Oil giant hit with $11.9 billion verdict

posted on:
November 15, 2003

author:
Staff

category:
Fraud

MONTGOMERY, Ala. – Alabama’s financially strapped government won an $11.9 billion verdict against Exxon Mobil Corp. on Friday in a suit that accused the oil giant of cheating the state out of natural gas royalties.

The circuit court verdict included $11.8 billion in punitive damages, a record for Alabama and more than the state’s attorney had sought. The jury had to find Exxon Mobil committed fraud to return the multibillion-dollar verdict.

“We felt Exxon thought they were going to get away with this,” said jury foreman Joe Kin, a teacher. “We wanted to send a message that they were not, and that this corporation can’t get away with doing wrong.”

Exxon Mobil spokesman Bob Davis said the verdict was excessive and the company would appeal. “We did not engage in fraud, pure and simple,” he said.

If the damages are upheld on appeal, the money would go into state coffers, which have been struggling in recent years. Gov. Bob Riley said it will be years before the appeals are completed, and any money the state realizes won’t have any impact on the state’s current layoffs and 18 percent budget cuts for many agencies.

Company attorneys are optimistic their appeal will be successful because the punitive damages are more than 180 times greater than the compensatory damages.

“The punitive award in this case defies common sense,” company attorney Sam Franklin said.

The governor predicted the verdict won’t affect the state’s efforts to recruit more big name companies such as Mercedes, Honda and Hyundai.

“This is unique to one specific case with one specific company. I don’t think it should have any spillover,” Riley said.

The state sued Irving, Texas-based Exxon Mobil in 1999, contending the company had violated its leases for natural gas wells in state-owned waters along the Alabama coast. The state accused the company of cheating Alabama out of millions of dollars by intentionally deducting too much in expenses for operating the wells, including $6,000 for a “family picnic” at a Mississippi casino.

Exxon Mobil’s attorneys argued the company owed the state nothing because it had followed its leases and reported all production to the state.

The trial was conducted while the state has been canceling textbook purchases, cutting social services, and sending layoff notices about 800 workers. Some of the court workers who dealt with the jury are due to lose their jobs Nov. 26, but the judge prohibited everyone involved in the case from mentioning the state’s financial troubles or Exxon Mobil’s financial condition.

Despite no mention of it, juror L.A. Wallace and Exxon’s size and the state’s problems were a factor in the decision to award more than the state’s attorneys had sought against Exxon Mobil.

“A billion dollars to them is chump change,” said Wallace, who works at a plastics factory.

While the Exxon Mobil verdict set a record for Alabama, it pales next to the $145 billion verdict against tobacco companies in Florida.

But it is larger than the $5 billion verdict against Exxon for the Valdez oil spill in Alaska in 1989, a case that is still on appeal.

The Alabama case was first tried in 2000, when a Montgomery jury awarded the state $3.5 billion – setting the record until Friday. The decision was overturned by the Alabama Supreme Court, which said the jury was wrongly allowed to see one of the oil company’s internal legal memos. That prompted the new trial, which began Oct. 20.

After four weeks of testimony, the jury deliberated for two days before returning the verdict of $11.8 billion in punitive damages and $63.6 million in compensatory damages. With interest added by the court, the compensatory damages will grow to $102 million, attorneys said.

“The jury brought the largest corporation in the world to it knees for the second time. They felt we didn’t ask for enough,” Robert Cunningham, an attorney for the state, said after the verdict.

In closing arguments Wednesday, Cunningham said the state government had been shorted $63.6 million in royalties and that the loss could have climbed to as much as $930 million over the 30-year life of the natural gas field in Mobile Bay. He asked the jury to return a verdict of up to 10 times the potential loss, or $9.3 billion.

The state hired two of Alabama’s top plaintiff law firms, Beasley Allen and Cunningham Bounds, to handle the case on a contingency fee: nothing if they lost and 14 percent of the judgment if they won.

Cunningham said they prepared by holing up in a Montgomery hotel for weeks and holding five mock trial with citizens.

Skip Tucker, director of Alabama Voters Against Lawsuit Abuse, said Alabama was once known as “tort hell” because of its big jury verdicts, and the Exxon Mobil judgment will revive that image.

“I know Alabama needs money, but we don’t need to get it by going down this road of injustice,” Tucker said.

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