Exxon relieved of $3 billion obligation

By John O'Brien | Nov 2, 2007



MONTGOMERY, Ala. - Exxon does not owe the State of Alabama punitive damages in a dispute over royalties, the state's Supreme Court ruled Thursday in shrinking a 2003 jury award by almost $3 billion.

Exxon will pay compensatory damages of $51.9 million. Punitive damages had made up the rest of the $3.5 billion award chopped down by the 8-1 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," says the opinion, authored by Justice Tom Parker.

Only Chief Justice Sue Bell Cobb did not agree with Exxon's argument, which stated it did not defraud the state out of royalties owed on its offshore natural gas facilities.

"Not only does the majority opinion approve of the appropriation of this State's resources by deceit, it undermines any individual or institution that would pursue honest business practices," Cobb wrote. "This is neither legal nor just."

Exxon called the situation a contract dispute.

"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 a statement.

Attorneys who represented the State argued Exxon's 2006 net income should be considered when judging the case. The company, the largest publicly traded company in the world, reported a record $39.5 billion.

The state was awarded $11.8 billion in punitive damages in 2003, though the amount was reduced by Circuit Judge Tracy McCooey. It was still the largest jury award in the country that year, according to a report by The Associated Press.

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