Pennzoil

Beginning and expansion

Origins of the company can be traced to the South Penn Oil Company, an oil business started in Oil City, Pennsylvania by Michael Late Benedum and Joe Trees in May 1889 as a unit of Standard Oil. It became the largest oil producer in the region, becoming independent when Standard Oil was split in 1911. By those times, two companies, one on the East Coast and another on the West (founded in 1908 and 1913, respectively) started to market their motor oils under the brand Pennzoil. Their refineries and distributors were later incorporated as "The Pennzoil Company" in 1925. In July 1926, South Penn acquired a 51% controlling interest which by June 1955 had risen to 88% when shareholders voted to exchange remaining shares 1:1 for South Penn stock and merge Pennzoil, the refining and marketing subsidiary, into South Penn Oil.

In 1963, South Penn Oil merged with Zapata Petroleum and Stetco Petroleum to form a new "Pennzoil Company", headquartered in Houston and appointing Hugh Liedtke as president. By 1965 Pennzoil marketed its petroleum products worldwide. In 1968, United Gas Corporation was purchased by Pennzoil, through a leveraged buyout, which was necessary because Pennzoil did not have enough assets to buy United outright.

During the 1970s, the company moved its offices to the Pennzoil Place in Downtown Houston, Texas.

In 1977 a spin-off company was formed called POGO, an acronym for Pennzoil Offshore Gas Operators.

Pennzoil, Co. v. Texaco, Inc.

In 1984, Pennzoil made an informal but binding contract with Getty Oil to purchase a large portion of Getty Oil to give Pennzoil rights to Getty's oil deposits. Following the deal, the Texaco oil company encroached on the complex merger in an attempt to acquire Getty for itself.

Pennzoil sued Texaco in Texas state court, alleging that Texaco tortiously induced Getty to breach the contract with Pennzoil. At first it was adjudicated by Judge Anthony J.P. Farris; it was finished by visiting Judge Solomon (Sol) Casseb of San Antonio. A jury awarded Pennzoil, represented by Joe Jamail and Baine Kerr, $7.53 billion in compensatory damages and $3 billion in punitive damages. Under Texas law, Pennzoil could secure a lien on all of Texaco's property in the state, unless Texaco posted a bond that covered the judgment, interests and costs of the lawsuit (estimated to be $13 billion).

Before judgment could be entered in the Texas court and Pennzoil could obtain a lien, Texaco filed a suit in the U.S. District Court for the Southern District of New York, alleging that the Texas proceedings violated Texaco's constitutional rights. The District Court found for Texaco, and the Second Circuit affirmed. Pennzoil appealed the federal court case to the United States Supreme Court. Laurence H. Tribe argued for Pennzoil, and David Boies for Texaco. The Supreme Court reversed the circuit court decision, on the grounds that the federal court in New York should have abstained from interfering with the decision of a state court.

Texaco also appealed the Texas state court decision. The Texas Court of Appeals upheld the jury verdict, but found that the trial court had abused its discretion by not suggesting a remittitur (reduction of damages). It would allow the verdict to stand if Pennzoil filed a remittitur of two billion dollars, making the punitive damages award $1 billion. Compensatory damages of $7.53 billion remained unaffected. Pennzoil paid Jamail $335 million and Kerr $10 million for the victory.