Alabama Jury Hands ExxonMobil $11.9 Billion Verdict Over Mobile Bay Royalty Fraud

For years, Alabama collected royalties on natural gas ExxonMobil pumped from state-owned leases beneath Mobile Bay. The lease terms required payments calculated on gross proceeds from the gas. ExxonMobil, however, deducted transportation costs before calculating what it owed the state, a practice Alabama officials argued the lease plainly did not permit.

The state sued in 1999, and a first trial in 2000 produced a $3.5 billion verdict that was reversed by the Alabama Supreme Court on procedural grounds. The case was retried before Judge Tracey McCooey in Montgomery Circuit Court. This time, the jury heard four years of evidence about how ExxonMobil had structured its royalty calculations and what it had communicated to state officials about those calculations.

On November 14, 2003, the jury found ExxonMobil liable for fraud and breach of contract. It awarded approximately $63.5 million in compensatory damages reflecting the royalty shortfall, then added $11.8 billion in punitive damages, bringing the total verdict to $11.9 billion. At the time it was among the largest jury awards in American history.

Jere Beasley and Cole Portis of Beasley, Allen, Crow, Methvin, Portis and Miles, P.C. in Montgomery served as counsel for the state. Their firm had handled the case through both trials.

ExxonMobil appealed. The Alabama Supreme Court, in a 2007 opinion, affirmed the breach-of-contract compensatory damages at approximately $51.9 million but reversed the fraud verdict entirely, finding insufficient evidence that Alabama had relied to its detriment on any misrepresentation by ExxonMobil. With the fraud count gone, the $11.8 billion in punitive damages also fell away. The final judgment was limited to compensatory damages on the contract claim.