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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.

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