November, 2003 – After 4 weeks of trial, a Montgomery County jury awarded a record $11.8 billion punitive damages award against ExxonMobil Corp. The jury also awarded an additional $103 million in compensatory damages. The claims by the State of Alabama were based on breach of contract and fraud. Beginning in 1993, Exxon had cheated the State by intentionally and willfully underpaying royalties on natural gas from the Mobile Bay field. The future anticipated gain to Exxon, as a direct result of their fraudulent conduct, would have been almost One Billion Dollars.
The jurors heard evidence and saw documents that proved without a doubt that Exxon had committed a massive fraud on the State at the highest level of the company. In fact, it was undisputed that this was the only time that the President of Exxon had actually made a decision on how to pay royalties to any landowner, including states and the federal government. During the trial, we presented internal documents from Exxon that proved without a doubt that the company believed it could cheat the State and that their fraudulent actions would go undetected. In fact, one company document was presented to the President that revealed Exxon knew it had a zero chance of taking any deductions under the Alabama leases.
In addition, another document showed Exxon’s manager in Mobile knew that no cost-netting deductions could be taken under Alabama’s gross proceeds lease form. A series of internal documents confirmed that Exxon believed that because of Alabama’s inexperienced and weak regulatory staff, it would be relatively easy for Exxon to cheat the State. Interestingly, it was documented in one Exxon document that if caught, the company’s exposure would be repayment of the royalties plus 12% simple interest. Finally, it was shocking to all of us when Exxon answered an interrogatory shortly after the suit was filed, saying – under oath – that the company was not taking deductions. Obviously, this came back to haunt Exxon once a deposition of a company accountant was taken and he spilled the beans.
The case was handled by our firm and the firm of Cunningham, Bounds, Yance, Crowder, and Brown from Mobile. However, the real heroes in this case are Bob Macrory, the State lawyer who wrote what was described by law professor Laura Burney as the best landowner lease she had ever seen, and the 12 jurors who heard the evidence had made a courageous decision.