Judge Sides with Exxon in Payment Dispute with State

posted on:
January 15, 2008

author:
Phillip Rawls

category:
Fraud

The billions that state officials had once coveted from the largest jury verdict in Alabama history is now a scrap over millions.

An $11.9 billion jury verdict against Exxon Mobil in 2003 was reduced to $3.6 billion by a judge. But it still was twice the size of the state’s current cash-strapped General Fund budget of $1.8 billion and more than half the $6.7 billion education budget.

But the financial picture changed in November, when the Alabama Supreme Court threw out nearly all of the $3.6 billion judgment.

That left Tuesday’s court wrangling, basically over about $22 million.

Circuit Judge Tracy McCooey sided with Exxon Mobil over how much it must pay the state to end a 9-year-long legal battle over natural gas royalties due the state. McCooey said Exxon Mobil’s calculation of $120.4 million in royalties and interest was correct. State attorneys had argued for $142.8 million.

The chairman of the state Senate’s General Fund budget committee said Tuesday the money will help the state budget, but Alabama should have had more.

"The Supreme Court was wrong not to hold a company, which had $40 billion in profits last year, responsible for stealing royalties from the citizens of Alabama through their New York accounting gimmicks on royalty payments," Sen. Roger Bedford, D-Russellville, said in a phone interview.

At the hearing Tuesday, the state and Exxon Mobil agreed on how much the oil company must pay the state in royalties. The argument was about whether 12 percent interest or 24 percent interest applied to part of the royalties.

McCooey agreed with Exxon Mobil that the 24 percent was too high.

"The Supreme Court would send it right back," the judge told the oil company’s attorneys.

Despite that, state’s attorneys Robert Cunningham and Jere Beasley said they will appeal the judge’s ruling to the state Supreme Court. They said the state’s highest court had never addressed how to compute the interest in royalty disputes, and it’s worth giving the court as case of first impression.

For McCooey, the hearing was likely her last in a legal battle that included two lengthy trials and two rounds of appeals.

"I was wondering if I was ever going to get rid of y’all," she told the attorneys at the conclusion.

Alabama sued Exxon Mobil in 1999, contending the oil company had deliberately underpaid the state on royalties due from natural gas wells drilled in state-owned waters along the Alabama coast. Exxon Mobil argued that it was a simple contract dispute with no fraud involved.

A Montgomery jury sided with the state and awarded $3.5 billion, but the Alabama Supreme Court overturned the verdict in 2002.

A new trial in 2003 resulted in a jury awarding the state $11.9 billion, but McCooey reduced that to $3.6 billion.

In November, the Alabama Supreme Court ruled there was no fraud by Exxon Mobil and threw out all of the judgment’s punitive damages.

The court left $51.9 million in compensatory damages, but that was based on 2003 numbers. The Supreme Court sent the case back to McCooey to update those numbers to present time.

The $120.4 million approved by McCooey was based on figures at the end of the year. Exxon Mobil attorneys Chris King and Dave Boyd said additional interest for January will likely push the final payment by the oil company to about $122 million.

About $58 million of that amount will be royalties that will go into a state trust fund, or savings account. The remainder will be interest, which Richard Cater, chief attorney for the state Finance Department, said would go into the state General Fund.

The General Fund finances non-education functions of government, including prisons, Medicaid and state troopers.

Bedford said Tuesday he would like to save the money for the fiscal 2009 General Fund budget, when it appears state tax revenue may be flat due to an economic slowdown.

Exxon Mobil also made a $20 million payment to the state during the first appeal of the case, but that money has already been used.

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