EXXON, STATE TO SQUARE OFF OVER VERDICT
Apr 17, 2001
By JEFF AMY
Capital Bureau
MONTGOMERY - ExxonMobil Corp. will return to court today to ask a judge
to radically prune the record judgment against it for underpaying natural
gas royalties.
But the state, represented by a trio of lawyers from a well-known Mobile
firm, will try to frustrate ExxonMobil's game plan. They also will
contend that the verdict doesn't really mean much to the world's
largest oil company, which had revenues of $233 billion and profits of
$16 billion in 2000.
A jury in December ordered ExxonMobil to pay $3.5 billion to the state
as a result of skimming a portion of gas royalties from wells in state
waters off Mobile for six years. Of that, $3.42 billion was punitive damages,
assessed mainly on the theory that the state would have lost about $1
billion if the company had continued to pay at a reduced rate for the
life of the wells. Under current law, punitive damages are limited to
three times the actual damages.
ExxonMobil, which was still just Exxon when the suit was filed, will tell
Montgomery County Circuit Judge Tracy McCooey that there should be no
punitive damages, or they should be cut to a much smaller amount, company
spokeswoman Judith Glaubig said Monday.
McCooey has already told the parties that she will deny Exxon's request
for a new trial, and thus today's hearings will focus on whether the
damages were appropriate. Each side could call a number of witnesses,
and the hearing could last into Wednesday. Appeals to the state Supreme
Court are expected, said Bob Cunningham, one of the lawyers representing
the state.
Though appeals could continue for years, the stakes are high.
For the state, $3 billion would be a tremendous windfall. It's also
a big case for Exxon, which was stung by negative publicity in December
and sent two public relations people to Montgomery, including Glaubig,
to talk to reporters Monday. Glaubig acknowledges that Exxon and the state
have a legitimate dispute over how much money the company owes. The state,
using a lease crafted in 1980, tried to maximize its proceeds from gas
wells in Mobile Bay and in parts of the Gulf of Mexico.
Bob Macrory, now an assistant attorney general with the Conservation Department,
used examples from other states and legal books in writing the lease.
He tried to bar companies from writing off expenses such as gas burned
to power processing equipment, and also wrote in a clause forcing them
to pay royalties on the best possible price for the gas. Leases let companies
write off more expenses in most other states.
"The state admittedly tried to craft a form that was very favorable
to them," Glaubig said. But the company continues to contend that
the form was unclear and possibly has internal contradictions.
That's what the fight is all about, Glaubig said, not about Exxon
intentionally trying to defraud the state, as the state's lawyers
argued during the trial. And unless Exxon tried to hide information from
the state and the state relied on those false representations, it's
not fraud. Glaubig said neither of those conditions were met, because
Exxon and the state were engaged in discussions from the start of production in 1993.
"Breaching a contract does not justify, under state law, the imposition
of punitive damages," she said "This was an open dispute."
Cunningham disputes that reasoning. He contended at trial that Exxon intentionally
decided to write off expenses even though company officials knew they
weren't supposed to, thinking they could get away with it.
Cunningham is one of three lawyers for the firm of Cunningham, Bounds,
Yance, Crowder and Brown who were picked by Gov. Don Siegelman to handle
the case for the state. The lawyers agreed to take 14 percent of the total
verdict if they won, and nothing if they lost. If the verdict is not reduced,
the trio will see a payday of $490 million. Exxon has attacked their presence
as inappropriate, saying the lawyers' push for a big payday has distorted the case.
Cunningham said Monday that he expects Exxon's attorneys to try to
re-argue parts of the case that the jury already decided, and that he
will try to limit such testimony. Cunningham said he was upset that Ansel
Condray, a former president of Exxon USA, will appear at the hearing after
not coming to the trial. Condray made the ultimate decision to pay royalties
at a reduced rate.
Exxon also will argue that it's unfair for the state to be able to
collect punitive damages when it can't be forced to pay them under
law. And if punitive damages are merited, Glaubig said Exxon will argue
they should be limited to three times the actual damages so far, not the
total projected damages over the life of the wells.
Cunningham said the state will focus on how little the verdict will impact
Exxon, arguing that it represents only 1.3 percent of the company's
2000 revenue or 5 percent of its net worth.
"It is our position that this verdict impacts Exxon like a flea biting
an elephant," Cunningham said.