Capital Bureau

MONTGOMERY - Lawyers for ExxonMobil Corp. spent Tuesday trying to convince a circuit judge that $3.42 billion in punitive damages was too much of a penalty for underpaying natural gas royalties to the state.

But it was clear everyone in the room was looking beyond Montgomery County Circuit Judge Tracy McCooey, instead setting the table for an eventual appearance before the Alabama Supreme Court.

"Probably what I do doesn't matter anyway," McCooey said near the beginning of the hearing, which continues today. "I don't know why we just don't go down the street and have a hearing before them."

ExxonMobil called witnesses who testified for McCooey that the company shouldn't be overly penalized because the matter was an honest dispute and they had no chance and no desire to hide from state regulators. Company witnesses also contended that they should be punished only on past conduct, and only the minimum to deter Exxon or others from future wrongdoing.

Most of those matters were covered during the 2-week trial last December, objected Robert Cunningham, a lawyer for the state. In that trial, a jury decided that the then-Exxon Corp. consciously defrauded the state, and assessed $80 million in actual damages, as well as $3.42 billion in punitive damages, the largest jury award ever in Alabama.

"It's a lame attempt to place before this court and the Supreme Court testimony they didn't produce at trial," Cunningham said.

Frequently repeating this central objection that the world's largest oil company was illegally attempting to retry the case on appeal, the state's lawyers dogged ExxonMobil's every step. They objected to all five witnesses called by ExxonMobil and almost every question asked of those witnesses by the company's lawyers. As a result the hearing ran past 8 p.m.

At one point, McCooey agreed with Cunningham, saying that the company was "back-dooring" new testimony in through the limited hearing to try to undermine the jury's conclusions.

ExxonMobil lawyer Joe Espy confirmed during a break that the company wanted in part to create a favorable record for appeals to draw on. No new evidence can be introduced once the case moves to appellate courts, and McCooey already has told lawyers that she will deny ExxonMobil's request for a new trial.

"As you know, there's no further hearing," Espy said. "This is the evidence."

Tuesday's hearing is a relatively new wrinkle in the judicial process imposed by the state Supreme Court, a post-trial session designed to assess whether punitive damages are excessive. Among the factors that McCooey is supposed to consider are the ratio of punitive damages to actual damages, whether ExxonMobil behaved in a particularly outrageous way, how much the company made in profits from its conduct, and how much money the company has. McCooey is due to rule on whether the level of damages is appropriate in about three weeks, an ExxonMobil spokeswoman said.

Cunningham, John Crowder and Richard Dorman, all lawyers with the leading Mobile plaintiffs' firm of Cunningham, Bounds, Crowder, Yance and Brown, were hired by Gov. Don Siegelman to represent the state. They will reap 14 percent of whatever the state wins, $490 million if the verdict is not reduced.

In what may have been the day's most notable testimony, ExxonMobil executive Austin Condray said he regretted not appearing at the trial to defend the reputation of himself and his longtime employer.

"Had I known that I was going to be charged in cheating the state, I would have asked to be here," Condray said.

Condray was the executive who decided in 1993 not to pay certain royalties to Alabama, and instead argue that the oil company could deduct them as costs for extracting and refining natural gas from Mobile Bay and close-to-shore parts of the Gulf of Mexico. Condray characterized that decision as "the normal and proper course" while Cunningham repeated his claim that it was an attempt to take advantage of inexperienced "Bubbas" employed by the state.

McCooey allowed ExxonMobil to call the witnesses it wanted, but once on the stand, she often limited the questions that the company's lawyers could ask, or was openly critical of the testimony from company witnesses. The witness to draw the sharpest rebuke was consulting economist Jonathan Walker of Washington, D.C.

Walker testified that to deter Exxon or other companies from cheating the state again, McCooey should examine how much profit the company would make from the behavior and how likely it was to get caught. He contended that Exxon was very likely to get caught, and thus the state didn't need to assess any penalty greater than the 12 percent interest legally required on underpayments. That amount, plus the $40 million in actual royalties in dispute, made up the original $80 million award for actual damages.

"In this case, I think the statutory interest is sufficient," Walker said.

McCooey said she thought the penalty ought to be based more on Exxon's financial position as the world's largest company.

"No offense Dr. Walker, but so far this sounds like a bunch of b.s," McCooey said.

ExxonMobil has one more witness that it could call this morning. The state could call up to three more witnesses it may call to rebut the company's testimony. McCooey said the hearing must finish by the end of today because she has a trial that begins Thursday.