# Jurisdictional Statement — Pennzoil Co. v. Texaco Inc.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Jurisdictional Statement
- **Published:** January 1, 1987
- **Citation:** 481 U.S. 1

## Text

8 5 - 1 r 9 8 () Supreme Court, U.S. —_

No. 85-___ Pine o

MAY 86

IN THE JOSEPH F. SPANIOL, JR.

Supreme Court of the United States

OCTOBER TERM, 1985

>

PENNZOIL COMPANY,

lant,
—against— Aap

TEXACO, INC.,
Appellee.

ON APPEAL FROM THE UNITED STATES
COURT OF APPEALS FOR THE SECOND CIRCUIT

JURISDICTIONAL STATEMENT

LAURENCE H. TRIBE

Counsel of Record

1525 Massachusetts Avenue
Cambridge, Massachusetts 02138
(617) 495-1767

Of Counsel:
JOSEPH D. JAMAIL JOHN L. JEFFERS
JAMAIL & KOLIUS G. IRVIN TERRELL
3300 One Allen Center BAKER & BOTTS
Houston, Texas 77002 3000 One Shell Plaza
HARRY M. REASONER Houston, Texas 77002
VINSON & ELKINS W. JAMES KRONZER
3300 First City Tower 1001 Texas, Suite 1030
1001 Fannin Houston, Texas 77002
Houston, Texas 77002 PAUL M. BATOR
ARTHUR L. LIMAN DOUGLAS A. POE
MARK A. BELNICK MAYER, BROWN & PLATT
PAUL, WEISS, RIFKIND, 231 South LaSalle Street
WHARTON & GARRISON Chicago, Illinois 60604
345 Park Avenue
New York, New York 10154 May |, 1986

oe

QUESTIONS PRESENTED

The judgment below, which authorized a federal district
court to interfere with pending state court proceedings by
enjoining recourse to the statutes a state has adopted for
adjusting the competing interests of judgment winners and
losers pending appeal, presents the following questions:

1. May a federal court treat an injunction of state court
proceedings as “expressly authorized” by 42 U.S.C. § 1983,
and therefore exempt from the Anti-Injunction Act, by trans-
forming into “the state” every private litigant who invokes
state judicial proceedings and may call on state officers to help
enforce the resulting judgment?

2. Having declared that enforcement of a private litigant’s
state court judgment is actionable under § 1983, may a federal
court avoid the comity principles of Younger v. Harris by
declaring that the state has no cognizable interest in such
enforcement proceedings inasmuch as the underlying action
was between private parties?

3. Do Younger principles permit a federal court to excuse
deliberate bypass of judicial remedies in a state’s appellate
system where there is no procedural bar to full and fair state
court consideration of a litigant’s constitutional challenges?

4. Under this Court’s Rooker and Feldman decisions, may a
federal court that concededly lacks appellate authority under
28 U.S.C. § 1257 nonetheless review the validity of alleged
state barriers to effective appeal on the theory that the private
litigant’s deliberate bypass of state judicial relief from those
supposed barriers permits treating the federal case brought by
that litigant as original rather than appellate in character?

5. May a federal court intervene in a pending state court
appeal to invalidate and enjoin the state’s judgment lien and
supersedeas bond provisions on the theory that the Due
Process Clause entitles a civil judgment debtor to an afforda-
ble stay of judgment pending appeal?

ii

PARTIES TO THE PROCEEDING

In addition to the parties listed in the caption of this case,
the State of Texas participated in the proceeding before the
Court of Appeals for the Second Circuit as an Intervenor-Ap-
pellant. Pennzoil Company has no parent company or affili-
ates as those terms are used in Supreme Court Rule 28.1.
Pennzoil’s non-wholly-owned subsidiaries are:

National Transit Company
The Eureka Pipe Line Company
Proven Properties, Inc.

ili

TABLE OF CONTENTS

CONSTITUTIONAL PROVISIONS, STATUTES AND
Ee

THE QUESTIONS ARE SUBSTANTIAL............

A. THE SECOND CIRCUIT’S RULING EVIS-
CERATES THE ANTI-INJUNCTION ACT ....

(1) The Holding Below Makes Every Judgment
Winner a State Actor Suable Under § 1983...

(2) So Sweeping a View of § 1983 Cannot Have
Been Contemplated by Mitchum vy. Foster ...

B. THE SECOND CIRCUIT’S JUDGMENT REPU-
DIATES THE COMITY RULES DEVELOPED
UNDER YOUNGER V. HARRIS..............

(1) Younger’s Abstention Rules Are Applicable

EE En

(2) Remedies Under Texas Law Meet the Younger
Cee

PAGE

13

16

iv
PAGE

C. THE SECOND CIRCUIT’S DECISION IN-
FRINGES UPON THIS COURT’S EXCLUSIVE
JURISDICTION TO REVIEW STATE COURT
JUDGMENTS UNDER 28 U.S.C. § 1257....... 20

D. DUE PROCESS DOES NOT ENTITLE A CIVIL
JUDGMENT DEBTOR TO A STAY PENDING
Fg, | SPPPTTTITITOLTLIT TTL TTT TT LTTE Tee 23

E. THERE IS NO PRINCIPLED WAY TO CON-
TAIN THE EXPANSION OF FEDERAL JURIS-
DICTION WROUGHT BY THE DECISION

TABLE OF AUTHORITIES

Cases PAGE
Atlantic Coast Line R.R. Co. v. Brotherhood of Loco-
motive Engineers, 398 U.S. 281 (1970) ............ 9, 20
Brown v. Texas, 443 U.S. 47 (1979) .............005- 19
City of New Orleans v. Dukes, 427 U.S. 297 (1976) (per
I, a a nS ee x
Chicago v. Atchinson, T. & S. F. R. Co., 357 U.S. 77
I ak sl x
Cobb. v. Georgia Power Co., 757 F.2d 1248 (11th Cir.
I a ak ah i i a 11, 12
Costarelli v. Massachusetts, 421 U.S. 193 (1975) (per
SE Suh eCuethCdak det ccathectacdeis oe wade ¢d
Before:

LUMBARD, MANSFIELD and PIERCE,
Circuit Judges.

os

Appeal by Pennzoil Company from an order of the
Southern District of New York, Brieant, Judge, granting

A2

to Texaco Inc. a preliminary injunction restraining Penn-
zoil from enforcing a Texas state court money judgment
in the sum of $11.12 billion pending appeals to the Texas
appellate courts and the United States Supreme Court.
The injunction was issued on the grounds that enforce-
ment of the Texas judgment pending appeal would violate
Texaco’s constitutional and federal statutory rights.

Affirmed in part and reversed in part.

+

ARTHUR L. LIMAN, New York, NY, and
LAURENCE H. TRIBE, Cambridge, MA
(Mark A. Belnick, Gerard E. Harper,
Brad S. Karp, Stephen M. Merkel, Paul,
Weiss, Rifkind, Wharton & Garrison,
New York, NY; John L. Jeffers, Jr., G.
Irvin Terrell, Baker & Botts, Houston,
TX; Paul M. Bator, Mayer, Brown &
Platt, Chicago, IL, of counsel), for
Appellant Pennzoil Company.

DAVID BOIES, New ‘York, NY, and PAUL J.
CURRAN, New York, NY (Thomas D.
Barr, Max R. Shulman, Francis P. Bar-
ron, Stephen S. Madsen, William F.
Duker, Stephen D. Poss, Robert B.
Silver, Rosemary Q. Barry, Richard L.
Crisona, Nicholas A. Gravante, Jr.,
Linda C. McClain, Dominic Surprenant,
Cravath, Swaine & Moore, New York,
NY; Milton J. Schubin, Randolph S.
Sherman, Ira S. Sacks, David R. Garcia,

A3

J. Clark Kelso, Kaye, Scholer, Fierman,
Hays & Handler, New York, NY, of coun-
sel), for Appellee Texaco Inc.

JIM MATTOX, Attorney General, State of
Texas, Austin, TX (Mary F. Keller, Ex-
ecutive Assistant, J. Patrick Wiseman,
Assistant Attorney General, W. Robert
Gray, Assistant Attorney General, of
counsel), for Intervenor State of Texas.

Amici briefs have been received from the
following:

State of Alabama

State of Alaska

State of California

State of Delaware

State of Florida

State of Kansas

State of Montana

NAACP

State of New Mexico

State of New York

U.S. Senator Alfonse M. D’Amato

Rep. Hamilton Fish, Jr. and 24 Other
Members of U.S. Congress from New
York

The Business Council of New York

State of Oklahoma

Attorney General of State of Oklahoma

Hon. Jack Brooks and 12 Other Mem-
bers of U.S. Congress from Texas

State of Washington

State of Wyoming

A4

Henry Fowler, W. Michael Blumenthal,
G. William Miller and William E.
Simon, former Secretaries of the U.S.
Treasury

The Committee of Concerned Employees
and Retirees (Stockholders) of Texaco
Inc.

——§

MANSFIELD, Circuit Judge:

Pennzoil Company (“Pennzoil”), a Delaware corpora-
tion with its principal place of business in Texas, appeals
an order of the Southern District of New York, Brieant,
Judge, granting to Texaco Inc. (“Texaco”), a Delaware
corporation based in New York, a preliminary injunction
restraining Pennzoil from seeking to enforce a judgment
entered on December 10, 1985, by the Texas state court
for the 151st Judicial District in the sum of $11.12 billion
(including punitive damages, pre-judgment interest and
costs) in Pennzoil’s favor against Texaco.' The Texas
judgment, handed down after a four-and-one-half month
jury trial, was based on the jury’s findings with respect to
special issues propounded by the court.

In substance the jury found that Texaco had knowingly
and intentionally interfered with a pending agreement
between Getty Oil Co. (“Getty”) and Pennzoil, which was
negotiated in New York, for the latter’s acquisition of
approximately 3/7ths of Getty’s Outstanding shares at
$110.00 per share plus certain additional consideration

i Upon the district judge’s invitation the State of Texas intervened as a
party pursuant to 28 U.S.C. § 2403(b) and has also appealed.

AS

and that Pennzoil was entitled to $7.53 billion compensa-
tory damages and $3 billion punitive damages. The stock
was eventually sold by Getty to Texaco at a higher price
($128 per share) than that found to have been agreed ~
upon between Getty and Pennzoil.

The present action was commenced by Texaco’s filing
of its complaint in the Southern District of New York on
December 10, 1985. The complaint set forth seven claims
(described infra at pp. 9-10) alleging that the Texas
judgment and enforcement of it through use of Texas lien
and supe:sedeas bond provisions (described infra at
pp. 6-7) would violate its rights under the Commerce,
Supremacy, Full Faith and Credit, Due Process and Equal
Protection Clauses of our federal Constitution, as well as
under the Civil Rights Act of 1871, 42 U.S.C. § 1983, the
Securities Exchange Act of 1934, 15 U.S.C. § 78, and
Rules promulgated by the S.E.C. under the latter Act.

We hold that the district court had jurisdiction over the
Third and Sixth Claims of Texaco’s Amended Complaint
(due process and equal protection) in the present action
and that the grant of preliminary injunctive relief based
on them'does not represent an abuse of judicial discretion
since it is supported by undisputed facts that satisfy
well-established standards for preliminary injunctive re-
lief. However, all other claims asserted in Texaco’s com-
plaint must be dismissed for lack of subject matter
jurisdiction since they seek appellate review on the merits
of the Texas judgment in violation of 28 U.S.C. § 1257 as
interpreted by the United States Supreme Court.’ See

: 28 U.S.C. § 1257 provides in pertinent part:

Ҥ 1257. State courts; appeal; certiorari
“Final judgments or decrees rendered by the highest court of a
(Footnote continued on following page)

A6

District of Columbia Court of Appeals v. Feldman, 460
U.S. 462 (1983): Atlantic Coast Line R. Co. v. Brother-
hood of Locomotive Engineers, 398 U.S. 281, 286 (1970);
Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923). The
injunctive relief issued by the ‘i! court from
exercising jurisdiction over them.®

7 Texaco raised its due Process challenges to the trial itself in its
motion to recuse Judge Farris, the Judge who presided over three-
fourths of the case, and in its motion for a mistrial. It raised each of its
other federal claims, except the due process and equal protection
challenges to the Texas bond and lien provisions, in its memorandum
in support of its motion for judgment notwithstanding the verdict.
That document’s Table of Contents reads:

THEREFORE, BE USED AS A PREDICATE FOR A TOR-

A. THE ALLEGED CONTRACT WOULD HAVE VIO-
LATED SEC RULE 10b-13

“IX. TEXACO IS ENTITLED TO JUDGMENT AS A MATTER
OF FEDERAL CONSTITUTIONAL LAW

A. ENTRY OF JUDGMENT AGAINST TEXACO WOULD
VIOLATE THE COMMERCE CLAUSE

B. ENTRY OF JUDGMENT AGAINST TEXACO WOULD
VIOLATE THE SUPREMACY CLAUSE

C. ENTRY OF JUDGMENT AGAINST TEXACO WOULD
VIOLATE THE FULL FAITH AND CREDIT CLAUSE
D

- ENTRY OF JUDGMENT AGAINST TEXACO WOULD
VIOLATE THE EQUAL PROTECT ION CLAUSE

E. ENTRY OF JUDGMENT AGAINST TEXACO WOULD
VIOLATE THE TAKINGS CLAUSE

F. ENTRY OF JUDGMENT AGAINST TEXACO WOULD
VIOLATE THE DUE PROCESS CLAUSE”

8 The district court held that Texaco’s claims under the Securities and
Exchange Act of 1934 are-not barred by res judicata because they are
matters of exclusive federal jurisdiction. 15 U.S.C. § 78aa. The court
relied on Marrese v. American Academy of Orthopaedic Surgeons,
— U.S. __ 105 S. Cr. 1327 (1985), for the proposition that 4

A21

Texaco’s Third and Sixth Claims stand on a different
footing from its other asserted grounds of relief—they
were not presented to the state trial court. Although a
state court judgment has claim-preclusive effect in federal
court, Migra v. Warren City School Dist., 465 U.S. 75
(1984); Allen v. McCurry, 449 U.S. 90 (1980), Pennzoil
does not contend that that rule bars Texaco’s claims here.
Rather, Pennzoil contends that Texaco’s claims are barred
because Rooker-Feldman should be read broadly to pre-
clude federal review of issues which a party could have
raised in the state court proceeding, but chose to withhold
from the state court. We disagree.

Aside from the absence of any support for Pennzoil’s
theory in any decision applying Rooker-Feldman, the
theory would read 28 U.S.C. § 1257 to severely impair,
perhaps negate, a litigant’s right to gain equitable or
other relief under 42 U.S.C. § 1983, Mitchum v. Foster,
407 U.S. 225 (1972), since most claims under § 1983,
especially requests to enjoin ongoing state proceedings,
could be raised in a related state proceeding. To relegate
the § 1983 claimant in such cases to the state court would
ignore Congress’ purpose in adopting that statute. Sec-
tion 1983 was intended “to provide dual or concurrent

U.S.C. § 78aa is such an exception and that the Texas court’s rejection
of Texaco’s defenses based on federal securities laws were therefore not
binding on a federal court. This was error.

In Murphy v. Gallagher, 761 F.2d 878 (2d Cir. 1985), we held that 15
U.S.C. § 78aa does not create an exception to the general requirement
of full faith and credit. Since federal law does not bar state courts
from exercising jurisdiction over defenses based on the Securities and
Exchange Act of 1934, see, e.g., Will v. Calvert Fire Ins., 437 U.S. 655
(1978); Weiner v. Shearson, Hammill & Co., 521 F.2d 817, 822 (9th
Cir. 1975); Shareholders Management v. Gregory, 449 F.2d 326, 327
(9th Cir. 1971); Aetna State Bank v. Altheimer, 430 F.2d 750, 754 (7th
Cir. 1970), state court determinations relating to those issues are
binding on subsequent federal court proceedings to the extent required
by 28 U.S.C. § 1738.

A22

forums in the state and federal system, enabling the
plaintiff to choose the forum in which to seek relief.”
Patsy v. Florida Board of Regents, 457 U.S. 496, 506
(1982). See also Allen v. McCurry, supra, 449 U.S. at 99.
Accordingly, it is settled law that a § 1983 litigant need
not first seek to vindicate his federal claims in state court
before turning to a federal court for relief. Patsy, supra;
Board of Regents v. Tomanino, 446 U.S. 478, 491 (1980);
Monroe v. Pape, 365 U.S. 167, 183 (1961). Indeed, the
Court has recognized, in the context of criminal proceed-
ings, that a litigant who is not collaterally estopped from
raising a § 1983 claim, is not precluded from raising the
same claim simply because he had an opportunity to raise
it in an earlier state proceeding. Haring v. Prosise, 462
U.S. 306, 318-23 (1983). Application of these principles is
appropriate here because Texaco did not choose the Texas
State court for resolution of the claims between the parties
but was summoned into that court by Pennzoil. Texaco
was not, therefore, engaged in forum-shopping when it
sought relief under § 1983 in the Southern District of New
York.

In accordance with the foregoing, we hold that the
district court is barred by the Rooker-Feldman doctrine
from exercising jurisdiction over the First, Second,
Fourth, Fifth and Seventh Claims of Texaco’s complaint
and that they must be dismissed for lack of subject matter
jurisdiction. Rooker, however, does not bar a federal
court from exercising jurisdiction over the Third and
Sixth Claims, which allege that the Texas automatic and
mandatory lien and supersedeas bond provisions deny
Texaco due process and equal protection as applied.
Those claims have never been presented to or adjudicated
by a state court. Nor are they “inextricably intertwined”

A23

with- the barred claims. Feldman, supra, 460 U.S. at
482-83 n.16. Aside from the fact that our adjudication of
the Third and Sixth Claims is not a collateral attack on
the merits of the Texas judgment, Texaco, which did not
choose the Texas state court forum, does not have a fair
opportunity to seek and obtain a timely final resolution
of those claims from the Texas courts and the Supreme
Court before it will suffer irreparable harm because of the
Texas lien and bonding provisions. See p. 35, infra. Wood
v. Orange County, 715 F.2d 1543, 1547 (11th Cir. 1983),
cert. denied, 104 S. Ct. 2398 (1984). Our decision, there-
fore, does not displace any state court adjudication or
offend basic principles of comity and federalism.

Whether the Complaint States a § 1983
Claim, Including State Action

The next question is whether the Third and Sixth
Claims, as illuminated by the affidavits of both sides with
respect to the need for preliminary relief, state the essen-
tial elements of an action under § 1983. That statute was
intended to “interpose the federal courts between the
States and the people, as guardians of the people’s federal
rights—to protect the people from unconstitutional! action
under color of state law.” Patsy, supra, 457 U.S. at 503
(quoting Mitchum, supra, 407 U.S. at 242). In order to
maintain a § 1983 claim, however, a litigant must allege
and show deprivation (1) of a right “secured by the
Constitution and laws of the United States”, (2) by a
defendant acting under color of state law. Flagg Bros.,
Inc. v. Brooks, 436 U.S. 149, 155 (1978).

The first element of a § 1983 action—threatened depri-
vation of a constitutional right—is adequately alleged in
the complaint and supported by the parties’ affidavits.

A24

The undisputed facts indicate that the automatic enforce-
ment of the Texas lien and bond requirements against
Texaco’s property to the extent of $12 billion lacks any
rational basis, since it would destroy Texaco and render
its right to appeal in Texas an exercise in futility. This
would at least amount to a deprivation of its property in
violation of its right to due process under the Constitu-
tion. Evitts v. Lucey, __. U.S. ___, 105 S. Ct. 830, 840
(1985).°

The presence of the second essential element of a
§ 1983 action is more difficult to resolve. The Supreme
Court has enunciated a two-step test for determining
whether conduct resulting in the deprivation of a federal
right is “fairly attributable to the State.” Lugar v. Ed-
mondson Oil Co., 457 U.S. 922, 937 (1982).

“First, the deprivation must be caused by the
exercise of some right or privilege created by the
State or by a rule of conduct imposed by the State or
by a person for whom the State is responsible... .
Second, the party charged with the deprivation must
be a person who may fairly be said to be a state
actor. This may be because he is a state official,
because he has acted together with or has obtained
significant aid from state officials, or because his
conduct is otherwise chargeable to the State.” Jd.

Texaco has satisfied the first prong of this test since
Texas state law provides for enforcement of the judgment
unless Texaco posts a supersedeas bond in the full amount
of the judgment. Tex. R. Civ. P 364(b), supra. Pennzoil
contends, however, that it cannot fairly be termed a “state

9 We discuss Texaco’s due process claim more fully infra at 43-45.

A25

actor” and that the suit therefore-fails to meet the second
prong of the test. Resolution of this issue calls for a
factual inquiry into the relationship between Pennzoil and
the State of Texas that would result from Pennzoil’s
enforcement of the judgment. See Lugar, supra, at 939
(citing Burton v. Wilmington Parking Authority, 365 U.S.
715, 722 (1961)).

To enforce the judgment, Pennzoil would have to act
jointly with state agents by calling on state officials to
attach and seize Texaco’s assets. A judgment creditor
must first obtain a writ of execution, which is “a process
of the court from which it is issued.” Tex. R. Civ. P. 622.
The writ is “directed to any sheriff or any constable
within the State of Texas” and must be signed by the clerk
or justice and bear the seal of the court. Tex. R. Civ. P.
629. Furthermore, the writ “shall require the officer to
execute according to its terms.” Jd. Finally, when, as here,
the judgment requires payment of money, the writ “must
require the officer to satisfy the judgment and costs out
of the property of the judgment debtor subject to execu-
tion by law.” Tex. R. Civ. P. 630. When the sheriff or
constable receives the writ, Texas law commands that “he
shall proceed without delay to levy the same upon the
property of the defendant”. Tex. R. Civ. P. 637. Property
levied upon pursuant to the writ of execution may ulti-
mately be seized by the officer and liquidated to satisfy
the judgment. Tex. R. Civ. P. 646a, 649.

In addition, Texz_ law authorizes the placement of
judgment liens upon Texaco’s property in the state imme-
diately upon entry of judgment. Tex. Prop. Code Ann.
§ 52.001. Such liens are acquired by requesting state
officials to undertake a series of acts. Pennzoil must
obtain a certified abstract of the judgment from the clerk

A26

of the court which rendered judgment. Jd. § 52.002. The
abstract must contain certain information required by
law. Id. § 52.003. The county clerk must then record the
abstract in the county judgment record and enter it in the
index to the record. /d. § 52.004.

Enforcement of the state court judgment therefore
necessarily involves a panoply of activities undertaken
together by Pennzoil and state officials, which constitutes
joint action for the Purposes of § 1983. In Lugar y.
Edmondson Oil Co. the Supreme Court concluded that a
private party who invoked Virginia’s prejudgment attach-
ment procedure acted jointly with the state. Lugar, supra,
457 U.S. at 942. The Virginia prejudgment attachment
procedure, like the Texas Procedure at issue here, pro-
vided that a private party could obtain a writ from the
clerk of the state court and have the writ executed by a
county sheriff. Jd. at 924-25. Under the Virginia law, the
sheriff was only empowered to attach the property, while
its Owner retained possession. The Texas procedure, how-
ever, goes further and permits seizure by a Texas sheriff
of attached property. We conclude, as the Supreme Court
did in Lugar, that the “private use of the challenged state
procedures with the help of state of ficials constitutes state
action for purposes of the Fourteenth Amendinent” and
§ 1983. Jd. at 933.

A different result is not compelled by the fact that
Lugar involved a prejudgment attachment whereas the
attachment here would be pursuant to a court judgment.
The presence of a court judgment does not alter the fact
that Texas state officials execute the judgment only at
Pennzoil’s behest. Pennzoil cannot be divorced from that
execution procedure merely because a court authorized
execution of the judgment. Indeed, to so hold would

A27

preclude the victim from obtaining relief against the party
who must act jointly with the state official to unleash the
unconstitutional state government action. To limit the
Lugar rationale to prejudgment attachments would vio-
late the precept that § 1983 provides a remedy “as broad
as the protection of the Fourteenth Amendment affords
the individual”. Lugar, supra, at 934.

Our ruling in Dieffenbach v. Attorney General of
Vermont, 604 F.2d 187 (2d Cir. 1979), supports the con-
clusion that a party acting pursuant to a state court
judgment is not necessarily insulated from the reach of
§ 1983. In Dieffenbach we found that a bank was subject
to suit under § 1983 when it utilized an allegedly unconsti-
tutional foreclosure procedure to enforce a judgment
against a mortgagor. We noted that in order to execute the
judgment the bank was required to obtain a decree of
foreclosure and that possession could only be gained by
obtaining a writ from the clerk of the court which must
be executed by a sheriff. /d. at 194 and n.12.

Finally, we note that Texaco’s challenge to the state
bond and lien provisions does not call into question the
validity of the underlying judgment. Thus this is not a
case where a private party is alleged to be a state actor
merely because it brought suit and sought a judicial
ruling. See Dennis v. Sparks, 449 U.S. 24, 28 (1980); cf.
Cobb v. Georgia Power Co., 757 F.2d 1248 (11th Cir.
1985) (party who seeks temporary restraining order is not
joint actor with judge who issues the order); Dahlberg v.
Becker, 748 F.2d 85, 92-93 (2d Cir. 1984), cert. denied,
__— U.S. __., 105 S. Ct. 1845 (1985) (private party did
not act jointly with state when she misused lawful state
procedure and judge inadvertently issued contempt or-
der). In such a case the independent judgment of the state

A28

judiciary is called into play, and unless unusual circum-
stances are shown, see, e.g., Adickes v. S.H. Kress & Co.,
398 U.S. 144, 162-71 (1970); cf. United States v. Price,
383 U.S. 787, 794-96 (1966) (18 U.S.C. § 242), a private
party cannot be chaiged with responsibility for a judicial
decision. Rather, Texaco claims that the state enforcement
procedures are unconstitutional as applied. Since Texas
law directs state officials to do Pennzoil’s bidding in
executing the judgment, it is the decision of Pennzoil, not
that of the state judiciary, to utilize state agents to
undertake the collection process, and the state officials
can act only upon Pennzoil’s unilateral determination.
Lugar, supra, 457 U.S. at 941.

The facts of this case, therefore, compel the conclusion
that in enforcing the Texas state court judgment, Pennzoil
must, of necessity, act jointly with the state of Texas.

Having concluded that federal jurisdiction exists over
the § 1983 claims asserted in Texaco’s Third and Sixth
Claims, we need not tarry over Pennzoil’s argument that
injunctive relief against enforcement of the Texas action
is barred by the Anti-Injunction Act, 28 U.S.C. § 2283,
which prohibits federal courts from enjoining state judi-
cial proceedings “except as expressly authorized by Act of
Congress” ."° Since an action under § 1983 constitutes just
such an exception, Mitchum, supra, § 2283 does not bar
Texaco’s claims.

10 28 U.S.C. § 2283 reads:

Ҥ 2283. Stay of State court proceedings

“A court of the United States may not grant an injunction to stay
proceedings in a State court except as expressly authorized by Act
of Congress, or where necessary in aid of its jurisdiction, or to
protect or effectuate its judgments.”

A29

Whether Abstention from Exercise of Federal
Jurisdiction is Required

There remains the question of whether federal jurisdic-
tion over the § 1983 claims must be exercised or whether
we should refrain from doing so under the doctrine of
“abstention”. In certain circumstances, concern for fed-
eralism, comity, and judicial economy suggests that fed-
eral courts abstain from entertaining § 1983 cases. Ab-
stention, however, is the exception, not the rule. Hawaii
Housing Authority v. Midkiff, __._ U.S. ___., 104 S. Ct.
2321, 2327 (1984); Moses H. Cone Memorial Hospital v.
Mercury Construction Corp., 460 U.S. 1, 15 (1983);
Colorado River Water Conservation District v. United
States, 424 U.S. 800, 813, rehearing denied, 426 U.S. 912
(1976). It is appropriate in only four relatively well-
defined circumstances. Moses H. Cone, supra, 460 U.S.
at 13-16; Colorado River, supra, 424 U.S. at 814-19.
Pennzoil contends that two of those circumstances exist
here.'' We disagree.

11 Pennzoil concedes that two of the four circumstances, the so-called
Burford exception, named after Burford v. Sun Oil Co., 319 U.S. 315
(1943), and the “exceptional circumstances” doctrine enunciated in
Colorado River, supra, 424 U.S. at 818, do not apply in the present
case. Burford calls for federal courts to decline jurisdiction “where
there have been presented difficult questions of state law bearing on
policy problems of substantial public import whose importance tran-
scends the result of the case at bar. . . [or when] exercise of federal
review of the question in a case and in similar cases would be
disruptive of state efforts to establish a coherent policy with respect to
a matter of substantial public concern”, Colorado River, supra, 424
U.S. at 814. The “exceptional circumstances” doctrine applies to the
rare case where “consideration of ‘[w]ise judicial administration,
giving regard to conservation of judicial resources and comprehensive
disposition of litigation” demand abstention. Moses H. Cone, supra,
460 U.S. at 15 (quoting Colorado River, supra, 424 U.S. at 817).
Courts must weigh @ range of factors when determining whether
“exceptional circumstances” abstention is in order. Moses H. Cone,
supra, 460 U.S. at 15-16.

A30

One of the two abstention doctrines urged upon us by
Pennzoil, which was formulated by the Supreme Court in
Railroad Commission v. Pullman Co., 312 U.S. 496, 501
(1941), establishes that “federal courts should abstain
from decision when difficult and unsettled questions of
State law must be resolved before a substantial federal
constitutional question can be decided.” Hawaii Housing
Authority, supra, 104 S. Ct. at 2327. See also Ohio
Bureau of Employment Services vy. Hodory, 431 U.S. 471,
480 n.11 (1977). When determining whether Pullman
demands abstention in a particular case, however, “the
relevant inquiry is not whether there is a bare, though
unlikely, possibility that state courts might render adjudi-
cation of the federal question unnecessary. Rather. . .
abstention is not to be ordered unless the statute is of an
uncertain nature, and is obviously susceptible of a limit-
ing construction.” Hawaii Housing Authority, supra, 104
S. Ct. at 2327. Accordingly, Pullman abstention is not
appropriate merely to give the state court a first chance to
vindicate a federal claim, Zwickler y. Koota, 389 U.S.
241, 251 (1967), or when the possibility that state courts
will provide a construction limiting the statute is “too
speculative to justify or require avoidance of the question
presented.” Ohio Bureau of Employment, supra, 431
U.S. at 481.

The meaning of the Texas lien and bond provisions is
far from uncertain. On the contrary, the language of Tex.
R. Civ. P 364 and Tex. Prop. Code Ann. §§ 52.001 ef
seq., is crystal clear. To. suspend enforcement of a judg-
ment pending appeal the appellant must post a bond in at
least the full amount of the judgment. See Texas court
decisions cited supra, pp. 7-8. Texas courts have refused
to reduce supersedeas bonds below the amount dictated

Se

A31

by Rule 364 even though the party seeking to appeal the
decision claimed he could not post the required amount.
Mudd v. Mudd, 665 S.W.2d 128 (Tex Civ. App. 1983).
Indeed, Rule 364’s predecessor, Art. 2270, Vernon’s Ann.
Civ. Stat., was similarly construed by Texas courts. An-
derson v. Pioneer Building & Loan Ass’n, 150 S.W.2d 445
(Tex. Civ. App. 1941) (refusing to stay foreclosure and
sale of home of 66-year-old woman, whose only income
was Hfer old-age pension, because she could not post
supersedeas bond equal to the value of house). See also
Elliott v. Lester, 126 S.W.2d 756, 759 (Tex. Civ. App.
1939); Bryan v. Luhning, 106 S.W.2d 403, 404-05 (Tex.
Civ. App. 1937); Dunlap v. Rotge, 85 S.W.2d 650, 651
(Tex. Civ. App. 1935); Cleveland v. Alpine Lumber Co..,
70 S.W.2d 257, 257 (Tex. Civ. App. 1934).'? Since there is
nothing unclear or uncertain about the Texas lien and
bond provisions here and the mere possibility that the
Texas courts would find Rule 364 unconstitutional as
applied does not call for Pullman abstention, Zwickler,
supra, 389 U.S. at 251, this type of abstention cannot be
justified.

Pennzoil also argues that Younger v. Harris, 401 U.S.
37 (1971), and its progeny required the district court to

12 Dillingham v. Putnam, 14 S.W. 303 (Tex. 1890) (quoted with
approval in Nelson v. Krusen, 678 S.W.2d 918, 921-22 (Tex. 1984)),
held that a law conditioning the right of appeal on posting a super-
sedeas bond, regardless of whether appellant could post the bond,
violated the Texas constitution’s guarantee of the right to appeal. The
law, however, unlike the lien and bond provisions at issue here, barred
litigants from appealing. The cases cited supra demonstrate that the
Texas courts have not read Dillingham to protect the right to stay
enforcement of judgments pending appeal. Furthermore, Pu//man
abstention may not be predicated on the possibility that a state court
could interpret the broad language of the state constitution to overrule
a State statute or rule. Hawaii Housing Authority, supra, 105 S. Ct. at
2327 n.4; Examining Board v. Flores de Otero, 426 U.S. 572, 598
(1976); Wisconsin v. Constantineau, 400 U.S. 433, 438-39 (1971).

A32

abstain. Younger counsels “federal courts to abstain from
jurisdiction whenever federal claims have been or could
be presented in ongoing state judicial proceedings that
concern important state interests.” Hawaii Housing
Authority, 104 S. Ct. at 2327-28. For Younger to apply
three conditions must be present: (1) “important”, “sub-
stantial” or “vital” state interests must be at stake, and
(2) state procedures must be available to provide an
adequate opportunity for the appellant to raise his federal
claims in a state court, and (3) that there be an on-going
state proceeding. Middlesex Ethics Comm. vy. Garden
State Bar Ass’n, 457 U.S. 423, 432 (1982); Moore vy.
Sims, 442 U.S. 415, 423-25 (1979). Since the third condi-
tion is clearly met in the present case, we need not discuss
it.

With respect to the first of these essential elements of
Younger abster.tion, Pennzoil asserts that two substantial
Texas interests are at stake in this case: Texas’ interest in
protecting the rights of its citizens to obtain and enforce
judgments in the Texas courts and Texas’ interest in the
constitutionality of its statutes. Every state, however, has
similar interests in every state proceeding. Accepting
Pennzoil’s argument that these interests are sufficient to
mandate abstention would broaden Younger to cover
almost every § 1983 case and thus undermine the Su-
preme Court’s holding in Mitchum, supra, that federal
courts are empowered by § 1983 to enjoin ongoing state
proceedings. Not surprisingly, Younger and its progeny
call for no such expansion. Pennzoil’s contention would
also render meaningless and unnecessary the exercise,
regularly engaged in by federal courts called upon to
abstain, of analyzing the state interests and remedies
involved to determine whether Younger abstention is

A33

mandated. See, e.g., Traughber v. Beauchane, 760 F.2d
673, 680-81 (6th Cir. 1985); Miofsky v. Superior Court of
State of Cal., 703 F.2d 332, 336-38 (9th Cir. 1983).

The state interests at stake in this proceeding differ in
both kind and degree from those present in the six cases
in which the Supreme Court held that Younger applied."
In each of those cases the state government or a state
official was a party to the action which the federal court
was being asked to enjoin and had a direct stake in the
outcome since the state action was taken for the purpose
of vindicating a particular state policy or remedying an
infraction of state law. See Middlesex Ethics Comm.,
supra (federal court should abstain from enjoining agency
of state Supreme Court from bringing state disciplinary
proceeding against lawyer); Moore, supra (federal court
should abstain from enjoining state action by state De-
partment of Human Resources seeking emergency order
under state Family Code to protect children from paren-
tal abuse); Trainor v. Hernandez, 431 U.S. 434 (1977)
(federal court should abstain from enjoining state court
proceeding by state Department of Public Assistance to
recover welfare money paid the defendants when they
misrepresented their worth in applying for aid); Juidice v.
Vail, 430 U.S. 327 (1977) (federal court should abstain
from enjoining state court judges from enforcing order
punishing appellant by jailing him for contempt); Huff-
man, supra (federal court should abstain from enjoining
sheriff and county prosecutor from enforcing state civil

13 Middlesex Ethics Comm. v. Garden State Bar Ass’n, 457 U.S. 423
(1982); Moore v. Sims, 442 U.S. 415 (1979); Trainor v. Hernandez, 431
U.S. 434 (1977); Juidice v. Vail, 430 U.S. 327 (1977); Huffman y.
Pursue, Ltd., 420 U.S. 592 ‘1975); Younger v. Harris, 402 U.S. 37
(1971).

A34

nuisance statute); Younger, supra, (federal court should
abstain from enjoining state criminal proceeding). The
present case is dramatically different. Here the state has
no interest in the underlying action. It is a suit between
two private parties stemming from the defendant’s al-
leged tortious interference with the plaintiff’s contract
with a third private party. An injunction here does not
prevent any arm of the state from acting to vindicate a
state policy or to punish an infraction of state rules.

Pennzoil argues that the court’s holding in Juidice v.
Vail, supra, to the effect that a federal court must abstain
from enjoining a state judge from enforcing a contempt
order demonstrates that the state has a substantial interest
in the process by which it “protects the rights adjudicated
in . . . [its] courts, and enables prevailing parties to
satisfy. . . judgments.” Juidice, however, cannot be read
so broadly. The Supreme Court there emphasized that its
holding turned on the fact that the contempt power was
the weapon used directly by the state courts to protect
their authority. The contempt power, the court noted, is
the means by which the state “vindicates the regular
Operation of its judicial system. . .. The contempt
power lies at the core of the administration of a State’s
judicial system.” Juidice, supra, 430 U.S. at 335. “Con-
tempt . . . serves, of course, to vindicate and preserve
the private interests of competing litigants, . . . but its
purpose is by no means spent upon purely private con-
cerns. It stands in aid of the authority of the judicial
system, so that its orders and judgments are not rendered
nugatory.” /d. at 336 n.12. In the present case, Texas’
limited interest in insuring that the interests of private
litigants such as Pennzoil are preserved does not rise to

A35

the level of a state’s interest in safeguarding the basic
power of its courts through contempt proceedings.

The relatively minor Texas state interest in the present
case is further attested to by the fact that we are not
called upon to declare the Texas lien and bond provisions
to be unconstitutional on their face but only as applied to
the unique and extraordinary circumstances of this case,
which are unlikely ever to recur because here obtaining a
$12 billion bond is impossible. Our exercise of federai
jurisdiction under § 1983 does not open any floodgates.
On the contrary, ours is a narrow holding limited to the
unusual circumstances of this case. The Texas lien and
bond provisions will in most other circumstances continue
to be respected and enforced as written by the Texas
legislature and the Texas Supreme Court. Thus our deci-
sion does not prevent the state from enforcing the policy
behind the Texas lien and bond provisions, which is to
insure that a judgment creditor’s interest in a judgment
will be protected during the pendency of an appeal.
Fortune v. McElhenney, 645 S.W.2d 934, 935 (Tex. Civ.
App. 1983); Mudd v. Mudd, 665 S.W.2d 128, 130 (Tex.
Civ. App. 1983); Cooper v. Bowser, 583 S.W.2d 805, 807
(Tex. Civ. App. 1979). The unconstitutionality of those
provisions as applied in the Pennzoil-Texaco case does
not nullify them with respect to judgments in other cases.

Nor has Pennzoil satisfied the second requirement for
Younger abstention, that Texas state courts provide ade-
quate procedures for adjudication of Texaco’s federal
claims. If resolution of those claims is to be effective,
prompt judicial action is essential; time is of the essence.
It appears unlikely that Texaco could have been assured
of a decision from the Texas trial court on the constitu-
tional issues, at least without the cooperation of Penn-

A36

zoil, before that court lost its jurisdiction over the case in
March 1986. Texaco’s effort to discuss modification of
Par. 7 in December 1985 was rebuffed. The motion before
the Texas trial court for a new trial is still pending. In
view of the plain language of the Texas bond provision
and the consistent line of Texas decisions enforcing it as
written, the Texas trial judge would in all probability
deny relief sought on constitutional grounds or leave the
constitutional issues undecided until his jurisdiction ex-
pired.

—e

Apparently recognizing the futility of Texaco’s seeking
to obtain a timely decision of its constitutional claims
through the trial court and traditional appellate channels,
Pennzoil urges that an application by Texaco to the Texas
Supreme Court for a writ of mandamus ordering the trial
court not to apply Rule 364(b) as written would satisfy
the Younger requirements. We disagree. In the first place,
the remedy of state court mandamus, which undoubtedly
has been available in many cases denying Younger absten-
tion, has never been regarded as an adequate state remedy
for abstention purposes, in view of its status as an
“extraordinary” writ to be granted only in exceptional
circumstances. Traughber, supra, 760 F.2d at 684; Holmes
v. New York City Housing Authority, 398 F.2d 262, 267
n.7 (2d Cir. 1968). Indeed, in Hernandez v. Finley, 471 F.
Supp. 516 (N.D. Ill. 1978), summarily aff’d mem. sub
nom. Quern v. Hernandez, 440 U.S. 951 ( 1979) (deciding
Trainor v. Hernandez, supra, on remand), the Supreme
Court affirmed the district court’s finding that the reme-
dies offered by the State of Illinois failed to “afford a
plain, speedy, efficient and certain remedy for review of
their federal claim”, because they left review of a rejected
federal claim to the discretion of the state’s appellate

A37

courts. Hernandez, supra, 471 F. Supp. at 520. Neither
the district court nor the Supreme Court suggested that
the availability to the private litigant of an original action
for relief in the Illinois Supreme Court (similar to manda-
mus), Illinois Supreme Court Rules 381-83, constituted an
“adequate state remedy”. Each time the Supreme Court
has found that adequate state remedies existed for
Younger purposes, the Court’s conclusion has rested on
the fact that the party seeking § 1983 relief could with
certainty obtain a resolution of constitutional claims from
the state courts. See, e.g., Middlesex Ethics, supra, 457
U.S. at 435-36; Juidice, supra, 430 U.S. at 337; Moore,
supra, 442 U.S. at 423-27; Huffman, supra, 420 U.S. at
608.

Furthermore, we do not believe that mandamus, if
granted, would provide Texaco an adequate and timely
remedy. Under Texas law, mandamus “will not lie where
no request or demand has been made for the performance
of such act or where there has been no refusal to per-
form.” Dozier v. Wray, 222 S.W.2d 178, 179 (Tex. Civ.
App. 1949). See also Kissam v. Williamson, 545 S.W.2d
265, 267 (Tex. Civ. App. 1976); Ratcliff v. Dickson, 495
S.W.2d 35, 36 (Tex. Civ. App. 1973); Cozby v. Clifton,
265 S.W.2d 197, 198 (Tex. Civ. App. 1954). Texaco would
be required, accordingly, to expend precious time in
requesting the trial court to disregard Rule 364, which as
noted, that court would probably fail to do, before
seeking mandamus relief. Furthermore, even if the Texas
Supreme Court issued the writ, Texaco’s problems would
not be at an end. There is no assurance that the Texas
appellate court would grant an immediate stay of execu-
tion pending its decision on the constitutionality of the
Texas lien and bond provisions or fix security in a

A38

reasonable amount. Indeed, the Texas appellate court
issuing a writ of mandamus “will never prescribe what the
decision of the subordinate court shall be, nor will the
supervisory court interfere in any way to control the
judgment or discretion of the subordinate court in dispos-
ing of the controversy.” Pope v. Ferguson, 445 S.W.2d
950, 953 (Tex. 1969) (quoting Ex parte Newman, 81 U.S.
152, 165-66 (1871)) (emphasis in original). Rather, the
Texas Supreme Court will remand the case to the trial
court with instructions to obey the law as the Texas
Supreme Court interprets it. Pope, supra, 445 S.W.2d at
953. In the present case, that rule would require the Texas
Supreme Court to leave it to the Texas trial court to hold
the necessary hearings and fix the proper amount of the
supersedeas bond. An effort by Texaco to obtain more
timely relief from a Justice of the United States Supreme
Court under § 1257 would not succeed since the Supreme
Court would not grant a stay until the Texas Supreme
Court had acted. See National Socialist Party v. Skokie,
432 U.S. 43 (1977); Nebraska Press Assn. v. Stuart,
Judge, 423 U.S. 1327, 1329-30 (1975) (Blackmun, J., in
chambers). In the meantime, Par. 7 of the Texas judgment
having long since expired, Pennzoil would have executed
its $11.12 billion judgment, forcing Texaco down the path
of no return.

The Merits: Requirements for Preliminary
Injunctive Relief

There remains the question of whether, in light of the
foregoing principles, the district court abused its discre-
tion in granting relief. An abuse of discretion would exist
if the court relied on clearly erroneous findings of fact or
erroneous legal principles in issuing the injunction. Han-

A39

son Trust PLC v. SCM Corp., 774 F.2d 47, 54 (2d Cir.
1985).

In this circuit the standard for issuance of preliminary
injunctive relief is well-settled. The plaintiff has the
burden of showing irreparable harm and (1) either proba-
ble success on the merits or (2) sufficiently serious ques-
tions going to the merits to make them a fair ground for
litigation plus a balance of hardships tipping decidedly in
the plaintiff’s favor. Kaplan v. Board of Education of the
City School District of the City of New York, 759 F.2d
256, 259 (2d Cir. 1985); Jackson Dairy, Inc. v. H.R. Hood
& Sons, Inc., 596 F.2d 70, 72 (2d Cir. 1979). The effect of
the grant or withholding of such relief upon the public
interest must also be. considered. Virginian Railway Co.
v. System Federation, 300 U.S. 515, 552 (1937); Stamicar-
bon, N.V. v. American Cyanamid Co., 506 F.2d 532 (2d
Cir. 1974).

Irreparable Harm

It is beyond dispute that, absent injunctive relief,
enforcement of Texas’ lien and supersedeas bond provi-
sions would rapidly produce a catastrophe of major
proportions, causing substantial harm to Texaco itself
and to thousands of others throughout the United States,
including stockholders, customers, and suppliers. Penn-
zoil concedes that Texaco, although it has a liquidation
value of $22 billion and a net worth of about $23 billion,
could not possibly post a bond or security in the sum of
the approximately $12 billion that is mandated by Tex. R.
Civ. P. 364(b). The simultaneous attachment of a lien
pursuant to Tex. Prop. Code Ann. §§ 52.001 ef seq. on
Texaco’s real property in Texas, valued at $5 billion,
would seal the company’s fate. Unable to finance its

tia

A40

Operations or obtain credit lines needed for its continued
existence, Texaco, the fifth largest business organization
in the United States, would be forced into bankruptcy or
liquidation. A large percentage of its 55,000 employees
world-wide, with an annual payroll of $1.6 billion, would
lose their jobs. Approximately 319,000 Texaco stock-
holders, who received $730 million in dividends in 1985,
would suffer heavy losses.

Some idea of the proportions of the threatened catas-
trophe can be gathered from the undisputed financial
crisis that occurred during the week following entry of the
Texas judgment. Despite the temporary “stand-still” pro-
visions of Par. 7 of that judgment Texaco’s bonds were
downgraded by Moody’s from investment grade to non-
investment grade. It was forced to withdraw from the
commercial paper market. Banks with which it did busi-
ness advised that they would no longer lend it money on
unsecured terms because of uncertainties as to what
would happen when Par. 7 expired in March 1986. Simi-
larly, because of these uncertainties, potential joint ven-
turers with Texaco cancelled negotiations with it,
suppliers refused to do business with it on regular custom-
ary terms, and companies refused to negotiate deals for
the purchase of Texaco assets. The extent of the harm
threatened by enforcement of the Texas judgment is
further attested to by some 58 interested parties including
12 states, that have filed amicus briefs or other papers
urging that enforcement be enjoined. .

In determining whether a threatened injury pending
appeal is irreparable it becomes important not only to
assess its nature and anticipated duration but whether the
plaintiff can be restored to the status quo ante if the
appeal should result in a reversal in his favor. The

A4l

irreparabil:ty of the harm increases in proportion to its
irreversibility. In most cases, if the judgment is reversed
upon appeal, the attachment will be vacated and the
property or the proceeds from its sale will be restored to
the appellant. His sole harm will have been the depriva-
tion of the use of the property or its monetary equivalent
pending the appellate decision. But when, as in the
present case, the interim injury is the irrevocable destruc-
tion of his business, resulting in bankruptcy or liquida-
tion, a reversal will not undo the injury, which cannot be
measured in damages and would in no event be recover-
able. The evidence is equally persuasive that without
injunctive relief the public interest would be adversely
affected. Virginia Ry. Co. v. System Federation, supra,
300 U.S. at 552.

We are not called upon to review the merits of the
Texas action. Indeed, it was not within the district court’s
province to do so. Under Rooker that is exclusively the
province of the Texas courts. We must accept for present
purposes that Pennzoil has established to the satisfaction
of a Texas jury and judge that it was unlawfully injured
by Texaco’s tortious conduct, that as a result Pennzoil
suffered enormous damages, and that Texaco’s conduct
was sufficiently egregious to require it in addition to pay
punitive damages to the victim. However, only if Texaco’s
appeal were patently frivolous would we be justified in
holding that any threatened harm to it from effective
denial of its right of appeal could be labelled inconse-
quential. The issue before us, therefore, is not whether
Texaco should have prevailed on the merits in the Texas
action but whether its Texas appeal presents non-frivolous
issues for resolution.

A42

That Texaco has raised non-frivolous issues as the basis
for its Texas appeal is clear. It argues (1) that the Texas
trial court erred in not granting it a mistrial based on the
acceptance by Texas Judge Anthony J. P Farris, who
presided over most of the 4-1/2-month trial until illness
forced him to step down, of a $10,000 “campaign contri-
bution” from Joseph D. Jamail, Esq., Pennzoil’s lead
trial counsel, while the case was pending before Judge
Farris and without disclosure to Texaco; (2) that the
successor Texas trial judge (Judge Casseb) refused to read
the transcript of the testimony and proceedings that had
occurred before Judge Farris and misapplied New York
law (which the parties admit governed the case) with
respect to (a) the essential elements of a claim of tortious
interference with a contract, (b) when a punitive damages
award is permissible, and (c) when a contract becomes
legally enforceable; (3) that any contract between Getty
and Pennzoil was void and unenforceable because it
violated S.E.C. Rule 10b-13, the federal antitrust laws,
State laws governing fiduciary duties of directors and
controlling stockholders, and the Statute of Frauds, and
was procured as the result of fraud or mutual mistake; (4)
that an improper method was used to compute the award
of $7.53 billion compensatory damages; and (5) that
Texaco was entitled to judgment as a matter of law
because the Texas judgment in Pennzoil’s favor violated
the Commerce, Supremacy, Full Faith and Credit, Due
Process, and Equal Protection Clauses of the United
States Constitution.

Fair Grounds for Litigation and Favorable
Balance of Hardships

Having shown that without injunctive relief it would
suffer irreparable injury, Texaco also had the burden of

A43

demonstrating that it has a substantial chance of success
on the merits of the present action (as distinguished from
the merits of its Texas appeal) or at least that it has raised
fair grounds for litigation and that the balance of hard-
ships tips in its favor. Kaplan, supra, 759 F.2d at 259. We
are satisfied that Texaco’s claim that the Texas bond and
lien provisions deny it due process presents a fair ground
for litigation. Hence it becomes unnecessary to reach its
claim that they also violate its equal protection rights.

The Texas constitution grants a right of appeal to all
civil and criminal litigants. Ne/son v. Krusen, 678 S.W.2d
918, 921 (Tex. 1984); Airco, Inc. v. Tijerina, 603 S.W.2d
785 (Tex. 1980); Bay v. Mecom, 393 S.W.2d 819, 820
(Tex. 1965); Dillingham v. Putnam, 14 S.W. 303, 304-05
(Tex. 1890); Moore v. Wutke, 145 S.W.2d 224, 226 (Tex.
Civ. App. 194C). Federal due process forbids the state
from arbitrarily excluding certain parties from exercising
that right. Evitts v. Lucey, 105 S. Ct. 830, 840 (1985);
Griffin v. Illinois, 351 U.S. 12, 17-20 (1956). Further-
more, due process requires that, once the state has created
a right of appeal, it must “offer each defendant a fair
opportunity to obtain an adjudication on the merits of his
appeal.” Evitts, supra, 105 S. Ct. at 841. See also Logan
vy. Zimmerman Brush Co., 455 U.S. 422, 429-30 & n.5
(1982). A state would deny a defendant such a “fair
opportunity” if it reduced the appeal to a “meaningless
ritual” by denying him the means effectively to press his
appellate arguments, Douglas v. California, 372 U.S.
353, 358 (1963) (right to counsel in criminal appeals). See
also Evitts, supra (right to effective assistance of counsel
in criminal appeals). It is equally self-evident that an
appeal would be futile if, by the time the appellate court
considered his case, the appeal had by application of a

A44

bonding law been robbed of any effectiveness. Cf. Na-
tional Socialist Party y. Skokie, 432 U.S. 43, 44 (1977);
Nebraska Press Assn. y. Stuart, 423 U.S. 1319, 1324-25
(1975) (Blackmun, J., in chambers); Times-i-icayune
Pub. Corp. v. Schulingkamp, 419 U.S. 1301, 1305 (1974)
(Powell, J., in chambers); Graves y. Barnes, 405 U.S.
1201, 1203 (1972) (Powell, J., in chambers).

Thus an inflexible requirement for impressment of a
lien and denial of a stay of execution unless a supersedeas
bond in the full amount of the judgment is posted can in
some circumstances be irrational, unnecessary, and self-
defeating, amounting to a confiscation of the judgment
debtor’s property without due process. A serious question
presenting fair grounds for litigation is therefore raised
by Texaco’s claim that enforcement of Texas’ lien and
bond requirements would reduce its appeal to a meaning-
less ritual. Since Texaco would be bankrupt or in liquida-
tion by the time its appeals were decided the hardship to it
would be immeasurable, irrevocable, and irremediable by
reversal of the judgment on the merits.

Against the hardship to Texaco from denial of a stay
the district court was required to balance the threat to
Pennzoil’s interests caused by granting the stay. A judg-
ment creditor’s primary concern when a judgment in his
favor is stayed pending appeal is that he be “secure. . .
from loss resulting from the Stay of execution.” Federal
Prescription Serv. vy. Am. Pharm. Ass’n, 636 F.2d 755,
760 (D.C. Cir. 1980). See also C. Albert Sauter Co. vy.
Richard S. Sauter, Co., 368 F. Supp. 501, 520 (E.D. Pa.
1973). In making that determination we look to general
equitable principles. Accordingly, when setting superse-
deas bonds courts seek to protect judgment creditors as
fully as possible without irreparably injuring judgment

A45 ”

debtors. Federal Prescription Service, supra, 636 F.2d at
760; Poplar Grove Planting & Refining Co. v. Bache,
Halsey, Stuart, Inc., 600 F.2d 1189, 1191 (Sth Cir. 1979).
United States v. Kurtz, 528 F. Supp. 1113, 1115 (E.D. Pa.
1981); C. Albert Sauter Co. v. Richard S. Sauter Co.,
supra, 368 F. Supp. at 520; Trans World Airlines, Inc v.
Hughes, 314 F. Supp. 94 (S.D.N.Y. 1970), aff'd in rele-
vant part, 515 F.2d 173 (2d Cir. 1975), cert. denied, 424
U.S. 934 (1976). A full supersedeas bond may be required
“where there is some reasonable likelihood of the judg-
ment debtor’s inability or unwillingness to satisfy the
judgment in full upon ultimate disposition of the case and
where posting adequate security is practicable”, whereas
no bond or a reduced bond would suffice when the
creditor’s interest, due to unusual circumstances, would
not be unduly endangered. Federal Prescription Service,
supra, 636 F.2d at 760. The court “may order partially
secured or unsecured stays if they do not unduly endanger
the judgment creditor’s interest in ultimate recovery.” Jd.
at 760-61. See, e.g., Trans World Airlines, supra ($75
million bond to secure judgment of $145,448,140); Sau-
ter, supra ($100,000 bond, stock placed in escrow, and
restrictions imposed on financial commitments, to secure
judgment of $1.2 million); ¢f. International Telemeter v.
Hamlin International Corp., 754 F.2d 1492, 1495 (9th Cir.
1985) (appellant can be required to secure the judgment in
ways other than by a supersedeas bond); United States v.
Kurtz, 528 F. Supp. 1113, 1115 (E.D. Pa. 1981) (full bond
not required if it would be “impossible or impractical”
provided appellant proposes a “plan that [would] provide
adequate security for the appellee”).

In the present case there is no serious dispute that,
should Texaco be required to liquidate its substantial

A46

assets, it would be able to pay Pennzoil’s judgment in
full. Texaco’s financial statement shows that, as of De-
cember 31, 1984, it had an appraised net worth of $22.622
billion. Indeed, on November 22, 1985, J. Hugh Liedtke,
Chairman of Pennzoil’s Board, stated that the liquidation
value of Texaco was at least $22 billion and that “he did
not doubt Texaco’s ability to pay the damages.” On
December 6, 1985, he followed this statement up with the
observation that “Texaco has $39 billion in assets,” and
that, “[a]fter paying off all the debts that they currently
Owe . . . some 11 billion dollars . . . they still have 26
billion and it’s very adequate to cover what they owe us.”

Thus Pennzoil’s interest in protecting the full amount
of its judgment during the appellate process is reasonably
secured by the substantial excess of Texaco’s net worth
over the amount of Pennzoil’s judgment. This undisputed
evidence indicates that little, if any, security is required to
protect Pennzoil’s judgment pending appeal and that its
pressure to apply the Texas lien and supersedeas bond
requiremenis may, as Texaco charges, be motivated more
by Pennzoil’s understandable desire to obtain a favorable
settlement of the Texas action than by genuine concerns
about possible inability to collect if its judgment should
be affirmed on appeal.

The hardship to Pennzoil from a grant of injunctive
relief is, therefore, heavily outweighed by that which
Texaco would suffer from the denial of such relief.
Although a grant of injunctive relief deprives Pennzoil
for the time being of a $5 billion lien and immediate
execution of its judgment under Rule 364, it eventually
will, in the event that its judgment is affirmed and the
Texas lien and bond provisions are upheld, be in substan-
tially the same position as it was prior to the issuance of

A47

injunctive relief. It could then avail itself of the Texas lien
and bond provisions and, if Texaco should be placed in
bankruptcy, it would have the same creditor status as it
would have had in the immediate bankruptcy that would
have occurred in the absence of injunctive relief. There is
no evidence that Texaco, a publicly held corporation,
would seek to encumber its property other than as would
be necessary in the ordinary course of business or that it
would transfer any of its assets to defraud Pennzoil. If
any such evidence were adduced, Pennzoil would be
justified in moving before the district court for a modifi-
cation of the injunction.

The district judge did not apply the foregoing equitable
rules in formulating the terms of the preliminary injunc-
tion. Instead he reviewed the Texas trial and judgment on
the merits (but without benefit of the trial record), con-
cluding that at most Pennzoil would be entitled to recov-
ery of $800 million to which he added a $200 million
allowance for costs, interest and attorney’s fees in re-
quiring that security of $1 billion be posted. This proce-
dure was clearly erroneous and impermissible as a matter
of law.

Normally we would remand the case to the district
court to reconsider the terms of the preliminary injunc-
tion in light of this opinion. Poplar Grove, supra, 600
F.2d at 1191. However, that course does not appear to be
necessary. The district judge acted entirely on the basis of
affidavits which did not involve credibility issues. The
facts relied upon by us in our foregoing analysis are
undisputed. Time continues to be of the essence. More-
over, Texaco has now posted the $1 billion security
required by the district court even though application of

A48

equitable principles may have justified a bond in a lesser
amount.

The preliminary injunction must therefore stand, sub-
ject to such applications as may be made by the parties,
based on new evidence or a change in circumstances, with
respect to the terms of security to be furnished in lieu of
or in addition to the $1 billion security already posted. We
do not view the terms of the preliminary injunction to be
contrary to or inconsistent with those of Par. 7 of the
_ Texas judgment, which remain in force and must be
obeyed until they expire. Absent a proffer of additional
evidence with respect to the merits of the present federal
action, a hearing on the merits would appear to be
unnecessary pending final disposition of the appeals of
the Texas judgment.

Pennzoil argues, however, that any necessity for pre-
liminary relief is dispelled by its “stipulation” that the
Texas trial court may apply the standards of Fed. R. Civ.
P. 62 to determine the security required of Texaco pending
appeal. Pennzoil’s “stipulation” does not solve the prob-
lems Texaco faces in this action. It has not been accepted
by Judge Casseb or agreed to by Texaco, it does not waive
Pennzoil’s right to demand a supersedeas bond in the full
amount of the judgment, and Pennzoil has reserved its
right to seek such a bond. The “stipulation” is simply
Pennzoil’s unilateral request to the Texas trial court to
apply the procedural rule of another jurisdiction. It is
doubtful that a Texas state court, whose function is to
apply Texas law, would consider itself any more jurisdic-
tionally obligated, much less willing, to obey Pennzoil’s
request than it would be to apply Chinese or Russian
procedural law simply because one party requested it. As
noted in the Restatement (Second), Conflict of Laws

A49

§ 122 (comment a) (1971), a forum “has compelling
reasons” for applying its own procedural rules and “enor-
mous burdens are avoided when a court applies its own
rules, rather than the rules of another state, to issues
relating to judicial administration, such as . . . mode of
trial and execution”. See also Restatement, supra at
§ 131.

Texas courts have recognized that its rules of procedure
are designed to promote procedural uniformity. Rice v.
Thompson, 239 S.W.2d 137, 139 (Tex. Civ. App. 1951).
Accordingly, “[i]t is not optional with trial or appellate
courts to disregard [Texas procedural rules] because they
do not meet with the approval of such courts.” Pearl
Assur. Co. v. Williams, 167 S.W.2d 808, 810 (Tex. Civ.
App. 1942). See generally, 1 R. McDonald, Texas Civil
Practice, § 0.04, at 6-10 (1981) (individual attorneys and
the trial court are not free to rework rules of procedure).
Furthermore, Texaco’s refusal to agree to the stipulation
is understandable, in view of the likelihood that a Texas
state court accustomed to the Texas lien and bond provi-
sions would interpret Rule 62 as consistently as possible
with those provisions rather than exercise the wide discre-
tion used by federal judges in ruling upon such applica-
tions. If Pennzoil had offered to accept a bond in a
specific amount, our views might be difierent. See Yan-
dell v. Tarrant State Bank, 538 S.W.2d 684, 687 (Tex. Civ.
App. 1976); United Benefit F- Ins. Co. v. Metropolitan
Plumbing Co., 363 S.W.2d 843, 847 (Tex. Civ. App.
1962); Zurich General Accident & Liability Ins. Co. v.
Fort Worth Laundry Co., 63 S.W.2d 236, 237 (Tex. Civ.
App. 1933). But its Rule 62 offer does not justify denial
of injunctive relief in this action.

ASO

CONCLUSION

We conclude that federal jurisdiction exists over Tex-
aco’s claims that the mandatory Texas lien and bond
provisions are unconstitutional as applied. The district
court, moreover, was not required to abstain from exer-
cising that jurisdiction.

We also conclude that the issuance of preliminary
injunctive relief and requirement of $1 billion security as
a condition thereof did not constitute an abuse of discre-
tion. The district judge, however, clearly erred in assum-
ing jurisdiction over other claims that had been
adjudicated by the Texas court and in substituting his
views for those of the Texas court and jury as to the
application of New York law, the propriety of awarding
punitive damages and the amount of compensatory dam-
ages that might properly have been awarded. Those issues
rest solely within the jurisdiction of the Texas trial and
appellate courts, which will give them careful considera-
tion, and eventually with the United States Supreme
Court, whose decision will bé final.

We hasten to note that our decision rests partly upon
the extraordinary circumstances of this case, which are
unlikely ever again to recur: a private civil money judg-
ment in an amount unprecedented in the annals of legal
history, a clear inability on the part of the judgment
debtor to comply with a state law mandating a bond in
the full amount of the judgment pending appeal, the
prospect that the state appellate court would not rule on
the constitutionality of the state law before the judgment
creditor acted to enforce the judgment, and the likelihood
that immediate enforcement of the Texas lien and bond
provisions would lead to irreversible destruction of the

ASI

debtor before its appeal could be heard and decided on
the merits, thus robbing its right of appeal of any mean-
ing and effect. For these reasons our decision, like that of
the Fifth Circuit in Henry v. First National Bank of
Clarksdale, 595 F.2d 291 (Sth Cir. 1979), cert. denied, 444
U.S. 1074 (1980), is obviously a narrow one in its scope
and application.

The grant of preliminary injunctive relief, as modified,
is affirmed on condition that Texaco promptly and dili-
gently prosecute its appeal in the Texas appellate courts.
Our affirmance is without prejudice to the rights of
Pennzoil, upon a showing of changed circumstances, to
move in the district court for modification of the terms of
the preliminary injunction.

We remand the case to the district court with directions
to dismiss Texaco’s First, Second, Fourth, Fifth and
Seventh Claims and to modify its January 16, 1986, order
in accordance with this opinion. The district court will
retain jurisdiction, pending the final decision of Texaco’s
appeal on the merits pursuant to 28 U.S.C. § 1257, for
the purpose of ruling on any applications with respect to
the security terms of the injunction arising out of changed
circumstances.

AS2

APPENDIX B

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

85 Civ. 9640-CLB

—+—
TEXACO INC -
Plaintiff,
—against—
PENNZOIL COMPANY,
Defendant. -

a
ORDER—Dated January 16, 1986

Upon all papers and proceedings had herein, including the
Findings and Conclusions and Supplemental Findings of Fact
made by this Court after a hearing pursuant to Rule 65,
F.R.Civ.P. and dated January 10, 1986, it is hereby

1. ORDERED that the motion of plaintiff, Texaco Inc., for a
preliminary injunction is hereby granted; and it is further

2. ORDERED that defendant, Pennzoil Company, its em-
ployees, agents, attorneys and servants, and all persons in
active concert or participation with them who receive acta!
notice of this Order by personal service or otherwise, are
jointly and severally enjoined and restrained, pending the trial
and ultimate disposition of this action, or the further order of
this Court, from taking any action of any kind whatsoever to
enforce or attempt to enforce the Judgment entered in an
action in the District Court for the 151st Judicial District of
Texas entitled Pennzoil Company v. Texaco Inc., including,
without limitation, attempting to obtain or file any judgment

—

AS3

lien or abstract of judgment related to said Judgment (pur-
suant to Tex. Prop. Code Ann. §§ 52.001, ef seq., or
otherwise), or initiating or commencing steps to execute on
said Judgment; and it is further

3. ORDERED that within 20 days following entry of this
Order, plaintiff shall propose and submit to the Court security
in the total amount of $1,000,000,000 (One Billion Dollars),
including the sum of $1,000,000 (One Million Dollars) hereto-
fore posted to secure the Temporary Restraining Order, which
security shall be in a form satisfactory to the Court after
having heard counsel for defendant Pennzoil Company on that
subject; and it is further

4. ORDERED that a hearing concerning the appropriateness
of any such security tendered by plaintiff Texaco Inc. may be
heard on 24 hours’ notice by application to the Deputy Clerk
of this Court for an hour or date on which the Court will be
available; and it is further

5. ORDERED that the motion of defendant Pennzoil Com-
pany to dissolve the Temporary Restraining Order issued by
this Court on December 17, 1985, and extended by consent of
the parties by order dated December 23, 1985, and to dismiss
plaintiff’s amended complaint for failure to state a claim upon
which relief can be granted and for want of subject matter
jurisdiction, is hereby denied; and it is further

6. ORDERED that the status conference required pursuant to
Rule 16, F.R.Civ.P. shall be held by this Court on April 7, 1986
in Courtroom 31 at the United States Courthouse, 101 East
Post Road, White Plains, New York 10601.

Dated: White Plains, New York
January 16, 1986

/s/ CHARLES L. BRIEANT

Charles L. Brieant
U.S.D.J.

a

AS4

APPENDIX C

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

85 Civ. 9640-CLB

a
TEXACO, INC.,
Plaintiff,
—against—
PENNZOIL COMPANY,
Defendant.

——_
ORDER ON REMAND—Dated April 8, 1986

Pursuant to the mandate of the United States Court of
Appeals for the Second Circuit, dated February 20, 1986 and
filed in this Court on March 14, 1986, and all prior proceed-
ings, it is hereby ORDERED that the Order issued by this Court
in this action on January 16, 1986 (“the Order”), be amended
as follows: \

1. The provisions of paragraph 2 of the Order shall expire
upon the effective date of any final judgment in Pennzoil
Company v. Texaco Inc., No. 84-05905 (District Court for the
151st Judicial District of Texas), after exhaustion or expiration
of all appellate remedies (whether as of right or discretionary,
including expiration of the time in which a motion for re-
hearing or reconsideration may be heard) in the courts of the
State of Texas and the United States Supreme Court.

2. A hearing concerning the appropriateness, in accord with
the decision of the Court of Appeals, of the security previously
posted herein by plaintiff Texaco, Inc. may be held on 24

ASS

hours’ notice, or such shorter time as the Court may allow, by
application to the Deputy Clerk of this Court for an hour or
date on which the Court will be available.

3. The first, second, fourth, fifth and seventh claims in
plaintiff Texaco Inc.’s amended complaint are hereby dis-
missed for want of subject matter jurisdiction.

4. The making of a scheduling order in this action pursuant
to Rule 16(b), Fed. R. Civ. P. is deferred indefinitely, subject to
reconsideration upon the application to this Court of any party
by notice of motion or on the Court’s own motion.

5. No pre-trial discovery shall be taken in this action
without the prior leave of the Court.

So Ordered.

Dated: White Plains, New York
April 8, 1986

/s/ CHARLES L. BRIEANT

Charles L. Brieant
U. S. D. J.

7

AS6

APPENDIX D

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

85 Civ. 9640-CLB

ae
TEXACO, INC. .
Plaintiff,
—vV _—
PENNZOIL COMPANY,
Defendant.

—$-—

OPINION—Dated January 10, 1986

Findings and Conclusions
BRIEANT, District Judge.

By a motion, pursuant to an Order to Show Cause, issued by
this Court on December 17, 1985 and heard on January 9,
1986, plaintiff (“Texaco”) seeks a provisional remedy in the
nature of a preliminary injunction pending trial of the issues
raised in its amended complaint, as follows: That defendant
(“Pennzoil”), its employees, agents, attorneys and servants be
jointly and severally enjoined and restrained from taking any
action of any kind whatsoever to enforce or attempt to enforce
the Judgment entered in an action in the District Court for the
1Sist Judicial District of Texas entitled Pennzoil Company vy.
Texaco Inc., (hereinafter “the Judgment”) including, without
limitation, attempting to obtain or file any judgment, lien or
abstract of judgment related to the Judgment (pursuant to
Tex.Prop.Code Ann. 4{ 52.001, ef seq., Or otherwise), or

AS7

initiating or commencing any steps to execute on the Judg-
ment.

This Court issued a temporary restraining order to this effect
on December 17, 1985 and extended it on consent of the parties
by an order dated December 23, 1985. Following the hearing,
that order remains in effect by oral direction of the Court.

Pennzoil, by a cross motion filed on December 20, 1985,
also heard January 9, 1986, seeks to dissolve this Court’s
temporary restraining order and to dismiss plaintiff's amended
complaint for failure to state a claim upon which relief can be
granted and for want of subject matter jurisdiction.

Familiarity of the reader with the amended complaint filed
December 13, 1985 must be assumed. In sum, Texaco’s com-
plaint pleads the following claims:

1. That the Judgment and the legal principles underlying it
impermissibly burden interstate commerce by deterring com-
petitive tender offers and therefore violate the Commerce
Clause and frustrate the purposes of the Williams Act. (Claims
One and Two).

2. That the Judgment conflicts with, and therefore is pre-
empted by, the Securities Exchange Act of 1934, 15 U.S.C.
§§ 78n(d), 78n(e) and 78bb, which promotes and provides a
framework for competing tender offers. (Claim Four).

3. That the Judgment fundamentally changes the New York
law of tortious inducement of breach of contract, in deroga-
tion of fundamental New York policies and in violation of the
Full Faith and Credit Clause. (Claim Five).

4. That application of the supersedeas bond and lien provi-
sions of Texas law effectively precludes Texaco from exercising
-its right to appeal in the Texas courts and, if necessary, to
petition for certiorari to the United States Supreme Court, all
in violation of the Due Process and Equal Protection Clauses
of the Fourteenth Amendment. (Claims Three and Six).

AS8

5. That the Judgment, as the result of a fundamentally
unfair proceeding, violates the Due Process Clause of the
Fourteenth Amendment. (Claim Seven).

The Court makes the following findings of fact and conclu-
sions of law after a hearing, and pursuant to Rule 65,
F.R.Civ.P.!

Jurisdiction

[1] The amended complaint filed in this Court on December
13, 1985 alleges that the enforcement of the Texas state court
judgment will infringe rights secured to Texaco by the Con-
merce, Supremacy and Full Faith and Credit Clauses of the
United States Constitution, Articles I, section 8, Article VI,
Clause 2, and Article IV, section 1, clause 1, and the Due
Process and Equal Protection Clauses of the Fourteenth
Amendment to the Constitution and by the Civil Rights Act of
1871, 42 U.S.C. § 1983; and the Securities Exchange Act of
1934, 15 U.S.C. § 78a. As such, this complaint has plainly
stated federal claims over which this court has subject matter
jurisdiction under 28 U.S.C. §§ 1331(a) and 1343(a)(3). Bell v.
Hood, 327 U.S. 678, 682, 66 S.Ct. 773, 776, 90 L.Ed. 939
(1946).

Venue is proper in this District under all three grounds of 28
U.S.C. § 1391. The plaintiff has its principal office at White
Plains, New York, and defendant does business in the Southern
District of New York. The claims arose in this District. Per-
sonal jurisdiction over the defendant is satisfied by its presence
in this District.

Second Circuit Injunction Standard

On a motion for a preliminary injunction in this Court, it is
usually held that “the moving party has the burden of estab-

! Both parties waived the taking of sworn oral testimony before the
Court and the cross examination of affiants. See Transcript of January 9,
1986 at p. 3. No credibility issues are present which are relevant to the issues
resolved by this decision.

AS9

lishing: (a) irreparable harm; and (b) either (1) probable
success on the merits or (2) sufficiently serious questions going
to the merits to make them a fair ground for litigation and a
balance of hardships tipping decidedly toward the party re-
questing the preliminary injunctive relief.” Kaplan v. Board of
Education of the City School District of the City of New York,
759 F.2d 256, 259 (2d Cir.1985) citing Jackson Dairy, Inc. v.
H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir. 1979) (per
curiam).

The mere fact that this case involves only private parties
does not permit our inquiry with regard to irreparable harm to
end with consideration only of the interests of Texaco and
Pennzoil as parties before the Court. As our Court of Appeals,
and the Supreme Court, have explained, “Courts of equity
may, and frequently do, go much further both to give and
withhold relief in furtherance of the public interest than they
are accustomed to go when only private interests are involved.”
Stamicarbon, N.V. v. American Cyanamid Co., 596 F.2d 532
(2d Cir.1974), quoting Virginian Railway Co. v. System Fed-
eration, 300 U.S. 515, 552, 57 S.Ct. 592, 601, 81 L.Ed. 789
(1937).?

Irreparable Harm

[2] Texaco is a very large corporation. It is said to be the
fifth largest company in the United States and the third largest
oil company. As such it has wéll established patterns of doing
business, which have created a dependency upon it by not only
a large number of employees throughout the nation, but also
an even greater number of dealers and customers for its
products and services, and suppliers. As the numerous letters
from Congressmen and Senators docketed in this action and

2 The public interest in this proceeding is considerable. This Court has
received a significant number of letters in the nature of amicus curiae.
Among these eighteen letters, mostly from Senators and Congressmen,
sixteen of them have directed this Court’s attention to the economic impor-
tance of Texaco in various regions of the country. Four states (Wyoming,
Oklahoma, Kansas and Florida) submitted formal amicus curiae briefs.

— an

A60

amicus curiae briefs from several states indicate, Texaco’s
death or insolvency would have a severe impact upon many
people and regions throughout the country. In California, for
example, Texaco employs over .4000 peopie (with aggregate
annual salaries and wages in excess of $140 million) and
conducts business with 16,000 suppliers. See letter of Rep.
Glenn Anderson, M.C., dated Dec. 18, 1985. In Florida,
Texaco pays approximately $6.7 million annually in state
royalties and taxes. Brief of State of Florida, amicus curiae, at
2. Texaco contracts with over 4000 vendors in Louisiana and,
during 1985, it expended over $1.4 billion in that state. See
Letter of Louisiana Congressional delegation, dated December
16, 1985. Texaco employs about 55,000 people worldwide with
a total payroll of $1.6 billion. In 1985 Texaco paid over $730
million in dividends to 319,000 shareholders. Affidavit of R.
G. Brinkman, 3, (Dec. 17, 1985).

The sudden death or dismemberment of a corporation, while
it is not analogous to the sudden death of an individual, hurts
the public interest. This corporation should not be squeezed
through the bankruptcy court or stopped in its tracks through
a levy of execution or sale of its various assets under judgment
or have its normal access to credit cut off, at least until
appellate finality has attached to the Judgmert. Unless en-
forcement of the Judgment is stayed by this Court, Texaco will
confront these evils. The consequent harm to Texaco will be
Shared by those members of the public whose welfare is
dependent upon Texaco’s continued existence as a vital wealth-
generating economic organism. As the multitude of affidavits
submitted by Texaco make clear, Texaco has found it increas-
ingly difficult to obtain the financing necessary to conduct its
ordinary busiress operations. See, e.g., Affidavits of Mr. R. G.
Brinkman, dated December 17, 1985, December 19,1985, and
January 8, 1986.

The judgment with its present interest and costs amounts to
$11.12 Billion. As measured by the stock market, which is
rarely far wrong in such matters, the entire going concern or
net worth of Texaco before’ the Judgment, was valued at

A6él

approximately $9.5 Billion._Various Pennzoil representatives
have stated that this understates the true value of Texaco’s
assets. They assert that the actual value lies in the $23 to $37
Billion range. See Affidavit of Francis P. Barron, Esq. Exhibits
1 and 2. Even if these estimates are correct, there is no way in
the world that Texaco could pay the Judgment without reor-
ganizing or liquidating. This could only be accomplished pur-
suant to a consent plan or under a bankruptcy court’s auspices
because other creditors also have claims on Texaco’s assets,
Such relief does not provide an adequate remedy for Texaco:
As the Supreme Court has found, the threat of bankruptcy
adumbrates the irreparable harm necessary for the granting of
a preliminary injunction. Doran v. Salem Inn, Inc., 422 U. Ss.
922, 932, 95 S.Ct. 2561, 2568, 45 L.Ed.2d 648 (1975). Texaco
would emerge as a fundamentally different company if it were
obliged to reorganize pursuant to Chapter 11 of the Bank-
ruptcy Code. This would be true even if the Pennzoil Judgment
were later set aside.

Imposition of an injunction admittedly presents some risk of
harm to Pennzoil’s position. The risk of such harm, however,
is slight. “Indeed, Pennzoil’s successful insistence upon the
bond requirement might drive Texaco into Chapter !1 proceed-
ings and leave Pennzoil with a Pyrrhic victory. A number of
corporations, both large and small, have recently found that
Congress has created a rather pleasant and profitable harbor
of refuge in the bankruptcy court, where they may gain time
and other special considerations in dealing with litigation.
However, as we have explained, the availability of Chapter 11
is not an adequate remedy at law for Texaco in this case, so as
to preclude injunctive relief, and bankruptcy of Texaco would
have a most adverse effect on the public interest.

The imminent disruption to the national economy and to the
interests of the public, supports a finding of irreparable harm,
at least while the Texas judgment remains subject to appellate
review. I include in the public Texaco’s customers, suppliers,
employees and othersswho would suffer from the sudden
disruption in Texaco’s day to day activities.

A62

It should go without very much elaboration that Texaco
itself would be irreparably damaged, and I so find. Immediate
enforcement of the Judgment will further limit Texaco’s ability
to compete in the marketplace and to maintain its current level
of business. Accordingly, I find and conclude that irreparable
harm to the Public and to Texaco will occur if the Judgment is
enforced in any way and to any extent prior to achieving
appellate finality.

Likelihood of Success

This Court finds and concludes that a divect appeal from the
Judgment would certainly be non-frivolous. The Court also
finds that Texaco as an appellant has a substantial likelihood
of success on a number of its non-federal points for appellate
review in Texas or on a petition for certiorari to the Supreme
Court of the United States.

This Court should not be regarded as attempting to sit as a
final or intermediate appellate state court as to the merits of
the Texas action. Cf. Rooker v. Fidelity Trust Co., 263 U.S.
413, 44S.Ct. 149, 68 L.Ed. 362 (1923). Our only intention is to
assure Texaco its constitutional right to raise claims that we
view as having a good chance of success.’ The Court bases its
analysis on New York law, which the parties concede is appli-

3 In reaching this conclusion, the Court places no reliance on the
allegations of judicial impropriety in Texas, except to observe that Texaco
should have the right to seek review of these contentions, along with its other
more persuasive appellate points, without first being dismembered. Most
judges are honest and sincere, and all should be presumed to be such. Those
few who are not, do not throw a case for campaign contributions publicly
recorded and probably long since spent. Instead, they live in a C.O.D. world
where clandestine payments are made to a bagman. United States v. Manton,
107 F.2d 834, 840 (2d Cir.1939). That some judicial goodwill eventuated to
the contributing lawyer we may assume. Goodwill means perhaps his brief
will be accepted a day late, a golfing continuance may be granted, and his
jokes may evoke more judicial laughter than they otherwise deserve. But it is
impossible for a lawyer to rub his own goodwill off onto the client, or the
merits of the client’s cause.

A63

cable to the claim in the Texas court and with which this court
is very familiar.

The Court regards the Texas litigation as relatively simple.
The only difficulty it presents is that it is posited in terms of
such vast amounts of money that the ordinary principles and
practices which affect the bonding of judgments or supersedeas
arrangements for judgments are simply not practical.

Texaco has also raised here a number of federal statutory
claims, over which the Federal Courts have exclusive jurisdic-
tion. These claims raise serious questions going to the merits of
the Judgment and present generally fair grounds for litigation.

Liability

For our present purposes we withhold comment about the
contract law issue or the factual issue of knowing and willful
tortious interference. This Court assumes, solely for purposes
of its analysis of the issues presented on this motion, that
Pennzoil properly prevailed on those issues. The Court in
Texas which let these liability issues go to the jury and denied
Texaco’s motions for directed verdict and judgment notwith-
standing the verdict is entitled to the benefit of the presump-
tion of regularity and the presumption of correctness on its
part. We should bear in mind that the damages in the case were
fixed by a trial jury, not by the court itself in Texas. They do
not represent the result of fact finding by the trial judge and in
any event are still amenable to correction by direct appeal, and
by a motion for a new trial, filed in Texas on January 9, 1986
and not yet resolved.

Punitive Damages

The trial jury awarded punitive damages in the amount of
$3.0 Billion. The tort of irterference with contractual relations
is an intentional tort. In order to obtain punitive damages in
this context, Pennzoil had to prove that Texaco’s conduct was
not only intentional but also motivated by “actual malice or ill
will.” Anthony v. George T. Bye, 243 App.Div. 390, 277
N.Y.S. 222 (1935).

A64

While punitive damages have become quite fashionable
lately, this case essentially involves a transaction in the com-
mercial area where reasonable persons couid differ as to
whether Getty was bound to a contract when Texaco acted. If
there was no contract, of course there could be no tortious
interference.

The standard for imposition of punitive damages in New
York requires that the defendant’s tortious activities be aimed
at the public generally, as the New York State Court of Appeals
explained in Walker v. Sheldon, 10 N.Y.2d 401, 405, 223
N.Y.S.2d 488, 179 N.E.2d 497 (1961). Punitive damage awards
are also inapplicable where the availability of such an award is
not essential to induce a potential plaintiff to go to court to
right a wrong that might otherwise go unremedied if the
injured party were limited to compensatory damages. New-
burger, Loeb & Co., Inc. v. Gross, 563 F.2d 1057, 1080 (2d
Cir.1977); see also Garrity v. Lyle Stuart, Inc., 40 N.Y.2d 354,
386 N.Y.S.2d 831, 353 N.E.2d 793 (1976). These factors, either
of which might justify the award of punitive damages, are not
present in this case. Indeed, a substantial portion of the public
at large, viz., the public shareholders of Getty, benefited from
Texaco’s tortious activity, which greatly enhanced the proceeds
realized for their investments.

No public policy of the State of New York is served by
awarding punitive damages in this type of case, and this Court
believes that a reviewing court in Texas will find that quite
obvious. Furthermore, an award of punitive damages ir this
case is highly likely to have a negative impact on the féderal
policy which seeks to ensure that a company be sold via tender
offer at a price that maximizes shareholder welfare. This
federal policy is expressed in the Securities Exchange Act of
1934, 15 U.S.C. §§ 78j(b), 78n(d), 78n(e), and the rules and
regulations promulgated thereunder, and is well pleaded in the
amended complaint in this case.

Compensatory Damages

Compensatory darnages in New York are generally regarded
as requiring an award of money which would make an injured

A65

party whole, or, putting it differently, those damages which are
based on the benefit of the bargain. Pennzoil does not dispute
that its “agreement in principle” provided for its purchase of
three-sevenths of the outstanding Getty shares. It had not
arranged for the purchase of oil reserves, or any other specific
Getty asset. It would have had as much control over Getty’s oil
assets as it would have had over the cable television networks
then partly owned by Getty. In arm’s-length negotiations,
which the Texas jury found ripened into a firm contract, and
this Court assumes for its present purposes that it did in fact so
ripen into a binding contract, Pennzoil agreed to pay $112.50
per share for three-sevenths of Getty’s outstanding shares, for
a total price of $2.6 billion. At that price the market value of
Getty’s shares was approximately $6.1 billion.

Within a few days, Texaco agreed to purchase all of Getty’s
shares at $128 per share (an increase of $15.50 per share over
the Pennzoil offer). At that price the market value of the
outstanding Getty shares amounted to approximately $6.9
billion. The best indication of the value of anything, including
the stock of an oil company, is usually an arm’s length sale
between adequately informed parties, neither under any com-
pulsion to buy or sell; indeed, that is the traditional definition
of market value. In this instance, the market value of Getty’s
outstanding shares was approximately $6.9 Billion.

If this verdict stands, the benefit of the bargain must be
assumed by mathematics to be $7.53 billion, and the market
value of Getty in excess of $10 billion. Expressed differently, if
the verdict is valid, the Getty interests, in their transaction with
Pennzoil, agreed to sell stock for $3 billion less than its true
value. Expressed in percentage terms, the Getty interests sold
the stock for 75 per cent of its value. This is absurd. If the
jury’s determination is the true value of the transaction, the
contract would have been amenable to accusations of uncon-
scionability, or overreaching, or perhaps even fraud in the
inducement, not to mention the run-of-the-mill accusations of
breach of fiduciary duty so often levelled against directors and
trustees.

A66

This Court therefore believes that the compensatory dam-
ages which flow from this breach of contract, tortiously
induced by Texaco, should in no event exceed $800 Million, the
approximate difference between the price per share offered by
Pennzoil and the price offered by Texaco for all Getty’s
outstanding shares. That figure assumes that Pennzoil’s bar-
gain included the ultimate opportunity to purchase or
otherwise control all the Getty shares.‘

Pennzoil also had a duty under New York law to mitigate its
damages. In the interests of brevity, and for lack of informa-
tion, we do not touch on this issue, which could only serve to
reduce Pennzoil’s damages. The foregoing computations are
presented only to demonstrate that the compensatory damages
determined by the jury are too large by several orders of
magnitude.

This Court accordingly finds that Texaco has a worthwhile
appeal in the Texas courts, and that it is highly likely to
succeed in reducing the damages to a considerable extent.°

4 Pennzoil’s agreement in principle as announced in January 4, 1986
press releases, provided that Pennzoil would purchase a total of three-seven-
ths of Getty’s shares and that Mr. Gordon P. Getty, as Trustee of the Sarah C.
Getty Trust, would acquire the Getty shares held by the J. Paul Getty
Museum. The arrangement wovld have left Pennzoil and the Getty Trust as
the sole owners of Getty shares. The agreement in principle also provided
that Getty would grant to Pennzoil an option to purchase up to 8 million
treasury shares of Getty at a price of $110 per share. Also, Mr. Getty and
Pennzoil agreed to maintain their proportionate shares of the company. It is
highly likely that if Texaco had not acted to purchase all of Getty’s shares,
Pennzoil might have had to purchase, at some future time, the outstanding
shares from the Getty Trust in order to effect total control over the company.
Pennzoil was the logical purchaser if the Getty Trust determined to divest its
shares at some future time. Accordingly, for our purposes we treat Pennzoil
as having a strong likelihood of total ownership and control, although this
may not be entirely accurate.

5 Texaco offered no proof of Pennzoil’s damages. We do not under-
stand this to be a waiver of the rule of law by which such damages are to be
determined, even if Pennzoil’s three experts testified to boxcar numbers.

Constitutional Claims

The State of Texas is not required by the United States
Constitution to give a right of appeal at all. The Texas State
Courts, however, have interpreted that state’s Constitution,
particularly Article I, §§ 13, 19, as recognizing such a right.
Stroud v. Ward, 36 S.W.2d 590, 591 (Tex. Civ.App. 1931) (“A
dissatisfied litigant has the constitutional right to have his case
reviewed by the Court of Civil Appeals”).

Having once determined to grant such a valuable right, the
now well-established Fourteenth Amendment jurisprudence
prevents the State from conditioning the effective exercise of
that right on excessively restrictive conditions. The Supreme
Court has reiterated on several occasions that, “[t}he funda-
mental requisite of due process is the opportunity to be heard.”
Grannis v. Ordean, 234 U.S. 385, 394, 34 S.Ct. 779, 783, 58
L.Ed. 1363 (1914). See Mullane v. Central Hanover Trust Co.,
339 U.S. 306, 314, 70 S.Ct. 652, 657, 94 L.Ed. 865 (1950); see
also Boddie v. Connecticut, 401 U.S. 371, 379-380, 91 S.Ct.
780, 786-87, 28 L.Ed.2d 113 (1971). Although the states are
not required to establish avenues of appellate review, “it is now
fundamental that, once established, these avenues must be kept
free of unreasoned distinctions that can only impede open and
equal access to the courts.” Williams v. Oklahoma City, 395
U.S. 458, 459, 89 S.Ct. 1818, 1819, 23 L.Ed.2d 440 (1969) (per
curiam), quoting Griffin v. Illinois, 351 U.S. 12, 76 S.Ct. 585,
100 L.Ed. 891 (1956).

Pennzoil has cited dicta in Lindsey v. Normet, 405 U.S. 56,
77-79, 92 S.Ct. 862, 876-77, 31 L.Ed.2d 36 (1972), to support
its claim that the Texas supersedeas bond provision is constitu-
tional as applied to Texaco in this instance. In Lindsey, the
Court considered a challenge to Oregon’s double bond require-
ment for appeal in forcible entry and detainer actions. Al-
though the Court agreed with the petitioners’ claim that the
double bond requirement violated the equal protection clause
of the Fourteenth Amendment, it added in passing that other
“reasonable procedural provisions to safeguard litigated prop-
erty or to discourage patently insubstantial appeals” would not

A68

necessarily violate the equal protection clause of the Four-
teenth Amendment. /d. at 78, 92 S.Ct. at 876 (Citations
omitted). As described above, however, the challenged Texas
supersedeas bond provision combined with the immediate
enforcement of the Judgment would effectively bar Texaco’s
meritorious appeal.

While Texaco’s appeal can be heard on the merits, this Court
finds that there is no discretion in the Texas court to grant a
stay of execution pending a meritorious appeal without posting
a bond (or equivalent security) in the full amount, plus two
years’ interest at ten per cent, plus the anticipated costs of
appeal, unless Pennzoil consents. Tex.R.Civ.P. Rule 364(a),
(b). In this instance, tl.e supersedeas bond would amount to
more than $12 Billion Dollars, and in addition the Judgment
will be a lien on Texaco’s assets wherever filed, even if bonded.

The concept of posting a bond of more than $12 Billion is
just so absurd, so impractical and so expensive that it hardly
bears discussion. Texaco’s right to appeal the Judgment to the
Texas Court of Civil Appeals and, ultimately, to the United
States Supreme Court, (provided by 28 U.S.C. § 1257) without
a stay of its enforcement, would be meaningless. An $11
Billion Dollar lien on Texaco’s assets would paralyze that
company long before the Texas litigation reaches the point
where the United States Supreme Court may decide whether to
grant a Texaco petition for certiorari, should such relief prove
necessary.

The Supreme Court directed us in Mathews v. Eldridge, 424
U.S. 319, 335, 96 S.Ct. 893, 903, 47 L.Ed.2d 18 (1976) to
assess the adequacy of state procedures that restrict an individ-
ual’s property rights according to the following three factors:
First, the nature of the private and state interests involved;
second, the risk associated with erroneous deprivation of the
right; and third, the extent of the administrative burden im-
posed upon the state by the required procedural safeguards.

In this case each of these three considerations cuts in favor
of Texaco’s right to a stay in order to appeal the state court
verdict. The private interest and the state interests converge in

A69

this instance. Texaco’s obvious interest lies in its desire to
remain in business while challenging the trial outcome. The
state’s interest in respect for its judgments and its legal process
is furthered by ensuring Texaco’s right to appeal.

As explained earlier, the risk of erroneous deprivation is
quite severe in this instance. We have already outlined the
irreparable nature of the injuries that Texaco would suffer if it
is not granted relief from the challenged Texas state proce-
dures. See pages [A59-A62] supra.

The administrative burden on the State of Texas will be
slight. In order to assure Texaco of its right to enjoy a
non-illusory appeal of the jury verdict, it need only provide
access to its Court of Civil Appeals, as it would do normally.
The only difference lies in the fact that Texaco may appeal the
Judgment without posting the full $12 Billion bond and
without fear that Pennzoil will immediately enforce the Judg-
ment.

Obviously recognizing the force of this argument, Pennzoil,
on December 20, 1985, submitted a “stipulation” to the Texas
court, a copy of which was filed as document No. 14 in this
action on the same date. This document, on its face simplicity
itself, is not a stipulation in the sense commonly re\erred to;
that is to say Texaco has not agreed to it, nor has the Texas
court indicated its approval. It is a unilateral paper which reads
in relevant part as follows:

“Pennzoil Company, plaintiff in this action, hereby pre-
sents the Court the following stipulation concerning the
judgment the Court entered in this action on December
10, 1985:

‘Pennzoil stipulates and agrees that, if Texaco seeks to
supersede or stay the enforcement of this judgment and
it makes provisions to secure the judgment which the
Texas courts determine would meet the standards of
Fed.R.Civ.P. 62, Pennzoil will be bound by any stay that
the Texas courts enter based on a finding that Texaco has

A70

provided security which meets the standards of
Fed.R.Civ.P. 62.’

WHEREFORE, Pennzoil requests that the Court accept this
stipulation.”

The filing of this so-called “stipulation” is not available to
Pennzoil to defeat the Sixth Claim pleaded in Texaco’s
amended complaint. The Court finds no basis in our jurispru-
dence by which Texaco is required to accept this belated
concession, nor is it established here that the Texas court must
accept such a unilateral grant of power. It is abundantly clear
on the record before me that the Texas court recognizes it has
no power to give a stay pending appeal, except upon full
compliance with Rule 364. This Court doubts very much that
such a unilateral stipulation can give a court power to hear and
decide an issue which it would not ordinarily have the power to
hear and decide. I find, accordingly, that without injunctive
relief from this Court Texaco will not be able to obtain a stay
pending appeal without delay unless it provides security in the
full amount.

Vivid evidence of this fact was demonstrated at our hearing,
where it appeared that the trial judge in Texas, in order to
obtain Pennzoil’s “consent” to an extremely limited “standstill
agreement,” (see Judgment, ¢ 7, Ex. 1 to Amended Complaint)
found it necessary to inform Pennzoil’s counsel directly that if
Pennzoil did not “consent” thereto, the court would exercise
its so-called “broad discretion” to grant a new trial. It seems
unlikely that a judge would find necessary such a forceful
approach if, as Pennzoil now argues to this Court, there is
ample basis for Texaco to get a stay equivalent to the injunctive
relief it seeks from this Court by direct application to the trial
judge in Texas. We need not infer that experienced participants
would behave in such a bizarre fashion, as they apparently did
in connection with the standstill agreement, if the judge be-
lieved he had the discretion to act pursuant to the standards of

A7l

Rule 62, E.R. Civ.P., or believed that such authority could be
granted to him by unilateral stipulation.

Accordingly, the Court believes that on the sixth claim
pleaded in Texaco’s amended complaint here, which is based
on the Due Process Clause and the Equal Protection Clause of
the Fourteenth Amendment to the United States Constitution,
plaintiff has a very clear probability of success.

Federal Statutory Claims

Insofar as the other claims pleaded are concerned, extended
discussion at this time seems unnecessary. At the very least the
Court finds that each one presents fair ground for litigation.
As we noted earlier, if this judgment were enforced suddenly
against Texaco, prior to having attained appellate finality,
Texaco would be irreparably damaged, resulting in dismember-
ment and death of this economic enterprise. Accordingly, the
balance of hardships on this point tips decidedly in favor of
Texaco.

In litigating these federal issues in this Court, we note that
Texaco would not be bound by any principles of res judicata or
issue or claim preclusion as a result of the judgment in Texas.
In a recent series of decisions in this area, the Supreme Court
has clarified the application of res judicata principles in federal
courts. In Migra v. Warren City School District Board of
Education, 465 U.S. 75, 104 S.Ct. 892, 79 L.Ed.2d 56 (1984),
the Court explained that a prior state court judgment should
have the same claim preclusive effect in any federal court as it
would in another court of that state. The Court based its
decision on its interpretation of the Full Faith and Credit
Clause of the Constitution as implemented by 28 U.S.C.
§ 1738. This general rule, however, is limited by the Court’s
later decision in Marrese v. American Academy of Ortho-
paedic Surgeons, —— U.S. ___ 105 S.Ct. 1327, 84 L.Ed.2d
274 (1985). In that case, the Court held that, although the Full
Faith and Credit Statute requires the federal courts to examine
the preclusive effect of state judgments according to that
state’s claim preclusion principles, that determination was only

—

A72

a first step of the analysis. By way of fairly clear dictum, the
Court stated that in some instances, a grant of exclusive
jurisdiction to the federal courts for the protection of a
particular statutory scheme may represent Congressional intent
to repeal § 1738 for the purposes of that statutory scheme. The
federal security law claims raised in this amended complaint
may very well present an appropriate situation for an exception
to § 1738 contemplated in Marrese.

The Judgment in Texas came out of a state tort action,
arising under New York common law. It should not have any
preclusive effect in litigating the federal security law claims
pleaded here which are set forth in Claim Numbers Two and
Four, in this complaint, because those claims arise under
statutes as to which this Court has exclusive subject matter
jurisdiction. 15 U.S.C. § 78aa.

Therefore, even with the assumption that the State of Texas
applies the same claim preclusion principles that New York
applies (which are about as broad as can be imagined because
they include everything that was pleaded or could have been
pleaded), this Court finds and concludes that federal claim
preclusion as most recently outlined by the Supreme Court in
Marrese would not extend to bar the federal question claims
pleaded in Claims Two and Four of the Amended Complaint.

Any provisional remedy granted by this Court is granted for
the day and conditions presently before the Court, and it is not
required that this Court activate its crystal ball or predict in
advance how long it will take to resolve the Texas appellate
proceedings, or what the final outcome will be. However, even
if the Judgment ripened into a final judgment in this vast
amount of money, and assuming all decisions down the road
go against Texaco, Texaco would still have the federal claims
that are pleaded in this action, which it could litigate on the
merits.

Federalism Concerns

[3] In spite of the foregoing it has been suggested that this
Court should abstain or forebear in the issuance of an injunc-

A73

tion because to do otherwise will violate basic principles of
Federalism. These principles were first codified in the Anti-In-
junction Statute of 1793; its current amended version is found
at 28 U.S.C. § 2283. The Supreme Court expanded these
principles when it developed the doctrine of federal abstention
in Railroad Commission v. Pullman Co., 312 U.S. 496, 61
S.Ct. 643, 85 L.Ed. 971 (1941) and also in Burford v. Sun Oil
Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943). There
is also present for consideration the more recently developed
concept of “Our Federalism,” first announced in Younger v.
Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971).
Section 2283 provides that “[a] court of the United States
may not grant an injunction to stay proceedings in a State
court except as expressly authorized by Act of Congress, or
where necessary in aid of its jurisdiction, or to protect or
effectuate its judgments.” The Supreme Court, however, has
not interpreted this prohibition as strictly as it reads. In
Mitchum v. Foster, 407 U.S. 225, 92 S.Ct. 2151, 32 L.Ed.2d
705 (1972), the Supreme Court held that any federal statute
that created “a specific and uniquely federal right or remedy,
enforceable in a federal court of equity, that could be frus-
trated if the federal court were not empowered to enjoin a state
court proceeding,” id. at 237, 92 S.Ct. at 2159, provided an
express authorization from Congress for a suit injunction. The
Court further held that because § 1983 was enacted to redress
inadequate state court remedies it provided the necessary
specific authorization. Each of plaintiff’s federal claims is
properly brought pursuant to § 1983. See Maine v. Thiboutot,
448 U.S. 1, 7-8, 100 S.Ct. 2502, 2505-06, 65 L.Ed.2d 555
(1980) (plaintiff may enforce federal statutory rights in a
§ 1983 action); Gibson v. Berryhill, 411 U.S. 564, 93 S.Ct.
1689, 36 L.Ed.2d 488 (1973) (plaintiff may enforce due process
claims in a § 1983 action); and Kennecott Corp. v. Smith, 637
F.2d 181, 186 (6th Cir.1982) (Williams Act). Henry v. First
National Bank of Clarksdale, 595 F.2d 292, 299 (Sth Cir.1979).
The Younger concerns, which we must consider apart from
the § 2283 analysis, similarly are not implicated here. The
Supreme Court first enunciated the Younger doctrine to bar

A74

federal interference in pending state criminal prosecutions.
Since then the doctrine has been applied to civil proceedings
only where the state has demonstrated a vital concern in the
unimpaired operation of its laws. See Moore v. Sims, 442 U.S.
415, 425, 99 S.Ct. 2371, 2378, 60 L.Ed.2d 994 (1979). Thus the
Court has limited the application of the Younger doctrine to
those instances where a state was engaged in directly advancing
important state interests in the state courts.

Indeed in each of the cases proposed by Pennzoil, the
_ pending state actions were akin to criminal proceedings, or
were necessary to insure the proper functioning of the state
judicial system, e.g., in contempt citations or lawyers disci-
plinary proceedings. They concerned such contexts as the
enforcement of an anti-obscenity statute, Huffman v. Pursue,
Lid., 420 U.S. 592, 95 S.Ct. 1200, 43 L.Ed.2d 482 (1975); the
application of an emergency child protection statute, Moore v.
Sims, supra; the recovery of public assistance benefits fraudu-
lently obtained, Trainor v. Hernandez, 431 U.S. 434, 97 S.Ct.
1911, 52 L.Ed.2d 486 (1977); the enforcement of a civil
contempt citation, Juidice v. Vail, 430 U.S. 327, 97 S.Ct. 1211,
51 L.Ed.2d 376 (1977); and the conduct of a state bar disci-
plinary hearing, Middlesex County Ethics Committee v. Gar
den State Bar Association, 457 U.S. 423, 102 S.Ct. 2515, 73
L.Ed.2d 116 (1982).

Pennzoil also relies on Middlesex County Ethics Committee,
supra to support its abstention argument. In that case, the
Supreme Court ordered the federal district court to abstain
from enjoining a state bar disciplinary proceeding on the
ground ihat the federal plaintiff would have an adequate
opportunity to interpose his federal constitutional defenses in
that forum. /d. at 437, 102 S.Ct. at 2524. No such encroach-
ment on state proceedings would result frcm granting the
proposed equitable relief in this case. Far from impairing the
operation of the state judicial system, this relief would now
facilitate presentation to the Texas state courts of Texaco’s
challenge to the Judgment prior to an inevitable dismember-
ment caused by the bond provision, which would otherwise

A75

attenuate both the appellant and the force of the appeal. The
concerns of the federalism impelling the Middlesex decision are
therefore not implicated here.

In each of the cases relied upon by Pennzoil, intervention by
the federal court would have impaired seriously the pursuit of
state interests. Such is not the case here. The preliminary
injunction in this case will neither interfere with a state offi-
cial’s pursuit of a fundamental state interest nor enjoin a state
proceeding. The sole purpose of this equitable relief is simply
to afford Texaco an effective opportunity to initiate and
complete appellate proceedings in Texas, followed by petition
for certiorari to review in the Supreme Court without immedi-
ate enforcement of the Judgment.

The significance of the State of Texas’ interest as defined by
Pennzoil, viz., the “proper functioning of its judicial system”
does not necessarily cut in Pennzoil’s favor. By its proposed
“ynilateral stipulation” Pennzoil purports to accord the Texas
trial judge the discretion to impose security in a sum OF form
different from the total amount of the Judgment. Thus,
Pennzoil is prepared not only to waive its right to a bond in the
full amount of the Judgment plus interests and costs, but also
to waive whatever important state interests underlie the proce-
dures found in Rule 364(b). That these interests can be so
easily waived by a private litigant, if they can, suggest that they
are less than fundamental to the functioning of the Texas state
judicial system.

Pennzoil’s report that the trial judge had stated that he
would grant Texaco’s motion for a new trial unless Pennzoil’s
attorneys consented to Paragraph 7 of the Judgment (the
“standstill” provision), suggests that he evidently thought that
the state interest dictated some sort of relief to Texaco from the
bond requirements of Rule 364. I conclude that only the most
attenuated state interest is reflected in a rule which can be so
waived or circumvented by 4 private litigant.

The Pullman abstention doctrine is even more restricted than
the other two limitations on Federal Courts. In sum, this
doctrine requires the federal court to abstain from decision

A76

where resolution of an unclear state law can avoid a substantial
constitutional question. Reetz v. Bozanich, 397 U.S. 82, 90
S.Ct. 788, 25 L.Ed.2d 68 (1970). Here, the state law is clear
and the Texas state court judge has proved unable to circum-
vent the Draconian effect of the local law denying an unse-
cured stay pending appeal, without some sort of consent from
Pennzoil.

Nor does the abstention doctrine embraced by the Court in
Burford, supra, dictate that this Court stay its hand here. That
case turned on the complexity of a state administrative scheme
with which the state court had far greater expertise and
knowledge.

Finally, we note that the imposition of this sort of injunction
is hardly unique. In Henry v. First National Bank of Clarks-
dale, supra, the Court of Appeals upheld a district court order
enjoining the enforcement of a final judgment against a state
court defendant. In Henry, as in this case, the relatively large
size of a damage award which was immediately enforceable
against the state court defendants threatened irreparable harm
to them if they attempted to post the required bond. Henry,
595 F.2d at 297.

Pennzoil has made an impressive effort to exsanguinate
Henry as an available precedent for this case. See Pennzoil
Memo at 30-33. Pennzoil argues, for example, that Texaco has
not exhausted its state remedies, as the federal court plaintiffs
did in Henry. It is well established, however, that exhaustion of
State remedies is not a prerequisite to 1983 relief in Federal
Courts. Patsy v. Board of Regents, 457 U.S. 496, 102 S.Ct.
2557, 73 L.Ed.2d 172 (1982). In other instances the Supreme
Court has not required that federal plaintiffs exhaust their
state appeals before obtaining federal injunctive relief. See,
e.g., Wooley v. Maynard, 430 U.S. 705, 97 S.Ct. 1428, 51
L.Ed.2d 752 (1976) (holding that such exhaustion is not re-
quired where the injunctive relief will not “annul the results of
a State trial’).

Pennzoil has also suggested that Henry is unique because the
state court judgment had imposed restraints upon a “clear
federal interest,” viz. the federal plaintiff’s free exercise of

A77

their First Amendment rights. The plaintiffs in Henry, how-
ever, did not succeed in vindicating this “clear federal interest”
until three years later, when the United States Supreme Court
reversed the Mississippi State Supreme Court in NAACP v.
Claiborne Hardware Co., 458 U.S. 886, 102 S.Ct. 3409, 73
L.Ed.2d 1215 (1982). While federal courts often declare that
First Amendment rights are “special” the Henry Court made
no attempt to limit the scope of its relief to Constitutional
claims in general, or First Amendment claims in particular.

Thus, we find Henry, in its essential facts, indistinguishable
from the instant case and embrace its analysis.

Accordingly, this Court finds there is no legal bar, and no
genuine issue of disputed relevant fact that prevents granting
this injunction. There is absolutely no reason in the world why
it should not be granted.

Security

The next issue for consideration is what security should be
required of Texaco pursuant to Rule 65(c), F.R.Civ.P. and as a
condition for the provisional relief being granted. This Court is
concerned lest other creditors of Texaco will come romping
around the executive offices or run into the courts seeking to
perfect security interests higher than that which would be
available to Pennzoil. This would be unfair to Pennzoil, and it
would also be contrary to the public interest and will have a
deleterious effect on Texaco. Accordingly, the Court believes
that this provisional remedy being granted here today must be
secured by assets or obligations at least equal in value to what
this Court regards as the maximum amount of compensatory
damages which are likely to be awarded to Pennzoil on appeal
or at a new trial limited to damages if such were to be granted.

This Court assumes that the price which Texaco paid for the
Getty interests was an arm’s length price representing the fair
market value of what was acquired at the time and place it was
bought and sold. Assuming that Pennzoil’s claim that it had a
valid contract will be upheld on appeal, since that contract
price was $15.50 per share less than the price Texaco paid for
the same assets, then the benefit of the bargain lost by

A78

Pennzoil is, as observed earlier, approximately $800 Million.
To this must be added an element for interest and costs and
attorneys fees. The Court accordingly believes that a proper
security for the provisional remedy being granted here today
would be $1 Billion.

The Court will grant to Texaco a twenty (20) day period
following entry of the order hereon, during which to propose
and submit additional security for a preliminary injunction,
beyond the sum of $1,000,000 posted to secure the Temporary
Restraining Order, which shall be satisfactory to the Court,
after having heard counsel for Pennzoil on that subject.
Without limiting the future resolution of this matter by the
Court, a letter or letters of credit, a surety bond, a deed or
deeds of trust covering physical assets which are clearly of a
value of that magnitude, a judgment lien, or any combination
of those items, or anything else upon which the parties may
agree, providing security in the amount of $1 Billion Dollars
would be considered by this Court to be satisfactory. If the
parties find it necessary to have a hearing as to the appropri-
ateness of any security tendered by Texaco, that hearing may
be held on 24 hours notice by application to the Deputy Clerk
for

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0119%3A02. Public record. Not legal advice.