Exxon Mobil, State Face New Trial Duel Over Gas Royalties

posted on:
June 6, 2003

author:
Phillip Rawls

category:
Fraud

A lawsuit that produced the largest jury verdict in state history goes back to court for a new trial in October.

Exxon Mobil and attorneys for the state face off Oct. 20 before Montgomery Circuit Judge Tracy McCooey. The issue is whether Exxon Mobil shortchanged the state on royalties due from natural gas wells drilled in waters along the Alabama coast.

In the first trial, in December, 2000, a Montgomery jury ruled Exxon Mobil cheated the state and said the company should pay $87.7 million in compensatory damages and $3.42 billion in punitive damages.

In December, 2002, the Alabama Supreme Court threw out the verdict in a 6-3 decision. The court said the trial judge wrongly allowed jurors to see an internal Exxon legal memo that outlined the company’s options on royalty demands from Alabama’s conservation department.

As the case goes back to court, the state conservation department is continuing to use the Mobile law firm of Cunningham, Bounds, Yance, Crowder & Brown, which handled the first trial.

Gov. Bob Riley, however, has decided to have his own attorney in the case and has lined up Jere Beasley, one of Alabama’s most successful plaintiff lawyers. Riley’s legal adviser, Troy King, said the governor wanted a Montgomery attorney involved since the case will be retried in Montgomery.

Former Gov. Don Siegleman’s administration originally hired Cunningham Bounds to handle the lawsuit on a contingency basis and promised them 14 percent of what they recovered for the state. King said bringing in Beasley will not cost the state any more because Beasley’s firm and the Cunningham Bounds firm will share the 14 percent, with the division to be worked out by the two firms if the state wins.

Beasley has previously worked on nursing home lawsuits with the governor’s son, Birmingham lawyer Rob Riley.

On the Exxon Mobil side, prominent Montgomery lawyer Joe Espy led the company’s defense in the original trial. For the appeal, Exxon Mobil added some of the state’s top lawyers, including Dave Boyd of Montgomery and Sam Franklin of Birmingham. They are coming back for the retrial.

“It’s going to be some of the best lawyers in the state facing each other,” King said.

It appears certain the trial will go forward. Exxon Mobil spokesman Bob Davis said the two sides had settlement talks, but they weren’t fruitful. He said Exxon Mobil has had royalty disputes with other states, but never one that produced a $3.5 billion verdict.

In the retrial, Davis said the oil company will argue that the state’s lease with the oil company was “very ambiguous and unclear” and that the disagreements is a simple contract dispute that should not result in any punitive damages.

“The issue of fraud is just not true,” Davis said.

In the first trial, the state’s lawyers focused on the memo by Exxon lawyer Charles Broome, which said a state lawsuit over royalties would have “a substantial chance of success.”

The memo went on to suggest methods of reducing the company’s obligations to Alabama and assessed the consequences if those efforts failed.

King said there are plenty of other documents that the state’s attorney’s can use in the retrial.

“We’re confident they’ll put on a case that’s equally convincing to the jury,” he said.

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