updated 3/29/2004 5:49:58 PM ET 2004-03-29T22:49:58

The record $11.9 billion verdict that Alabama won in a natural gas royalty dispute with Exxon Mobil Corp. was cut to $3.6 billion Monday by a state judge who said she was bringing it in line with U.S. Supreme Court guidelines.

But Montgomery County Circuit Judge Tracy McCooey said there was no question about Exxon Mobil’s intentions when it drilled natural gas wells in state-owned waters along the Alabama coast.

“This court is thoroughly convinced, as was the jury, that Exxon intentionally and deliberately took actions, from the moment the leases were signed, to commit fraud upon the state,” the judge wrote. “Exxon engaged in a carefully planned scheme, conceived and approved at the highest echelons of its corporate offices, to keep nearly $1 billion in easy money that it knew was due.”

Exxon Mobil spokesman Bob Davis said the oil company would appeal to the Alabama Supreme Court.

“The decision is unjustified and excessive,” he said.

State attorneys Robert Cunningham and Jere Beasley said they would have preferred to keep the $11.9 billion verdict, but the judge’s decision will help their case in the long run.

“It dramatically increases the likelihood it will survive Exxon’s efforts to have it reversed or reduced on appeal,” Cunningham said.

In November, a Montgomery County jury ruled that Exxon Mobil had cheated the state out of royalties from natural gas wells drilled in state-owned waters along the Alabama coast.

The jury returned a verdict of $102.8 million in compensatory damages and interest and $11.8 billion in punitive damages. The verdict, which was bigger than the state sought, was the largest returned by any American jury in 2003. The other verdicts in the top 100 last year totaled $7.6 billion.

In McCooey’s decision, she left the compensatory damages intact, but cut the punitive damages to $3.5 billion. At a total of $3.6 billion, the outcome is still larger than any other verdict of last year.

McCooey said the state’s anticipated loss from underpayments over the life of the natural gas wells was between $386 million to $930 million. She said reducing the punitive damages to $3.5 billion would create “a single-digit ratio between the punitive damages and the anticipated gain,” which is in keeping with U.S. Supreme Court guidelines.

The case now heads to the Alabama Supreme Court, which overturned an earlier verdict in the case. In 2000, a Montgomery jury returned a $3.5 billion verdict against Exxon Mobil in the same dispute, but the Supreme Court threw it out in 2002 because jurors saw an internal legal memo from Exxon Mobil.

The state also sued other oil companies that drilled natural gas wells in Alabama’s coastal waters.

The Alabama Supreme Court is currently considering Hunt Petroleum’s appeal of a $24.6 million verdict that a Mobile County jury returned against it.

Two other oil companies settled with the state in 2002 without going to trial. Shell paid $33.5 million and Amoco $29 million.

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