Exxon Lawyer Calls Case Contract Dispute

posted on:
February 5, 2007

author:
Staff

category:
Fraud

Attorneys on both sides said they hoped the Supreme Court would rule on the case within two or three months of the hearing, but there’s no guarantee that it will. There’s also no guarantee that a ruling by Alabama Supreme Court would be final, since its decision might be appealed to the U.S. Supreme Court. 

David Boyd, one of Exxon’s attorneys, said the company and the state disagree over how to interpret lease contracts, but the Exxon never committed fraud. No punitive damages could be awarded in a contract dispute under Alabama law without a finding fraud.

"This case is a contract dispute masquerading as a fraud action," Boyd and other attorneys from Exxon wrote in their brief to the Supreme Court.

Boyd said Exxon never hid from the state that it interpreted the contracts to mean the company owned less in royalties than the state believed it did. He also said the state always intended to audit Exxon’s production and payment records, and that Exxon knew that.

Boyd also said that, even f the court finds that Exxon was wrong on the contracts and that it did commit fraud, that $3.5 billion in punitive damages was too huge to be fair.

"It’s an amount so astronomical as to be just mind-boggling," Boyd said.

He and other attorneys in their brief said the U.S. Supreme Court in recent years has said that few punitive damage awards 10 times or more greater than actual damages would be viewed as fair, as satisfying the U.S. Constitution’s guarantee of due process law.

But Jere Beasley, one of the attorneys for the state, said the U.S. Supreme court never has set a hard and fast rule against large punitive damages awards.

"There’s no magic formula," Beasley said.

Noting that ExxonMobil reported earning profits of $39.5 billion last year, he said a verdict smaller than $3.6 billion wouldn’t sting Exxon enough to change its behavior.

Beasley also disputed Boyd’s view that Exxon never hid from the state its different interpretation of the lease contracts, and the royalties owed under them.

"We think the entire decision should be upheld," Beasley said

One of the disagreements in interpretation of the contracts centers on the value of natural gas from Mobil Bay on which Exxon pays royalties to the state.

The state says Exxon must pay royalties on the value of gas sold from Exxon’s Onshore Treating Facility in Theodore, which, among other things, removed hydrogen sulfide from the gas to make it marketable.

Exxon says that, when valuing the gas it sells, it can deduct the cost of transporting the natural gas from drilling platforms to the treating facility and of purifying the gas there.

Also, Exxon says it doesn’t have to pay royalties to the state on gas it pumps from Mobil Bay and then burns to operate the treating facility. The state says Exxon must pay royalties on that gas, too.

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