State high court nullifies Exxon verdict

By Staff
Bob Martin, The Alabama Scene
Pakistani President Pervez Musharraf must read Shakespeare. "
The first thing we do," said the character Dick the Butcher in Shakespeare's Henry VI, is "kill all the lawyers." Musharraf may not be killing all his country's lawyers but he is jailing and beating them for attempting to counter his military takeover of the Pakistani government.
Contrary to popular belief, the proposal in Henry VI was intended to eliminate those who might stand in the way of a contemplated revolution, something favorable, not derogatory to lawyers.
High court nullifies second Exxon jury verdict:
However, after what the Alabama Supreme Court did to us recently in the fraud case against ExxonMobil, the prevailing thought of a great many Alabamians might be in agreement with the less-than-favorable interpretation of Dick the Butcher's remark, at least for some members of the bench and bar.
The Alabama high court, by tossing nearly 99 percent of a $3.6 billion verdict against ExxonMobil, the world's largest publicly traded oil company, has refused to play Santa to state taxpayers, but certainly handed the oil giant an early Christmas gift.
The court's eight Republican justices rejected the state's claim that ExxonMobil committed fraud against Alabama after two separate juries found it cheated state taxpayers out of millions in royalty payments.
The lone member of the court to dissent was Democratic Chief Justice Sue Bell Cobb, who wrote: "Not only does the majority approve of the appropriation of our state's resources by deceit, it undermines any individual or institution that would pursue honest business practices."
A Montgomery jury in 2003 returned a verdict of $102.8 million in actual damages and fined the company $11.8 billion in punitive damages, an amount later reduced by the trial judge to $3.5 billion. In its decision last week the court allowed only $51.9 million in actual damages to stand.
After statutory penalties and interest, the state could receive slightly more than $100 million.
The court had also nullified an earlier jury verdict against ExxonMobil of $3.5 billion in 1999, sending it back for a new trial on a technicality in 2002. ExxonMobil's third quarter profit for 2007 totaled $9.41 billion.
The Alabama lawsuit revolved around a series of natural-gas wells that Exxon drilled in state-owned waters. After signing several leases in the late 1970's, obligating the company to share revenues with the state, the company decided it didn't like the terms of the agreements. The company wanted to deduct several different types of processing costs, including trips to casinos, before paying the state any royalties.
However, the lease clearly barred these and other deductions. In a 1993 memo, in-house attorney C. Charles Broome analyzed whether the company had any grounds to take the deductions. He noted that Royal Dutch/Shell (RD ), which had signed a similar lease, interpreted it "in the same manner as the State." He then laid out two arguments the company might use to claim the deductions. The odds of the first approach succeeding?… "Less than 50 percent," wrote Broome. As for the second argument, he said, "I believe it has little chance of being upheld."
It would have seemed after this analysis Exxon would have just abided by the contract. However, Exxon decided to bet the state wouldn't discover the fraud. "If we adopt anything beyond a safe' approach, we should anticipate a quick audit and subsequent litigation," he wrote. "Our exposure is 12 percent interest on underpayments calculated from the due date, and the costs of litigation.
But Mr. Broome didn't count on the state having someone like Jim Martin as head of the Department of Conservation and Natural Resources. Martin began an audit of the company's books that led to the state's lawsuit. Martin still believes Exxon cheated the state and says he does not agree with the Alabama Supreme Court's characterization of the case as a breach of contract dispute. Martin, elected to Congress in the Alabama Goldwater sweep of 1964, told me he will "believe to the grave that executives at Exxon thought they could take advantage of us because we were new to the natural gas business."
The foreman of the ExxonMobil jury, Joey King, a Montgomery schoolteacher, told the AP this week that he was shocked at the decision of the court. He said Exxon documents at the trial showed that they treated Alabama officials like "we were too dumb to catch them." He said that from the moment the jury began deliberations the entire jury was ready to vote against Exxon and that the only thing up for consideration was the amount.
One of the company's Alabama lawyers, David Boyd, said that the verdict "affirms what we have said along that this was never a fraud case." Jere Beasley, one of the state's attorneys called the verdict "a sad day for Alabama."
My quick calculation shows that had the trial court's verdict, which totaled about a third of the state's annual budgets, been upheld the per capita gain for the state would have been about $783. With the reduction by the court, that amount was reduced to $11.