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NAILING EXXON FOR $3.5B WITH NINE KEY DOCUMENTS

Jan 15, 2001

The National Law Journal

From interview with John T. Crowder Jr.

CASE: Exxon Corp. v. Department of Conservation and Natural Resources, No. CV-99-2368 (Cir. Ct. Montgomery Co., Ala.)

OUTCOME: On Dec. 19, a Montgomery, Ala., state court jury awarded $3.5 billion to the state of Alabama, which alleged that Exxon Mobil Corp. had defrauded the state over royalty payments for natural gas wells in the Gulf of Mexico.

The jury ordered Exxon to pay $87.7 million in compensatory damages and $3.42 billion in punitive damages, finding that the company had deliberately underpaid royalties over six years. Under the lease terms, the state agreed that Exxon would receive 75% of the proceeds from the sale of the gas. The jury found that Exxon had deducted certain costs from the lease payments, allegedly knowing that this was improper under the lease. Exxon plans to appeal if post-verdict challenges fail. Mr. Crowder handled the case with fellow senior partners Robert T. Cunningham Jr. and Richard T. Dorman.

WHAT WAS THE KEY FACTOR IN WINNING? I think the key factor was nine internal Exxon documents that clearly showed that Exxon knew the state’s position was correct, but they did a business-risk analysis and came to the conclusion that if they got caught, all they would have to do is give the money back, plus interest and the cost of litigation. The president of Exxon made the decision to go ahead and take all the deductions. One of the documents described people in Alabama as being inexperienced. I would like to have been a fly on the wall when the president of Exxon and other executives were discussing the fact that Alabama was inexperienced and will probably never figure out how much we have cheated them. I’m sure they were describing us as a bunch of Bubbas.

WHAT WAS THE MOST DIFFICULT HURDLE? Probably trying to get in the testimony of the three law professors who said this was the strongest most favorable royalty lease they had ever seen in favor of the lessor, the state. They testified with respect to the trade terms and customs and practices in the industry.

It was extremely difficult to craft their testimony in such a way that it would clearly be admissible since they could not offer legal opinions. That was difficult because they are law professors and they want to talk about the law.

WHAT IS THE WORST MOMENT OF YOUR CAREER? When I lost a rearender in the early part of my 28-year career. Anytime you lose, it’s difficult. I really think the guy was hurt, but the jury thought that the injury was not related to the accident or that he was not hurt as badly as he claimed.

WHAT IS THE HIGH POINT OF YOUR CAREER? This Exxon verdict is... Just to see someone who makes a conscious decision to try to cheat somebody and to bring them to justice is incredibly fulfilling... We had $3.5 million of our partners’ money tied up. We hope to get some of this back. We agreed to a 14% contingency fee. Financing a case such as this is a huge gamble.

WHAT TIP DO YOU HAVE GENERALLY FOR DEALING WITH A JURY? Jurors can really pick up when you try to pull something over on them about a weakness in your case. Just point it out to them. Don’t try to make things something that they are not. Look people in the eye and put your hand on the jury rail, and convince them you are honest.

WHAT’S NEXT? Four more oil companies who had the same lease.

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