ExxonMobil Seeks to Reverse Largest Punitive Damages Award in State's History
Posted: 16 May 2005
Asserting the state improperly turned a contract dispute into a fraud action, Exxon Mobil Corporation asked the Alabama Supreme Court to overturn a $3.5 billion punitive damages award. The award resulted from a lawsuit regarding payment of Mobile Bay Project royalties to the state.
"The $3.5 billion punitive award is based on the State's unproven allegations of fraud," ExxonMobil General Counsel Charles Matthews said . "We are appealing to have it reversed."
In 2003, a jury found that ExxonMobil committed fraud in the calculation of royalties it paid the state on production from its Mobile Bay natural gas wells. The jury had to find that the company committed fraud in order to award punitive damages.
ExxonMobil maintains the evidence clearly shows there was no fraud. "This is a contract dispute that the State, for tactical reasons, chose to dress up as a fraud claim," the company wrote in its appeal. "The jury and the trial court rewarded those tactics with a giant punitive damages award. But there was no evidence of fraud, and no basis for any punitive damages. The State could not prove and the evidence they submitted does not prove fraud. That's because there was no fraud."
The brief states: "Like the State's lawsuits against other Mobile Bay producers, this case is a contract dispute masquerading as a fraud action." ExxonMobil points out that the underlying lease interpretation issues remain unresolved. "This Court's resolution of these issues will also determine how to compute royalties under the leases going forward."
The size of the punitive damage award is clearly unconstitutional, grossly excessive and arbitrary. The punitive damages award is 149 times the compensatory award, and, in its brief, ExxonMobil noted that in 2003, the U.S. Supreme Court reversed a $145 million punitive damages verdict against State Farm Mutual Automobile Insurance Co., in which there were $1 million in compensatory damages. The court's ruling was intended to prevent large punitive damages awarded by juries that bear little resemblance to actual damages.
Punitive damages, when they are appropriate, must be both reasonable and proportionate to the amount of harm to the plaintiffs and to the general damages recovered, Justice Anthony M. Kennedy wrote for the court. "We have no doubt that there is a presumption against an award that has a 145-to-1 ratio."
Since production began at Mobile Bay, the company has paid more than $1 billion in royalty and lease payments directly to the state. ExxonMobil's total capital investment in Alabama currently exceeds $3 billion and the company employs more than 200 people and thousands of contractors, and more than 200 retirees live in the state.
Since 1995, ExxonMobil has contributed nearly $3.5 million to charitable, civic and educational organizations throughout Alabama . In 2003 and 2004, the U.S. Department of the Interior honored ExxonMobil for excellence in mineral royalty and production reporting and compliance.
Posted by Editor Pipeline Magazine
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