The Alabama Supreme Court on Thursday threw out nearly all of a record $3.6 billion verdict that the state government won against Exxon Mobil Corp. in a dispute over natural gas royalties.
In an 8-1 decision, the state’s highest court awarded Alabama $5 I .9 million in compensatory damages. The court threw out all punitive damages, which made up most of the $3.6 billion verdict, the largest ever in Alabama.
The state conservation department had sued Exxon Mobil, saying it had intentionally underpaid the state for royalties due from natural gas wells the company drilled in state-owned waters along the Alabama coast. Exxon Mobil, the world’s biggest publicly traded oil company, argued that no fraud was involved and the case was a routine contract dispute.
"It affirms what we’ve said all along that this was never a fraud case," Exxon Mobil attorney Dave Boyd said.
Jere Beasley, one of the state’s attorneys, said the state will likely ask the court to reconsider.
"When a powerful and politically influential corporate giant can get away with what Exxon did to the citizens of our state, it’s truly a sad day for Alabama," Beasley said.
In 2003, a Montgomery jury agreed with the state’s arguments that Exxon Mobil intentionally underpaid, and it returned a verdict of $102.8 million in compensatory damages and $11.8 billion in punitive damages.
Circuit Judge Tracy McCooey cut the punitive damages to $3.5 billion, which dropped the total verdict to $3.6 billion. Even after the verdict was cut, it was still the largest in the country that year, according to the annual rankings by the National Law Journal and Verdict search.
In Thursday’s decision, the majority of the Supreme Court said the state failed to prove fraud by ExxonMobil and no punitive damages were due.
The court left compensatory damages for breach of contract and sent the case back to circuit court to determine what interest might be due the state on the $5 1.9 million.
The court split along party lines, with its eight Republican justices siding with the oil company and the court’s the lone Democrat dissenting.
For the majority, Justice Tom Parker wrote, "The State bore the burden of proof on its fraud claim, and it did not present substantial evidence that Exxon made any misrepresentations, that the State reasonably replied on any of Exxon’s alleged misrepresentations, or that the State suffered damage as a result of that reliance."
In dissent, Chief Justice Sue Bell Cobb wrote, "Not only does the majority opinion approve of the appropriation of this State’s resources by deceit, it undermines any individual or institution that would pursue honest business practices. This is neither legal nor just."
The decision was the second time the Alabama Supreme Court had ruled in Exxon Mobil’s favor. The first time the case went to trial, a jury awarded $3.5 billion, but the Supreme Court threw out the verdict, ruling that the internal Exxon Mobil memo should not have been admitted as evidence. The court ordered the new trial that occurred in 2003.
Thursday’s decision was similar to one the Alabama Supreme Court issued in 2004, when it threw out a $24.6 million punitive damage verdict the state won in a similar – but much smaller – royalties dispute with Hunt Petroleum over natural gas wells along the coast.
Dean Peeler, executive director of the Alabama Petroleum Council, said the oil industry was ready to put the years of litigation behind it.
"We have not and will not allow the past 12 years of wrangling like this to affect our search and drilling for natural resources in Alabama for the good of all," he said.
Earlier Thursday, Exxon Mobil reported that its third-quarter profit fell 10 percent as higher crude prices failed to offset lower natural gas prices and refining and chemical margins.
The Irving, Texas-based company said net income declined to $9.41 billion in the July-September period from $1 0.49 billion a year ago. The year-ago profit was the second-largest ever recorded by a publicly traded U.S. Company.