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RECORD-SETTING LAWSUIT GETS NEW TRIAL AMID STATE MONEY WOES

Oct 12, 2003

Record-setting lawsuit gets new trial amid state money woes
By PHILLIP RAWLS
The Associated Press

MONTGOMERY, Ala. (AP) -- A lawsuit that resulted in the state government winning the largest verdict in Alabama history — $3.5 billion — is going back to court for a retrial as the state wrestles with the worst financial problems since the Depression.

The state's litigation against Exxon Mobil could have a huge impact on the state's future financial comfort, if won by the state or settled out of court. But the judge handling the litigation has cautioned attorneys in the case not to mention either the state's financial problems or the oil company's wealth.

"We've got to make sure we've got a jury that is fair and impartial," Judge Tracy McCooey told attorneys during a hearing last week. Jury selection for the retrial starts Wednesday and opening arguments are scheduled for Oct. 20.

The case stems from 16 natural gas wells that Exxon drilled along the Alabama coast before it teamed up with Mobil. Royalties from the wells go to the state because the wells are in Alabama waters. The state's attorneys contend Exxon Mobil intentionally cheated the state on royalties and that the fraud could have hit $1 billion over the life of the natural gas wells. Exxon Mobil's lawyers argue that it's just a simple disagreement over how to interpret the state's lease agreement with the oil company and that no fraud is involved.

In the first trial in December 2000, a jury decided Exxon Mobil intentionally shortchanged the state and returned a verdict against the oil company for $87.7 million in compensatory damages and $3.42 billion in punitive damages.

That was six times the state's previous record of $581 million in a Hale County lawsuit over satellite dish sales.

In December 2002, the Alabama Supreme Court threw out the verdict in a 6-3 decision. The justices said McCooey wrongly allowed the jury to see an internal Exxon legal memo that outlined the company's options on royalty demands from Alabama's conservation department.

State attorney Robert Cunningham told the judge last week that there are plenty of other documents the state can use at the retrial.

The new trial comes after Alabama voters rejected a $1.2 billion tax package that Gov. Bob Riley said would wipe out the worst financial problems since the Depression. In the wake of the Sept. 9 referendum, most state agencies suffered big budget cuts, including 10 percent for the court system, which includes McCooey's courtroom.

McCooey told attorneys last week that money is so tight that she hasn't been able to get a 2004 calendar to keep on her desk for scheduling cases. But she repeatedly cautioned the lawyers not to tell the jury about the budget cuts or the letter that got the original verdict overturned. "I am not trying this a third time," she said.

During the referendum on Riley's tax package, some opponents contended the state had secretly settled the Exxon Mobil case for an amount that would cure the state's problems, but was keeping the settlement secret until after the vote.

"That would be a great rumor if it was true," the judge said. If the jury rules in the state's favor, any compensatory damages would go into the state's natural gas trust fund to be invested, but any punitive damages could be spent however state officials decide. Any payments could be delayed for years by appeals.

If a settlement were reached, state officials could spend some of the money on the state's current needs, as was done during Gov. Don Siegelman's administration with settlements against two oil companies in much smaller royalty disputes.

Since the original Exxon Mobil trial, the legal teams for both sides have changed, and they now feature even more of the state's most prominent attorneys.

Exxon Mobil's side now includes Dave Boyd of Balch & Bingham's Montgomery office and Sam Franklin and Chris King of the Birmingham law firm of Lightfoot, Franklin and White.

The state kept its original legal team of Mobile law partners Robert Cunningham, Richard Dorman and John Crowder. But the governor decided to add former Lt. Gov. Jere Beasley and his Montgomery law firm. Beasley has previously worked on nursing home lawsuits with the governor's son, Birmingham attorney Rob Riley.

Attorneys expect the trial to take two to three weeks. One reason for the length is that experts in the oil industry will have to explain to an inland jury how natural gas wells operate in coastal waters and how royalties are calculated.

"This is a very technical case," McCooey said.

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