New Trial Set for Exxon Mobil Royalties Case with $3.5 Billion Verdict

posted on:
June 8, 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, with Republican Gov. Bob Riley bringing in prominent plaintiff lawyer Jere Beasley to represent him.

Exxon Mobil and attorneys for the state face off Oct. 20 before Montgomery Circuit Judge Tracy McCooey. The issue: whether Exxon Mobil short-changed 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 Mobile law partners Robert Cunningham, John Crowder and Richard Dorman, who handled the first trial.

Riley, however, has decided to have his own attorney in the case and has lined up 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. “The governor has significant confidence in Jere Beasley’s ability to try this case,” King said.

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

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

On the Exxon Mobile side, the prominent Montgomery attorney Joe Espy led the company’s defense in the original trial. For the appeal, Exxon Mobil added some of the state’s top attorneys, 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 Exxon Mobil will argue that the state’s lease with the oil company was “very ambiguous and unclear” and that the disagreement 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.

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

“With the exception of one document, the evidence will be the same, and we feel very strongly that the state is right in all of its claims,” Dorman said.

If the state should win again, the verdict won’t help with the state’s $675 million budget shortfall because an appeal could take a couple of years.

The state filed similar, but much smaller, lawsuits against four other oil companies with natural gas wells along the Alabama coast. Those cases have been settled for $79.4 million, with $14 million of that going for legal fees and expenses.

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