Motion — Pennzoil Co. v. Texaco Inc.

—

pupreme Court, U.

FILED

6)

MAY $1 1986

No. 85-1798

OSCE SRAMIOL, JR.

CLERK

IN THE

Supreme Court of the United States

October Term, 1985

PENNZOIL COMPANY,

Texaco INC.,

—against-—

Appellant,

Appellee.

On APPEAL FROM THE UNITED STATES

CouRT OF APPEALS FOR THE SECOND CIRCUIT

MOTION TO AFFIRM

CHARLES ALAN WRIGHT

727 East 26th Street

Austin, Texas 78765

WILLIAM F. BAXTER

SHEARMAN & STERLING

4 Embarcadero Center

San Francisco, California 941] 1

Of Counsel.

May 31, 1986

THomaS D. BaRR

Davip Botes*

Max R. SHULMAN

FRANCIS P. BARRON

CRAVATH, SWAINE & MOORE

One Chase Manhattan Plaza

New York, N.Y. 10005

(212) 422-3000

PAUL J. CURRAN*

MILTON J. SCHUBIN

RANDOLPH S. SHERMAN

IRA S. SACKS

KAYE, SCHOLER, FIERMAN,

Hays & HANDLER

425 Park Avenue

New York, N.Y. 10022

(212) 407-8000

Attorneys for Appellee

Texaco Inc.

*Counsel of Record

AV"

TABLE OF CONTENTS

CITI crtcecsccicnriccovesseinicneeseprsccensevese

LIST OF AFFILIATES AND SUBSIDIARIES OF

SEN

STATEMENT OF THE CASE .............0ccscscossessssssesssesscess

EE diaceintctciasnininiecniiennnsininmevenncsantentmunnmenteansseess

A. The Second Circuit’s Due Process Holding

Does Not Merit Plenary Review ....................

B. The Second Circuit’s State Action Holding

Does Not Merit Plenary Review ....................

1. The Second Circuit’s decision is well within

2. The Second Circuit’s decision does not

affect the Anti-Injunction Act...................

3. The Second Circuit’s decision does not

offend the constitutional policies that un-

derlie the state action doctrine..................

C. The Second Circuit’s Younger Holding Does

Not Merit Plenary Review.........................0+++

1. The narrow federal relief at issue does not

implicate a “vital” state interest ...............

2. Texaco lacked a practical remedy in the

ee enisntieccmnedsatinstengrisinn- octane

D. The Second Circuit’s Subject Matter Ju iic-

tion Holding Does Not Merit Plenary Re-

IT iicicieiciccnticnevveincsininnedecemamonnecnmmmennenecces

21

il

TABLE OF AUTHORITIES

Page

CASES:

Archer v. Bill Pearl Drilling Co., 655 S.W.2d 338

(Bae. ABD. TEED ) .nceccccesenssscersnnsenensntesnasisentintinie 16

Davis v. Scherer, 1048. Ct. 3012 (1984)............. 14

Dennis v. Sparks, 449 U.S. 24 (1980).............000 17, 18, 19

Diamond vy. Charles, 54 U.S.L.W. 4418 (US.

Rage BO, CSG) oxicccccesnensessscmnssunisccstmcsinnvsetasstniath 8

District of Columbia Court of Appeals v. Feld-

man, 460 U.S. 462 (1983) ............cccccceeeteeeeeeees 27, 28, 29

Doran v. Salem Inn, Inc., 422 U.S. 922 (1975)... 2

Douglas v. California, 372 U.S. 353 (1963) ........ 10 .

Evitts v. Lucey, 105 S. Ct. 830 (1985) ..............0 7, 10, 11

Glen Oaks Util., Inc. v. City of Houston, 280

fe ks Tb > 8. | 16

Glenn v. Hollums, 73 S.W.2d 1068 (Tex. Civ.

Regt. CGDG) cccnasecsssnsrvesecnictiittteisanniiaaniaiibaania ‘27

Hale v. Harney, 786 F.2d 688 (Sth Cir. 1986)..... 29

Haring v. Prosise, 462 U.S. 306 (1983) ............... 29

Henry v. First National Bank of Clarksdale, 595

F.2d 291 (Sth Cir. 1979), cert. denied, 444

CASE, BOSC BED cccncecctevecisevesnssinctehinibcneniininiin 7,13

Hernandez vy. Finley, 471 F. Supp. 516 (N.D. Ill.

1978), summarily aff'd mem. sub nom. Quern

v. Hernandez, 440 U.S. 951 (1979).................. 26

Huffman v. Pursue, Ltd., 420 U.S. 592 (1975)..... 23,29

Juidice v. Vail, 430 U.S. 327 (1977) ..............0000 21, 23, 24, 29

Kantor v. Herald Publishing Co., 632 S.W.2d ry

G56 (Hem. Age. FETE) ccceesnrsseevsecesnsnsenssnilbtiniinanis 16

Logan v. Zimmerman Brush Co., 455 U.S. 422

ff TEE D <ccocesnscencneiapnsscesnesndiiitiiiteemmiaaiaanianaas 10

Louisville & Nashville R.R. v. Stewart, 241 US.

BO CBBC D ccacctecccncssvmsiscniinsactstiicaaianaana 12

Lugar v. Edmondson Oil Co., 457 U.S. 922

(C DIE D cccecnconssasesdnensetdiinsiitiinssdttieassnaslaiiiniaaaaaannn 15, 16, 17, 18,

19, 20, 21

Mathews v. Eldridge, 424 U.S. 319 (1976) .......... 11

ili

Middlesex County Ethics Committee v. Garden

State Bar Association, 457 U.S. 423 (1982)... 21

Migra v. Warren City School District, 465 U.S.

lit a acahciasladnsinikedéeinastecséocesotocs 29

Mitchum v. Foster, 407 U.S. 225 (1972) ......000000. 22,24

Moore v. Sims, 442 U.S. 415 (1979) wo... 21, 22, 26

Moses H. Cone Memorial Hospital v. Mercury

Construction Corp., 460 U.S. 1 (1983)............. 29

NAACP vy. Claiborne Hardware Co., 458 U.S.

a 13

National Union of Marine Cooks & Stewards v.

Arnold, 348 U.S. 37 (1954) ........ccccccccccesseeeseeees 12

Pace v. McEwen, 604 S.W.2d 231 (Tex. Civ.

arta lial sidanieesutenanncnsscovecssecsece 27

Renger v. Jeffrey, 182 S.W.2d 701 (Tex. 1944)... 16

Shell Petroleum Corp. v. Grays, 62 S.W.2d 113

i ccinractsdinccoseocsescceres 16

Svaboda v. Alexander, 3 S.W.2d 423 (Tex. Com.

EET 27

Thomas v. Kadish, 748 F.2d 276 (Sth Cir.

1984), cert. denied, 105 S. Ct. 3531 (1985)... 29

Williams v. Oklahoma City, 395 U.S. 458

Cas crescscncsencecsonnens 10

Younger v. Harris, 401 U.S. 37 (1971) .......0000.00.. 8, 21, 22, 24,

25, 26, 29

CONSTITUTIONAL PROVISIONS:

U.S. Constitution, Fourteenth Amendment. 1, 10, 18

STATUTES AND RULES:

United States ,

Be WF BEI B Pevcceccncesccescssccensscecscocqeecess 1,14

ois cccccecsceenecnesosescosoes 5

Ee a 15, 19

TE IIE TDD ersSessccasccsscrescescccessecsoosese 1, 20

a 7, 18, 19,

20, 22

TIT a ictincseenncesibscedenncbsonsoscoesceces 5

iv

Page

New York

N.Y. Civ. Prac. Law § 5519(c) .........cccceeeeee 14

Oregon

Or. Rev. Stat. § 19.045 .................0000. secceseeees 14

Texas

Tex. Civ. Prac. and Rem. Code § 65.013 ..... 27

Tex. Prop. Code Ann. § 52.001.................... 2

, AY | eee 27

TE, Sis Ge Bo BP iscatcccnnicsntesetesesecenevieneensnns 1,4, 5,27

» § & 5 fk . l

Virginia

ee Be ID caictescnssecsincesecsscocbcinnten 14

Vv

LIST OF AFFILIATES AND SUBSIDIARIES OF

TEXACO INC. .

The affiliates and subsidiaries of Texaco Inc. listed on its

most recent Form 10-K filed with the Securities and Exchange

Commission are as follows:

Getty Oil Company

Getty Pipeline, Inc.

Riverway Gas Pipeline Company

Texaco Oils Inc.

Texaco Producing Inc.

Texaco Refining and Marketing Inc.

Texaco Trading and Transportation Inc.

The Texas Pipe Line Company

Deutsche Texaco AG

Norsk Texaco Oil A/S

S. A. Texaco Belgium N.V.

S. A. Texaco Petroleum N.V.

Texaco A/S

Texaco Britain Limited

Texaco Denmark Inc.

Texaco Investments ( Netherlands), Inc.

Texaco (Ireland) Limited

Texaco Limited

Texaco North Sea U.K. Company

Texaco Oil Aktiebolag

Texaco Petroleum Maatschappij ( Nederland) B.V.

Refineria Panama S.A.

Refineria Texaco de Honduras, S.A.

Texaco Brasil S.A.-Produtos de Petroleo

Texaco Caribbean Inc.

Texaco Nigeria Limited

Texaco Panama Inc.

Texaco Petroleum Company

Texaco Trinidad, Inc.

Texas Petroleum Company

Texaco Butadiene Company

Texaco Chemical Company

Canadian Reserve Oil and Gas Ltd.

vi

Texaco Canada Inc.

Texaco Canada Resources Ltd.

Getty Marine Corporation

Texaco International Trader Inc.

Texaco Overseas Holdings Inc.

Texaco Overseas Petroleum Company

Texaco Overseas Tankship Ltd. ~

STATEMENT OF THE CASE

Pennzoil has appealed, pursuant to 28 U.S.C. § 1254(2),

from a judgment of the United States Court of Appeals for the

Second Circuit, affirming the grant of a preliminary injunction

against application of certain Texas state security provisions on

the ground that, in “the unique and extraordinary circum-

stances of this case” (A35), application of those provisions

raises serious questions under the Due Process Clause of the

Fourteenth Amendment to the United States Constitution

(A43-44).'1 The State of Texas, whose statutes are at issue,

intervened as a party in the district court pursuant to 28 U.S.C.

§ 2403(b) and separately appealed to the Second Circuit (A4

n.1), but has not appealed to this Court.

Pennzoil’s Jurisdictional Statement largely ignores the fol-

lowing undisputed facts which show why Texaco was compelled

to seek relief in the federal courts and why that narrow relief

was properly granted:

(1) On December 10, 1985, a trial court in Texas entered

a money judgment against Texaco (the “Judgment”) in the

unprecedented amount of $11.12 billion (A6)—over 40 times

larger than the largest private civil judgment ever upheld in any

prior case of any kind.

(2) Under Tex. R. Civ. P. 364(b) and 627, a money

judgment is enforceable by execution 30 days after entry (or, if

a new trial motion is made, 30 days after its denial), unless the

judgment debtor has secured a stay of execution by posting a

supersedeas bond in “at least the amount of the judgment,

interest and costs”. (A8 & n.4, A86) The amount of the bond

is fixed by law; Texas courts have no discretion to vary it. (A9-

10 )2

' Citations in the form “A__” refer to pages in the Appendices attached

to Pennzoil’s Jurisdictional Statement. Citations in the form “JS__—” refer to

pages in Pennzoil’s Jurisdictional Statement.

2 If a supersedeas bond is not posted, a writ of execution is obtained by

ex parte application to the court clerk, the writ is presented by the judgment

creditor to the county sheriff, and the sheriff executes it. (A25-26)

2

(3) Even if a supersedeas bond is posted, Tex. Prop. Code

Ann. §§ 52.001 ef seg. permits a judgment creditor to place

liens upon a judgment debtor’s real property in Texas immedi-

ately upon entry of judgment. (A25-26, A8-9; JS 2) There is

no authority under Texas law for staying attachment of such

judgment liens.%

(4) Under the bond provisions, to obtain a stay of

execution of the Judgment pending appeal, Texaco would have

had to post a bond in excess of $12 billion. (A8) Neither

Texaco nor any other company could have posted such a bond

since “the world-wide surety bond capacity ranges from $1

billion to $1.5 billion under the best possible circumstances”.

(A9)4

(5) Without a supersedeas bond, Pennzoil could have

executed the Judgment, and the “attachmenptof a lien ... on

Texaco’s real property in Texas, valued at $5 billion, would

[have] seal[ed] the company’s fate”, forcing Texaco “into

bankruptcy or liquidation”. (A39-40) As a result, Texaco’s

ability to pursue an effective state court appeal from the

Judgment—an appeal guaranteed by the Texas Constitution

and raising serious questions under both the federal Con-

stitution and state law (A42)—would have been destroyed.

The damage caused to Texaco would have been “immeas-

urable, irrevocable, and irremediable by reversal of the judg-

ment on the merits”. (A44)5

(6) Application of the lien and bond provisions would

also have adversely affected the national economy and national

3 Judgment liens are obtained by ex parte application to the court clerk,

who furnishes an abstract of judgment which the judgment creditor delivers

to county recorders in counties where the judgment debtor’s real property is

located. The county recorders then index and file the abstract, thereby

perfecting the lien. (A25-26)

4 Similarly, although Texaco has a liquidation value in excess of $22

billion (A39), it could not possibly have posted $12 billion in cash or cash

equivalents and “still retain[ed] sufficient liquid assets to operate its busi-

ness” (A9; see also A39); nor, because of the terms of its unsubordinated

indebtedness, could it have possibly borrowed $12 billion by mortgaging or

pledging its assets (A9).

5 See Doran v. Salem Inn, Inc., 422 U.S. 922, 932 (1975) (the possibility

of bankruptcy “[cJertainly ... meets the standard for granting interim relief,

for otherwise a favorable final judgment might well be useless”’).

3

security.6 The extent of the public harm threatened by pre-

mature enforcement of the Judgment was attested by the fact

that “some 58 interested parties including 12 states ... filed

amicus briefs or other papers [in the Second Circuit] urging

that enforcement be enjoined”. (A40)

_(7) Upon the consent of both Pennzoil and Texaco,

Paragraph 7 was inserted into the Judgment, barring Pennzoil

from enforcing the Judgment for the limited remaining time the

trial court retained jurisdiction, so long as Texaco satisfied

certain conditions.’ Pennzoil refused to agree to further relief

and took the position (correct under Texas law) that the ~ourt

was powerless to give any relief without Pennzoil’s consent.

(A7, A8, A103)

(8) Despite Paragraph 7, in the week after entry of the

Judgment Texaco’s financial condition rapidly deteriorated, to

the point that the company was driven to the brink of bank-

ruptcy. (A10, A90-101)® Texaco’s bonds were downgraded by

Sif Texaco had been forced into liquidation or bankruptcy, a large

percentage of Texaco’s $5,000 employees world-wide, with an annual payroll

of $1.6 billion, would have lost their jobs; and approximately 319,000 Texaco

stockholders, who received $730 million in dividends in 1985, would have

suffered heavy losses. (A40) In addition, “the inability of Texaco to function

in a normal manner” would have “adversely affect{ed] this country’s balance

of payments”, made “this country’s oil supply less secure”, impaired the

“ability to supply military forces” around the world, and “could [have]

prompt[ed]” other foreign actions “harmful to the national security or

foreign policy of the United States”. (A112-13)

7 Under Texas procedure, the expiration of the trial court’s jurisdiction

(and, thus, of Paragraph 7’s terms) could have occurred at the earliest on

February 8, 1986, and at the latest on March 25, 1986. (A89)

8 For at least two reasons, Paragraph 7 failed to stop Texaco’s financial

deterioration. First, lenders and suppliers knew that Paragraph 7 would

expire in a short period of time, after which Pennzoil could attach or execute

on Texaco’s property. Second, there was reluctance to deal with Texaco

because of uncertainty over whether particular transactions were permitted

under Paragraph 7, which, inter alia, prohibited Texaco from engaging in

transactions other than “in the routine and ordinary course of business”.

(A110, A90-101) :,

Pennzoil itself aggravated the situation by publicly threatening to undo

whatever limited protection Paragraph 7 afforded. Specifically, Pennzoil’s

chairman warned that the company was “ ‘going to put pressure’” on the

Texas trial court to permit attachment of liens unless Pennzoil was satisfied

with Texaco’s settlement proposals, and a Pennzoil director and “legal

4

Moody’s from investment grade to non-investment grade;

Texaco was forced to withdraw from the commercial paper

market; banks with which it did business advised that they

would no longer lend the company money on unsecured terms

because of the “uncertainties” of Paragraph 7; potential joint

venturers with Texaco cancelled negotiations because of similar

uncertainties; suppliers refused to do business with the company

on regular and customary terms; and companies refused to

negotiate routine deals for the purchase of Texaco assets.

(A10, A40)

(9) Because of the severity of Texaco’s financial crisis, on

December 13, 1985, Texaco requested an emergency confer-

ence with the Texas trial court. The trial court at first

responded favorably but later refused to hold a conference

when Pennzoil objected. Pennzoil in fact took the position that

it would never agree to such a conference. (A10, A101-02)

(10) Without Pennzoil’s consent, the only other possible

avenue of relief in Texas from application of the lien and bond

provisions was a constitutional challenge brought on “by

motion and mandamus”. (A110) Such a challenge—uncertain

at best9—could not have provided Texaco with “adequate and

timely” relief. (A10, A37) When Texaco sought its federal

injunction, “time [was] of the essence” (A35)—the company

was literally within days of bankruptcy. To pursue mandamus

in Texas would have required Texaco to expend “precious

time” (A37)—time it did not have—requesting the Texas trial

strategist” charged Texaco with violating the “standstill” provisions of

Paragraph 7 “by providing letters of credit from its bankers in purchasing

products and services” —a clear threat to have the “standstill” lifted. (A46,

A105)

® According to the State of Texas in the court below, for mandamus to

lie, “[t]he applicant must have a clear right to the performance of the act

requested” and “[t]he target of the writ must have a clear duty to perform the

act”. (Brief of the State of Texas, Intervenor-Appellant (“Tex. Br.”) at 32

n.10; emphasis added) To the extent there was a “clear right” and “clear

duty” here, it was the right of Pennzoil, under the mandatory provisions of

Tex. R. Civ. P. 364(b), to execute its Judgment absent a ful! supersedeas

bond, and the duty of the Texas state courts not to grant a stay of execution

absent such a bond.

“3

court, in the first instance, to disregard the plainly non-

discretionary dictates of Rule 364(b); then filing a mandamus

petition with the Texas appellate courts; if successful on that

petition, engaging in further remand proceedings; and if

unsuccessful, petitioning this Court under 28 U.S.C. § 1257.

(A38) 10

(11) Against the devastation which would have been

caused to Texaco, application of the lien and bond provisions

was wholly unnecessary to protect any legitimate Pennzoil

interest. As the Second Circuit observed, “there is no serious

dispute that, should Texaco be required to liquidate its substan-

tial assets, it would be able to pay Pennzoil’s judgment in full”.

(A45-46)11

(12) Given Pennzoil’s conceded lack of need for security

and the conceded seriousness of the questions raised by

Texaco’s state court appeal, it is likely, as the Second Circuit

10 The “stipulation” offered by Pennzoil after Texaco had instituted its

federal suit—under which the Texas trial court would apply the standards of

Fed. R. Civ. P. 62 in determining the security required of Texaco pending

appeal (A129-30)—‘“d[id] not solve the problem Texaco face[d] in this

action”. (A48) The “stipulation” purported to confer upon the Texas trial

court discretionary power that (a) the Texas legislature and appellate courts

have expressly withheld, (b) the trial court had shown no inclination to use

(in fact, had avoided even a conference to discuss), and (c) the Texas courts

have no experience in exercising (indeed, as to which their entire tradition is

to the contrary). (A48-49) Further, Pennzoil counsel represented to the

district court that, if Pennzoil were to proceed in Texas under the “stipula-

tion”, it would insist on a bond equal to “the full value of the Judgment”.

( Transcript of Hearing before Hon. Charles L. Brieant, Jan. 9, 1986, at 64; see

also A48) Had the Texas trial court not set such a bond, presumably Pennzoil

would have appealed in the Texas state courts. As a result, the “stipulation”

simply added to the financial and business community’s justified apprehen-

sion and confusion over Texaco’s continued viability.

'' Texaco’s appraised net worth as of December 31, 1984, was in excess

of $22.6 billion; Pennzoil itself estimated that Texaco had assets far greater

than necessary to satisfy the Judgment; Pennzoil’s chairman publicly con-

ceded that “ ‘he did not doubt Texaco’s ability to pay the damages’”; and

there was “no evidence that Texaco, a publicly held corporation, would seek

to encumber its property other than as would be necessary in the normal

course of business or that it would transfer any of its assets to defraud

Pennzoil”. (A46-47) Moreover, Pennzoil has never challenged the adequacy

of the $1 billion bond set by the district court and has never sought to avail

itself of the procedures explicitly established by that court (and approved by

the Second Circuit) to increase the security if circumstances change.

(A53-55)

6

noted, that “[Pennzoil’s] pressure to apply the Texas lien and

supersedeas bond requirements 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”. (A46)*'2

From the above undisputed factual record, several points

emerge which demonstrate why Pennzoil’s appeal does not

merit plenary review by this Court. None of those points is

evident from Pennzoil’s Jurisdictional Statement.

First, Texaco did not seek—and the courts below did not

sanction—a constitutional requirement of “an affordable stay

of judgment pending appeal”. (JS i) The narrow ruling below

is simply that when the application of lien and bond provisions,

which are impossible for a judgment debtor to satisfy and

unnecessary to protect any legitimate interest of a judgment

creditor, prevents a defendant from effectively exercising a state

guaranteed right to appeal, that application raises a due process

12 Indeed, the same can be said of the motivation behind the instant

appeal. On February 21, 1986, the day after the Second Circuit’s decision,

Pennzoil’s chairman was reported in the New York Times as saying that

“Pennzoil probably would not appeal the latest ruling”, and that the result

below was “a step in the right direction” (New York Times, February 21,

1986, section D at 1, col. 6); and he was reported in The Wall Street Journal

as saying that the Second Circuit's affirmance did not “hurt [ Pennzoil] at all”

and “actually helps” ( The Wall Street Journal, February 21, 1986, at 3, col.

2). In light of those statements, the only plausible explanation for Pennzoil’s

current appeal is to keep settlement pressure on Texaco.

And, Pennzoil’s tactic appears immediately to have had its intended

effect. On March 25, 1986—four days after Pennzoil filed its notice of

appeal— The Wall Street Journal reported that Moody’s, reversing its prior

position, had decided that “a possible upgrading of Texaco’s commercial

paper rating will have to await the outcome of Pennzoil’s court effort to have

the standstill extended, as well as the outcome of its move to take the appeals

court decision to the-U-S. Supreme Court”. ( The Wall Street Journal, March

25, 1986, at 7, col. 1) The same day, The Wall Street Journal quoted Joseph

D. Jamail, Pennzoil’s lead counsel, as stating that “|a]ny banker that loans

money to [Texaco] now is a lunatic”. Jd.

7

question sufficiently substantial to support a preliminary in-

junction. '3 Such relief is particularly warranted where, as here,

the defendant’s state court appeal prese ious challenges to

the underlying judgment not only under State law, but under

the laws and Constitution of the United States as well.'4

Pennzoil cites no case to the contrary.

Second, Texaco did not seek—and the courts below did not

sanction—a rule which, for Section 1983 purposes, transforms

into “the state” every state court judgment winner. (JS 10-!1)

State action is involved here not because Pennzoil was the

“winning” party in Texas or because it obtained a judgment in

the Texas trial court, but because, prior to final (and pre-

clusive ) adjudication of its claims, Pennzoil could invoke (and

control) the unsupervised power of state officials to aid in the

attachment, seizure and sale of Texaco’s property, and because

Texaco asks that this joint activity be enjoined on constitutional

grounds.

Third, Texaco did not seek—and the courts below did not

sanction—a result which amounts to review or modification of

Pennzoil’s Judgment or which ousts the Texas state courts from

their unfettered ability to rule on the merits of the Pennzoil v.

Texaco lawsuit. All the injunction below does is preserve

Texaco’s ability to pursue an effective appeal in the Texas state

courts, and that appeal is moving forward right now.'5

Fourth, Texaco did not seek—and the courts below did not

sanction—interference with any on-going state court proceed-

ing, and certainly not interference with a state court proceeding

in which Texas has a “vital” interest sufficient to justify federal

'3 See Evitts v. Lucey, 105 S. Ct. 830, 838 (1985).

14 See Henry v. First Nat'l Bank of Clarksdale, 595 F.2d 291 (Sth Cir.

1979), cert. denied, 444 U.S. 1074 (1980).

‘5 On April 23, 1986, Texaco filed its appeal brief in the Texas Court of

Appeals challenging the Judgment on 90 separate state and federal grounds,

based on both substantive and procedural errors committed by the Texas trial

court. The appeal is scheduled for argument and submission on July 31,

1986.

8

court abstention under the doctrine of Younger v. Harris, 401

U.S. 37 (1971). Pennzoil’s lawsuit against Texaco in Texas is a

‘purely private dispute involving purely private parties, and the

State of Texas expressly represented in the court below that it

has “no interest in the outcome” of that dispute. (Tex. Br. at

2) Further, by its “stipulation”, Pennzoil has purported to

replace the Texas lien and bond provisions with federal proce-

dures, thus suggesting that Pennzoil itself does not believe a

“vital” state interest is implicated here. (JS 2, 17 n.10; A48) 16

Fifth, the present action was filed in response to an

imminent threat of irreparable harm to Texaco (and to the

public interest) which could not have been averted by

“adequate and timely” state court procedures. (A37) Under

Younger itself, abstention is inappropriate in such exigent

circumstances.

Sixth, the ruling below, far from creating a “yawning

breach” (JS 6) or “‘capacious zone” (JS 7) or “ominous gap”

(JS 16) in rules of federalism and comity, is extremely narrow.

As the Second Circuit noted, the “extraordinary circumstances

of this case ... are unlikely ever again to recur”. (ASO) Those

circumstances include: a concededly impossible bond require-

ment which local provisions gave state courts no discretion to

modify or suspend; a conceded lack of need for security by the

judgment creditor; the imminent destruction of a state guaran-

teed right to appeal in a purely private civil litigation raising

serious federal and state issues; a putative state court man-

dainus remedy that was uncertain at best where no uncertainty

~ could be tolerated; a request for federal relief which preserved

rather than truncated state appellate power; and the distinct

possibility that Pennzoil was deliberately threatening to use

local officials and security procedures, not to make itself more

secure as a judgment creditor, but to pressure Texaco to settle

16 Moreover, as mentioned above, Texas has not separately appealed the

Second Circuit’s narrow ruling. Compare Diamond v. Charles, 54 U.S.L.W.

4418, 4421 (U.S. April 30, 1986).

9

the state court action prior to any appeal. (A46, ASO, Al05-

106) 17

ARGUMENT

None of the issues raised by Pennzoil merits plenary

review by this Court. Accordingly, the ruling below should be

summarily affirmed.

A. The Second Circuit’s Due Process Holding Does Not

Merit Plenary Review.

Because the Second Circuit’s “narrow” ruling on Texaco’s

due process claim is correct in the “unique and extraordinary

circumstances of this case” (A35; ASO), it does not merit this

17 By an amazing deluge of rhetoric, Pennzoil seeks to divert attention

from what really happened below. Pennzoil accuses the Second Circuit of

“opening a yawning breach in the walls of statutes and judicial doctrines”

governing federal/state relations (JS 6); of “constructing a contrived complex

of exceptions to . . . comity rules” (JS 7); of “creat{ing] a capacious zone

within which comity is simply inapplicable” (JS 7); of “creat{ ing] a no-man’s

land” within which comity rules are inoperative (JS 8); of creating “a

jurisdictional darkling plain where litigants shanghaied from state courts clash

by night” (JS 8); of “providing . . . a privileged entree” to federal courts for

litigants wishing to “deliberate[ly] bypass” or “side-swip[e] on-going state

court proceedings” (JS 8); of “drastically erod[ing]” and “cannibaliz[ing]”

the Anti-Injunction Act (JS 12); of creating “a large and wholly unjustified

zone” within which state proceedings can be enjoined (JS 12-13); of

“creat[ing] a zone within which ail rules of comity are rendered entirely

inoperative” (JS 14; emphasis in original ); of “creat[ing] an ominous gap in

fundamental principles of comity” (JS 16); of “ma[king] nonsense of the

law” (JS 14); of “gutt{ing]” the rules of abstention based on “a series of

distrustful speculations” and “abstract and hostile speculations” (JS 16, 19);

of “allow[ing] litigants to assemble jurisdictional sandwiches to suit their

tastes” (JS 20); of “creat{ing] a looking-glass inversion of federalism” (JS

22); of “executing an end-run around the state courts” (JS 22); of “re-

plac[ing] federal comity with an anti-comity principle” (JS 22-23; emphasis

in original ); of reaching a “topsy-turvy result” ( JS 23); of opening the door to

“wide-scale evasions of this Court’s comity rulings” (JS 28); of offering

litigants “a fielder’s choice” between state and federal forums (JS 28); of

giving litigants “free[dom] to roam across jurisdictional borders” (JS 29);

and of “fundamentally alter[ ing] the jurisdictional landscape” (JS 29). That

onslaught of alarmist verbiage hardly describes the Second Circuit's decision.

10

Court’s plenary review. Pennzoil ignores those circum-

stances—all of which are undisputed.

As Pennzoil would have it, the Second Circuit ruled that “a

judgment debtor has a Fourteenth Amendment right to an

affordable bond”. (JS 5) Nothing the Second Circuit said or

did justifies that sweeping characterization. On the contrary,

the Court of Appeals’ “narrow holding” (A35, AS1) was

carefully limited to a situation (1) where the posting of a

mandatory $12 billion bond was “impossible” not just for

Texaco, but for any judgment debtor (A35); (2) where the

“inflexible” operation of a state’s non-discretionary lien and

bond provisions would render the judgment debtor’s guaran-

teed right to appeal “an exercise in futility” by “irrevocabl[y]”

destroying it prior to any appellate review (A24, A44); and (3)

where the provisions’ unmitigated application was “unneces-

sary” to protect the judgment creditc ¢ pending appeal and thus

bore no rational relationship to the state’s purpose in enacting

them (A24, A34-35, A44).

Pennzoil concedes the controlling Fourteenth Amendment

principle which mandates summary affirmance in these circum-

stances—that once a state such as Texas guarantees a right to

appeal, “the Constitution foreclose[s] the option of limiting the

right. . .by irrational or arbitrary requirements”. (JS 24; em-

phasis added)'® And yet, having paid lip service to this

principle, Pennzoil utterly fails to explain why application of

the lien and bond provisions in the circumstances of this case

does not irrationally deprive Texaco of its right to appeal—an

appeal raising “non-frivolous” federal and state issues

(A42)—given the undisputed fact that such application is

“unnecessary” to protect Pennzoil pending appellate review. '9

18 As this Court said just last term in Evitts v. Lucey, 105 S. Ct. 830, 838

(1985), “[t}he right to appeal would be unique among state actions if it

could be withdrawn without consideration of applicabie due process norms”.

See also Logan v. Zimmerman Brush Co., 455 U.S. 422, 429-30 & n.5 (1982);

Williams v. Oklahoma City, 395 U.S. 458, 459-60 (1969); Douglas v.

California, 372 U.S. 353, 357-58 (1963).

19 Pennzoil ignores this latter undisputed fact, which limits the scope of

the Second Circuit’s due process ruling. How often, for example, will a

“*Mom-and-Pop’ grocery store” (JS 27) be unable to post security for a

‘

11

In an attempt to avert summary affirmance, Pennzoil offers

several arguments, none of which is availing.

First, Pennzoil contends that “Texas has not limited

Texaco’s appeal rights” because the prosecution of an appeal in

Texas is not expressly conditioned upon compliance with the

state’s supersedeas bond requirement. (JS 24; emphasis in

original ) That, of course, exalts form over substance. The court

below found, as a matter of undisputed fact, that operation of

the lien and bond provisions in this case would “render

[Texaco’s] right to appeal in Texas an exercise in futility”

(A24)—a “meaningless ritual” —by “robb[ing] [it] of any

effectiveness” (A43-44).

Second, Pennzoil contends that “there is nothing irrational

in Texas’ decision to safeguard fully the interests of those who

have won judgments in Texas courts”. (JS 25) But no one is

arguing otherwise. Texaco’s due process claim does not attack

the facial validity of the lien and bond provisions and thus does

not question that the state had a rational and legitimate purpose

in enacting those statutes. Rather, Texaco’s claim is that

application of the provisions would be irrational in “the unique

and extraordinary circumstances of this case” (A35), because

Texaco’s right to appeai would be eviscerated without advanc-

ing the state interest at issue (A34-35).

Third, Pennzoil contends that Texaco has already been

accorded sui sient “due process” by the supposedly “full and

fair” Texas trial which produced, by orders of magnitude, the

largest civil judgment in United States legal history. (JS 23)

But that argument ignores this Court’s teaching in Evitts that

once a state provides a right to appeal, that right cannot be

limited or withdrawn without comporting with “applicable due

process norms”. 105 S. Ct. at 838. States such as Texas

guarantee a right to appeal precisely because they recognize

that trial court adjudication carries a significant “risk of an

erroneous deprivation”.2° And here, as the Second Circuit

judgment but have assets so substantially in excess of the judgment that the

judgment creditor itself publicly concedes that security pending appeal is

unnecessary? In how many of those cases will local courts have no discretion to

tailor security to need? (See infra at n.25)

20 See Mathews v. Eldridge, 424 U.S. 319, 335 (1976).

12

found, it is “clear” that Texaco “has raised non-frivolous issues

as the basis for its Texas appeal”. (A42) It would be the

height of irrationality if the interim and unnecessary enforce-

ment of an erroneous trial court judgment irrevocably destroyed

Texaco before the appellate courts had the opportunity to

resolve its meritorious appeal.2' |

Fourth, Pennzoil contends that the Second Circuit’s due

process ruling “flies in the face of this Court’s long-settled

precedents”. (JS 25-26) Yet, Pennzoil relies on only two cases

to support its sweeping assertion (JS 24), and both are

irrelevant.22

Fifth, Pennzoil contends that the Second Circuit’s decision

“threat[ens] ... the orderly administration of justice” in at

least 30 states which purportedly have supersedeas bond stat-

utes like Texas. (JS 26-27) But that dire forecast, obviously

21 It is significant to note in this connection that the State of New York

has recently filed an amicus brief in the Texas intermediate appellate court

urging reversal of the Judgment on the ground that the Texas trial court’s jury

charge “substantially misstated the applicable New York caselaw”. (Brief

Amicus Curiae of the Attorney General of the State of New York, May 12,

1986, at 28)

22 The issue in National Union of Marine Cooks & Stewards v. Arnold,

348 U.S. 37 (1954), was whether due process was violated by a state court

dismissal of the defendant’s appeal from a $495,000 judgment for flouting

repeated court orders that he deliver $295,000 of out-of-state assets to a

receiver for safekeeping pending appeal—the only substantial assets the

defendant owned. In sustaining the appeal’s dismissal, this Court held only

that a state court has “inherent power to use its processes to induce

compliance with a supplemental order reasonably issued in aid of execution”,

and that “|w]here the effectiveness of a money judgment is jeopardized by

the judgment debtor, he has no constitutional right to an appeal extending

that frustration”. Jd. at 44. That has nothing to do with this case, particularly

given Pennzoil’s conceded lack of need for security and the complete absence

of any evidence that Texaco would unreasonably encumber or fraudulently

transfer its assets pending appeal. (A46-47)

Equally irrelevant is Louisville & Nashville R.R. v. Stewart, 241 U.S. 261

(1916). All this Court held there was that a state could add 10% to the

amount of a judgment if affirmed on appeal as the cost of the judgment

debtor’s obtaining a supersedeas bond which suspended execution pending

appeal. Jd. at 263. Since there was no claim in Stewart, nor could there have

been, that that requirement effectively rendered the defendant’s appeal

meaningless, that case does not even remotely resemble this one.

———-

—

13

made to interest this Court in plenary review, is based on

Pennzoil’s misstatement of the Second Circuit’s holding that a

judgment debtor is constitutionally entitled to “an affordable

bond”. The Second Circuit’s “narrow” ruling (A35), expressly

limited to a “unique” and “extraordinary” set of circumstances

“unlikely ever to recur” (A35, ASO), threatens no more dis-

ruptive effect on state supersedeas requirements than the Fifth

Circuit’s similarly “narrow” decision seven years ago in Henry

v. First Nat’l Bank of Clarksdale, 595 F.2d 291, 301 (Sth Cir.

1979), cert. denied, 444 U.S. 1074 (1980). (A51)23

There is no indication that any of the states whose interests

Pennzoil purports to be championing agrees with its doomsday

prediction. On the contrary, nine of those states filed amicus

briefs in the Second Circuit “urging that enforcement [of

Pennzoil’s judgment] be enjoined”. (A40)24 Alabama’s posi-

tion is illustrative:

“The State of Alabama, like the State of Texas, has a

supersedeas bond requirement and judgment lien statute,

the purpose of which is to protect judgment creditors

during the pendency of appeals, should they ultimately

prevail. However, in this case, the unmitigated application

23 In Henry, the Fifth Circuit held that where state law security provisions

threaten to impair vital federal rights and interests by precluding meaningful

appellate review of state court tort judgments, the federal courts can act to

enjoin the state court plaintiff from invoking those security provisions, thereby

preserving the right of state court and Supreme Court review and protecting

the federal interests implicated. The narrow federal relief granted in Henry

gave this Court an opportunity to undertake meaningful review of the local

substantive law at issue there. Ultimately, this Court struck down that law, as

applied, on the ground that it impermissibly burdened federally protected

conduct. NAACP v. Claiborne Hardware Co., 458 U.S. 886 (1982).

Like Henry, the present case involves a Judgment that, Texaco argues on

appeal in Texas, will punish and deter conduct that federal constitutional and

statutory law protects and encourages. Here, as in Henry, local lien and bond

provisions threatened immediately to make that deterrent effect permanent

and irrevocable by precluding meaningful state ( and, if necessary, Supreme

Court) review of the serious federal issues raised by the Judgment. Here, as

in Henry, the federal courts possess both the power and the obligation to

prevent such an intolerable result.

24 The nine states are Alabama, Alaska, Delaware, Kansas, New Mexico,

New York, Oklahoma, Washington and Wyoming.

14

of such provisions will destroy a judgment debtor before it

has a meaningful opportunity to seek vindication through

the state appellate system. We believe that an appropriate

balance must be struck.

“We respectfully submit that [the district court] did

just that in assuring Texaco’s right to a meaningful appeal

while providing Pennzoil with adequate security under

Rule 65(c). It is no affront to state sovereignty for a

federal court to guarantee a state court litigant a mean-

ingful right to pursue its state court remedies.” (Brief of

Amicus Curiae The State of Alabama In Support of The

District Court Preliminary Injunction, dated January 30,

1986, at 4-5)25

In sum, the Second Circuit’s due process ruling does not

merit plenary review by this Court.26

B. The Second Circuit’s State Action Holding Does Not

Merit Plenary Review.

Pennzoil contends that the Second Circuit’s state action

holding (1) “radically expands” the state action principles of

251t should also be noted that Pennzoil’s 30-state head count is

inaccurate. To begin with, Pennzoil itself admits that 16 of those jurisdictions

“explicitly allow[ ] the trial court some equitable discretion to reduce the size

of the bond”. (JS 26 n.17) Three of the remaining fourteen states which

Pennzoil counts as having non-discretionary full bonding requirements in fact

expressly authorize courts to reduce the bond. (New York, N.Y. Civ. Prac.

Law § 5519(c); Oregon, Or. Rev. Stat. § 19.045; Virginia, Va. Code § 8.01-

676.1) These nineteen states, then, stand in marked contrast to Texas which,

as the Second Circuit found, has a supersedeas requirement that is non-

discretionary on its face and has “repeatedly been declared by Texas courts to

be mandatory. . .”. (A9)

As for the other eleven so-called non-discretionary jurisdictions, four

have no reported decisions interpreting their supersedeas statutes as either

discretionary or non-discretionary (lowa, Arkansas, Michigan, Minnesota);

and of the final seven states four appeared below as amici in support of the

preliminary injunction against Pennzoil (A3; Alabama, Delaware, New

Mexico and Oklahoma ).

26 Under 28 U.S.C. § 1254(2), the due process ruling is the only matter

before this Court on direct appeal. As for the other issues raised by Pennzoil,

this Court “retains discretion to decline to consider [them]”. Davis v.

Scherer, 104 S. Ct. 3012, 3017 n.7 (1984). For the reasons set forth in the

remainder of this motion, those other issues do not merit this Court’s

consideration.

15

Lugar v. Edmondson Oil Co., 457 U.S. 922 (1982) (JS 10); and

(2) “eviscerates” the Anti-Injunction Act (JS 9). Both con-

tentions lack merit.27

1. The Second Circuit’s decision is well within Lugar.

This Court’s state action holding in Lugar turned on the

presence of two factors. First, this Court relied on the presence

of a “procedural scheme created by ... statute” that was

“obviously ... the product of state action”. 457 U.S. at 941.

The specific scheme was a security procedure that balanced

competing claims to disputed property pending trial by allow-

ing attachment of property under certain circumstances. Sec-

ond, this Court relied on the fact that, by invoking the state

security provisions at issue, a private party triggered (and

controlled ) action by state officials. 457 U.S. at 941-42. As this

Court explained, “a private party’s joint participation with state

Officials in the seizure of disputed property is sufficient :o

characterize that party as a ‘state actor’ for purposes of the

Fourteenth Amendment”. /d. at 941.

In finding state action in the instant case, the Second

Circuit relied on precisely the same two factors that were

dispositive in Lugar. First, as in Lugar, there is here a

procedural scheme created by statute that is obviously the

product of state action. (A24) That scheme (described supra

at 1-2) involves security provisions which, through attachment

and supersedeas mechanisms, balance competing claims to

disputed property pending appeal. Second, as in Lugar, a

private party’s invocation of the security provisions here would

have triggered (and allowed the private party to control ) action

by state officials. (A25-26)

Pennzoil does not—and cannot—dispute that both Lugar

and the decision below were based upon these same two

predicates. Instead, Pennzoil contends that Lugar is not

controlling here because. it involved security provisions that

operated pending resolution through (rial of competing claims

27 Significantly, Pennzoil did not see fit to argue the state action issue

before the district court.

16

to disputed property, whereas the security provisions here

operate pending resolution of such claims through appeal. (JS

10) Under Pennzoil’s reading of Lugar, inv%< «ion of precisely

the same security provisions—involving precisely the same kind

and extent of official action—would properly involve state

action pending initial adjudication through trial, but could

never involve state action pending appeal, even though a

judgment at that stage is non-final under state law and is

subject to corrective review.28

Pennzoil is wrong. Pennzoil relies on three elements in

Lugar which it claims are unique to the prejudgment context.

In fact, each element is present here as well.29

First, Pennzoil stresses that the security procedures in

Lugar allowed seizure of “disputed property”. (JS 10; empha-

sis in original) That is no less true here. The state’s decision to

provide a process of appellate review—a decision that con-

templates the need to correct error committed in the initial

phase of adjudicatioa—demonstrates that a live and important

“dispute” continues with respect to the property at issue.3°

28 Texas law accords judgments no finality or preclusive effect until all

appeals have been exhausted. E.g., Glen Oaks Util., Inc. v. City of Houston,

280 F.2d 330, 334 (Sth Cir. 1960); accord Archer v. Bill Pearl Drilling Co.,

655 S.W.2d 338, 341 (Tex. App. 1983).

29 Pennzoil also overlooks the fact that state action arising from in-

vocation of a local security scheme can support a Section 1983 claim only

when (as in Lugar and here) that claim challenges the constitutionality of the

particular scheme (either on its face or as applied). Cf Lugar, 457 US. at

941. Because of this required nexus, the state action ruling below, contrary to

Pennzoil’s assertion, cannot be used in other contexts to support “imaginative

constitutional objections” to other “state procedural and structural rules

governing the processing of litigation”. (JS 8-9; see also JS 11, 28)

30 It is precisely for that reason that Texas courts attribute to post-trial

security procedures the underlying purpose of maintaining “the status quo”.

Renger v. Jeffrey, 182 S.W.2d 701, 702 (Tex. 1944); Kantor v. Herald

Publishing Co., 632 S.W.2d 656, 657-58 (Tex. App. 1982); Shell Petroleum

Corp. v. Grays, 62 S.W.2d 113, 118 (Tex. Com. App. 1933). If, as Pennzoil

claims, completion of what is only the initial phase of adjudication (when,

under Texas law, judgments are non-final and non-preclusive ) in fact suffices

to “determine[ | the relevant rights and liabilities” of the parties—so that the

property at issue is no longer “disputed” (JS 10-11)—there would be no

reason to maintain “the status quo”.

17

Second, Pennzoil stresses that invocation of the security

procedures in Lugar was “judicially unsupervised”. (JS 10;

emphasis in original) That is also true here. The very thrust of

Texaco’s due process claim is that Texas law prevents trial

courts from exercising any discretion or supervisory power over

the invocation of security provisions pending appeal—and that

trial-winners (such as Pennzoil) who have no need for security

may therefore employ those provisions to preclude effective

review on a wholly arbitrary basis.3'

Citing Dennis v. Sparks, 449 U.S. 24, 28 (1980), Pennzoil

contends that the Texas security procedures would not have

been “judicially unsupervised” in this case, because attachment

and execution would have come at the end of a “4% month

trial”, involving “the independent judgment of the state judi-

ciary”. (JS 11 & n.5)32 That proposition misses the point of the

limited constitutional claim at issue here. The “independent

[judicial] judgment” the Texas trial court exercised during the

“4% month trial” was confined to adjudicating the merits of

Pennzoil’s state law claims. In the present lawsuit, Texaco does

not attack that “independent [judicial] judgment’”—Texaco is

doing that on appeal in Texas (and, if necessary, in this Court

31 In fact, the Texas security procedures at issue in the instant case ace

more judicially unsupervised than the Virginia procedures at issue in Lugar.

As this Court observed, under the Virginia statute, upon the ex parte filing of

an affidavit alleging need, the petitioner’s property was “sequestered ...

although it was left in his possession”, and “a hearing on the propriety of the

attachment and levy was later conducted”. 457 U.S. at 924-25. The

attachment would be vacated by the state court upon a failure “to establish

the statutory grounds for attachment”. /d. at 925. In contrast, the Texas

security procedures relating to money judgments make no provision for any

pre-attachment showing of need, for any judicial review of need—either

before attachment or after—or for any possibility of judicial vacatur upon a

failure to establish need.

32 In Dennis, this Court held that “ ‘merely resorting to the courts and

being on the winning side of a lawsuit’ does not make a private party into a

state actor under § 1983". (JS 11) As the Second Circuit observed, Dennis

bars such Section 1983 claims because:

“in such case[s] the independent judgment of the state judiciary is called

into play, and unless unusual circumstances are shown ... a private

party cannot be charged with responsibility for a judicial decision.”

A27-28; emphasis added )

18

by direct review from the Texas Supreme Court). The issue in

the instant case is whether—given Pennzoil’s conceded lack of

need for the particular security provisions involved—Pennzoil

should nonetheless be permitted to invoke those provisions to

preclude corrective review. That is a question which the initial

trial court adjudication of Pennzoil’s claims could not (and did

not purport to) address. Pennzoil overlooks this dispositive

distinction. 33

Third, Pennzoil stresses that the seizure of property prior

to initial resolution of competing claims thereto involves the

exercise of “awesome” power which should be subject to

federal constitutional constraints. (JS 10) But the power,

through seizure of property, arbitrarily to truncate the process

of review that ultimately will determine the property’s rightful

ownership—the power at issue here—is no less “awesome” or

deserving of constitutional limitations.4

The presence here of all elements that Pennzoil contends

were essential to Lugar only makes clearer that this case falls

well within the scope of that decision.35

33 4 different case might be presented if, contrary to fact, the Texas lien

and bond provisions allowed for judicial discretion with respect to the need

for security for money judgments and if, in the independent exercise of that

discretion, a Texas court had denied Texaco relief from the provisions. In

such circumstances, invocation of the provisions by Pennzoil would have been

judicially supervised. That, however, is plainly not this case.

The above is also a complete answer to Pennzoil’s suggestion that “the

Second Circuit's theory” would allow federal lawsuits requesting “additional

argument time before the Texas Court of Appeals” (JS 21 n.14) or stays

pending appeal from state injunction decrees (JS 28 n.19). The con-

stitutional problem involved in the instant case arises only in the rare

circumstance —not present in the cases Pennzoil suggests—where state courts

lack inherent equitable discretion to grant the desired relief.

34 Indeed, this Court has expressly held that the exercise of state power to

preclude an appeal as of right must be and is subject to the constraints of the

Fourteenth Amendment. (See supra at 10 n.18) As this Court observed in

Lugar, Section 1983 “creat{ed] a remedy as broad as the protection that the

Fourteenth Amendment affords the individual”. 457 U.S. at 934.

35 Pennzoil misconstrues the point of this Court’s observation in Lugar

that its holding was “limited to the particular context of prejudgment

attachment”. 457 U.S. at 939 n.21. (JS 10) The observation was made in

specific response to a suggestion that Lugar altered the rule in Dennis that a

private party does not become a state actor merely by instituting or prevailing

19

2. The Second Circuit’s decision does not affect the Anti-

Injunction Act.

Pennzoil contends that the Second Circuit’s holding so

expands the Section 1983 exception to the Anti-Injunction Act,

28 U.S.C. § 2283, that it “drastically erodes”, indeed “canni-

balize[s]”, the Act. (JS 12)

Pennzoil is wrong. A ruling that a particular private party

is a State actor has no impact on the breadth of the Section 1983

exception to the Anti-Injunction Act. If a state proceeding

deprives the state court defendant of federally protected rights,

thereby creating a meritorious Section 1983 claim, the state

court defendant can always institute a Section 1983 injunction

action against the state officials involved in the proceeding

(who are clearly state actors under Section 1983), rather than

against the private state court plaintiff. Such an action would

not be barred by the Anti-Injunction Act, even if the private

state court plaintiff were nor itself deemed a state actor.

3. The Second Circuit’s decision does not offend the

constitutional policies that underlie the state action

doctrine.

Under the decisions of this Court, the state action inquiry is

guided by considerations of wiiether the private party charged

“may fairly [be held responsible as] a state actor”.36 Whether

imposing that responsibility is “fair” cannot be determined

without assessment of the precise burdens such responsibility

entails. Once that inquiry is undertaken, it is clear that the

in a state court litigation. The only limiting principle responsive to that

suggestion turns on the distinction between (a) claims that attack the use by

private parties of unsupervised security procedures to seize disputed property

(which Dennis did not address, but which are present here and in Lugar),

and (b) claims that attack attempts by private parties to employ the judicial

process to resolve disputes (which Dennis forbids). It does not turn on the

pre-trial vs. post-trial distinction that Pennzoil seeks to attribute to Lugar.

The Dennis bar applies with equal force in both the pre-trial and the post-trial

context. That is, critical to Lxgar’s limitation is the element of unsupervised

attachment of disputed property, and not whether the attachment is pre-

judgment or post-judgment.

36 Lugar, 457 U.S. at 937 (emphasis added ).

20

instant case, far from “expand|[ing]” Lugar (JS 10), is signifi-

cantly narrower than Lugar itself.

First, this is solely an injunction action, not a suit for

damages. As the dissent in Lugar noted, it may be unfair to

impose damages under Section 1983 where the only conduct

charged is a private party’s wholly innocent invocation, without

notice or fault, of a seemingly valid state statute.3? That

concern, however, is not implicated where (as here) injunctive

relief alone is sought. The only consequence of losing an

injunction suit is that the federal defendant will be unable to

invoke either an unconstitutional state statute or an otherwise

constitutional state statute in an unconstitutional manner. That

is hardly an unfair “burden”. Moreover, unlike a damages

award, it is a “burden” to which the private party would be no

less subject even if the only available defendant were a state

official.

In addition, fairness concerns may arise in damages actions

because the threat of monetary loss leaves a private defendant

charged as a state actor with no choice but to assume the

burdens of defense.3® Actions limited to injunctive relief do not

pose such a threat.39

Second, in the instant case, unlike Lugar, the private

party’s invocation of state procedures would not have been

wholly innocent or unwary. Pennzoil repeatedly disclaimed the

need for security for its Judgment (see supra at 5 n.11), and

was certainly aware that application of the lien and bond

provisions would have had an irrevocably destructive impact on

Texaco. Hence, Pennzoil’s only reason for resorting to the local

security provisions would have been to preclude appellate

review. That fact readily distinguishes this case from others in

37 457 US. at 956 n.14 ( Powell, J., dissenting ).

38 See id.

39 Even where state officials are not initially named as defendants in an

action challenging the particular application of a state statute, federal law

requires that the state be notified and invited to intervene. 28 U.S.C.

§ 2403(b). The private defendant can then reap the benefits of defense

without assuming any of the corresponding burdens. In the rare case, the

state may determine that it should not defend the particular application at

issue. However, where (a) a specific application of a statute is attacked as

unconstitutional, (b) the state itself acquiesces in that attack, and (c) the

private defendant's sole motivation for defending application of the statute is

the desire to procure its benefits—rather than the need to avoid monetary

liability—the “burdens” of defense are hardly unjustified.

*

21

which the private party invokes a “seemingly valid statute”

wholly unaware that an infringement of rights may result.

In sum, the instant case falls well within Lugar. It certainly

offers no reason to reassess this Court’s settled state action

doctrine.

C. The Second Circuit’s Younger Holding Does Not Merit

Plenary Review.

Pennzoil claims that the Second Circuit’s decision “repu-

diates” the abstention doctrine this Court has developed under

Younger v. Harris, 401 U.S. 37 (1971). (JS 13) In fact, the

decision below merely declines to expand Younger in a manner

unjustified by the “unique” and “extraordinary” circumstances

of this case—including the fact that the limited federal relief

preserves, rather than undermines, state court appellate power.

1. The narrow federal relief at issue does not implicate a

“vital” state interest.

Under this Court’s decisions, Younger abstention is war-

ranted only when a state court action seeks to vindicate “‘vital

state interests”.49 In each case decided under Younger, this

Court has focused on the particular subject matter of the state

court litigation—carefully explaining why that subject matter

did in fact embody especially important public interests.41 That

repeated focus by this Court has made clear that the mere

pendency of a state court proceeding—as opposed to the

particular subject matter of the proceeding—does not supply

the “vital” state interest required to justify abstention.

Pennzoil’s lead Younger argument ignores this basic dis-

tinction. Pennzoil argues that it is a “contradiction in terms” to

hold both (a) that state action is present (as necessarily is true

any time some judicial action is taken in a pending state court

lawsuit) and (b) that Younger absention is not warranted. (JS

40 See Middlesex County Ethics Comm. v. Garden State Bar Ass’n, 457

U.S. 423, 432 (1982).

41 E.g., Middlesex County Ethics Comm., 457 U.S. at 434-35; Moore v.

Sims, 442 U.S. 415, 434-35 (1979); Juidice v. Vail, 430 U.S. 327, 335-36 &

n.12 (1977).

22

14) That is so, Pennzoil contends, because state action under

Section 1983 requires “the exercise of public power” and

because the presence of such “public power” must itself trigger

Younger. (JS 14; emphasis in original) Thus, according to

Pennzoil, whenever state action exists for Section 1983 pur-

poses, there is a “vital” state interest for Younger purposes. (JS

15).

Pennzoil in fact has things reversed. In the present context,

a private party is considered a state actor for Section 1983

purposes only when the state has ceded to him the power to

invoke and control, in an unsupervised manner, the conduct of

state officials. That is inconsistent with a finding of a “vital”

state interest. Under Pennzoil’s theory, the less control the state

exercises and the more control it abdicates to private parties,

the more “vital” its interest.

If Pennzoil’s argument were correct—and it is not—it

would automatically extend Younger to “ ‘every pending pro-

ceeding between a State and a federal plaintiff ”, a result “not

remotely suggest{ed]” by this Court’s prior decisions¢?—

indeed, it would, contrary to Pennzoil’s disclaimer (JS 14 n.8),

automatically extend Younger to all “ ‘purely’ private” civil

state court lawsuits.43 Pennzoil’s theory would also (a) me-

chanically bar relief, under Younger, in every Section 1983

action, thereby significantly eroding Mitchum v. Foster, 407

U.S. 225 (1972); and (b) render inexplicable this Court’s

careful focus in each Younger decision on the particular subject

matter of the state court litigation—as opposed to the mere

pendency of the proceeding.

Pennzoil next contends that the state interest at issue

here—the interest of the State of Texas “in the functioning and

enforcement of its bond and lien laws”—falls within the class of

“vital” public interests triggering Younger abstention. (JS 15)

42 Moore v. Sims, 442 U.S. 415, 423 n.8 (1979).

43 That is so because, as mentioned above, judicial action taken in such

lawsuits inherently involves “the exercise of public power”. Under Pennzoil’s

theory, that “exercise of public power” itself mandates application of

Younger. (JS 14)

23

To support that contention, Pennzoil relies on this Court’s

decision in Juidice v. Vail, 430 U.S. 327 (1977). Pennzoil,

however, seriously misconstrues the holding of that case.

In Juidice, the federal plaintiff had been arrested and

incarcerated pursuant to a state court order of contempt

rendered against him after he (a) had ignored a court-ordered

subpoena requiring him to attend a deposition: and (b) had

ignored a further court order requiring him to appear to explain

his failure to obey the subpoena.44 Rather than respond to the

contempt order, the federal plaintiff brought a federal challenge

to the state debt collection procedure, which included the

deposition and contempt citation he had ignored.

This Court ruled that federal abstention was appropriate in

those circumstances. Pennzoil suggests that the Court did so

because it recognized that the collection of private debts

amounts to a “vital” state interest. (JS 15) Pennzoil is wrong.

The Court in Juidice could not have made it plainer that

the focus of its opinion—the “vital” state interest in-

volved—stemmed from the use of the contempt process itself

(and not from the particular private interest that contempt

happened to serve).45 The Juidice federal plaintiff had been

the object of two state court orders and had violated both.

Contempt was the state’s method of punishing him. As this

Court said, the federal plaintiff had committed “ ‘an offense to

the State’s interest ... as great as it would be were this a

criminal proceeding’ ”’.46

Pennzoil has thus confused the particular private interest

that contempt in Juidice served with the process of contempt

44 430 US. at 329.

45 430 US. at 335-36 & n.12. It is, of course, clear why contempt

proceedings implicate vital state interests. The contempt power enforces the

principle that dissatisfied litigants must challenge state judicial action by

lawful process rather than through private disobedience. No principle is more

central to the integrity of the state’s judicial function.

46 Juidice, supra, 430 U.S. at 336 (quoting Huffman v. Pursue, Lid., 420

U.S. 592, 604 (1975)).

24

itself.47 If a federal court may properly enjoin the entry of

judgment in a state court proceeding, as undoubtedly it may

under Mitchum, a federal court surely cannot be barred per se

from enjoining ancillary statutes governing the timing and

terms on which state court judgments are to be secured.4®

Certain additional unusual and distinguishing features of

this case underscore the illogic of finding a “vital” Younger

interest here. -

First, unlike any Younger case in this or any other court,

here the narrow federal relief does not interfere with “the

regular operations of [the state’s] judicial system”. (JS 15,

quoting Juidice, 430 U.S. at 355.) In every case requiring

Younger abstention, the federal plaintiff sought to stop an

ongoing state proceeding in its tracks. The narrow federal relief

at issue here achieves the very opposite result. That relief was

sought (and is required) to enable the state litigation to

continue to completion within the state system. That relief

advances the same interest that every Younger case has sought

to protect.

Second, unlike any Younger case in this or any other court,

“[h]Jere the state [of Texas] has no interest in the underlying

[ state court] action” ( A34), and explicitly so stated in the court

below (Tex. Br. at 2). Neither Texas nor any Texas state

agency is a party to the Pennzoil v. Texaco lawsuit. “It is a suit

between two private parties stemming from the defendant’s

alleged tortious interference with the plaintiffs 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.” (A34)

47 Juidice itself placed no weight on the private debt collection function

advanced by contempt there. This Court described the debt collection

function as involving “purely private concerns”, and contrasted the state’s

vital interest in contempt with those private interests in aid of which contempt

may sometimes be invoked. 430 U.S. at 336 n.12.

48 Pennzoil is, therefore, flatly wrong when it characterizes the decision

below as holding that “federal injunctions may be granted entirely without

comity constraints” whenever the federal defendant is a private party. (JS

15-16) Had the Second Circuit thought that Younger could not apply to a

private federal defendant, it would have had no reason to consider whether

the particular subject matter at issue embodied “vital” state interests adequate

to trigger Younger.

25

Third, unlike any Younger case in this or any other court,

here the only state that could arguably have a “vital” interest in

application of the local security provisions—the State of Texas

—was a party below but has not itself appealed.

Fourth, unlike any Younger case in this or any other court,

here there is no claim that the narrow federal relief at issue has

in any way compromised the asserted state interest in securing

judgments. Pennzoil itself has conceded that it does not need

liens or a bond to be secure. (A45-46)

Fifth, unlike any Younger case in this or any other court,

here the state plaintiff (and federal defendant) has purported

“by stipulation” to waive the local security statutes—the stat-

utes it asserts embody “vital” state interests—and replace them

with federal procedures. (JS 2, 17 n.10) That purported waiver

suggests that even Pennzoil itself does not believe that the local

provisions evidence a “vital” state interest. Nor can Texas have

a “viial” state interest in application of the federal procedures.

2. Texaco lacked a practical remedy in the Texas state

courts.

Even if a “vital” state interest were present here—and it is

not—Pennzoil could not satisfy the second requirement for

Younger abstention: that there be an adequate and timely

remedy for the federal plaintiff within the state court system.

Pennzoil contends that, absent an absolute “procedural bar”

under local law, Younger abstention is required. (JS 16-20) In

the circumstances of this case, that contention is nonsense.

Where, as here, the threat of great and irreparable harm creates

a de facto bar to state court relief, it is of no consequence

whether there be a de jure bar.49 Under Pennzoil’s theory,

Texaco would have been required to pursue its Texas state

remedies until it was irreparably damaged merely to demon-

strate that those remedies were inadequate and untimely. Such

a requirement cannot be—and is not—the law.

49 This, of course, is not to suggest that the substantive constraints on

state court mandamus in Texas would not have amounted to a de jure bar in

this case. (See supra at n.9) They readily could have.

26

Nothing in Moore v. Sims, 442 U.S. 415 (1979), upon

which Pennzoil relies, is to the contrary. In Moore, this Court

explicitly reaffirmed that “extraordinary circumstances” render

Younger inapplicable when necessary to prevent “great, imme-

diate, and irreparable harm” to the federal plaintiff.5° No-

where in Moore does this Court suggest that a state procedural

scheme that is at best uncertain in its ability to grant relief to a

party faced with imminent irreparable injury provides “an

adequate opportunity to raise . . . constitutional claims”.5'

Contrary to, Pennzoil’s assertion, the Second Circuit did not

engage in “abstract and hostile speculations about the effective-

ness and timeliness of the state’s remedial system”. (JS 19)

Rather, the Second Circuit’s opinion rests on (a) the uncon-

troverted fact that “absent injunctive relief, enforcement of

Texas’ lien and supersedeas bond provisions would rapidly

produce a catastrophe of major proportions, causing substantial

harm te Texaco itself and to thousands of others throughout the

United States including stockholders, customers, and suppliers”

(A39); (b) the uncontroverted fact that when Texaco sought

federal relief on December 17, the company’s viability was

measurable in days; and (c) the uncontroverted fact that “[i]f

resolution of [Texaco’s] claims [was] to be effective, prompt

judicial action [was] essential; time [was] of the essence”

(A35).

It was in the context of these uncontroverted facts that the

Second Circuit correctly concluded that, given the exigencies

and imminent threat of Texaco’s destruction, the uncertainty52

50 442 US. at 432-33.

51442 U.S. at 430. This Court’s reliance in Moore (442 U.S. at 425-26

n.9) on 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), demonstrates

that a practical (albeit not de jure) bar suffices to suspend Younger. In

Hernandez, the state security statutes at issue provided for some process and

did not impose an absolute procedural bar to the federal plaintiffs raising their

constitutional challenge to the security statutes. 471 F. Supp. at 519. The

federal court found only that it was “uncertain”, “unlikely” and “ ‘more

theoretical than real’” that the state courts would ever address those

constitutional claims. /d. at 519-20. Based on that finding, the court held that

Younger did not apply, because the state procedures did “not afford a plain,

speedy, efficient and certain remedy for review of [the plaintiffs’}] federal

claim”. 471 F. Supp. at 520. Here, the security statutes provide for no process

and the only arguably available means of attacking their application was the

extraordinary remedy of mandamus, uncertain at best (see supra at n.9), and

not even suggested in Hernandez to be adequate. ( A36-37)

52 See supra at 4-5 & n.9.

27

of the state court mandamus remedy arguably available to

Texaco made that remedy inadequate. (A35-38) Only in the

rare case (such as this one) where uncertainty cannot be

tolerated does uncertainty equate to inadequacy.53

Pennzoil’s argument, when reduced to its essence, is that

Texaco was required to bear the risk of uncertainty and delay

within the Texas state court system—no matter how crushing

the resulting burden. That is not now—and should not

become—the law.

D. The Second Circuit’s Subject Matter Jurisdiction Hold-

ing Does Not Merit Plenary Review.

Relying principally on this Court’s decision in District of

Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983),

Pennzoil argues that, simply because Texaco could have made

its due process challenge in the Texas state courts, the federal

courts are ousted from subject matter jurisdiction over that

claim. (JS 7-8, 20-23) Nothing in Feldman (or any other case

Pennzoil cites) supports that remarkable contention.

53 Pennzoil cites a single Texas case— Pace v. McEwen, 604 S.W.2d 231

(Tex. Civ. App. 1980)—in support of its claim that Texas remedies would

have been adequate and timely. (JS 18 n.11) In fact, Pace shows just the

opposite. In Pace, the Civil Court of Appeals was able to exercise its

injunctive power because the relator had already perfected his appeal. /d. at

232. To have perfected an appeal in mid-December, Texaco would have had

to waive its new trial motion—which was timely filed on January 9, 1986, and

which, under Texas procedural rules (Tex. R. Civ. P. 324), was an absolute

prerequisite to preserving issues for appeal. Moreover, the judgment at issue

in Pace was for recovery of specific real property. 604 S.W.2d at 232. Texas

courts have no discretion with respect to the minimum bond for a money

judgment but are granted full discretion with respect to the minimum bond to

supersede a judgment for specific property. Tex. R. Civ. P. 364(c). Pennzoil

cites no case—and we are aware of none—in which a Texas court enjoined

execution of a money judgment, pending appeal, in the absence of a full

supersedeas bond.

Pennzoil further asserts that under Tex. Civ. Prac. and Rem. Code §

65.013, the trial court would have had power to stay enforcement of the

Judgment pending appeal. (JS 18-19 n.11) Pennzoil is wrong. The cases

construing the statutory predecessor to § 65.013 make clear that where an

opportunity for direct review of a money judgment exists, or where a

supersedeas bond has not been posted, an ‘njunction enjoining execution of

judgment will not issue. See Glenn v. Hollums, 73 S.W.2d 1068, 1071 (Tex.

Civ. App. 1934); Svoboda v. Alexander, 3 S.W.2d 423, 424 (Tex. Com. App.

1928).

28

Feldman reaffirmed the established proposition that a

federal district court lacks power to engage in “appellate

review” of a state court judgment. Under Feldman, a federal

court engages in such “appellate review” when it adjudicates

claims that a state court has already decided or that are

“inextricably intertwined” with—that is, seek modification or

reversal of—the state court’s decision.54

Feldman’s holding has no application here. As the Second

Circuit found, and as Pennzoil concedes, Texaco’s due process

challenge to the lien and bond provisions was never presented

to—far less adjudicated by—a Texas state court. (A21-22;

JS 2, 7-8, 20) Nor, as the Second Circuit held, is that claim

“inextricably intertwined” with the subject matter of any prior

state court decision. (A22-23) The only claim the Texas trial

court addressed was Pennzoil’s state law claim of tortious

inducement. The merits of that tort claim—and the trial court’s

disposition of it—have nothing to do with the reasonableness or

validity of application of the lien and bond provisions. Con-

versely, Texaco’s due process chalienge to those provisions does

“not call into question the validity of the underlying judgment”

of the Texas court. (A27) The validity of the Judgment is

something which is now being challenged on appeal in Texas

—an appeal made possible precisely because of the limited

federal relief granted below.55

54 460 US. at 476, 482-84 n.16, 486. The claims in Feldman illustrate

this narrow principle. In Feldman, two applicants for admission to the District

of Columbia bar, whom the highest court there had determined in a judicial

proceeding to be ineligible, asked the federal court to order the District of

Columbia appellate court to allow them to take the bar examination or to

admit them to practice. 460 U.S. at 468-69, 472-73. One applicant relied on

constitutional claims that had been raised and rejected in the local court. The

other applicant relied on claims that could have been, but were not, raised in

the local court. This Court held that both litigants’ claims were barred—the

former claims because they had been actually decided by the local court; the

latter claims because they were “inextricably intertwined” with the local

court’s decision since, if accepted, they would have required reversal of that

decision. 460 U.S. at 486-87 & n.18.

55 The short-lived and uncertain prohibition against enforcement con-

tained in Paragraph 7 of the Judgment in no way constituted a state court

determination with respect to the reasonableness or validity of the lien and

bond provisions as applied. As the Second Circuit noted, Paragraph 7 was

simply the product of a “consent” agreement between Pennzoil and Texaco.

(A7)

29

Pennzoil relies on this Court’s statement in Feldman that

“[ b]y failing to raise his [constitutional ] claims in state court a

plaintiff may forfeit his right to obtain review of the state-court

decision in any federal court”. (JS 22, quoting from 460 U.S. at

484 n.16) That misses the point. The forfeiture referred to in

Feldm:in can occur only when the constitutional claim seeks

modification or reversal of the state court decision. The claims

in Feldman plainly sought such reversal. The claims here

plainly do not.56

Pennzoil’s reliance on Huffman v. Pursue, Ltd., 420 U.S.

592 (1975), is also misguided. Pennzoil argues that, under

Huffman, state court defendants must raise in state court all

federal claims connected in any way with the state proceeding.

(JS 21-22) But Huffman was a Younger case, and its limitation

on the defendant’s choice of forum applies only where—unlike

here—the state proceeding implicates a “vital” Younger inter-

est. (See supra at 21-25) This Court’s decision in Moses H.

Cone Memorial Hospital v. Mercury Construction Corp., 460

U.S. 1 (1983), makes clear that that limiting feature of

Huffman cannot be ignored. In Moses, this Court reaffirmed

the “virtually unflagging obligation” of the federal courts to

exercise their concurrent jurisdiction without regard to the

pendency of the federal plaintiffs claims in a parallel state

action. 57

In sum, Pennzoil is wrong in contending that, so long as a

federal constitutional challenge can be raised in an on-going

state proceeding, that avenue is a litigant’s “sole recourse”.

(JS 20) As the Second Circuit correctly held, Pennzoil’s

argument turns “settled law” on its head. (A22)

56 For the same reason, Pennzoil is wrong in asserting that the decision

below is in “conflict” with the Fifth Circuit’s rulings in Hale v. Harney, 786

F.2d 688 (Sth Cir. 1986) and Thomas v. Kadish, 748 F.2d 276, 282 ( Sth Cir.

1984), cert. denied, 105 S. Ct. 3531 (1985). (JS 21 & n.13) In both those

cases, the federal court lawsuit asserted claims that sought modification or

reversal of a prior state court decision.

57 460 US. at 15. Far from supporting Pennzoil’s reading of Feldman,

Huffman actually undermines it. If Pennzoil were correct about Feld-

man—and it is not—this Court wasted its time deciding the abstention issue in

both Huffman and Juidice v. Vail, since there would have been no subject

matter jurisdiction over the Section 1983 claims in those cases to begin with.

For the same reason, under Pennzoil’s reading of Feldman, federal courts

would not have jurisdiction to make the res judicata inquiries mandated by

this Court’s decisions in Migra v. Warren City School Dist., 465 US. 75

(1984) and Haring v. Prosise, 462 U.S. 306 (1983).

-

30

CONCLUSION

Involved here is the validity of state security provisions

challenged, not on their face, but only as applied to “the unique

and extraordinary circumstances of this case” (A35) which

“are unlikely ever again to recur” (A50). The result of the

narrow ruling below is to assure that state judicial processes go

forward to completion, rather than being arbitrarily terminated

by interim and unnecessary enforcement of a judgment that is

neither final nor preclusive, that is still subject to corrective

review and reversal, and that raises serious questions under

both federal and state law. Moreover, the private party that is

here championing the local security provisions has conceded

that it in fact does not need security for its judgment, has

publicly threatened to use the local provisions to apply settle-

ment pressure so as to avoid any appellate review, and has

purported to “waive” the local provisions and replace them

with federal procedures.

Such a narrow and unusual case does not merit plenary

review. For the reasons stated above;-this Court should

summarily affirm the result below.

Respectfully submitted,

THOMAS D. Barr

Davip Boles

Max R. SHULMAN

FRANCIS P. BARRON

CRAVATH, SWAINE & MOORE

One Chase Manhattan Plaza

New York, N.Y. 10005

(212) 422-3000

CHARLES ALAN WRIGHT

727 East 26th Street

Austin, Texas 78705

WILLIAM F. BAXTER

SHEARMAN & STERLING

4 Embarcadero Center

San Francisco, California 94111

Of Counsel.

May 31, 1986

PAUL J. CURRAN

MILTON J. SCHUBIN

RANDOLPH S. SHERMAN

IRA S. SACKS

KAYE, SCHOLER, FIERMAN,

Hays & HANDLER

425 Park Avenue

New York, N.Y. 10022

(212) 407-8000

Attorneys for Appellee

Texaco Inc.