A Montgomery, Ala., judge slashed a jury verdict against Exxon Mobil Corp. to.

$3.5 billion from $1 1.8 billion to bring it closer in line with U.S. Supreme Court

guidelines.

Despite the change, Circuit Judge Tracy McCooey said Exxon Mobil cheated the state out of royalties when it drilled natural-gas wells in state-owned waters along the Alabama coast. "This court is thoroughly convinced, as was the jury, that Exxon intentionally and deliberately took actions, from the moment the leases were signed, to commit fraud upon the state," the judge wrote.

Exxon Mobil spokesman Russ Roberts said the Irving, Texas, company will appeal. "The remaining award is still unjustified," he said.

Judge McCooey said Exxon Mobil "engaged in a "carefully planned scheme, conceived and approved at the highest echelons of its corporate offices."

Though disappointed at the reduction of the award, Jere Beasley, an attorney for the state, said the judge’s decision increases the likelihood of the plaintiffs recovering "close to 100%" of the judgment. Mr. Beasley called the judge’s order "scathing."

In November, a Montgomery County jury ruled Exxon Mobil had cheated the state out of natural-gas royalties. The jury concluded Exxon was liable to Alabama for $102.8 million in natural-gas royalties and then slapped $1 1.8 billion in punitive damages on top of the actual damages. The state had asked for $9.3 billion.

Though the verdict underscored the public’s distaste for what it perceives as bad corporate behavior, legal experts didn’t expect the $1 1.8 billion award to survive.

Last year, the Supreme Court ruled that punitive awards should be limited to no more than nine times as much as the actual damages established.

The case is now likely to head to the Alabama Supreme Court, which overturned a 2000 Montgomery jury’s $3.5 billion verdict award against Exxon Mobil in the same dispute because jurors shouldn’t have seen an internal company legal memo.

Write to Thaddeus Herrick at thaddeus.herrick@wsj.com



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