THE HUMAN SIDE OF THE LAW
Mar 21, 2001
STREET TALK
by Jo Ann Flirt
THE HUMAN SIDE OF THE LAW: Too often it is a symbol of lady justice and
her scales or a background of neatly arranged law books which comes to
mind when we think of civil litigation. Or worse, the rare stories of
large verdicts rendered in cases about which we have little information.
But behind every “big” lawsuit is at least one or more human
stories. Take, for example, the $3.5 billion judgement in favor of the
State of Alabama and against Exxon a few weeks ago. That story is about
much more than the flow of natural gas and incorrect paperwork.
In the ‘70s new gas discoveries were made in State controlled waters
in the Gulf of Mexico offshore from Baldwin and Mobile counties. The State,
through its Alabama Conservation and Natural Resources Department took
bids on gas rights. Exxon won the bid for a large share of those mineral rights.
Leasing gas was something new for Alabama. The task of drawing up the
leases fell to Bob Macrory, an attorney, and civil service employee, with
the ACNR, not too many years out of law school. Because Macrory and Alabama
were inexperienced at drawing those kinds of leases, he researched other
states and obtained the legal advice of the nation’s foremost authority,
a law professor at the University of Oklahoma Law School.
In fact, the royalty clause used by Alabama came basically from a suggested
lease form by the Oklahoma experts. Macrory chose from among the best
information available, a process that was to cause Exxon derisively to
accuse Alabama of “cutting and pasting.”
Overly simplified, the Alabama leases called on the gas companies to pay
royalties on the gross production of the wells in State waters rather
than on a net calculated by the company after allowing for various processing
and other charges. The difference over a period of years was huge.
As Macrory recalls, the draft lease forms were studied carefully by Exxon
attorney and other officials. “They never raised the first question,”
about the royalty clause, he recalls.
Exxon, and others, soon were removing huge amounts of gas from Alabama
waters for which they paid at the net, instead of the gross, royalty rate.
Alabama protested, the gas companies delayed, Alabama hired a special
auditing firm from Texas that reported that some $50 million was owed
the State.
Gas companies continued to refuse to pay arguing that it was just a contract
dispute and that if it were ever proven that they owed more it would be
a minor amount plus modest interest.
Years passed. There were negotiations but no agreements. Gov. Fob James
did not elect to sue. Then Gov. Don Siegelman took office and shortly
afterwards put the matter in the hands of Cunningham, Bounds, Yance, Crowder
and Brown of Mobile. They demanded some $87 million in unpaid royalty
charges and interest. Exxon balked. With Exxon expecting a suit in Mobile
against them, the company rushed into a Montgomery court one day ahead
of the suit being filed here. The complex trial was held there.
During the trial, the State of Alabama put into evidence numerous records
from Exxon files which apparently persuaded the jury to agree that Exxon
deliberately underpaid Alabama assuming that this state would not aggressively
defend its position and, possibly, that all they would owe would be interest.
Among the documents introduced was one in which Exxon expressed the opinion
that it would prevail in the dispute because Alabama had an inexperienced
regulatory staff and process. There was additional evidence to support
the State’s contention that Exxon deliberately underpaid Alabama
thinking they could get by with it.
An Alabama jury decided otherwise. It returned a verdict of $3.5 billion
that included compensatory and punitive damages.
David Bronner, the genius who directs the Retirement Systems of Alabama,
recently praised the Alabama team that won the award including his former
college classmate, John Crowder, who was the lead lawyer for the State.
Bronner’s description of Exxon was not so kind: “Clearly,
Exxon ignored what was legal, ethical and the right thing to do... this
case is not a simple contract dispute but regards a big corporate thief.”
he wrote in his March newsletter.
“This case is a warning to businessmen that they have nowhere to
hide when abusing the taxpayers and citizens of this great country,”
commented Bronner.
We would hope that the huge verdict is a warning that will be taken seriously.
But then Alabama juries have sent many warnings and so far the response
from business has been to try to cap damages and to require buyers of
goods and services to waive their right to go to court if they have a
complaint.
The current Alabama Supreme Court is pro business. It will be interesting
to see how it rules if this case is appealed instead of settled.
Meanwhile, Alabama can be proud to have civil servants like Macrory who
drew the lease, a governor like Siegelman who stood up to Exxon, a law
firm like Cunningham Bounds that has the brains and determination to take
on one of the biggest corporations in the oil industry, and jurors bright
enough and brave enough not to be misled or intimidated by corporate executives.