker, Dennis J. Grindiz

George V. Larsen, and Joseph M. Incorvaia, for petitiónei

docket No. 24855-89.

Raymond L.. Collins, Ana G. Cummings, Bernard_B. Nels

AverY B. Cousins III, John F. Eiman, Allan E. Lang, Alan

William B. Lowrance, DSvid A. Alvarez, James H. W..Insley

Roher Osburn, Emron M.. Pratt, David J. Mungo, David P. MC

Carol Bingham McClure, David E. Whitcomb, Mark Bar es, an

Joyce E. Britt, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

WHITAKER, Judge:

The issues to be decided in this p

the instant proceeding involve various aspects of whether

respondent's sections 612 and 482 adjuBthénÊs arë preclud

virtue of our holding in Procter & Gamble Co. v. Commissi

95 T.C. 323 (1990).

More specifically, the Court in its

January 7, 1991 (Scope of Trial Order) ruled that only th

following questions are at issue during this phase:;

(1) Whether the transfer price of

udi !Arabia

crude oil paid by petitioners' offtakers

was!below

the prices charged for non-Saudi crude oil of similam

grade or quality;

2

Unless otherwise noted, all section referencesj are tc

Internal Revenue Code of 1954 as amended and in effect foz

years in issue, and all Rule references are to the ¼ax Cot

Rules of Practice and Procedure.

For purposes of this opinion, the term "offtaker" wil

to the person or company that physically loads oil obtaine

a concession, contract, or other arrangement.

(2) if the answer to question (1) is in the

affirmative, whether the transfer price charged by the

offtakers to the other subsidiaries of ^each petitioner

or to unrelated third parties was below the price

charged for non-Saudi crude oil of similar grade or

quality;

(3) if the answers to questions (,1) and (2) are

in the affirmative, whether the reduced price was

caused by the restriction(s) imposed by Saudi Arabia

which petitioners, their offtakers, and other

subsidiaries were required to observe in order to

have continued access to Saudi Arabian oil;

,

(4) whether the öonsuming country governments

monitored the offtakers' sales of Saudi crude oil into

their countries to assure that such sales were not in

excess of the prices established by Saudi Arabia,

increased only by costs incurred in transporting the

crude oil;

(5) whether the Saudi Arabian pricing

restriction(s) required petitioners and their

offtakers to reflect the pricing restriction(s) in

the transfer price on sales of Saudi crude oil from

petitioners' offtakers to unrelated entities which

-purchased the Saudi crude.oil for refining;

(6) whether in fact the crude oil pricing

restriction(s) imposed by Saudi Arabia was/were

042

observed by petitioners and their offtakers;

(7) if a crude oil pricing restriction(s)

existed and petitioners and their offtakers observed

the restriction(s), whether or not the pricing

restriction(s) precludes or preclude a section 482

or section 61 adjustment to petitioners' income.

After trial of these issues, in the course·of which -the Court

refrained from ruling on certain evidentiary issues, the parties

were asked to file m'otions containing all their evidentiary

objections.

On June 11, 1991, respondent filed a Motion to Admit

- 4 and Exclude Evidence and to Reopen the Record (Motion),4 1

supporting memorandum.

On the same date, petitionërs fil

joint Motion to Strike (Motion to Strike), with a support

memorandum.

This opinion addresses the evidentiary issue

in the parties' motions and their responses theretó.

Respondent's Motion

(1)

Stipulated doçuments; hearsay obiection reserve

respendent:

Respondent's first category of objecti,ons is

several stipulated documents, to which hearsay objÖctions

reserved by respondent in one of the stipulations.

Under section 7453, we follow the Federal Rules of E'

in proceedings before this Court.

Hearsay is an out-of-Cc

statement offered in evidence to prove the truth of the ma

asserted.

Fed. R. Evid. 801(c).

Normally hearsay is exc:

from evidence unless an exception to the hearsay zule app]

Snyder v. Commissioner, 93 T.C. 529, 532 (1989); go_ldsmitt

Commissioner, 86 T.C. 1134, 1137 (1986).

This rule of exc

is designed to avoid the introduction of evidence that may

the appearance of trustworthiness, but is not subject to t

of cross-examination in the instant proceeding.

Anderson

United States, 417 U.S. 211, 220 (1974); Snyder v. Òommiss

supra at 533.

4

Balanced against this rule is the counterva

Contrary to the impression created by this titlie, the

042held

the record open until all evidentiary issues were dec

this opinion. The record in this case will be closed upon

release of this opinion.

policy that "'federal law favors the admission of probative

evidence'".

Petzoldt v. Commissioner, 92 T.C. 661, 679 (1989)

(quoting United States v. Holladay, 566 F.2d 1018, 1020 (5th Cir.

1978)).

--

The documents in the first six categories of respondent's

Motion appear to have serious hearsay problems.

They consist of

news publications, telegrama, congressional reports and

transcripts, and a letter, all of which contain statements made

by persons (sometimes unknown) who were not subject to crossexamination here and some of which do not appear to contain any

inherent aspects of trustworthiness.

The exhibits in these six

categories were not argued by petitioners to be admissible

substantively under an exception to the hearsay rule (or as not

hearsay); they were ·only alleged to be admissible "to show the

facts, data and other bases upon which the opinions and

conclusions of the expert reports to which they are attached are

based, as required by Tax Court Rule 143(f)".

Because at least

some of respondent's hearsay arguments appear to have merit, and

petitioners found it unnecessary to address those arguments, we

will receive the exhibits in five of these categories, the MEES

and PIW excerpts (Exhibits 13, 15, 16, 18,. 31, 40, 41, 43-45, 56,

120, 122, 132, 139, 142, 151, 154, 163, 165, 175, 176, 203, 208,

218, 232, 240, 242,· 254, 257, 264, and 271), the State Department

telegrams (Exhibits 50, 51, 52, 89, 90, 98, 105, 124, 126, 152,

228, 237, 243, and" 267), - the Congressional Subcommittee Reports

E

- 6 -

I

and transcripts (Exhibits 17 and 158), the Glasmann lette

(Exhibit 211), and the Exxon Background Series Papër (Ext

286) into evidence for the limited purpose under Rule 143

showing the basis for the expert reports to which they az

attached.

To the extent that these documents (or identic

copies thereof) are not attached to expert reportsj they

excluded.

In no event will those documents admitted be u

evidence of the truth.of the matters asserted therèin.

Petitioners concede that Exhibits 93, 178, 215, and

relate to the expert witness reports of former Treasury S

I

W. Michael Blumenthal and former Assistant Treasury Secre

C. Fred Bergsten, which were not introduced into evidence

Accordingly, these exhibits will be excluded.

(2)

Documents on Scope of Restriction--Admiss'ibilit.

Rule 146:

(a)

The last collection of documents in this subseci

respondent's Motion appears to be correspondence be;tween i

Saudi Arabian Government (SAG) and petitioners conc,erning

of full crude oil supplies by petitioners to developing cc

at the SAG-imposed price.

and 282.

Exhibits 183, 185, 188, 195, 21

Respondent objects to the admission of these doc

on two grounds, hearsay and under Rule 146.

Becausë the E

issue is dispositive of these and certain other documents

case (which we will discuss momentarily) even if théy cont

- 7 -

inadmissible hearsay, we will not address these hearsay

objections.5

.

Rule 146 provides in pertinent part:

"The Court, in

determining foreign law, may consider any relevant material or

source, including testimony, whether or not submitted by a party

or otherwise admissible."

(Emphasis added.)

On the basis of the

authorities which have interpreted this Rule and its counterpart

in rule 44.1 of the Federal"Rules of Civil Procedure, as well as

testimony-in·this proceeding and the parties' submissions on this

issue,® we conclude that the documents at issue will be admitted

under Rule·146.

One argument presented by respondent against the admission

of these documents is that they contain inadmissible hearsay.

However, the scope of Rule 146 is extremely broad.

As originally

enacted, the Federal Rules counterpart of Rule 146, rule 44.1 of

the Federal Rules of Civil Procedure, stated in pertinent part

that a court could consider "any relevant material or source,

including testimony, whether or not submitted by a party or

5

We note, however, that there is some merit to respondent's

contention that the business records exception requires that the

proffered documents 'must have been prepared in the regular course

of the author's business, not the receiving entity's business.

See Snyder v. Whittaker Corp., 839 F.2d 1085, 1090 (5th Cir.

1988); Petzoldt v. Commissioner, 92 T.C. 661, 676-677 (1989).

On April 2, 1991, and April-3, 1991, respondent and

petitioners, respectively, filed memoranda on the application of

Rule 146 to this proceeding. For this opinion we have considered

the material discussed therein, as well as authorities referenced

in the memoranda accompanying the instant motions and responses.

- 8 admissible under Rule 43". (Emphasis added.)

The 1975 an

eliminated the reference to rule 43 and replaced it with

I

reference to the "Federal Rules of Evidence", thereby brc

its scope significantly.

5 Moore, Moore's Federal Practi

44.1.01 [3-4], at 44.1-4 (2d ed. 1991) ("the purpose of t

provision is to free the judge, in determining foreign la

any restrictions imposed by evidence rules"); 9 Wri,ght &

Federal Practice & Procedure, sec..2444, at 405-406 (1971

trial judge's freedom of inquiry no longer is encunibered

the rules of admissibility").

See United States v. First

National Bank of Chicago, 699 F.2d 341, 343-344 (7th Cir.

(district court properly admitted letters, affidavits and

translations into evidence).

The current version of Rule

does not contain a limiting reference to the Federal Rule

Evidence, and allows the admission of documents "whether <

* * * otherwise admissible".

Respondent has cited no auti

for the proposition that Rule 146 is limited in scope to

materials that do not contain hearsay.

Accordingly, this

objection to their admission has no merit.I

As we have indicated, because we admit the docùments

Rule 146, we need not address respondent's hearsay objecti

However, while the documents may not be subject to the hea

rule, we do not necessarily receive those documents i as con

evidence of the statements made therein. Rather, in makin

determinations on the merits of the issues in this case, t

will be accorded weight that is consistent with their

reliability. If they appear to the Court for some paz'ticu

reason to be suspect or unreliable, we w.ill take thàt into

account, as we would with any other document admitted into

evidence. See Chadwick v. Arabian American Oil Co. j 656 F

857, 861 (D. Del. 1987).

- 9 Respondent also argues that the language of Letter 103/Z

(stipulated Exhibit 147) from the Saudi Petroleum Minister to

petitioners, which constitutes the source of the restriction as

presented to this Court, is clear and unambiguous, not requiring

any interpretation.

Consequently, he argues, the documents at

issue should not be admitted under Rule 146.

language in Rule 146 that does not exist.

This presumes

There is no ambiguity

requirement in that Rule, and we see no reason to limit the

expansive scope of its language and that of its counterpart in

the Federal Rules in order to read one in.

Accordingly, this

argument also is unpersuasive.

Respondent next strenuously takes the position that the

Saudi restriction in general was not a "law" for purposes of

Rule 146.

He contends that the Rule envisions formally

promulgated "laws", such as statutes, regulations, and judicial

precedents, and that petitioners have pointed to "no enabling

legislation, no Saudi statute, and no regulation" referring to

the restriction which the exhibits at issue are interpreting.

Thus, he argues, because the source of the restriction did not

rise to the level of such formal materials, the restriction at

issue here was not a "law" within the meaning of the Rule, and

the relaxed evidentiary standard of Rule 146 does not apply.

Petitioners claim that respondent is defining "law" for purposes

of Rule 146 too narrowly.

- 10 The testimony in this case about the manner in whicl

is promulgated in Saudi Arabia is a useful starting point

ascertaining the meaning of the word.

In his expert witr

report,8 Mr. Abdulaziz H. Fahad, an experienced Sa di Ara

attorney, stated:

In the Saudi system of government, there are ve

formal written rules. There is no fundamental docun

either defines the authority of the King or states t

source of the King's sovereign power. There is no w

constitution and no parliament. There is no relianc

doctrine of stare decisis because each judicial deci

must independently rely on the authority of the Shar

[Islamic law] and, when applicable, recent legislati

Thus, informality and lack of formal written rules

characterize the whole Saudi legal·and political sys

At trial Mr. Fahad testified that, while there exists in

Arabia a formalized regulatory process, there also is a 1

element of informality.

He indicated in his report that

method commonly used by the Saudi government to communica

position on certain matters (particularly those affecting

number of persons or entities) is "by letter, cable, or t

the particular persons or entities affected".

He

urther

I

8

We note that, while respondent in his Motion seeks t<

exclude certain appendices to this report, he does not sei

exclude the report itself. On April 9, 1991, respo'ndent 1

Motion to Exclude Report of Abdulaziz H. Fahad and Älterni

to Exclude Portions Thereof, asking the Court to ex'clude i

entire ,report as beyond Mr. Fahad's expertise, or portion:

report for various reasons. The parties were informed in

conference call and subsequent letter on May 24, 1991, the

Court would consider only those evidentiary objections raj

the parties' evidentiary motions filed after trial.! Respc

did not reference or renew his motion to exclude Mrl. Fahac

report in the instant Motion; therefore, we find th t he t

waived his earlier objections.

stated at trial his opinion that the letters giving rise to the

restriction are the law of Saudi Arabia.

Respondent's expert on the subject of Saudi law, Ali H.

Almihdar,' indicated his opinion that the letters were not "law"

in any accepted sense, and that petitioners could have chosen to

make a legal challenge (which would have been successful, he

believes) to the restriction.

In his view, the basis for that

legal challenge would have been that the relationship between the

SAG and the Aramco

offtakers was governed by the terms of an

informal agreement in effect during the years at issue, and under

the terms of that agreement the Saudis "had no legal right to

interfere in the terms and conditions by which the offtakers

resold or transferred crude oil to affiliates".

He further

indicates that, contrary to petitioners' assertions, the making

of "enforceable laws" in Saudi Arabia is 'Inot arbitrary,

capricious, ad h2c, or mysterious".

Rather, there are many

similarities to Western legal systems, with a Council of

9

Respondent also attempted to introduce the testimony of

another expert, Dr. Frank E. Vogel, in support of Mr. Almihdar's

testimony, but the Court refused to allow the witness to testify

because he did not submit an expert witness report, contrary to

the Court's Standing Pre-trial Order. Although respondent

apparently continues -to object to this ruling, we confirm it

here.

"Aramco" is an oil consortium composed of Exxon, Texaco,

Mobil, and Standard Oil of California (now Chevron), which

negotiates the concession agreements with the Saudis for the

purchase of Saudi oil.

- 12 Ministers, resolutions, legislation, and regulatio s,' all

which evidence the formal legal processes in that country

Mr. Almihdar's conclusion that the'Saudi directive d

constitute "law" is flawed in several material res ects.

he overlooks the distinctive aspect of Saudi Arabian gove:

structure that, with all its formalities of regulatory pr<

it is nonetheless a monarchy.

Whether the directive was :

with the King's authority is one of the'many questions on

validity of the restriction that remain to be briefed by i

parties in their briefs on the merits, but this feature (i

was almost ignored in his report) certainly undermi es

Mr. Almihdar's description of the Saudi legal process as i

adhering to traditional formal legal process.

Seco d, the

that the directive could have been but was not challenged

petitioners does not indicate that the directive was not ''

for our purposes.

Government actions that are capable of

argued as improper may still constitute "law".

Morèover,

unclear that such a challenge would have been successful,

the political climate at the time.

There was testi tony th

an appeal would have subjected petitioners to considerable

economic risk.

See Procter & Gamble CQ,. v. Commissioner,

323, 337 (1990).

Lastly, it seems that Mr. Almihdar was

overemphasizing semantics.

He admitted on cross-ex .minati

the Aramco shareholders were required to follow the restri

yet he refused to call it "law".

Accordingly, the testimo

- 13 this case leads us to conclude that, for the limited purpose of

whether we should admit materials interpreting the restriction

under Rule 146, the restriction- constituted "law".

Tax Court precedent supports this conclusion.

In our

opinion in Procter & Gamble Co. v. Commissioner, suora at 336337, we admitted certain documents under Rule 146.

On the merits

of that case, the taxpayer argued that Spanish law prohibited

certain royalty payments, and therefore it did not improperly use

its control to shift income.

did not apply.

Thus it.was argued that section 482

The Commissioner argued that Spanish "law" did

not prohibit the royalty payments at issue.

We were not

persuaded by the Commissioner's argument that, because the

prohibition was expressed in a series of letters from the Spanish

Government, it was merely an administrative exercise of

discretion, not "law".

involved.

We concluded that "Spanish law" was

Of "paramount importance" to this finding were the

expressions of the prohibitions contained in approval letters

issued by the Spanish Government.

We stated that "it is clear

that in order to do business.in Spain, petitioner had to play by

Spain's rules".

336.

Procter & Gamble Co. v. Commissioner, suora at

We further noted that other comparable companies were

similarly prohibited from paying such royalties, so that it was

consistently applied.

In connection with the definition of "law"

we expressly observed:

In light of the consistency with which the royalty.

prohibition was applied, there is no need to identify a

specific constitutional or statutory provision codifying

the prohibition in order to treat the prohibition as

See U.S. Padding Corp. v..Commissioner, 88 T.Q. 177,

(1987), affd. 865 F.2d 750 (6th Cir. 1989) (under an

circumstances this Court interpreted the term "laws

country" under section 1504(d) to include not only e

constitutional or statutory provisions and explicit

and regulations by controlling authority, but also a

existing practice or policy of such foreign country)

* * * [Procter & Gamble Co. v. Commissioner, supra

At the heart of our finding that the requisite "law" was 1

was consistent application.

Respondent here-has not take1

position that the restriction was not applied to the othem

companies in the same manner as it was applied to petitici

thus, there appears to be no dispute that the restr!iction

issue here was applied consistently.

Respondent attempts to distinguish Procter & Gamble i

he argues, in that case "the Court interpreted what was

stipulated to be a series of statutes and regulations app]

the Spanish government to the taxpayers' Spanish subsidia;

Procter & Gamble, the restriction was issued somewhat infc

but there also existed certain formally codified laws, to

the parties had stipulated.

The lack of formally codified

enabling legislation in Saudi Arabia, however, was not unu

according to Mr. Fahad's testimony.

is not critical.

Therefore, this disti

Moreover, the above-quoted language from

Procter & Gamble makes it clear that even law expressed in

informal form is sufficient to constitute "law", wit):hout

- 15 -

requirement of formal codification.

Accordingly, we hold that

the restriction constitutes "law" for purposes of Rule 146.

Respondent further alleges that these documents "do not

assist the Court in its determination of Saudi law because they

are silent regarding Saudi law".

We do not see any reason to

limit the scope of our analysis of Rule 146 to only those

documents which contain an express reference to the "law" being

explained.

There is no question that these documents were

intended to explain the SAG understanding of the scope of the

restriction.

It is sufficient that, based upon the context, the

law to which the documents refer is clear.

The documents at issue here involve communications between

petitioners and the SAG concerning sales of oil subject to the

restriction.

They thus will be helpful to the Court in

understanding the scope of the restriction.

Accordingly, we hold

that these documents are admissible under Rule 146 to help us in

our determination of Saudi law.

We of course do not decide at

this time whether the restriction was a valid "law" for purposes

of these motions; we only decide here that evidence concerning

the restriction may be received into evidence as "relevant

We note that respondent has appealed our decision in Procter

& Gamble Co. v. Commissioner, 95 T.C. 323 (1990), but it still

reflects the position of this Court.

042

I

material" "in determining foreign law" under Rule 146.

1

therefore properly received in evidence.

(b)

Two other sets of documents at issue, which we.

address under Rule 146, were prepared on two separaté occ

in 1990 and 1991 by the SAG's Minister of Petroleurh and N

Resources, Mr. Hisham M. Nazer, purportedly interpreting

scope of the restriction.

With regard to both sets of th

documents, respondent renews his hearsay objections to th

admission, since the Minister was not subject to crossexamination in this proceeding.

He also raises quÅstions

concerning their authenticity.

If admitted and found by

Court to be reliable, these materials clearly will be use

interpreting the scope of the restriction.

For thë same

as we have indicated above, these documents will be admit

under Rule 146, which is not subject to the traditional r

admissibility.

I

We will discuss each set separately, as

respondent's objections were made in separate documents.

As mentioned previously, because we have held that tl

documents are admissible under Rule 146, we need no addr

whether any of the hearsay exceptions discussed by the paz

apply. However, we note that some of the hearsay discussi

respondent's memoranda emphasizes the inherent unreliabili

certain documents, which is a subject in which the Gourt t

great deal of interest. We expect to see in their briefs

merits a good deal of discussion from all parties aä to wt

formulating our findings of fact in the next opinion we sh

should not rely upon documents admitted into evidence purs

this opinion. See supra note 7.

·Respondent objects to the first set of documents in his

Motion.

These documents consist of a letter (and translation

thereof) from Mr. Nazer (first Nazer letter), which indicates

that the restriction applied to all sales of Saudi oil, whether

sold to related parties or otherwise.

It also contains a

reference to other details concerning the scope of the

restriction.

Exhibits 2004 (attachment 22), 2005, and 2006.

original letter in Arabic was received by petitioners.

The

According

to Mr. Fahad's testimony, at petitioners' request Mr. Fahad

presented the original signed Arabic letter to the Saudi

Petroleum Ministry to obtain an official translation.

Mr. Fahad

indicated that it was the customary practice of the Ministry when

a document was officially translated to attach to the translation

a copy of the letter being translated with a stamped signature,

and such a document was attached to the translation provided to

Mr. Fahad.

The translation was certified to be an official

translation by the Deputy Minister for Finance and Administrative

Affairs.

Mr. Fahad's testimony indicates that he then took the

translation to the Ministry of Foreign Affairs to authenticate

the signature of the Deputy Minister, and a·stamp in the lower

left-hand corner of the translation reflects that authentication.

Mr. Fahad then obtained a document from the United States Consul

in Riyadh authenticating the signature and seal of the Ministry

of Foreign Affairs.

The four documents--the hand-signed letter

in Arabic, the official translation, the stamp-signed letter in

umumm

I

- 18 -

Arabic attached to the translation, and the United States

authentication--are being offered into evidence by petit:

as Exhibits 2005 and 2006 and as attachments to Mr. Fahac

expert report.

Respondent's first contention with regard to these ¿

is that they were not properly authenticated becau e "pet

have not shown that the 'translation offered in evidence *

Ministry file copy of a letter written and signed by Naze

does not dispute the accuracy of the translation, but ass

that "The crucial certification--that the unsignedÍ Arabic

I

is an official record from the Ministry. files--is missing

Petitioners contend that the English translation wås self

authenticated under rule ,902(3) of the Federal Rules of E

and that the Arabic versions of the letter were properly

authenticated under the general authentication reg iremen

rule 901, Federal Rules of Evidence.

.

Although below we also will admit these exhibits und

Rule 146, which we have indicated allows into evidence do

that might otherwise not be admissible, because of the pa

extensive discussions on the authenticit.y of these materi

believe it appropriate _to explain why these materials are

sufficiently authentic to be admitted.

We agree with pet

that the documents at issue here were properly authentica

under rules 901 and 902(3) of the Federal Rules of Eviden

Rule 901 of the Federal Rules of Evidence, provides that "

- 19

requirement of authentication or identification as a condition

precedent to admissibility is satisfied by evidence sufficient to

support a finding that the matter in question is what its

proponent claims".

One of respondent's complaints is that the

translation lacks the crucial certification that the stamp-signed

Arabic letter attached to the translation is an official record

from the Ministry's files.

The letter that was presented ·for

translation, however, was not the stamp-signed letter but the

hand-signed original one.

Other than the signatures, the two

letters are identical.· Therefore, we do not agree with

respondent that such certification was required.

A second argument by respondent is that there are no

certifications of ·the authenticity of Minister.Nazer's signature.

However, the letters when read together:indicate that the.

signature on the hand-signed original Arabic version was Minister

Nazer's.

The stamped signature of the stamp-signed Arabic copy

(attached to the translation) indicates that it is, according to

Mr. Fahad's undisputed testimony, "a copy identical with the

original".

The translation certifies and attests that·it is an

"official English translation to.the letter No. 71/H,. dated

18 Muharram 1411 of H. E. The Minister of Petroleum and Mineral

Resources to Mr. Jack Clarke, Vice President, Exxon".

Such

statements necessarily imply that the persons involved in

translating the documént satisfied themselves that the signature

was genuine, or they would not have been willing to'describe the

mumunum

- 20 -

letter being translated as being a letter "of" the; Minist

Petroleum.

We so indicated at trial.

The authenticity of Minister Nazer's signaturé also

affirmed by the second Nazer letter, which we admit belos

which contains a direct reference to the first Nazër lett

affirming its contents.

Furthermore, the requirements of

self-authentication of rule 902(3) of the Federal Rules c

Evidence have been met by the sequence of steps followed

See 2 Saltzburg & Martin, Federal Rules of Evidence Manua

508 (1990).

Lastly, if respondent had any true remaining

about the authenticity of this letter, he should hàve coo

with petitioners when they offered him the opportunity to

its authenticity in their letter of August 29, 1991, to

respondent (see Attachment A to Exhibit 1 of Petitioners'

Response to the Court's September 27, 1991, Order and

Respondent's Response Regarding the Admissibility of Mini.

Nazer's Letter Dated July 13, 1991 (Petitioners' Oc,tober

Response)).

Respondent waived his authenticity objection

refusal in his letter to Mr. Moore on September 4, 1991 (

Exhibit 2 to Petitioners' October 16, 1991 Response,), to

cooperate with petitioners.

Accordingly, we find that the

Nazer letter, both in its Arabic and translated for , was

properly authenticated.

Respondent urges us not to accept the first Na er let

into evidence under Rule 146 on numerous legal grouhds, mc

-- 21

which we ruled upon earlier in this opinion.

However,. he also

contends that it should not be admitted under Rule 146 because it

does not assist in determining whether Letter 103/Z is "law".

As

we have discussed earlier, the restriction as expressed in that

letter constitutes law for purposes of Rule 146, and we need not

repeat that discussion here.

But respondent's argument that we

may only use the document if it assists us in determining whether

the Letter 103/Z is.law also is overly restrictive.

Rule 146

allows us to consider "any relevant material" "in determining

foreign.law".

Respondent admits in his memorandum that the

contents of the first Nazer letter (a copy of which was attached

to Mr. Fahad's report) "bear directly" on "the status of Letter

103/Z and its intended scope".

This language makes it clear that

the first Nazer letter comes within the Rule 146 standard.

Respondent's limitation has no basis in the Rule or in any other

material cited.

Accordingly, we find it to be unpersuasive.

Respondent next contends that.admission of the first.Nazer

letter under Rule _146 should not be allowed because it would

subvert the requirements of our expert witness rules by allowing

the admission of a conclusion on ultimate facts without.the

safeguards of testing the expert's qualifications, inquiring into

the underlying facts or data, and cross-examination.

Admitting

that "Rule 146 dispenses with the safeguards built into the rules

on experts",Arespondent urges us to closely examine the

conclusions made -therein.

While we agree.that it is perfectly

- 22 -

appropriate to examine the inherent trustworthiness of an

document receivëd into evidence, we do not agree that Min

Nazer's letter constitutes an expert witness report in th

proceeding.

It contains statements of facts, not conclus

requiring the analysis of an expert.. It apparently conta

recitation of Mr. Nazer's understanding of the applicatio

Saudi restriction.

While the basis for this understandin

not evident to the Court at trial, petitioners attempted

address the Court's concern about this in the seco d Naze

letter, discussed below.

Accordingly, we hold that. our e

witness rules do not preclude receipt of this letter unde

Rule 146.

Respondent next argues that Attachment 22 to Mr. Fah

expert witness report (Exhibit 2004), which contains anot)

of the first Nazer letter,' should not be admitted under R1

143(f) as showing the basis for his opinion because it wo

highly prejudicial and therefore ·subject to exclusion und

403 of the Federal Rules of Evidence.

However, rule 403 <

Federal Rules of Evidence refers to exclusion because of

prejudice.

Respondent has not demonstrated that this leti

qualifies as being within that standard.:

Evidence which j

harmful to respondent's position does not.necessari y qua)

"unfair".

An additional argument made by respondent against adn

of the first Nazer letter is that it was prepared for liti

- 23 -

which, he argues, is in itself reason not to admit it.

He cites

United States v. The First National Bank of Chicago, 699 F.2d 341

(7th Cir. 1983), in support thereof.

In that case one of many

factors in support of the Court's finding that an attorney's

letters were probative evidence was that they were written before

the information contained therein had been brought in issue in

that or any other litigation.

Id. at 345.

This presumably was

observed to show that the letters were unbiased.

In other cases,

however, courts have examined documents prepared in connection

with litigation in making factual determinations.

See Twohy v.

First National Bank of Chicago, 758 F.2d 1185, 1192 (7th Cir.

1985); A/S Kreditt-Finans v. Cia Venetico de Navegacion,

560 F. Supp. 705, 709 (E.D. Pa. 1983), affd. without published

opinion 729 F.2d 1446 (3d Cir. 1984).

Experience teaches that

awareness of imminent or pending litigation tends to impress upon

the preparer of a document the importance of telling the truth

and therefore may make that document particularly reliable."

We

find this to be so when the document is from an unrelated party,

as is the case with the first Nazer letter.

We are aware of no

evidence in the record upon twhich we can conclude ·that

Mr. Nazer's letter is biased or in some other way'inherently so

unreliable as to require its exclusion.

See Continental Illinois Corp. v. Commissioner, T.C. Memo.

1989-468 (fact that documents were prepared for litigation did

not detract from trustworthiness and tended to impress upon.the

makers of the documents the seriousness of the situation and

importance of telling the truth).

-.

=mmmmum

- 24 -

We conclude that the first Nazer letter will be help

the Court in its determination of foreign law in this cas

Accordingly, because respondent's arguments against its a

do not persuade us otherwise, it is admitted under Rule 1

Respondent also contends that, even if the first Naz

letter is admitted under Rule 146, it should be accorded

or no weight.

In Chadwiçk V, Arabian American Oil Co.,

656 F. Supp. 857 (D. Del. 1987), a case cited by re:sponde

support his objection to these documents, the.District Cot

received into evidence under rule 44.1 of the Federal RulE

Civil Procedure an affidavit submitted by plaintiff:.

In

connection therewith, the Court stated that, "Although a c

may consider any materials presented on foreign law., the t

judge is free 'to give them whatever probative valuë he ti

they deserve.'"

Chadwick v. Arabian American Oil Cö., sus

861 (quoting 9 Wright & Miller, Federal Practice and Proce

sec. 2444, at 406 (1971)).

The Court discussed the probat

value of the affidavit there at issue.

American Oil Co., supra at 861.

Chadwick v.;Arabia

We already have held that

fir.st Nazer letter is admitted under Rule 146.

Dis¼ussion

weight we will give to that letter or any other eviclence i

premature at this time.

We will take respondent's argumen

advisement and, in our next opinion, we will discus i the

probative value of the admitted evidence to the issues we

trying.

See supra note 12.

- 25 The second set of documents from Mr. Nazer objected to by

respondent concerns another letter from Minister Nazer (second

Nazer letter)," which petitioners obtained in response to a

comment by the Court during trial.

We stated that we felt the

first Nazer letter did not adequately show that Minister Nazer

had examined Saudi records and was convinced on the basis of

those records that the statements contained in the first Nazer

042

letter were correct.

After the end of the trial, petitioners

submitted an-affidavit from Mr. Fahad and the second Nazer

letter, attempting to alleviate the Court's concerns.

Submission

Regarding the Court's Request to Confirm Minister Nazer's Letter

of August 8, 1990 (and attachments thereto).

Respondent objected

to receipt of the second Nazer letter on various grounds.

In addition to his arguments on the scope of Rule 146, which

we have already.addressed, respondent contends that the second

.

Nazer letter should not be admitted because he was not accorded

adequate access to Minister Nazer in order to ascertain the^

truthfulness of the statements made in his letters.

In this

regard, he notes that the Court at trial had suggested that

petitioners go with a representative of respondent back to

Minister Nazer to.verify the contents of the first Nazer letter,

and that.petitioners proceeded to obtain this verification

without a representative of respondent being present.

These documents will be designated collectively as

petitioners' Exhibit 2005(A).

The Court

__

042 042

042

- 26 was concerned when informed by respondent of this ánd,.on

September 27, 1991, we issued an order requiring that pet

arrange for respondent to have an opportunity to verify t

contents of the second Nazer letter or face the prospect

exclusion.

On october 1.5, 1991, respondent filed a respo

the Court's Order, indicating that the only satisf ctory

of verifying either Nazer letter was by means of live cro

examination or live deposition and production of the docu

relied on by Minister Nazer in reaching his conclusions i:

letters.

On October 16, 1991, we received a response fro

petitioners which indicated that, on August 29, 1991,·pet

had offered to have their expert Mr. Fahad accompany a

representative of respondent to the Saudi Ministry to.ver

authenticity of the Nazer letters by introducing responde

representative to the same Ministry personnel with whom M

had dealt.

Respondent declined to engage in such a proce<

asserting in a letter to petitioners' counsel that :"auther

is but one of the problems of the subject documents.

* *

do not see how a trip to Saudi Arabia solely to establish

authenticity would resolve any fact which could be stipula

lead to any evidence admissible in this ;litigation.':'

He v

to state that "it would be impossible to commit to make a

Saudi Arabia without prior planning", and thereforeithe of

declined.

We view this as an overt refusal on respondent's.part to

act in good faith to rectify his concerns about either the first

or second Nazer letter.

In keeping with our Órder of

Sep.tember 27, 1991, petitioners offered to provide respondent's

representative with the same "access" to Minister Nazer as

Mr. Fahad had received.

We understand that respondent did not

wish only to verify the authenticity of the Nazer letters, but

wanted. to cross-examine Minister Nazer in person about the

contents of both letters.

.This option does not appear to have

been available, even to Mr. Fahad.

Respondent could (and should)

have participated in the options available and only if they

proved to be unsatisfactory asked the Court for further rulings.

He chose instead to insist upon a live interview with Minister

Nazer or participate in nothing at all.

with the latter.

He will have to live

That respondent chose not to take advantage of

this opportunity should not penalize petitioners by'the exclusion

of the.Nazer letters.

Accordingly, we find that the "access"

referred to in-our Order of September 27, 1991, was provided."

We also do not see any apparent reason to suspect the

veracity of the second Nazer letter.

While respondent has tried

to raise some suspicion of collusion between the Saudi Government

It appears to the Court that respondent's refusal was not

only arbitrary but unfortunate, since the opportunity offered to

respondent might well have assisted respondent's counsel in their

evaluation of the evidence. Counsel should remember that their

obligation is not simply to win this litigation but to assist the

Court in ascertaining the facts.

- 28 and petitioners, the attachment to his memorandum ¼» Supt

Notice of Objection, filed August 22, 1991, of newspaper

concerning business deals between the Saudis and certain

companies is hardly the sort of evidence upon which we am

willing to make a finding of collusion.

We find evidence

collusion to be completely lacking in the record. :

We also note that respondent's assertions that the s

Nazer letter is ambiguous because.of its lack of rèferenc

time is without merit.

Whether Minister Nazer's understa

the facts was obtained on the basis of information receiv

1979 or 1991 is not critical; ít is sufficient that his

understanding was obtained as a result of his "kno ledge

policy of the Government of the Kingdom of Saudi A abia i

capacity as a member of the Council of Ministers and ·afte

conducting a thorough examination of thë Ministry of Petr

Mineral Resources documents during the relevant pe iods",

stated in the second Nazer letter.·

Finally, respondent contends that the record was hel

only to receive certain other materials not at issue here

that petitioners' attempt to introduce the second Nazer 1

was not contemplated by the Court or the parties.

|While

true that at the close of trial there was no refere ce to

submission of this document, this does not preclude its

submission when. the Court earlier had requested it.

We b

that failure to.reference it at the end of trial was quit

- 29 due to the massive size of the record and the fact that at that

particular moment the parties simply had neglected to mention it.

Since we requested the parties to obtain this additional

information, and respondent was given an opportunity to verify

it, the Court's request for additional information was

appropriately addressed by petitioners after the end of the

testimony.

We conclude that the second Nazer letter will assist us in

our determination of Saudi law.

Therefore, it is admitted under

Rule 146.

(3)

Testimony of Mr. Clifton C. Garvin, Jr.:

Tr. 113-114.

At trial, Mr. Garvin, formerly Exxon's Chairman and Chief

Executive Officer, testified to a telephone conversation _in which

he participated with Minister Ahmed Zaki Yamani, then Minister of

Petroleum and Mineral Resources of the SAG, concerning the scope

of the restriction.

The testimony indicates that Mr. Yamani said

the restriction applied to all oil that Exxon purchased from the

Saudis, regardless of its disposition.

This is different from

the language of Letter 103/Z, which indicates that the

restriction applied to sales to "third parties".

Responde.nt

objected at trial, and renews his objection in the instant

motion, to this testimony on hearsay grounds because Mr. Yamani

did not appear in court for cross-examination.

The Court ruled

then that testimony concerning this conversation was not hearsay

because Mr. Garvin was describing the conversation not for the

- 30 truth of its content but for confirmation of what

do by the SAG.

We confirm that ruling now.

e was

The conversa1

admissible not to prove that the restriction applied to a

oil, but to prove that Exxon's understanding that it appl:

across-the-board was reasonable, to the extent that such

understanding is relevant and material to the issues here:

We also note that this testimony is admissible under

146 in ascertaining the scope of the Saudi restriction, fc

its contents may be used in support of the truth thereof.

express no opinion as to the probative value of Mr. Garvir

testimony on this issue, which must be carefully explainec

parties in their briefs on the merits.

(4) .Foreign Depositions:

The Court received into e

subject to respondent's objections, five.foreign depositic

which had been taken prior to trial on written questions

pursuant to the Court's Orders.

(a)

Giuseppe. Ammassari:

Exhibit 2012."

Respondent

contends that the fact that Mr..Ammassari felt compelled t

submit a written response to cross-guestion 20.casts doubt

whether he was testifying from personal knowledge.

Petiti

assert that Mr. Ammassari's use of an exhibit in re ponse

Rule 84(a) requires that depositions taken in

forei

country must be taken on written questions unless otherwis

directed by the Court for good cause shown.

Respondent does not object to. the tpanslation of this

deposition, which was the only deposition at issue here th

not given in English.

- 31 detailed question on price control laws was not precluded by rule

612 of the Federal Rules of Evidence when used to refresh his

memory.

Mr. Ammassari's written answer contains several detailed

explanations and references to legal materials that would not in

all likelihood have been in his memory without reference to notes

if he had been testifying at trial.

Rule 612 of the Federal

Rules of Evidence permits a witness to refresh his memory by

.

-

referring to a writing so long as that writing is.produced at the

hearing and the witness is subject to cross-examination in

connection with it.

Our Rule 84(c), concerning depositions upon

written questions, provides:

"The parties and their counsel may

attend the taking of the deposition but shall not participate in

the deposition proceeding in any manner."

Because he could not

"participate", respondent could not have cross-examined

Mr. Ammassari with.respect to the prepared statement by means of

modified questions at the time of the deposition.

However,

Rule 85(d) provides for objections as to manner.and form of the

deposition, and states:

Errors or irregularities occurring at the oral

examination in the manner of taking the deposition, in

the form of the questions or answers, * * * and errors

of any kind which might have been obviated, removed, or

cured if promptly presented, areswaived unless

reasonable objection thereto is made at the taking of

the deposition. [Emphasis added.]

Respondent did not object at the time of the deposition to

Mr. Ammassari's prepared statement, and an objection at the time

might have prevented Mr. Ammassari's reading of.the prepared

-

- 32 I

material.

Therefore the objection has.been waived.

Accc

use of the prepared statement to answer cross-guestion 2(

acceptable.

Respondent also seeks to exclude a portion of

Mr. Ammassari's.deposition that he claims is "spec latinc

I

the subjective intent of the Saudis", which was beyond hi

personal knowledge, and which "of necessity is.bas d on c

I

unidentified out of court statements".

Petitioners clain

the requisite personal knowledge was present and tlat the

ranking energy officials should be permitted to st te the

understanding of Saudi oil policies based on their own'pe

knowledge and experience".

We agree with petitionèrs.

Mr. Ammassari was Director General for Energy Resoùrces a

Italian Ministry of Industry during the years at issue an

was qualified to testify about what. the Italian Go ernmen

"aware" of and what instructions it received in cornectio

Saudi oil.

The question does not appear to be designed t

proof of the Saudi restriction; rather, . it appears to eli

evidence concerning the reaction of the Italian Go ernmen

that restriction.

Moreover, both questions at ias e were

prefaced by the words "To your knowledge".

The only resp

a question containing such language presupposes such know

I

Accordingly, the entire Ammassari deposition is admitted.

(b)

Jean-Pierre Capron:

Exhibits:2013, 2013Al.

Alt

respondent's Motion seeks to exclude Mrj Capron's d posit

- 33 does not explain in his memorandum in support thereof on what

grounds it is offensive.

At trial, respondent indicated some

concern about Mr. Capron's use of a written response, but we

assume from his failure to mention such a writing (if one

existed) that he has waived his objection.

Accordingly,

Mr. Capron's entire deposition is admitted.

(c)

·David Howell:

Exhibit 2014.

Respondent's first

objection to Mr. ·Howell's deposition is that'he read a prepared

answer in response to respondent's cross-guestion concerning the

operations of his staff, thereby tainting the entire deposition.

The 13-line statement by Mr. Howell is sufficiently detailed that

reference to written material does not seem unreasonable.

It

certainly does not, as respondent contends, "cast doubt" on

Mr. Howell's personal knowledge in his entire testimony, nor does

it "taint" his deposition in its entirety.

The second objection by respondent is that a portion of

Mr. Howell's testimony appears not to be based on personal

knowledge but to be sheer speculation as to the Saudi reasons for

the restriction and the consequences of sales by the Aramco

shareholders of Saudi crude at prices in excess of the Saudi

official selling price (OSP).

In that this testimony talks about

Saudi intent, we agree with respondent that this material is on

its face speculative, and we do not intend to rely upon it as a

Nor would the existence of such a writing necessarily have

precluded admission of the deposition into evidence, as we

discussed earlier in this opinion.

u

- 34 basis for our findings of fact.

However, insofar as it 2

upon why his government behaved the way it did and'potent

options available to deter violation of the restriction,

based upon the personal understanding of the Secretary of

for Energy of the United Kingdom concerning that cÕuntry'

options.

Therefore it is based on personal knowledge.

H

note that any harm alleged to have occurred from the test

giving rise to respondent's objections was capable of bei

removed by our receipt into evidence of. one of Mr. Paul S

expert witness reports, and testimony in connection there

presented by respondent in rebuttal to Mr. Howell's depos

See Exhibit BBT, Tr. 2145.

Accordingly, that deposition

entirety is admitted.

(d)

Helmut Schmidt:

Exhibit 2015.

Former German

Chancellor Schmidt at the beginning of his testimony stat

follows:

My review (of the questions pòsed by the partie

shows that many of the questions are hypothetical, m

them are repetitive and many of them deal with detai

go beyond my knowledge and remembrance. In order to

understandable and coherent response, I will not add

each question separately. Rather, in the statement 1

follows, _I will give all of my answers which, I beli

address the essence of the questions posed.

Respondent states that former Chancellor Schmidt's statem

its face is not based upon personal knowledge, and that h

prepared statement "did not answer any of the questions pc

Therefore, respondent argues, the former Chancellor s tesi

was not subject to cross-examination and should not be ada

- 35 Petitioners state that there is "procedural latitude" under

Rule 81(e)(2) pertaining to foreign depositions and that we '

should exercise our discretion here to admit the statement by

granting the parties that latitude, particularly in view of the

deponent's reputation.

They also indicate that the objective of

rule 28(b) of the Federal Rules of Civil Procedure (which was

amended in 1963 to add the statement that evidence need not be

excluded merely because of certain departures from our deposition

rules) is stated in the Advisory Committee's Notes to rule 28 to

allow a foreign depositiÛn into evidence unless it is "so devoid

of substance or probative value as to warrant its exclusion

altogether".

Further, petitioners assert that former

Chancellor Sòhmidt's response provided answers to the writteñ

We note that petitioners misstate and quote out of context

the Advisory Committee's Nóte concerning the scope of rule 28.

The last sentence of Fed. R. Civ. P. 28(b) was added in 1963. It

provides:

Evidence obtained in response to a letter rogatory need not

be excluded merely for the reason that it is not a verbatim

transcript or that the testimony was not taken under oath or

for any similar departure from the requirements for

depositions taken within the United States under these

rules.

The Advisory Committee's Note does not, as petitioners state,

"allow a foreign deposition into evidence unless ,it is 'so devoid

of substance or probative value as to warrant its exclusion

altogether'"; rather, it indicates that the sentence merely was

designed to allow material into evidence despite the use of

different methods of taking or recording the testimony. The

Advïsory Committee's Note then states: "the testimony may indeed

be so devoid of substance or probative value as to warrant its

exclusion altogether."

- 36 questions posed, and that he merely declined to answer tr

questions that were beyond his remembrance.

We do not believe that former Chancellor Schmidt's a

can be said to qualify as a foreign deposition within the

of rule 28(b) of the Federal Rules of Civil Procedure,

reviewed that statement in conjunction with respondent's

questions and have -determined that many of those güestiori

largely unanswered.

While petitioners claim that those q

which were not answered were not capable of being answere

his personal knowledge, this does not appear to be so, si

of the questions--such as those related to whether he was

employ or .on the payroll of petitioners--clearly were.

Therefore, former Chancellor Schmidt's prepared statement

viewed by us as a sworn statement that was not subject to

examination in this proceeding, and thus hearsay .

Petitioners make a persuasive argument that, even if

statement constitutes hearsay, it should be admittqd into

evidence under the "catch-all" exceptions in rule 804(b)(.

Federal Rules of Evidence, when the declarant is uriavailal

That rule provides:

(b) Hearsay exceptions. The following ar,e

not excluded by the hearsay rule if the

declarant is unavailable as a witness:

*

*

*

*

*

*

*

(5) Other exception. A stateräent not specifica;

covered by any of the foregoing exceptions but havinc

equivalent circumstantial guarantees of trustw rthine

if the court determines that (A) the statement is ofi

as evidence of a material fact; (B) the statement is

- 37 probative ·on the point for which it is offered than any

other evidence which the proponent can procure through

reasonable efforts; and (C) the general purposes of these

rules and the interests of justice will best be served by

admission of the statement into evidence. * * *

The legislative history of this exception indicates that it·1s to

be used "very rarely, and only in exceptional circumstances".

S. Rep. 93-1277, at 19-20 (1974), reprinted in 1974 U.S.C.C.A.N.

7051, 7066.

Robinson V, Shapiro, 646 F.2d 734, 742 (2d Cir.

042

1981). Courts have admitted hearsay statements under this rule

because their probative value is high as a result of the

demonstration of certain indicia of reliability or

trustworthiness within the spirit of the rule 804, Federal Rules

of Evidence, class of exceptions.

4 Weinstein & Berger,

Weinstein's.Evidence, par. 804(b)(5 [01] at 804-173 (1975).

The

trial court has a considerable measure of discretion in applying

this exception.

Nowell v. Universal Electric Co., 792 F.2d 1310,

1315 (5th Cir. 1986); Huff v, White Motor Corp:, 609 F.2d 286,

291 (7th Cir. 1979).

Accordingly, we must examine carefully

whether each of the requirements of that rule have been met and

whether the requisite reliability is present.

The first requirement of unavailability needs little

discussion.

Petitioners have indicated that former Chancellor

Schmidt was unavailable for trial, and he is beyond the subpoena

power of the Court.

Accordingly, the threshold of rule

804(b)(5), Federal Rules of Evidence, has been met.

- 38 I

The second requirement of trustworthiness could harc

better met than here, where a former head of stateidescri

recollections pertaining to his government's.perspective

the period at issue on some of the issues we are trying.

Furtado v. Bishop, 604 F.2d 80, 91 (1st.Cir. 1979) (promi

attorney's affidavit possessed requisite trustwort iness)

see no evidence of, or reason for, fabrication her .

Robinson v. Shapiro, supra at 743.

See

That former Chancello

Schmidt's statement was based upon his personal knowledge

I

buttresses its reliability.

See United States v. Carlson

547 F.2d 1346, 1354 (8th Cir. 1976).

Où cross-examinatio

Dr. Klaus Marquardt, a witness presented by respondent-in

rebuttal to the former Chancellor's statement, indicated

former Chancellor "was a very well esteemed man internati<

If respondent's.own witness so testifies, we think it beyt

dispute that former Chancellor Schmidt's testimony is inht

reliable and trustworthy.

The third requirement of materiality likewise has bes

One of the issues in this proceeding is "whether the const

country governments monitored the offtakers' sales of Sauc

oil into their countries to assure that such sales were nc

excess of the prices established by Saudi Arabia".

Monitc

and his country's ability to enforce the restrictio

const

substantial part of the former Chancellor's stateme t.

therefore that it is material.

We

- 39 The·fourth requirement, that the statement be more probative

on the point than any other evidence that might be reasonably

obtained, 'also is met here.

Former Chancellor Schmidt's

statement contains certain assertions of external fact about the

Saudi restriction, which midht be--and were--contained in other

evidence.

However, it also contains many statements of his

perceptions of those external facts and his reactions to them.

It also describes those steps which he would have taken as

Chancellor of Germany if the Saudi restriction had been violated.

Much of this is evidence that not only could not have been

obtained more directly from another source, but in fact it

probably could not have been obtained from any other person at

all.

Therefore, it is clearly more probative than any other

evidence that could have been obtained.

Lastly, we find that the interests of justice will be served

by admission of this statement into evidence.

Respondent was

given ample notice of this deposition and its offer into evidence

and had ample opportunity to counter it with evidence to the

contrary.

Respondent took advantage of this opportunity by

presenting Dr. Marquardt's expert witness report (Exhibit BCK)

and his testimony in connection therewith in rebuttal to former

Chancellor Såhmidt's statement, and the Court received that .

report into evidence without objection by petitioners.20

20

Thus former Chancellor Schmidt's statement does not

constitute an impermissible "ex parte affidavit" under

Rule 143(b), as respondent argues. See respondent's Memorandum

(continued...)

- 40 Accordingly, former Chancellor Schmidt's statement will b

received into evidence.

(e)

A. A. Theo Van.Rhiin:

Exhibit.2016.

Responden

objects to Mr. Van Rhijn's entire deposition because it il

that he consulted with a former assistant in prepa ing hi;

testimony and therefore was not testifying on the basis o:

personal knowledge.

He also objects to receipt in evidenc

exhibit to the deposition consisting of a.statement that i

prepared by Mr. Van Rhijn at petitioners' request i

Augu

on the ground that the exhibit is inadmissible hear ay; he

additionally claims that receipt of the exhibit would vio)

Rule 143(b), which provides that ex parte affidavit

evidence.

are i

Petitioners claim that consultation with an ass

I

was entirely proper and that respondent's objection to Mr.

Rhijn's.exhibit was waived by his failufe to object at th 2

of the deposition.

That Mr. Van Rhijn consulted with an assistant in ord

I

prepare for his deposition is hardly surprising or inapprc

given his testimony that he had not been involved with the

relevant subject matter since 1980.

Indeed, had heinot en

in such consultations, we would have fou'nd his memory of t

facts to be somewhat questionable without a review of pert

materials.

The deposition further indicates that Mr. Van

20(...continued)

in Support of Motion to Admit and Exclude Evidence and to

the Record at 20.

- 41 had substantial involvement in the energy policies of the

Netherlands during the years at issue.

Therefore, respondent's

objection to admission of the deposition because of lack of

personal knowledge has no merit.

With regard to respondent's objection to Exhibit 2 attached

to Mr. Van Rhijn's deposition, we conclude that the exhibit

should be admitted.

As indicated earlier, under Rule 84(a),

respondent could not have modified his prepared questions to

Mr. Van Rhijn to tailor them to the content of the exhibit that

was received during the deposition.

If, however, respondent's

representative had made an objection to this exhibit during the

deposition, Mr. Van Rhijn and petitioners' representative would

have been on notice that the content of the exhibit might not be

accepted by the Court, and Mr. Van Rhijn probably would have been

instructed to answer the questions in more detail verbally.

Because this was the kind of objection referred to in Rule 85(d),

respondent's failure to object at the time of the deposition

constitutes a waiver.

Nor can this exhibit be considered an impermissible "ex

p'arte affidavit" within the meaning of Rule 143(b).

Mr. Van

Rhijn's former statement was endorsed by him during the

deposition and was simply being referred to in order to avoid

repetition of the statements made therein.

Respondent also had

plenty of time to ask the Court for an opportunity to depose

Mr. Van Rhijn again under a set of cross-guestions designed with

- 42 -

the exhibit in mind to bring out any inconsistenci s or

misstatements of fact.

He also had ample opportunity to

introduce contrary evidence into the record.

We cònclude

respondent's failure to do either that he does not feel i

necessary to do so.

In that regard, we reiterate that th

exhibit apparently merely elaborates in more detail upon

Mr. Van Rhijn's oral statements, and does not particularl

any material that enhances petitioners' position.

Theref

respondent's objections to the deposition and Exhi it 2 t

deposition are overruled.

(5)

Appendices to Expert Witness Reports and Citati

Such Appendiges in the Body of the Reports:

Coope

Repor

Exhibit 2002, Apps. 2-52; Ikuta/Tanaka Report, Exhibit 20

Apps. C-J;, Venrick Report, Exhibit 2000, Apps. 1-8 and_Ap

labeled PIW, MEES, and P.E.; Schlesinger Report, Exhibit

Apps. 3 and 5; Fahad Report Exhibit 2004, Atts. 11-18, 2027; and Seymour Report, Exhibit 2007, Atts. 1(B)-9 and 12Respondent claims that certain appendices and attacha

petitioners' expert witness reports, while admissib e unå

Rule 143(f) and rule 703, Federal Rules of Evidence, as p2

the bases for the experts' opinions, ma

not be use

as pz

Respondent also makes a statement in his memor ndum t

is not at all clear that the witness is unavailable' for ;

of Rule 81(i). In his depositián Mr. Van Rhijn stated tha

had "no particular intention of coming t'o the United State

would not be really necessary". This appears to us(to be

statement of "unavailability", since we do not have¡the pa

compel him to appear.

- 43 -

the matters asserted therein because they contain hearsay.

Petitioners appear to agree..

Therefore, all of the above

appendices and attachments--as well as references to them in the

body of the reports--will be admitted into evidence for the

limited purpose of providing the bases for expert witness "reports

as required under Rule 143(f).

However, petitioners additionally assert that certain of the

appendices to Richard N. Cooper's report (Exhibit 2002) "contain

documents stipulated by the parties for all purposes without

hearsay objections".

They do not cite to the stipulations where

those documents may be found, and we do not intend to comb

through this record to look for them.

We hold, however, that,

where there is a stipulated document in the record to which the

parties have not reserved any objections, all objections to their

admissibility will be overruled.

Accordingly, if petitioners are

correct that they have been independently stipulated without

.reserved objection, the documents referred to by petitioners will

be admitted for all purposes, so long as, when they wish to rely

upon them for findings of fact, they indicate in their proposed

findings what the stipulated document numbers are.

(6)

Expert witness reports:

(a)

James R. Schlesinger:

Exhibit 2001.

In the course of

respondent's cross-examination of Dr. Schlesinger, the Court

indicated its belief that his expert report was not limited to

material facts or to the issues before the Court

We.expressed

-- 44 concern that the issues as framed in the Court's scope oí

Order had not been the issues addressed in the report, wt

contained much unnecessary "background" material that dic

pertain to whether or not there was a restriction and whe

not the parties were required to comply with it.

While t

report provides a very interesting summary of Saudi-Unite

relations, we note that it is not until page 14 of

Dr. Schlesinger's 21-page report that_the restriction at

even mentioned.

We indicated at trial that knowle¼ge of

restriction was relevant, but that the general disòussion

government policy was unnecessary to decide the is 040ues

be

tried.

After 100 pages of cross-examination, we iridicate

respondent had gone far beyond Dr. Schlesinger's knowledg

the "wide understanding of the existence of the restricti

that the report had gone far beyond that scope as nell.

indicated that we would not pay any attention to unnecess

material and that if the Court later changed its mind abo

was then deemed to be totally irrelevant material we woul

the trial and bring Dr. Schlesinger back on the stand.

Respondent then stated that he would outline the areas he

going to cover from the report on cross-examination, to wl

Court again assured respondent that he would have an oppo:

to recall Dr. Schlesinger if we decided to go beyond the

the Court's position later during the trial.

Respondent i

I

decided to end his cross-examination of Dr. Schlesinger.

-. 45 Respondent now moves to strike "The.portions of the

Schlesinger report on which cross-examination was not conducted

pursuant to the Court's direction".

We have no idea.what this

motion means and therefore cannot grant it.

We.confirm what we

stated at trial that the report contains much unnecessary,

irrelevant material, which we will disregard in reaching our

conclusions on the issues tried.

However, we cannot exclude from

evidence what we cannot identify.

If respondent had directed our

attention to the material in the report which he now seeks to

exclude as irrelevant, we would have been inclined to grant his

motion.

But even if he had directed our attention to relevant

material in the report upon which he had declined to crossexamine Dr. Schlesinger, we would remind him that we did not

prevent respondent from cross-examining Dr. Schlesinger on

relevant material; we simply informed the parties of our resolve

to stick to the issues as framed in our Scope of Trial Order.

Accordingly, the entire report is admissible.

We will, however,.

Respondent during trial filed a motion to exclude

Dr. Schlesinger's report on the grounds that he did not testify

as an expert under Fed. R. Evid. 702 but was testifying as to his

recollections of the facts, much of which were based upon

inadmissible hearsay; that certain portions of the report are

without analysis; that certain 'portions assume the existence of

the restriction, which is the ultimate fact to be decided; that

one sentence is beyond the knowledge and expertise of the

witness,.and its probative value is exceeded by its prejudicial

impact so that it should be excluded under Fed. R. Evid. 403; and

that the appendices to the report should be excluded as

inadmissible hearsay. Petitioners did not file a response to

this motion. .In the instant motion, respondent did not raise any

of these arguments, and we assume therefrom.that they have been

abandoned.

- 46 disregard those portions of the report that.we deei,n to be

irrelevant in deciding the issues at hand.

(b)

Sidney Davidson:

Exhibit 2022.

Respondent cor

points out that Dr. Davidson's report was admitted.during

examination of respondent's expert Dr. M. Sabry Heakal.

Dr. Davidson did not testify, and petitioners have|conced

his report should be excluded.

excluded from evidence.

The Davidson report will

Similarly, the testimony òf Dr.

that relates to Dr. Davidson's report also will be ;exclud

Tr. p. 2560, line 11 through p. 2564, line 7.

(c)

Richard N. Cooper:

testimony at Tr. 717-718.

Exhibit 2002, pp. 41443; re

Respondent in his Motion asser

Dr. Cooper was qualified as an expert in economics and

international economics and was not qualified to testify

matters of Saudi Arabian and international law.

Petition

respond that Dr. Cooper did not give opinions on the Saud

system or international law, and that, because of his rol

Under Secretary of State for Economic Affairs during the

period, he was qualified to testify about the existence a

of the restriction, about its sovereign.nature, and about

petitioners' inability to ignore it."

During trial, respondent filed a motion to exclude

Dr. Richard N. Cooper's report on the grounds that, inter

much of it contained irrelevant material, that his conclus

were based on inadmissible hearsay, and that most o the .

appendices to his report should be excluded because they

contained inadmissible hearsay. In their response to this

motion, petitioners stated that Dr. Cooper's reliance upor

(contir

- 47 Dr. Cooper's testimony at the pages in the transcript.

objected to by respondent indicates that his assertions were all

prefaced with his "understanding" of Minister Yamani's authority

and the roles of the King and Crown Prince.

To the extent that

his (and his government's) understanding of the existence and

scope of the restriction is relevant to the issues herein,

Dr. Cooper was clearly qualified to testify on these matters.

We also believe that respondent has inaccurately

characterized Dr. Cooper's expertise.

While the resume appended

to his report clearly indicates that he has an extensive

background in economics and international economics, his regular

contact with Saudi officials also made him particularly qualified

to testify as to his understanding of the saudi restriction based

on his discussions with those officials.

We assume that

respondent's objection lies in Dr. Cooper's "opinion-like"

conclusions based upon factual assertions at the end of his

report.

The line between "expert" and "fact" witnesses has been

one not subject to clear demarcation in this proceeding, largely

because a number of those people who served at high levels of

government during the years at issue were highly qualified

(...continued)

hearsay and other inadmissible material was appropriate under

Fed. R. Evid. 703, that all of_the report contained relevant

material, and that Dr. Cooper was required under Rule 143(f) to

provide the Court with the facts and data upon which he relied in

reaching his conclusions. In the instant evidentiary Motion,

respondent did not repeat any of the grounds of his earlier

motion to exclude Dr. Cooper's report, and we assume therefrom

that he has abandoned his earlier arguments.

- 48 -

individuals whose expertise qualifies them not onlÝ to té

fact witnesses about their recollections but also as expé

about their judgmental conclusions as well.

Given its hi

probative value if found to be credible and consistent wi

evidence overall, we do not believe that the,experïence a

expertise of such witnesses should disqualify themifrom a

the Court in ascertaining the scope of the restriction.

This is perfectly consistent with rules 702 and 703

Federal Rules of Evidence concerning the scope of testimc

experts and the bases for their opinions.

Rule 703, Fede

Rules of Evidence, provides that the facts upon wh¼ch an

bases an opinion may be those perceived by the expert bef

hearing.

The facts upon which an expert may rely may be

in three ways:

(1) Firsthand observation of the expert,

(2) facts presented at trial, or (3) facts reasonaÊly rel

by experts in the field, which are presented outside the

proceeding.

Advisory Committee's Notes to rule 703, Fede

Rules of Evidence; 3 Weinstein & Berger, Weinstein's Evid

par. 703[01] at·703-5 (1975).

See United States vs Hill,

F.2d 512, 516 (3d Cir. 1981).

.Accordingly, the fact that

Dr. Cooper perceived some of the facts upon which his con

are based through his employment as Under Secretarÿ of St

Economic Affairs from 1977 to 1981 is completely pe)rmissi

under the Federal Rules of Evidence, and the conclusions

- 49 report are admissible.

Their probative value is, of course, yet

to be determined.

(d)

J. David Capers:

Exhibit 2018, pp. 2-3, 19-20, 22, 26,

and 29; related testimony at Tr. 1833-1836.

Respondent alleges

that Mr. Capers' report was beyond his expertise in that he was

qualified as an expert in chemical engineering, petroleum

operations and refining, and that the objectionable portions of

Mr. Capers' report and testimony concern his "opinions on what

actions were taken by the Saudi government, or the legal effects

of such actions".

Petitioners state that Mr. Capers made certain

assumptions about the existence and scope of the restriction in

examining the data in his report, and that he did not purport to

have 'first-hand knowledge of these assumptions but was merely

disclosing them, as required by Rule 143(f).

They also assert

that Mr. Capers' expertise was demonstrated in the areas of crude

oil acquisition and supply, crude oil transportation and

delivery, refined product sales and product transportation and

delivery.

Therefore, they conclude that he was qualified to

discuss in.his report of Texaco's dispositions of Saudi crude,

exchanges and processing agreements to determine whether they

complied with the restriction as assumed in his report.

Respondent appears to have missed the point of Mr. Capers'

assumptions about the existence of the restriction, and we hereby

assure respondent that we will not make the same mistake by

relying upon those assumptions as the basis for our findings of

- 50 fact concerning the existence and scope of the restrictic

explanation of the assumptions underlying his conc.usions

only is appropriate, it is required by Rule 143(f)

provides:

which

"The report shall set forth * * * the facts or

which * * * [the expert's] opinion is based."

Mr. Capers

statements in connection with the restriction and.its sco

clearly in furtherance of that requirement and thus are

admissible.

With regard to the scope of the witness'. exp

his report indicates that he managed crude oil acq isitio

supply, transportation and delivery, refinery operations,

product sales, transportation and delivery for CKB and

Associates, Inc., and then founded his own consulting.fin

same area.

His report analyzes Texaco's supply, distribu

and trading operations to conclude that Texaco did not vi

the restriction as it was defined for him by petitioners.

report and its conclusions are within the scope of his ex

and will be admitted.

(e)

Harold M. Brewster:

Exhibit 2009, pp. 2-5, 23-|

35; related testimony at Tr. 1281-1283 and 1288-128 .

Respondent's objection to Mr. Brewster's report and testin

that the witness' expertise in "economics, marketing and

petroleum operations" was not within the scope of his test

about the actions taken by the Saudi government or

effects of those actions.

Petitioners respond thatl

Mr. Brewster's testimony was based.upon his personal

he leg

- 51 understanding and experience gained in his capacity as an Exxon

employee during the relevant period.

We agree with petitioners.

Some of the portions of the

report and transcript objected to by respondent and referenced in

respondent's appendix have nothing to do with expertise or

qualifications.

They are statements of understanding made by an

employee who had been given certain instructions about the

restriction and who drew certain conclusions from those

instructions about how to handle interaffiliate sales prices.

Thus they are admissible under Rule 143(f).

Whether the

instructions were an accurate description of the restriction is

one of the issues before us and will have to be proven by the

record.

Mr. Brewster's review of company records in his report

to determine whether the restriction.was complied with is within

the expertise of a concededly qualified expert in "economics,

marketing, and petroleum operations".

Respondent's objection is

overruled.

(f)

Joseph A. Stanislaw:

Exhibit 2008, p. 1 par. 4; p. 22

sec. V(C) and note 17; p. 23 sec. V(D) and note 18; p. 26 sec.

V(G); related testimony at Tr. 1190.

Respondent's objection to

portions of Dr. Stanislaw's report and testimony is based upon

the position that the witness was qualified as an expert in

economics and thus was not qualified to testify about the

restriction.

At trial, Dr. Stanislaw was0proposed by petitioners

as an expert in "the energy policies of 'thie (International Energy

- 52 Agency], the [European Community], and the summit countr:

during the years 1977 to 1981, with particular ref'erence

oil-monitoring efforts of.those institutions and member (

of those institutions".

His report was received i to evd

at which time respondent made no objection either

o the

qualifications or to the content of his·report.

Dr. Star

testimony indicates that his knowledge of Saudi oi. polic

from public records, information made available to him ar

work with the International Energy Agency.

He thus was j

in basing his report upon information that came at least

from his personal observation and experience and was qual

testify in connection therewith.

The report and testimon

be admitted.

(g)

Toyoaki Ikuta and Norio Tanaka:

Exhibit

2011

2011-A, pp..1 and 23-25; related testimony at 1573-1574.

Respondent's objection to Mr. Ikuta's testimony is the sa

the objections to Mr. Brewster's and Dr. Stanislaw s repo

that his observations about actions taken by the Saudi Go

and the legal effects of those actions were beyond his ex

as an expert in "economics".

likewise is the same.

Our rulin¼ on this objectio

At trial, Mr. Ikùta was proffered

expert in the energy policies of the Go ernment of Japan

the second oil crisis and the treatment of Saudi Arabian

oil imports under those policies", and respondent indicat

he had "no objection to the fact that Mr. Ikuta is qualif.

- 53 an expert in this area".

As such, he was clearly qualified to

testify about his understanding of Saudi oil policies, including

his perception of the restriction.

In addition, Mr. Ikuta served

as President of the Japanese Institute of Energy Economics during

the relevant period, in the®course of which he indicated that he

learned from his own observations about Saudi oil policies.

He

clearly was qualified to testify concerning these observations.

.

Mr. Tanaka apparently worked with Mr. Ikuta in the preparation of

the report.

The report and testimony will be admitted.

(7). iJames W. Kinnear Testimony and Exhibits:

BCN-BEH; related testimony at Tr. 3564-3692.

Exhibits

During trial,

respondent attempted to introduce into evidence during

examination of Texaco's president certain documents referring to

the lack of profitability in Japan of one of Texaco's 50-percent-

owned companies, Caltex.

After eliciting from the witness

statements to the effect that Caltex had not sold Saudi crude at

prices higher than OSP, respondent sought to show by means of the

documents at issue that Caltex was trying to increase its'

profitability by selling Saudi oil at a price above OSP to the,

Japanese.

Respondent urges us to admit these materials because

the series of transactions described therein purportedly

demonstrates that Caltex (and therefore Texaco) violated the

Saudi restriction by exacting numerous additional types of

consideration from the Japanese for their purchases of Saudi

crude.

Although the Court originally received some of the

- 54 documents as impeachment material, we later ruled that t]

not be received until the Court ruled on all evidentiary

after trial, and thus the documents were lodged.

We pen

respondent to examine Mr. Kinnear with respect to the lo

documents, and advised respondent that he should request

evidentiary motion that the documents be received and ex

they do not violate the Standing Pre-trial Order

The C

stated that, unless the documents were truly impeachment

documents, they would not be admitted into evidence.

We

advised respondent that, if the Court does not receive t]

documents, the testimony in connection therewith also woi

stricken.

The Standing Pre-trial Order issued in this case on

1990, contains the following clear requirement:

Any documents or materials which a party expects to

in the event of trial (except for impeachment), but

are not stipulated, shall be identified in writing

exchanged by the parties at least.15 days before th

day of the trial session. The Court may refuse to :

in evidence any document or material not so stipulai

exchanged, unless otherwise agreed by the parties o:

by the Court for good cause shown.

The deadline for document exchange in this case was Marcl

1991.

The documents at issue were not identified by res1

until late in the trial, long after petitioners had comp:

their case and long after the March 15 deadline.

One explanation that respondent has given for; his fa

identify these documents much earlier in the proce|eding :

they constituted "rebuttal" evidence, by which we assume

- 55 evidence to counteract or dispute evidence presented by

petitioners in their case-in-chief.

Respondent argued at trial

that Mr. Kinnear was a "rebuttal witness for the Government to

rebut and to impeach Mr. DeCrane's testimony" that Caltex

complied with the restriction.

*

We conclude that the only logical interpretation of the

Standing Pre-trial Order is that the parties should be permitted

to respond by means of rebuttal to an unanticipated argument or

evidence that arises during trial; thus we view the requirement

in that·order of the early exchange of documents to contain

something of a "surprise" exception.

perception of rebuttal at trial.

We so indicated our 042

The interpretation proposed by

respondent that any material which "rebuts", or contradicts, .

evidence offered by petitioners does not have to be identified in

·advance of trial would necessarily require petitioners in all

cases to disclose all evidence in advance but allow respondent in

all cases to withhold evidence until after petitioners have

finished their case-in-chief.

This clearly is not the intent of

the Standing Pre-trial Order, and we refuse to interpret it in

such an unfair manner.

With this interpretation in mind, we note that this was not

a case of surprise.

Nothing could have been more easily

predicted by respondent than that petitioners' witnesses would

testify about petitioners' adherence to the restriction.

It had

been disclosed clearly during discovery and in expert witness

- 56 reports.

Therefore, this is not the type of unantïcipaté

material that could not have been disclosed earließ, and

should have been disclosed in advance of trial.

See Bar}

v. Commissioner, 89 T.C. 66, 70 (1987).

Respondent also argues that the documents are, impeac

documents, which are expressly excluded from the d cument

exchange requirement of the Standing Pre-trial Ord r.

expressed some concern at trial that respondent wa

WE

mere)

searching for a theory by means of which to get the docun

into evidence.

However, if they truly are impeachment dc

we will admit them for the limited purpose of conttadicti

Mr. Kinnear's testimony at trial, although they may not k

as substantive evidence.

If they are not impeachmënt doc

they will be excluded altogether.

Rule 607 of the Federal Rules of Evidence provides:

credibility of a witness may be attacked by any pa¼ty, ir

the party calling the witness."

Under.the dictionary def

"impeachment" is "To call in question the veracity of a n

by means of evidence adduced for such purpose, or the adc

proof that a witness is unworthy of belief".

Blacic's Law

Dictionary 678 (5th ed. 1979).

In the first place, these documents do not appear tc

truly inconsistent with Mr. Kinnear's testimony.

For exa

one document indicates that a certain type of low-sulfur

was "in surplus" in early 1980.

This was used to impeach

- 57 Mr. Kinnear's statement that during the 1979-1980 period Texaco

was short of low-sulfur crude, although he also indicated that

there were "some times and some brief periods within 1980 when

the situation had swung the other way".

Assuming that the

existence of low-sulfur crude is even relevant to the issues, we

do not see a clear inconsistency.

When asked about other

documents., Mr. Kinnear explained that he saw nothing inconsistent

between the desire of Caltex officers to increase the profits of

an unprofitable company and |compliance with the restriction.

He

also indicated that the·attempts to increase those profits were

unrelated to'the restriction.

While there are indications in

several of the proffered documents that Caltex was dissatisfied

with ·its return on sales of crude to the Japanese, and wished to

increase that return, the documents do not indicate, as

respondent apparently would have. us believe, that this desire to

increase·profits necessarily translates into violation of the

-

restriction.

In one of the documents at issue Mr. Kinnear

appears to have stated to the Japanese that Caltex was not making

enough.of a return on the low-cost oil supplied to them, which

presumably refers to Saudi oil.

It does not urge, however,

circumvention of the restriction but expresses awareness and

caution concerning it.

Other documents talk about Caltex's

"substitution" of more expensive crudes for Saudi crude supplied

to the Japanese in order to increase profits.

But these

documents do not·necessarily prove that Caltex planned to use

- 58 these substitutions in circumvention of the restriötion.

fact, Mr. Kinnear testified that the total supply of Arat

crude to the Japanese during this period was const nt and

I

been approved by the Japanese authorities.

Moreovér, it

evident to us that such substitutions were suffici¼ntly

significant to cause us to hold that the restriction was

"violated" for purposes of this entire case, partiöularly

one document indicates that substitutions constituted les

one-fourth of 1980 supplies of Arabian crude.to Japan.

C

documents refer to "premiums" and the "benefit of the twc

price system" that might be lost.

Still other docùments

"_deposits" to be made by the Japanese.

Yet neither the d

themselves nor Mr. Kinnear's testimony draw the.neöessary

between these arrangements and the restriction.

Në do nc

rule whether such activities, even if proven to have occu

.

would violate the restriction, but they are not sojincons

with Mr. Kinnear's testimony as to impeach his credibilit

In addition, we are troubled by respondent's t:actics

presenting these documents so late in the.trial.

Most ci

have adopted the logical rule that evidence which is inad

for substantive purposes may not be deliberately introduc

the guise of impeachment.

See, e.g., United States v. Go

Gallardo, 915 F.2d 553, 555-556 (9th Cir. 1990); United S

Peterman, 841 F.2d 1474, 1479 (10th Cir. 1988) (and cases

therein).

While most of the cases employing this

ule ar

- 59 criminal"context, it has been applied to civil cases as well.

See Whitehurst v. Wright, 592 F.2d 834, 839 (5th Cir. 1979).

Accordingly,' we will examine whether respondent's primary purpose

in-calling Mr. Kinnear to the stand was to·call a hostile witness

and :genuinely impeach that witness' testimony- or was a subterfuge

to elicit material that would otherwise be inadmissible because

it was not shown to petitioners at a much earlier date.

If the

primary purpose was to elicìt otherwise inadmissible evidence,

the testimony and documents should be excluded.

We already have indicated why we do not believe these

materials were so inconsistent with Mr. Kinnear's testimony as to

impeach his credibility.

We also find it obvious that respondent

did not put Mr. Kinnear on the stand to elicit testimony that was

favorable to his case.

Respondent knew long ago that petitioners

had taken the position that the restriction had been complied

with, and it seems easily predictable that Texaco's president

We note that the potential for jury confusion is one

obvious reason to exclude such evidence in jury trial cases.

Nevertheless to allow admission of inadmissible materials here

under the subterfuge of impeachment is extremely troublesome,

even in the absence of a jury trial. Therefore we find it

appropriate to apply a similar standard here.

25

Respondent makes the arguments that the proffered testimony

and materials are business records under Fed. R. Evid. 803(6) or

admissions under Fed. R. Evid. 801(d)(2) and thus may be used as

substantive evidence. We need not address these theories,

however, because our concern with these materials is not related

to their hearsay problems; these materials are excluded as

substantive evidence because of respondent's violation of the

Standing Pre-trial Order.

I

'

- 60 would so testify.

There was no indication from re ponder

he expected any different testimony than we heard, and ir

respondent's counsel stated.on the record that it was "i]

to assume that Mr. Kinnear, would testify consistently wit

documents she offered into evidence to impeach him.

Whi]

surprise is not a prerequisite to.impeachment, the expect

testimony certainly is an indication of respondent a purr

calling Mr. Kinnear to the stand.

supra at 1480.

See United States v. E

Another indication of purpose is the fact

Mr. Kinnear does not appear to be a "crucial" witn as whc

testimony needed to be impeached.

To discredit Mr

Kinne

factual assertions and conclusions about compliance with

restriction would.serve no purpose in support of responde

case, for, according to respondent's memorandum, s veral

witnesses testified to the very same statement that Calte

complied with the restriction, and they were not similarl

"impeached" during their testimony with similar documents

We think it likely, therefore, that respondent "held

from introducing these documents until late in the trial

effort to obtain a tactical advantage.

To introdu e thes

documents this late in the trial deprived petitionérs of

opportunity to disprove or explain their contents through

witnesses at trial under circumstances where there was na

legitimate reason for a last-minute submission.

example of "subterfuge" if ever there was one.

T$is was

We find that respondent is attempting to convince the Court

to receive, under the guise of impeachment, material that was

intended to be used as substantive evidence and that was not

exchariged properly under the procedures set out .in the Standing

Pre-trial.Order.

We have ruled that we will not permit that

order to be so disregarded.

Compare Goldsmith v. Commissioner,

86 T.C. 1134, 1136-1137 (1986) (Court admitted exhibits despite

respondent's,failure to comply with Standing Pre-trial Order.

because "petitioners' trial.preparation was similarly nonexemplary").

This is not "good faith impeachment" but is an

attempt to force otherwise inadmissible evidence through the

"back door".

1 Saltzburg & Martin, Federal Rules of Evidence

Manual, at 568 (1975).

The documents and Mr. Kinnear's testimony

in connection therewith will be excluded.from evidence.

(8)

Kirby Ellis Subpoena:

On March 21, 1991,.respondent

served on Mr. Kirby Ellis, a former attorney in the Exxon law

department, a subpoena, which was accepted on behalf of Mr. Ellis

by counsel for Exxon.

On April 22, 1991, counsel for Mr. Ellis

filed a motion for leave to file a motion to quash the subpoena,

which was granted by the Court on the same day.

On April 23,

1991, Mr. Ellis filed a motion to quash the subpoena, alleging

that any testimony he could give related to the issue for which

respondent had identified him would require him to invoke.the

attorney-client privilege and possibly the work-product doctrine.

On April 24, 1991, respondent filed a notice of,objection.to the

motion to quash, alleging that Mr. Ellis'had waived the p

by providing respondent during discovery with a copy of a

memorandum (Exhibit IO), which describes materials that "1

inclusion as a part of the EME annual legal review".. At

April 25, 1991, the Court orally granted the Motion to Qu

Paragraph 2 of Exhibit IO, entitled "SAG Directives", con

reference to the Saudi requirement that "sales bÿ the off

to third parties not exceed the government-established pr

Other than this reference, the document contains nothing

even appears to be relevant to the issues before us.

Res

apparently takes the position that mere ·disclosure of·thi

document constitutes a waiver of the privilege.

In their

response, petitioners contend that no waiver occurr d bect

waiver of attorney-client·privilege only occurs when confi

information is disclosed, and Exhibit IO did not contain a

confidential information.

They contend that the document

paraphrases Saudi directives in response to a request for

materials meriting consideration in an annual antit ust le

review".

They further allege that nonprivileged te timony

could legitimately be obtained from an examination of Mr.

would duplicate testimony that could more easily beiobtair

other witnesses.

We can understand respondent's desire to probe the us

the "third partiés" language in Exhibit IO.

Such a probe

however, clearly fall within the realm of the attorney-cli

- 63-privilege, since it would involve disclosures made to Mr. Ellis

by his client which were "necessary to obtain informed legal '

advice--which might not have been made absent the [attorney*client] privilege".

(1976).

Fisher v, United States, 425 U.S. 391, 403

Respondent contends, however, that the mere provision of

Exhibit IO by Exxon in the course of discovery was not

inadvertent and by this we assume he means that it constituted a

waiver of the attorney-client privilege or an admission that

discussions concerning the scope of the restriction can be

appropriately discussed.

We agree with respondent up to a point.

By providing

respondent with a copy of the memorandum, petitioners waived the

privilege with respect to the subject matter contained in

Exhibit IO, and Mr. Ellis could be asked questions about that

subject matter.

McCormick on Evidence, sec. 93, at 224 (3d ed.

1984); 8 Wigmore on Evidence, sec. 2327, at 638 (McNaughton rev.

1961).

The subject matter of the memorandum, however, is not

relevant to the issues we are trying; the memorandum speaks only

about the suggested topics of a meeting.

We are not interested

in a meeting here; we are interested in the restriction.

The

fact that the restriction may have been on the agenda.for a

meeting to take place in the future does not mean that all topics

discussed at that meeting are subject to disclosure.

In United

States v. O'Malley, 786 F.2d 786 (7th Cir. 1986) a client

informed the FBI that he had discussed certain information with

- 64 -

his attorney.

The Court of Appeals for thë Seventh Circu

distinguished between the fact of disclosure and disclosu

the communications themselves, stating:

"A client does n

his attorney-client privilege 'merely by disclosing a sub

which tun had discussed with his attorney.'

In order to w

I

privilege, the client must disclose the communication wit

attorney itself."

United States v..O'Malley

gu2Ka at 79

(quoting 2 Weinstein & Berger, Weinstein's Evidence, Advi

Committee's Note to Standard 511 at 511-2 (1984)).

We ma

same distinction here and find that Mr. Ellis did not, by

disclosing the fact that a subject should be on the agend

future meeting, disclose the contents of that meeting or

I

thoughts in connection therewith.

Accoëdingly, th re was

waiver.2s

Since, if Mr. Ellis had been called to testify he wo·

have been able to testify as to any nonprivileged

atters

relevant to these issues before us, it was appropriate to

the subpoena and we reaffirm our ruling.

26

Petitioners also make a reference to the possible

application of the work-product doctrine, but we do not ki

this point of any such "product" that has been requ,ested,

doctrine does not appear to be applicable. Moreover, the

of waiver in the work-product context is more difficult tl

the attorney-client privilege context. |United States v. J

Telephone & Telegraph Co., 642 F.2d 1285, 1299 (D.C. Cir.

Therefore, our finding of lack of waiver in the latter cai

necessarily mean we would find a lack of waiver in ¡the foi

- 65 Petitioners' Motion

(1)

Evidence regarding profitability:

Exhibits BCH, QV-RH,

RJ-SI, SZ, TE, TI, UY-UZ, VU, VZ, WC, WE, WI, WT-WV, XF, YK, APIAPM, ARN-ART, ARY, ASB-ASC, ASI, Z-EM-Z-EN, Z-EP-Z-ES, portions

of Exhibits BBI, BCF, BCE, and portions of the testimony of

witnesses Spiro, Ashton,

Brewster, and'Austin."

In the first

section of their Motion to Strike (section A), petitioners seek

to exclude various exhibits' and portions of trial testimony

concerning the profits earned by petitioners from sales of the

low-priced Saudi crude on the ground that the "Court specifically

excluded [them] from trial by its January 7 Order and which

petitioners accordingly refrained from addressing"

The Scope of

Trial Order provides that at this phase of the proceedings

the parties will limit their presentation of evidence

and testimony to the questions set forth in this Order,

·all of which relate to the Aramco Advantage and will

not make any presentation as to the amount of income

which respondent alleges was shifted or what the

transfer,price should have been, absent the pricing

restriction(s).

We indicated at trial on a number of occasions that we would not

consider evidence on the amount of profits made by petitioners

during this phase of the proceedings.

While respondent

apparently still contends that the Scope of Trial Order was

In their letter to the Court of December 19, 1991,

petitioners withdrew part of their objection to Mr. Ashton's

testimony, at Tr. 2809-2833.

Petitioners' Motion to Strike also seeks to exclude portions

of the testimony of Mr. Garvin, but petitioners withdrew this

objection in their letter to the Court of November 27, 1991.

overly restrictive," he provides the following explanatic

link the evidence on profits which petitioners now seek i

exclude to the language of that Order:

Since petitioners' extraordinary profits during 1975

1981 were a matter of public record, the Saud s and

certainly Minister Yamani had to know who was benefi

from the lower price Saudi crude. The Saudis failt

impose any sanctions or to make any attempt to requi

benefit of the lower price Saudi crude to be passed

consumers belies the existence of any real restricti

point of respondent's presentation was not to!show t

amount of profits secured by petitioners' offtakers,

show that the restriction which petitioners alleged

imposed by Saudi Arabia was superficial at be¼t and

by petitioners to justify the shifting of profits fz

offtakers (subject to United States tax) to petition

controlled foreign corporations which were beyond th

of United States tax.

Respondent's Memorandum in Support of Objection to Petiti

Motion to Strike at 5-6.

On April 3, 1991, the parties entered into a stipula

which provided in part:

"Profits were realized by one or

petitioners' subsidiaries and such profits reflected the

of the below market purchase price of the oil from|Saudi

Stipulation of Facts--Exxon and Texaco, par. 82.

041n

resp

a letter to the parties from the Court on November|14, 19

petitioners have indicated their willingness to admit fur

that:

29

See note 1 of Respondent's Memorandum in Suppórt of

to Admit and Exclude Evidence and to Reopen the Record.

respondent calls the issues referred to:in that footnote

"continuing objections", we will not address them in this

because respondent chose not to do so. ·Therefore, our ru

the scope of trial and the other matters referred to in t

are hereby affirmed.

-÷67 -

Substantial profits were'realized downstream by one or

more of'petitioners' refining/marketing subsidiaries, and

such profits reflected the benefit of the below market

purchase price of the oil from Saudi Arabia.

Respondent urges us not to accept this admission in lieu of the

materials on profits because.part of his "superficiality"

argument involves profits earned by petitioners' offtakers, which

petitioners' admission does not address.

We find that respondent has drawn the requisite.link between

the issues before us and the "profits" materials and testimony in

paragraph A of petitioners' Motion to Strike.

materials and testimony will be admitted.

Therefore, these

We caution respondent

that this does not mean that we are necessarily persuaded by his

"superficiality" argument.

Nevertheless, in the interest,of

allowing respondent to present his case in the most effective way

that he sees fit, we will admit these materials into evidence.

We urge the parties to address very specifically in the next

round of briefs the content of these materials as they relate to

respondent's "superficiality" argument, for it is only in the

context of this argument that we will deem them at all relevant

to the issues we are presently trying.

As the Court stated

repeatedly during trial, the amount of profits earned by

petitioners is not relevant.at this time.

Respondent's argument

that petitioners earned enormous profits as a result of the lower

priced Saudi oil may or may not disprove the existence of the

restriction or the application.of Procter & Gamble.

Our ruling

- 68 at this time is only that we are willing to allow respond

make his argument.

Petitioners in their Motion to Strike urge us to rej

evidence in part because, in compliance with our Scope of

Order, they did not attempt to rebut any of respon ent's

"profits" evidence.

Therefore, we informed the parties t

were considering admitting these materials and gave petit

an opportunity to supplement the record with additijonal e

They declined to do so, indicating that they did not thin

necessary at this time.

Accordingly, petitioners have wa

their right to submit further evidence ön profits 4t this

of the proceeding.

In the event, however, that this case

proceeds to the next phase, petitioners·will have an oppo:

to present evidence on profits anew.

With regard to those portions of paragraph A of peti

Motion to Strike that relate to materials on comparable c:

transfer prices in the absence of a restriction, we will

petitioners' motion."

Respondent has not convinced us th

these materials are related to the issues before us, and i

were expressly excluded by the statement in our Scope of 9

Order that the parties would not make any presentation as

"what the transfer price should have been, absent the pri<

As an attachment to their letter to the Court dated

November 27, 1991, petitioners designated those por¼ions <

Motion to Strike which deal with comparability. It!is thc

items so designated that we refer to here.

- 69 restriction(s)"..

Therefore they will be excluded.

In the event

that we are required to address these questions at a later stage

of the proceeding, we will do so with a full and complete record.

(2)

Certification and Restriction Documents:

Exhibits CCJ,

CCM-CCN, CCQ, CCS-CCU, CCW-CCZ, CDA, CDC, CDF, CDH-CDJ, CDN-CDQ,

CDW-CDX, CDZ, CEB-CEF, CEH, CEN, CET, CEV-CEW, CFB, CFM, CFS,

CFY-CFZ, CGC-CGD, CGK-CGL, CGQ, CGV.

Exxon objects to the

receipt.of these 45 documents" on the.ground that they:were

offered in violation of ours Standing Pre-trial Order.

Claiming

that most of the documents (which are from Exxon files) were

produced to respondent before February 6, 1991, Exxon asserts

that respondent did not identify any of these documents for use

at trial until April 6, 15, 25, and 26, 1991, and did not submit

a final set of the documents until the last day of trial..

Respondent claims that he identified and provided petitioners

with most of these documents prior to April 6, and they were

offered into evidence 19 days later.

During trial respondent

stated that there had been an unwritten understanding among the

parties as they were engaging in the stipulation process that

additional documents concerning the restriction and

certifications would be necessary, and that he believed

petitioners understood that, if these documents were not

Respondent claims that only 41 documents are in dispute.

This is because Exhibits. CEW and CGC are apparently identical to

stipulated Exhibits .IU and 529, and Exhibits CGV and CCY and

Exhibits CGD and CDN are duplicates. Certain other related

documents were conceded by petitioners to be admissible at trial.

- 70 -

stipulated to, they would be offered into evidence!by res

Petitioners disputed these statements.

Because of the pa

disagreement as to the facts, the Court reserved ruling c

ultimate admissibility of the documents and alloweä them

evidence, subject to petitioners' Standing Pre-triàl Orde

objection.

We indicated that petitioners' objection base

respondent's violation of the Standing Pre-trial O der aç

to be well-taken unless respondent could show that the dc

were.true "rebuttal" documents in the sense that t ey add

unanticipated evidence that arose during petitione s'

presentation.

We strongly believe that the terms of the Standing F

Order should be enforced here.2 If respondent is correct

there were certain "understandings" between himsel

and c

for petitioners, he should have taken the appropri te ste

obtaining such assurances in writing.

However, we think

unlikely that there was such an agreement undertaken by

petitioners to stipulate to documents throughout t ial,

particularly in light of the difficulty the partie

had i

reaching any agreement on stipulations in this casë.

The

also would seem to indicate that such understandings were

reached in connection with these documents.

If th tre wer

such understandings, then the Standing Pre-trial Order sh

have been adhered to, as we have discussed earlier in thi

opinion.

We find no validity in respondent's argu ent at

that it is incumbent upon petitioners to know their documents and

therefore respondent's disregard of the Standing Pre-trial Order

did not prejudice or surprise petitioners.

Such an

interpretation, at least in cases like this where the record is

very extensive, would render the document exchange requirement in

the Standing Pre-trial Order meaningless.

Accordingly, petitioners' motion is granted and the

documents are excluded.

Any testimony specifically addressing

the contents of those documents likewise is excluded.

(3)

Hugh David Frisbiet Revised Report and Testimony:

April 22, 1991, Exhibit BCA;-related testimony at Tr. 2533-2537.

Respondent provided petitioners and the Court with a copy of

Mr. Frisbie's first -report, Exhibit BCA dated February 12, 1991,

in a timely manner, with a cover letter that stated:

We are aware and have seen a new crude sales ledger .

that was provided by Texaco Inc.; however, we have been

unable to verify the source or accuracy of differences

between the two ledgers. Other documents received

after that date could not be incorporated into our

report given the due date. The effect of any documents

provided'to us after February 5, 1991 will be reflected

in addenda to our report, in supplemental reports, or

in my testimony at trial.

Petitioners claim that, late in the evening preceding

Mr. Frisbie's testimony in this case, respondent provided

Texaco's counsel with a revised report, which apparently was

based upon more accurate data that was received by Mr. Frisbie

either after he submitted his original report or too close to the

- 72 .due date of his original report for him to incorpo ate it

this earlier version.

Respondent clearly could--and should--have pr vided

petitioners with a copy of Mr. Frisbie's revised report a

substantially earlier than he did.

Updating an expert's

with newly-discovered data is, of course, perfectly appro

However, we cannot believe that the report could not have

updated by Mr. Frisbie and supplied to petitioners substa:

I

before 11:00 o'clock the night·before Mr. Frisbie's expec

testimony.

Even if we accept respondent's representation

memorandum that the revised report is based upon data rec

from petitioners on April 16, 1991, either the data shoul

been incorporated immediately or respondent should have a

petitioners that an amended report was forthcoming and gi

petitioners the opportunity to review.that report for a f

before expecting cross-examination of Mr. Frisbie to occu:

Nevertheless, we find that petitioners' ability to c:

examine Mr. Frisbie was not significantly impaired within

meaning of Rule 143(f), since they appeared to be

repare

questions concerning the amended report.

This finding is

might add, testimony to their diligence.

In addition, re

might have asked the Court to i voke the provision of RuL

143(f), which states that "Additional direct testimony wi

respect to the report may be allowed * * * to cover matte:

arising after the preparation of the report" and then ask

- 73 -

Mr. Frisbie to indicate whether the figures received on April 16

changed the conclusions of his report.

Had respondent employed

this route, petitioners would have been even less prepared. 'We

note for the record that his conclusions in the first report did

not change in the second report as a result of the updated

figures.

Accordingly, the amended report and testimony related

thereto will be admitted.

(4)

Hugh David Frisbiç Chart and Related Testimony:

Exhibit BCB; related testimony at Tr. 2537-2548.

Respondent

apparently concedes that this chart was not identified or

exchanged before trial as required by the Standing Pre-trial

Order.

He does not contend that it constitutes impeachment

material.

His sole argument in favor of admitting the chart is

that it "is nothing new", it "explains" part of Mr. Frisbie's

report, and that its purpose was "to rebut petitioners'

allegations of compulsion by SAG, to show that SAG was not

interested in controlling interaffiliate billing prices, and to

clarify Mr. Frisbie's testimony" about the last-minute revisions

to his report.

He further adds that its contents "could not have

come as any surprise to petitioners".

Once again respondent has mistaken the purpose of the

document exchange requirement of the Standing Pre-trial Order.

That the contents of the document may be familiar to petitioners

does not relieve respondent from his obligation to identify

before trial those documents he intends to introduce into

- 74 evidence, in order to give petitioners an opportunity to

advance the scope of their case and to be adequately pres

cross-examination.

There was no true rebuttal here in th

of testimony that could not have been.reasonably at ticipa

Therefore petitioners' objection will be sustained and th

document and related testimony will be excluded.

(5)

Peter K. Ashton Chart:

Exhibit BCG.

Petitione

their Motion to Strike object to admission of .this chart

ground that it was not exchanged before trial.

Ho ever,

made no such objection during trial when it was introduce

the document was received into evidence without sa lifica

We hold that petitioners have waived their objection to t

document and accordingly it is admitted.

(6)

Paul L. Bloom Report:

Exhibit BBG.

The partie

that, since Mr. Bloom did not testify, his report should

excluded, and we so hold.

We also hold that Dr. Schlesin

testimony from page 471, line 20, through page 473/ line

which deals with his reactions to certain statements in

Mr. Bloom's report, will be stricken.

The explanatory di

from page 473, line 25, through page 478, line 10, will n

stricken as requested by respondent because it is capable

being understood apart from any reference to the Blþom re

For the same reasons, Mr. Seymour's testimony from page 1

lines 17 through 25, will also be stricken.

- 75 (7)

Frank E. Vogel Attachments to Almihdar Report:

Exhibit BBE, attachments.

The parties agree that Mr. Vogel's

letter and resume are not properly attached to Mr. Almihdar's

report.

(8)

The attachments to Exhibit BBE are excluded.

..

M. Sabry Heakal Report and Related Testimony:

Exhibit BCC; related testimony at Tr. 2551-2577.

Dr. Heakal's

expert report concludes that, because of the relationship between

the Texaco offtaker, TexTrad, and the related companies to which

some of the Saudi oil was sold, those sales cannot be presumed to

be at "arm's length", and the accounting treatment of the sales

of Saudi oil should be modified under Generally Accepted

Accounting Principles (GAAP) to reflect the economic substance of

the transactions.

On the day prior to Dr. Heakal's trial

testimony, petitioners filed a motion to strike this report on

the ground that the subject of that report "is not relevant to

the tax issues before the Court at the April 1 trial".

The Court

then indicated its view that it agreed with petitioners' position

and would probably grant the motion.

Petitioners reiterate their

position in.their Motion to Strike.

Respondent does not indicate

in his memorandum how GAAP are relevant to the issues before us

and merely attempts to distinguish a case cited by petitioners

and to add that "Dr. Hegkal's report and testimony confirm that,

like substance versus form principles of tax law, a basic feature

of financial accounting is emphasis on the economic substance of

events over their form."

- 76 -

Rule 702 of the Federal Rules of Evidence proÿides:

If scientific, technical, or other specialized

knowledge will assist the trier of fact to understar

evidence or to determine a fact in issue, a witness

qualified as an expert by knowledge, skill, experier

training, or education, may testify thereto iß the 1

an opinion or otherwise.

While it may contain some interesting points about:accour

principles, Dr. Heakal's report does not meet this|standa

two reasons.

First, GAAP are not relevant to a "fact in

here--the restriction, its scope, and the extent tò whict

complied with, as described in our Scope of Trial Order.

defined in rule 401, Federal Rules of Èvidence, relevant

has a "tendency to make the existence of any fact that is

consequence to the determination of the action morë proba

less probable than it would be without the evidence".

Hc

are--or should be--accounted for under GAAP is not an iss

we need to consider at this time.

It may or may not be z

to a later phase of this proceeding, should there be one,

has no bearing on this phase.

Second, the report does na

contain "specialized knowledge" which will assist the Cou

determining the facts before us.

Other. than the discussi

GAAP, which is irrelevant, the report is nothing more tha

brief in support of respondent's "substance over form" po

It contains pure argument which we will·find perfectly ac

in respondent's next brief on the merits, but unacceptabl

expert's report.

Therefore Dr. Heakal's report will not

- 77 -

admitted as an expert report, and his testimony likewise will be

excluded.·

(9)· G¢rman.Tax Refund Claim:

Exhibits APN, APO, and APP.

These documents relate to aI tax refund suit filed with the German

Government by Texaco's former German subsidiary, Deutsch Texaco

AG.

Petitioners assert that "The existence of that claim and the

tax'position taken by Texaco's former affiliate with respect to

German taxes are irrelevant to the issues specified in the

Court's January 7 Order."

They raise no other objections in

their Motion to Strike concerning this material.

We stated at trial that the position of the German tax

authorities is irrelevant to the issues before us.

that position now.

We adhere to

However, statements of fact by Texaco

concerning compliance-with the restriction may be relevant.

One

of the documents at issue, which is part of a 1987 letter from

.

Deutsch Texaco AG's attorneys to the German Revenue Office, calls

into question petitioners' assertions about compliance with the

restriction:

"The industry of course found ways and means to

circumvent the price limit of the Saudi Government."

Exhibit APO, at T-77309.

Whether this statement is true or, even

if true, proof that the restriction was superficial or otherwise

nonexistent, is not an issue we must decide today.

We need only

decide--and we do so decide--that the statement in Exhibit APO

may be relevant, and therefore it is admissible.

With regard to

the other two documents, Exhibit APN appears to indicate that

- 78 -

Texaco authorized the Deutsch Texaco AG attorneys to inst

the tax refund litigation.

Although it does not specific

I

authorize the factual assertion that the industry circumv

the Saudi restriction, it does show a general awareness c

Texaco's part of that proceeding, and therefore it will b

admitted.

Exhibit APP shows an involvement on the lpart c

in that proceeding by the provision to its German Äffilia

data concerning the "Aramco..advantage/disadvantage' durin

years at issue, and we will admit it as:well.

We caution the parties that, while we will admit the

documents, this does not indicate that we thereby

old th

German refund proceedings are to be exhaustively a gued i

next round of briefs.

The only reason that these proceed

at all relevant is that statements by pëtitioners' agents

concerning the scope or existence of the restriction appa:

were made in connection therewith, and those statements m

relevant.

Any discussions beyond the scope of relevance 1

be considered.

(10)

Fariborz Ghadar Report:

Exhibit BCD.

This re]

provides a description of the historical relationship beti

Aramco and the SAG.

Petitioners allege|that the ce tral

conclusion of the report, that after January 1, 1976 "ARAF

no longer a concessionaire but a servicè company", is irre

to the issues before us.

Respondent claims that th

repoi

relevant to issue (7) of the Scope of Tfial Order,

n that

I

I

- 79 -

restriction, even if valid and followed, was more in the nature

of a contractual arrangement than a "law"; therefore, he

concludes, a section 482 or section 61 adjustment would not be

precluded under Procter & Gamble Co. v. Commissioner, 95 T.C. 323

(1990).

We will ádmit the report and allow respondent to make his

argument.

He draws a line of relevance between this report and

the issues before us.

While much of the historical discussion

may not be necessary to understand respondent's argument about

the nature of the relationship between petitioners and the SAG,

we note that there is a good deal of similar historical

discussion in the report of petitioners' witness,

Dr. Schlesinger, which we admitted in its entirety earlier in

this opinion.

As we indicated earlier, we will simply disregard

those portions of the reports that deal with irrelevant material.

An appropriate order will

be issued.