Associated Press

MONTGOMERY, Ala. (AP) -- A Montgomery judge will start hearing arguments Tuesday on whether to reduce the largest verdict in Alabama history -- a $3.5 billion judgment the state won against Exxon Mobil.

Circuit Judge Tracy McCooey has set aside two days for arguments that pits America's biggest revenue producing corporation against one of Alabama's most successful plaintiff law firms - Cunningham, Bounds, Yance, Crowder and Brown of Mobile.

The hearing will resemble economics lessons on whether the verdict is excessive and how much impact it will have on the oil company.

"We will be proving it will have no impact on Exxon because of Exxon's size," state attorney Robert Cunningham said Monday.

Exxon contends in court papers that the verdict creates "a specter of draconian punishment that will increase contracting costs and chill business in Alabama for years to come."

In December, a Montgomery County jury found that Exxon Mobil defrauded Alabama on royalties from natural gas wells the oil company drilled in state waters along the Alabama coast. The jury awarded the state $87.7 million in compensatory damages to make up for lost royalties and interest and $3.42 billion in punitive damages, which were supposed to be punishment for Exxon's conduct.

The $3.5 billion verdict is almost as big as Alabama's $4.3 billion budget for public schools and colleges this year. McCooey, a first-term judge, is getting accustomed to billion-dollar cases because she's also handling the litigation over cuts in this year's education budget.

Gov. Don Siegelman, whose administration pushed the litigation, is expecting a big win.

"I am confident that the court, after hearing all the arguments. will uphold the verdict- Once Exxon has exhausted its appeals, I intend to ensure that this money is used to meet the needs of the people of Alabama, particularly in areas such as education," Siegelman said Monday.

In the appeal, both sides plan to present economists to talk about the impact of the state's largest verdict.

Judith Glaubig, manager of public affairs for Exxon Mobil, said the company's attorneys will argue that the punitive damages are inappropriate in a case that began as a dispute over the royalties required by the oil company's contract with the state.

She said the ratio of punitive damages to compensatory damages is 40 to 1, while the Alabama Supreme Court has suggested 3 to 1 as an appropriate ratio where no physical injury is involved.

Cunningham's firm contends the court must compare the punitive damages with how much revenue the state would have been shorted over the life of the natural gas wells. Experts for the state's side estimate that would have been at least $2 billion.

Cunningham said he will also argue that the $3.5 billion will hardly be felt at Exxon Mobil.

The oil company recently moved to the top spot in the Fortune 500 list of the largest revenue producing American corporations with $210 billion in revenue in 2000.

As a point of comparison, Cunningham said that if a typical Montgomery family making $36,640 annually were fined $500 for violating the city noise ordinance, it would have the same percentage impact as the $3.5 billion verdict on Exxon Mobil,

No matter what McCooey decides, the case will go to the Alabama Supreme Court and then possibly the U.S. Supreme Court. Cunningham said the appeals could take two years.

Siegelman hired Cunningham's Mobile law firm to handle the litigation for the state. If the firm wins on appeal, it gets 14 percent of the judgment. If it loses, it gets nothing.

Alabama is not alone in having royalty disputes with Exxon Mobil. In January, the company, agreed to pay $7 million to settle claims that it failed to pay royalties for oil it pumped from federal and Indian tribe land in Texas from 1988 to 1998.

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