Chevron Press Release - CHEVRON FILES FINAL BRIEF IN CITIES SERVICE CASE
Oklahoma Supreme Court to Consider Petition and Amicus Briefs to Rehear Case
SAN FRANCISCO, May 11, 1999 -- Chevron Corp. announced today it has filed its final brief in the Oklahoma Supreme Court asking the court to reconsider its March 2 decision upholding a trial court's damage award of $742 million in a breach of contract action.
The case dates back to 1982 when Cities Service Co., a Tulsa oil company, filed suit against Gulf Oil Corp. after Gulf terminated an agreement to merge with Cities, which was trying to avoid a hostile takeover by Mesa Petroleum. Cities Service was subsequently acquired by Occidental Petroleum in 1982 and Gulf was acquired by Chevron in 1984.
At trial, Cities claimed it had been damaged by the full $225.5 million it had paid Mesa to repurchase its own shares shortly after the Gulf agreement was announced. In its petition for rehearing, Chevron asserts that the jury should have been allowed to consider the issue as to whether Cities suffered any damages, and if so, the amount of any award. Instead, the trial judge took these decisions from the jury and ruled that Cities' stock repurchase from Mesa was a total loss to Cities because its value was "speculative." The trial judge thus directed a verdict in Cities' favor for the full $225.5 million and added pre-judgment interest of $512 million.
Chevron's petition contends that in upholding the trial court's ruling, the Oklahoma Supreme Court failed to consider the following evidence demonstrating the stock had ascertainable value to Cities:
- uncontradicted proof that Cities' shares were publicly traded on the New York Stock Exchange at $30 per share immediately following the alleged breach;
- evidence that corporations routinely buy back their own shares for full value entirely apart from merger transactions;
- evidence that nine months before the Mesa repurchase, Cities completed a stock repurchase from another potential raider for $307 million and acknowledged the repurchase was worth the full purchase price.
In support of reconsideration, two Amicus (friend-of-the-court) briefs have been filed with the court. Below are summaries of these briefs:
- The U.S. Chamber of Commerce, which represents 160,000 corporations and other business entities, supports a rehearing and expressed its concern with any precedent that repurchase of publicly traded securities could have "no value" to the company. The chamber argues that share repurchases confer real, ascertainable value on corporations and their shareholders; and, it asserts that the "opinion conflicts with legislative, regulatory and judicial pronouncements" governing stock repurchases. In 1998 alone, U.S. corporations announced nearly 2,000 repurchase programs involving $222 billion in securities.
- Professor Leo Whinery, Alfred P. Murrah professor of law, the University of Oklahoma, supports a rehearing on the basis that the court incorrectly shifted the burden of proof as to the amount of the Cities' damages to Gulf/Chevron, contrary to settled rules of evidence. Professor Whinery further notes that Gulf introduced substantial evidence that the repurchased shares had value and the issue should have been submitted to the jury. Professor Whinery has specialized in Oklahoma evidence law for more than 30 years and served as reporter for the Subcommittee of the Code Procedure — Civil Committee of the Oklahoma Bar Association, which drafted the Oklahoma Evidence Code. His treatise, "Oklahoma Evidence," was cited by the Oklahoma Supreme Court in its opinion.
Chevron is hopeful the court will reconsider its decision and allow the case to be reconsidered at the trial court level.
Updated: May 1999