EXXON'S DEFENSE A LETDOWN
Jan 13, 2001
Mobile Register
1/13/01
EXXON’S DEFENSE A LETDOWN
I have been following with great interest the news stories, editorials
and letters to the editors of major Alabama newspapers following th $3.5
billion jury verdict against Exxon in Montgomery a few weeks ago.
Recently, state newspapers published a letter submitted by Kenneth P.
Cohen, a spokesperson for Exxon, defending Exxon’s indefensible
conduct by arguing that the lawsuit was merely a “contract dispute
where reasonable people differed over the interpretation of an ambiguous
lease agreement as to how to calculate royalties” payable to the
state of Alabama.
As I understand the evidence (based on published news stories), this lawsuit
was about a lot more than a simple dispute over the meaning of so-called
“ambiguous” lease provisions. Mr. Cohen didn’t mention
that a number of internal Exxon documents showed that Exxon deliberately
decided to underpay royalties due the state even though they knew the
State’s position on what the language of the lease agreement meant.
Alabama juries don’t award $3.4 billion in punitive damages for
legitimate differences in opinion over what the language in a contract
means. But they will do so, as they did in this case, when the evidence
shows that one of the parties to a contract (Exxon) has deliberately set
out on a course of action to minimize its monetary obligation to the other
party (state of Alabama), in spite of knowing fully the basis upon which
that other party is expecting to be paid.
Mr. Cohen then adds insult to injury by asserting that Exxon’s reference
to the state’s “inexperienced regulatory staff and personnel”
should be read in the “context of ... the department’s ambiguous
lease form.” That defense strains the limits of credulity. Any person
not working for Exxon can quickly grasp that this statement underscored
Exxon’s belief that it could get away with its intentional misinterpretation
of its leases with the State. The Montgomery jury clearly had no trouble
understanding the implications of that reference.
Mr. Cohen also attempts to defend Exxon’s failure to report under
oath on a monthly basis its gross production (volume of natural gas) and
gross proceeds (money received) to the Department of Conservation.
The point was, and is, that Exxon’s leases with the state required
the information be provided to the Conservation Department, the only state
agency responsible for seeing that Exxon was paying royalties due the
state in accordance with its leases, Exxon has yet to file the first such
statement, under oath, with the Department of Conservation.
Finally, Mr. Cohen pleads for sympathy by implying that all this misunderstanding
rests on the shoulders of the “department employee who wrote the
lease ... by cutting and pasting together provisions of other lease forms,”
having “never before written an oil and gas lease,” which
“took him a year to write ... and that he has not written one since.”
As a former commissioner of the Department of Conservation, I have had
the pleasure of working with that “department employee.” The
evidence showed that the employee was the department’s chief legal
counsel when he drafted the agreement. Mr. Cohen obviously does not understand
or appreciate the significance of that fact. Anyone serving as the chief
legal counsel of a major state agency has 1,001 task to perform.
Drafting the new standard oil and gas lease form was just one of his duties.
The inescapable facts are: that employee drafted a lease that was designed
to maximize the value of the state’s royalty interest; Exxon fully
understood that lease when signing it 22 times; and Exxon intentionally
“misinterpreted” its leases with the state, minimizing its
royalty obligation, and “hid the facts” by not filing the
required reports to the Conservation Department.
Unfortunately, in this particular instance, it appears that the defenders
had more than a mere mistake to justify, and that 12 Alabama citizens
were convinced that Exxon’s conduct would have deprived the state
of as much as $1 billion had the audits I initiated in 1995 not caught
the company.
- Jim Martin