Exxon Mobil Corp., the world's largest publicly traded oil company, won a ruling throwing out a damages award of $3.5 billion against the company in a natural gas royalties dispute filed by the state of Alabama.
The state's Supreme Court confirmed a 2003 jury verdict requiring Exxon to pay compensatory damages of $51.9 million. The court threw out the $3.5 billion punitive damages because Alabama didn't prove Exxon defrauded the state of royalties owed on the company's natural gas production at its offshore Mobile Bay facilities, according to the ruling.
``The state bore the burden of proof on its fraud claim, and it did not present substantial evidence that Exxon made any misrepresentations, that the state reasonably relied on any of Exxon's alleged misrepresentations, or that the state suffered damage as a result of that reliance,'' according to the ruling.
The decision is Exxon's third success in the past year in reducing billions of dollars in jury verdicts. The company in February won a U.S. Supreme Court decision ordering a trial judge to reconsider a $112 million Louisiana land contamination verdict. In December, a federal appeals court cut the Exxon Valdez verdict again, and the company now owes about half of the original $5.29 billion award in the Alaska spill case.
The decision by the Alabama Supreme Court validates ``the company's assertion that the state had improperly turned a contract dispute into a fraud action,'' Exxon said today in a statement.
``It's a dangerous precedent for a state to be able to charge someone with fraud if you don't agree with its interpretation of a contract,'' Exxon General Counsel Charles Matthews said in the statement.
Robert Cunningham, a lawyer who argued the case on behalf of Alabama, and Alabama Attorney General Troy King, didn't return calls seeking comment after business hours.
Alabama won the $3.5 billion punitive-damages award based on its complaint filed against Exxon in 1999. The state's high court threw out the verdict, ruling that internal company documents shown to the jury were privileged and thus inadmissible.
The second trial, in 2003, ended with an $11.8 billion verdict, which the trial judge reduced due to rules governing the ratio of actual and compensatory damages to punitive damages.
Exxon said even the reduced amount was unconstitutional, according to court documents. The company appealed again in 2004 after posting a $4.5 billion appellate bond.
The dispute centers on how much Exxon is obligated to pay the state for natural gas drilling in Mobile Bay, on the Gulf Coast. Exxon continues to drill there.
The company argued in its appeal that the state raised and lost an identical claim against a smaller oil company, Hunt Petroleum Corp. The drilling contracts with the state and the companies were identical, Exxon said.
The state Supreme Court found that because Hunt supplied the state with monthly royalty reports with payment calculations, the state couldn't have been misled. Because Exxon followed the same business practice, the court should decide the same way, the company argued.
Exxon tried to make a case to the state's high court that, because Alabama would be the beneficiary of punitive damages, its residents might not be able to be impartial when deciding a verdict.
Exxon spokeswoman Margaret Ross referred questions to the company's statement. ( Bloomberg )