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ROYALTY CASE ZEROES IN ON POSSIBLE GAINS

Apr 19, 2001

By JEFF AMY

Capital Bureau

MONTGOMERY - Lawyers for ExxonMobil Corp. and the state argued for another whole day Wednesday about whether $3.42 billion in punitive damages assessed by a jury in December is an appropriate punishment for underpaying royalties from state waters in Mobile Bay and the Gulf of Mexico.

If Tuesday was about whether Exxon meant to cheat the state on natural gas royalties, then Wednesday was about how much the company would have made from its conduct.

ExxonMobil's small flotilla of lawyers told Montgomery County Circuit Judge Tracy McCooey that $3.42 billion was far larger than any amount ever approved by the Alabama Supreme Court, and thus should be reduced.

The company also tried to prove gross overstatement in the state's claim that ExxonMobil would have reaped a billion dollars extra profit over the life of the wells if the company hadn't been stopped. That claim was key in persuading the jury that $3.42 billion, the largest verdict ever awarded in the state, was the correct punishment.

The state's trio of lawyers said the world's largest company was improperly continuing to raise points that should have been made at trial. They also said ExxonMobil is so rich that even a multibillion-dollar verdict would create no more than a brief hiccup in company finances.

The hearing was held to assess whether the punitive damage award was too much. Lawyers now will have a week to file post-hearing briefs and proposed orders with McCooey. The judge will rule in three weeks, but everyone involved, including her, expects an appeal to the Alabama Supreme Court.

Montgomery lawyer Joe Espy, the lead attorney for ExxonMobil, said the company will fall back on testimony from an economist Tuesday that indicated the 12 percent interest rate in state law for delinquent royalties is enough of a penalty, and that no punitive damages at all are due. The 12 percent interest was included in the $87.7 million in actual damages awarded by the jury.

"You can anticipate our bottom-line position is no punitive damages should be warranted," Espy said.

Mobile lawyer John Crowder, who represents the state, said he was "very comfortable" the verdict would stand. He pointed to a petroleum royalty case in which the U.S. Supreme Court upheld punitive damages 526 times the actual damages based on what the plaintiff would have lost over the life of the wells.

Robert Cunningham, another of the Mobile trio hired by Gov. Don Siegelman, said he felt the state showed that the amount wasn't too much, considering ExxonMobil's size.

"We think we've been able to demonstrate very effectively that the verdict will have a negligible impact on Exxon," Cunningham said.

ExxonMobil's last witness, Montgomery accountant Dave Borden, presented a series of charts intended to show how out of line the Exxon verdict was in comparison to other punitive damage awards in Alabama since 1993.

One chart showed that what the state won was nearly nine times more than all jury awards of punitive damages during that time that were appealed to the Supreme Court. Borden also said the Exxon award was more than 31 times the amount left of all other punitive awards after appeal courts reduced them.

But McCooey seemed skeptical of that argument, stating that the ExxonMobil case is a "unique animal" and that some of the comparisons were irrelevant.

"There hasn't been a case like this one, has there?" she said.

Borden said the total future harm was not in the billion-dollar range proposed by the state, but actually $88.8 million in current dollars. He said the number in actual future dollars is $295 million, but that future dollars are worth less in today's terms.

"A dollar today is worth more than that same dollar in the future because you can earn money on it," Borden testified.

Plaintiffs countered with testimony from Houston accountant Saul Solomon showing that the amount was small compared to ExxonMobil's wealth. His calculations showed that the company could pay for the verdict with just six days' revenues or 62 days' profits, based on recent financial statements. He also contended the verdict was equal to a $500 fine of a typical Alabama family earning $36,640 annually.

Solomon also stood by his math from the trial showing future revenues from the field totaling $1 billion or more, although ExxonMobil argued he had recklessly used outdated projections to reach that total.

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