MONTGOMERY, Ala. (AP) The state government asked the Alabama Supreme Court to uphold a record $3.5 billion judgment against Exxon Mobil, contending the oil company had a “secret scheme to cheat the state out of its bargained-for royalties.”

In legal papers filed late Thursday, the state’s attorneys said, “It is true that the punitive damages award is virtually unprecedented, but so is the scale of the wrong to be punished and the size of the wrongdoer.”

The state’s legal arguments were in response to Exxon Mobil’s request in May for the Supreme Court to throw out the largest verdict in state history. Exxon Mobil argued that the judgment wasn’t based on facts and was unconstitutionally excessive.

The company is trying to strike down a $3.5 billion punitive damage judgment set by a Montgomery judge after a jury ruled Exxon Mobil cheated the state out of royalties from natural gas wells the company drilled in state-owned waters along the Alabama coast.

Company spokesman Susan Reeves said Friday that Exxon Mobil will file a reply with the Supreme Court in August, renewing its arguments that the amount “is based on the state’s unproven allegations of fraud.”

The Retirement Systems of Alabama, which is the state’s pension program, filed a brief Thursday in support of the state’s arguments, along with the Alabama State Employees Association and the Alabama Securities Commission. They argued that if the Supreme Court sides with Exxon Mobil, it will be harder “to police fraudulent conduct in a wide variety of circumstances.”

Having the organizations join in “is definitely a plus for the state of Alabama,” state attorney Jere Beasley of Montgomery said.

Attorneys for the state said they expect attorneys general from several states to file briefs in support of Alabama.

“If Exxon’s conduct in this case is allowed to stand unpunished, every state government in America is at risk,” state attorney Robert Cunningham of Mobile said.

In November 2003, a Montgomery Circuit Court jury awarded the state $102.8 million in compensatory damages and $11.8 billion in punitive damages in the royalties dispute with Exxon Mobil. The verdict was the largest returned by any American jury in 2003, but the trial judge, Tracy McCooey, cut the punitive damage award to $3.5 billion. She left the compensatory damages untouched. Even at a total of $3.6 billion, the judgment was larger than any other issued in the United States in 2003 and is the largest ever in Alabama.

Key issues in the appeal are whether Exxon Mobil committed fraud, which is necessary to collect punitive damages, and whether the state relied on the Houston company’s monthly natural gas production reports in determining the amount of money due the state.

“The story of Exxon’s secret scheme to cheat the state out of its bargained-for royalties is written in the record of this case largely in Exxon’s own hand, in a series of internal documents” that show Exxon knew its obligations to the state, Alabama’s lawyers told the Supreme Court.

Last year, the Alabama Supreme Court overturned a $24.6 million judgment that the state won in a similar dispute with Hunt Petroleum. The justices said the state failed to present evidence that it relied to its detriment on the oil company’s monthly royalty reports for production along the Alabama coast.



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