Dcnr v. Exxon

• Decision Date: 12 December 2008
• Docket Number: 1070716.
• Parties: ALABAMA DEPARTMENT OF CONSERVATION AND NATURAL RESOURCES et al. v. EXXON MOBIL CORPORATION f/k/a Exxon Corporation.
• Court: Alabama Supreme Court

11 So.3d 194

ALABAMA DEPARTMENT OF CONSERVATION AND NATURAL RESOURCES et al. v. EXXON MOBIL CORPORATION f/k/a Exxon Corporation.

1070716.

Supreme Court of Alabama.

December 12, 2008.

Robert T. Cunningham, Jr., Richard T. Dorman, David G. Wirtes, Jr., and George M. Dent III of Cunningham Bounds LLC, Mobile; and Jere L. Beasley and J. Cole

Portis of Beasley, Allen, Crow, Methvin, Portis & Miles, P.C., Montgomery, for appellants.

Samuel H. Franklin and M. Christian King of Lightfoot, Franklin & White, L.L.C., Birmingham; and David R. Boyd and W. Joseph McCorkle, Jr., of Balch & Bingham, LLP, Montgomery, for appellee.

BOLIN, Justice.

This case has been before this Court on two prior occasions. See Exxon Corp. v. Dep't of Conservation & Natural Res., 859 So.2d 1096 (Ala.2002), and Exxon Mobil Corp. v. Alabama Dep't of Conservation & Natural Res., 986 So.2d 1093 (Ala.2007), for a detailed statement of the history and factual background of the case.

In 1981 and again in 1984 Exxon Mobil Corporation, formerly known as Exxon Corporation ("Exxon"), leased sites in the Mobile Bay natural-gas fields from the State of Alabama. In addition to paying $573.3 million in nonrefundable bonuses to the State for the leases, Exxon agreed to pay royalties to the State based on the production from the wells it drilled in the leased areas of Mobile Bay. Following audits of the leaseholds by the Alabama Department of Conservation and Natural Resources ("DCNR"), the State agency responsible for overseeing the leases, a disagreement arose between the State and Exxon regarding the manner in which Exxon was calculating the royalties payable to the State under the leases. In a letter to Exxon dated February 4, 1997, DCNR stated that Exxon had paid to the State $102,915,386 in royalties for the period beginning October 1, 1993, through December 31, 1995, and that, according to DCNR's calculations, Exxon owed the State an additional $50,495,418 in royalties. Exxon and DCNR continued to negotiate the correct interpretation of the royalty provisions of the leases, but no mutually agreeable settlement was reached.

On July 28, 1999, Exxon sued the State, seeking a judgment declaring the proper method of calculating royalties under the lease form pursuant to which Exxon leased the sites in Mobile Bay. The State asserted a counterclaim against Exxon, alleging breach of contract and fraud and claiming that Exxon had fraudulently underpaid royalties on the leases from October 1, 1993, the date production from the leased fields began. The State amended its counterclaim to assert a claim for punitive damages. Subsequently, the trial court realigned the parties naming the State as the plaintiff and Exxon as the defendant, and the case proceeded to trial.

On December 19, 2000, the jury returned a verdict for the State and awarded it $60,194,174 in additional royalties for the period between October 1, 1993, through December 1999, plus interest of $27,498,521, calculated at the statutory rate of 12%. On December 20, 2002, this Court reversed the judgment and remanded the case, holding that the trial court had impermissibly admitted into evidence a confidential letter written by Exxon's in-house counsel. See Exxon Corp., 859 So.2d at 1108.

Following a trial after that remand, the jury returned a verdict in favor of the State and awarded it $63,769,568 in additional royalties for the period from October 1993 through December 2002. The jury found that, of that amount, $23,449,186 was the result of Exxon's fraudulent suppression of information relating to royalty payments through February 1997. The jury also awarded the State $11.8 billion in punitive damages. Pursuant to § 9-17-33(d), Ala.Code 1975, the trial court, on November 19, 2003, added to the compensatory-damages award an additional $39,235,154, which represented statutory interest in the amount of 12%. The trial court entered a final judgment in favor of the State on that same date for the full verdict amount of $11,902,827,801.¹

On December 1, 2003, Exxon moved the trial court for a hearing to obtain guidance on how to compute future royalty payments, based on the jury's verdict. On December 5, 2003, the trial court entered an order denying Exxon's request for a hearing and directing Exxon to pay the royalties "according to the plain, unambiguous language of the leases as reflected in the jury's verdict." Exxon also moved the trial court for a postverdict judgment as a matter of law or, alternatively, for a new trial or a remittitur. Following a Hammond/Green Oil² hearing, the trial court entered an order reducing the punitive-damages award to $3.5 billion and denying the motion for a judgment as a matter of law or a new trial.

The jury's verdict for each of the claims asserted by the State was as follows:

1. Royalty due for unpaid volumes of gas: $15,570,921;

2. Royalty due for improper royalty rates: $12,075,343;

3. Royalty due on deductions taken: $28,112,819;

4. Royalty due on value of cogenerated electricity: $2,953,043;

5. Royalty due on sulfur production: $4,379,048; and

6. Royalty due on condensate: $678,394.

As mentioned above, of the $63,769,568 in additional royalties awarded the State by the jury, the jury, by completing a blank on the verdict form, attributed $23,449,186 to fraud.

On appeal, this Court reversed the $15,570,921 judgment awarding the State royalties due for unpaid volumes of gas in the amount of $6,804,492; reversed the judgment awarding the State $4,379,048 in royalties due on sulfur production; and reversed the judgment awarding the State $678,394 in royalties due on the condensate oil. Additionally, this Court concluded that the State had failed to establish its fraud claim as a matter of law, and it reversed the judgment in favor of the State on the fraud claim. This Court stated:

"In conclusion, we affirm the judgment entered on the $63,769,568 jury verdict for compensatory damages on the contractual issues only in the principal amount of $51,907,634. In all other respects, we reverse the judgment as to compensatory damages. We remand the cause for the trial court to enter a judgment in favor of the State and against Exxon on the breach-of-contract claims and to award compensatory damages, with interest, in an amount consistent with this opinion.

"No fraud was proven under Alabama law, and the verdict and punitive damages awarded on the fraud claim should have been precluded by the trial court's entry of a [judgment as a matter of law] for Exxon on this claim. Accordingly, we reverse the judgment in favor of the State on the fraud claim, and we instruct the trial court on remand to enter a judgment in favor of Exxon on the State's fraud claim."

Exxon Mobil Corp., 986 So.2d at 1118.

In order to facilitate this Court's mandate that a final judgment be entered in favor of the State on the contractual issues and that compensatory damages be awarded, with interest, the parties on remand agreed to the following:

1. That Exxon owed the State $31,907,638³ in unpaid royalties for the production months October 1993 through December 2002, which were encompassed in the trial court's judgment of November 19, 2003;

2. That Exxon owed the State $26,255,150 in interest pursuant to § 9-17-33(d), Ala.Code 1975, for the unpaid royalties due from October 1993 through the judgment date of November 19, 2003;

3. That Exxon owed the State $29,373,080⁴ in postjudgment interest pursuant to § 8-8-10, Ala.Code 1975, on the $31,907,638 of unpaid royalties and $26,255,150 of interest pursuant to § 9-17-33(d), from November 19, 2003, through January 31, 2008;⁵

4. That Exxon owed the State $26,266,395 in additional royalties for the production months January 2003 (the first month in which a royalty payment came due following this Court's December 2002 decision) through August 2007 (the last month for which a royalty payment came due before this Court's November 2007 decision) that were not encompassed in the trial court's judgment of November 19, 2003, but were subject to the trial court's declaratory judgment of December 5, 2003, which stated that Exxon was to pay future royalties "according to the plain and unambiguous language of the leases as reflected by the jury's verdict";

5. That Exxon owed the State $7,708,968 of interest pursuant to § 9-17-33(d), Ala.Code 1975, on the $26,266,395 of additional royalties from January 2003 through January 31, 2008 (the "date certain" on which Exxon paid the judgment).

However, two significant points of disagreement arose between the parties regarding the interest owed the State by Exxon. In addition to the $29,373,080 in postjudgment interest the State was entitled to for the period November 19, 2003, through January 31, 2008, the State claimed that Exxon owed, pursuant to § 9-17-33(d), an additional $16,113,836 in interest on the judgment amount of $31,907,638 —the $51,906,631 principal amount affirmed by this Court less a $20,000,000 payment—for that same period. The State argued that because the amount of $31,907,638 owed by Exxon was not paid until January 31, 2008, the State was entitled, pursuant to § 9-17-33(d), to interest on that amount from November 19, 2003, until January 31, 2008, the date it was paid. In other words, the State claims that interest pursuant to § 9-17-33(d) should run concurrently with the postjudgment interest pursuant to § 8-8-10 from November 19, 2003, through January 31, 2008.

Second, in addition to the $7,708,968 in interest on the additional royalty amount of $26,266,395 the State was entitled to pursuant to § 9-17-33(d) from January 2003 through January 31, 2008, the State claimed that Exxon owed, pursuant to § 8-8-10, an additional $6,898,725 in postjudgment interest on the additional royalty amount of $26,266,395 from December 5, 2003, until Exxon satisfied the judgment on January 31, 2008. The State argued that the trial court's declaratory judgment of December 5, 2003, which...