Montgomery- A 3.6 billion verdict won by the stat against Exxon Mobil goes before the Alabama Supreme Court on appeal Tuesday with the company arguing the judgment-bigger that the state’s General Fund budget-is unconstitutionally excessive.

The verdict, which could swell to $4.7 billion when interest and deferred payments are added, was the largest returned in America in 2003 and is a record in Alabama.

The state sued Exxon Mobil claiming it defrauded Alabama out of millions in offshore natural gas royalties. The judgment won by the state falls between its $6 billion education budget for this year and $1.6 billion General Fun budget for non-education programs.

Conservation Department attorney Bob Macrory said the verdict is so close in size to the state budgets that the Legislator has had discussions in recent years about what it would like to do with the money.

“Our state legislator looks with great interest at the possibility,” he said.

But Exxon Mobil attorney David Boyd of Montgomery called the verdict “astronomical” and contends the jury that heard the case was improperly influenced by news reports of the state’s budget woes at the time.

The interest in the case is so great that Gov. Bob Riley plans to attend the arguments before the Supreme Court Tuesday, his communications director, Jeff Emerson, said.

After the Supreme Court hears arguments Tuesday, it is under no deadline on when it must rule, but attorneys said it usually takes for to six months.

Business groups once labeled Alabama “tort hell” because of huge verdicts in the 1990s. But this case doesn’t fit the traditional pattern of an injured person winning a large verdict against a manufacturer.

It stems from a disagreement between the conservation department and Exxon Mobil over how much the company should pat the state in royalties from natural gas wells drilled in state-owned waters along the Alabama coast.

In 2003, a Montgomery jury agreed with the state’s arguments that Exxon Mobil intentionally underpaid the state and it returned a verdict of $102.8 million in compensatory damages and $11.8 billion in punitive damages.

Circuit Judge Tracy McCooey cut the punitive damages to $3.5 billion which dropped the total verdict to $3.6 billion. Even after the verdict was cut, it was still the largest in America for 2033, according to the annual rankings by the National Law Journal and Verdict Search.

The judgment has kept growing while on appeal. If the state wins, it would collect 12 percent annual interest on the judgment, which would add another $1 billion, and as much as $100 million in disputed royalties since the case went to trial, state attorneys said.

Key issues in the appeal are: Whether Exxon Mobil committed fraud, which is necessary to collect punitive damages, or whether this is a simple dispute over interpreting a contract, where punitive damages are not allowed.

Whether the punitive damage verdict is unconstitutionally large-even for a company that reported record net income of $39.5 billion last year.

Exxon Mobil points out in legal briefs that the jury was well aware of budget problems the state was having in 2003, and “they cannot have missed the elementary proposition that awarding 11.8 billion to the State would prevent reductions in services or increases in taxes.”

The state’s attorneys say the judgment is justified because the oil company set out to take advantage of a state new to the offshore drilling process.

“They intentionally-at the highest levels of the corporate structure-set out to cheat Alabama.” Attorney Jere Beasley of Montgomery said.

Exxon Mobil’s attorney’s attorneys argue that the Supreme Court should do the same thing is did in April 2004 , when it threw out a $24.6 million punitive damage verdict the state won in a similar- but much smaller- royalties dispute the Hunt Petroleum.

The Supreme Court ruled that the state government failed to prove that it relied to its detriment on monthly royalty reports from Hunt Petroleum.

Exxon Mobil also filed monthly royalty reports with the state and was subject to the same state audit provisions as Hunt, Boyd said.

“Very rarely do you have a case that is so close to the actual case you are talking about,” Boyd said.

State attorney Robert Cunningham of Mobile said there is a big difference between the two cases. “The evidence in Exxon is far stronger,” he said.

The state also sued two other companies with natural gas wells along the Alabama coast. Shell paid $39 million and Amoco $29 million to settle their cases without going to court, Macrory said. Hunt Petroleum paid $4.4 million in compensatory damages in its case.

All the oil companies except Exxon Mobil are now calculating royalties in what the state maintains is the proper method, he said.

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