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Alabama Asks Court to Uphold $3.5B Judgment Against ExxonMobil

Charging ExxonMobil Corp. with a "secret scheme to cheat the state out of its bargained-for royalties," Alabama's state attorneys have asked the Alabama Supreme Court to uphold a $3.5 billion punitive judgment against the oil major, considerably above and beyond the amount of royalties in dispute of between $55-102 million.

Alabama filed its request late last month, in response to ExxonMobil's request in May for the high court to throw out the largest verdict in state history (see Daily GPI, May 16). The case involves a punitive damage award set by a Montgomery, AL circuit court judge after a jury ruled that ExxonMobil had cheated the state out of royalties from natural gas wells drilled in state-owned waters along the Alabama coast (see NGI, May 3, 2004).

Alabama filed the original lawsuit in 1999 against predecessor company Exxon Corp., alleging under-payment of royalties due from gas wells drilled in state waters around Mobile Bay. Exxon has argued that the estimated royalties in dispute are only $55 million, but Alabama has put the figure closer to $102 million, including interest. In the original case, the Alabama Supreme Court reversed the $3.5 billion punitive judgment and sent it back for a retrial (see NGI, Dec. 23, 2002).

In papers filed in late June, the state's attorneys argued, "It is true that the punitive damages award is virtually unprecedented, but so is the scale of the wrong to be punished and the size of the wrongdoer."

The Retirement Systems of Alabama, the Alabama State Employees Association and the Alabama Securities Commission all filed briefs in support of the state's arguments. The briefs stated that if Alabama's high court sides with ExxonMobil, it will be more difficult "to police fraudulent conduct in a wide variety of circumstances."

Alabama's lawyers argued in court papers that "The story of Exxon's secret scheme to cheat the state out of its bargained-for royalties is written in the record of this case largely in Exxon's own hand, in a series of internal documents" that showed Exxon knew its obligations to the state.

The state has brought similar lawsuits against five oil companies that were producing natural gas from state leases in Mobile Bay, but settlements in those cases were considerably under the Exxon award. In late March 2002, Shell Oil reached a settlement to pay the state of Alabama $27 million plus another $6.4 million in legal fees to settle accusations of underpaid royalties (see NGI, March 25, 2002). Shell denied any wrongdoing.

The state was also awarded $24.6 million by a jury in December 2001 in a dispute with Hunt Petroleum Corp. However, last year, the Alabama Supreme Court overturned the judgment.

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