Mobile lawyers broke record State stuck with Cunningham, Bounds firm at retrial, and saw original award tripled

posted on:
December 12, 2003

author:
Gary McElroy

category:
Fraud

Three years ago, the Mobile law firm of Cunningham, Bounds, Yance, Crowder & Brown won the legal equivalent of the Super Bowl, the World Series and the Daytona 500 with one case.

Last month, they did it again, with the same suit against the same defendant, only this time more than tripling the state-record award of 2000. They did it, lawyers with the firm said, with lots of preparation, and even more indignation.

Back in 2000, representing the state of Alabama, the firm went up against ExxonMobil Corp.’s team of top-flight defense lawyers and won the state a record award of $3.5 billion.

The jury’s decision was later negated on appeal when the Alabama Supreme Court kicked the case back to the Montgomery court. The high court ruled that a private company document used by the state during the trial was inadmissible as evidence.

The state’s suit, claiming ExxonMobil for years had been underpaying gas extraction proceeds in Alabama-owned Gulf waters, went back before a jury in October.

This time, ExxonMobil brought in a whole new team of lawyers and new witnesses.

The state stuck with the ones who brought them to the dance: Robert Cunningham and Richard Dorman of the Mobile firm. They were joined by former Lt. Gov. Jere Beasley of Montgomery at the request of Gov. Bob Riley.

To prove punitive damages, which allow juries to award far more money than the actual amount lost, the state’s attorneys had to show that ExxonMobil committed fraud.

That requirement, Cunningham said, turned out to be easier the second time around, and when it was over, this jury awarded punitive damages of $11.8 billion, plus $63.6 million in compensatory damages, along with another nearly $40 million in interest.

According to ExxonMobil’s lawyers, the appeals will begin no later than Dec. 19 with Montgomery County Circuit Court Judge Tracy McCooey, who presided over both trials. It could take years to exhaust the company’s legal avenues seeking relief from the multibillion-dollar burden.

In preparing for both cases, the state’s legal team went into intense training, conducting a half-dozen mock trials to determine how a jury might respond to certain evidence and arguments.

The Mobile part of the team moved to Montgomery weeks before the trial to set up camp, taking a truckload of boxed evidence and a staff of paralegals.

Once the trial started, Cunningham said, the state’s intention was to search out and destroy the credibility of company witnesses by confronting them with the collective evidence.

The jury’s decision to award the state with a huge verdict, he said, was “not lawyer-driven, but driven by the overwhelming evidence that Exxon intentionally defrauded the state in a calculated way.”

The state’s attorneys succeeded, Cunningham said, by submitting documents showing that instead of paying for various goods and services out of its own corporate pockets, as it should have, ExxonMobil’s policy was to charge those costs off against the state’s royalties.

ExxonMobil’s leadership both sanctioned and encouraged fraud in the company’s dealings with Alabama over gas lease profits, the plaintiff’s attorneys argued throughout both trials.

Birmingham attorney Sam Franklin, one of those who represented ExxonMobil, said the company position was that “no costs were charged against the royalties other than those direct expenses related to running the onshore treatment facility.”

In numerous cases, Cunningham countered, the outlays were bogus and had nothing to do with the extraction and processing of gas.

According to one set of documents, the deductions included a $30,000 bill for shirts, an $11,000 landscaping bill, $38,000 for janitorial services and — what Cunningham described as “a really good one” — a $6,527 bill from the Grand Casino in Biloxi.

Under the terms of what Cunningham called the airtight, state-of-the-art lease agreement generated by Alabama, these deductions were prohibited.

“They knew they could not take all of these deductions,” Cunningham said, “But based on an economic analysis of how much money they would make by doing it … executives made the decision to take the deductions anyway.”

This calculated decision to cheat, Cunningham said, was not lost on the jury.

Jurors at times reacted with laughter to the response of ExxonMobil witnesses confronted with evidence supporting the state’s case, he said.

Asked about the Grand Casino bill, Franklin called it a family picnic for company employees where money was spent on rooms and food. “It did not mean somebody is over there gambling,” he said.

“I’ve been on a lot of family picnics,” Cunningham said. “I’ve never been to one at the Grand Casino.”

Franklin said the casino bill and other examples the state used during the trial were “prejudicial and inflammatory.”

He described the deductions the company took as “ordinary, necessary costs of running a business,” such as “providing health insurance to the supervisor who works on the night shift at the onshore treatment facility.”

“There was nothing under the lease agreement that said there were only certain kinds of deductions, nothing that spelled out disallowable costs,” Franklin argued.

On the contrary, Cunningham said, royalty responsibilities were spelled out from the beginning of the lease and were required to come from the “gross proceeds” generated by the company’s gas extraction from offshore waters.

“Exxon to this day still refuses to pay (royalties) in accordance with the leases,” Cunningham said, “despite every other oil company in Mobile Bay doing so.”

Franklin said ExxonMobil’s biggest hurdle in the litigation could have been Alabama’s well-known financial woes.

“We were obviously trying the case in a pretty difficult time for the state economically,” Franklin said. “It is hard for me to believe that the jury could just overlook that and not have it in their minds.”

Given the reality of lean times in the state, Franklin said, jurors could have been tempted to take the burden on themselves of trying to “take a lot of money from a major oil company and help out Alabama’s economic problems.

“It almost gives the jurors an interest in the outcome of the case,” he said. “I don’t know that there was anything we could do about that.”

The justification of the jury award continues to be bandied around.

For some, the decision represents just punishment. For others, the steep penalty proved the long-held impression some people have that Alabama is “tort hell,” with runaway juries eager to gouge corporations and anyone else with deep pockets.

Franklin said that in its appeals, his team will argue that the monetary penalty against ExxonMobil was so “constitutionally excessive” as to deprive the company of property without due process.

The record monetary sanction and its message were intended to sting, Cunningham said, to prevent future acts of fraud and bad faith on the part of ExxonMobil, or any other company doing business with the state.

In appeals, Franklin said, ExxonMobil will challenge whether “the fraud claim should have even been submitted to the jury.”

It could take the state a decade or longer to see any of the money. The interest on the latest judgment, Cunningham said, is running at $4 million a day.

A $5 billion verdict against Exxon stemming from the 1989 Valdez oil mishap in Alaska remains under appeal — 14 years after the spill.

For the time being, the $11.9 billion Alabama verdict remains nothing more than a dollar figure on a jury form.

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