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Out of the fire and back into the frying pan, attorneys for ExxonMobil Corp. have won the reversal of a $3.4 billion punitive damages award, gaining a second chance to convince an Alabama jury that their client did not cheat the state out of $87 million in oil-drilling lease royalties. During the second trial, Exxon may have a better shot in front of the jury, as it will not have to overcome negative inferences from a key piece of evidence presented at the first trial: an opinion letter written by one of the company’s in-house counsel, which was admitted into evidence over its lawyers’ strenuous objections. On Dec. 20, the Alabama Supreme Court threw out the two-year-old verdict that the petroleum giant, then known as Exxon Corp., had underpaid royalties due under leases it had entered into with the state between 1981 and 1984. Exxon Corp. v. State of Ala. Dept. of Conservation and Natural Resources, No. 1001053. The court concluded that Montgomery trial judge Tracy McCooey erred when she found that Exxon had waived the attorney-client privilege by widely disseminating the opinion letter both inside and outside the company — a finding that Exxon and the Alabama Supreme Court said was not supported by the record. Representing Exxon before Alabama’s top court were O’Melveny & Myers partners Charles Lifland, who briefed the case, and Walter Dellinger, a former solicitor general under President Clinton, who argued the appeal. Opposing Dellinger was a former clerk to Chief Justice William H. Rehnquist, Charles J. Cooper of Washington, D.C’s Cooper & Kirk. The leases permitted Exxon to drill in Mobile Bay, where oil had been discovered in 1979. The opinion letter, authored by C. Charles Broome, counsel to the corporation’s Southeastern production division, outlined several different interpretations of the royalties clause contained in the lease and assessed the likelihood of successfully defending each interpretation in court. In the upper-right corner of the document was a two-inch-square stamp bearing the name “R.J. Kartzke,” Exxon’s Mobile Bay project manager, and the date, April 5, 1993. Running down each side of the square were the initials of other Exxon Mobile Bay employees. OUT OF CONTEXT? Contending that the stamp showed only that Kartzke had received Broome’s letter on the stamped date, Exxon’s lawyers called it a “legal opinion letter” shared only with key Mobile Bay personnel, which was later wrenched out of context by Alabama’s lawyers. Attorneys for the state, however, countered that the initials bordering the stamp constituted a distribution list and proved that Broome’s letter had been widely circulated throughout the company, destroying confidentiality. “The Broome letter is the equivalent of a crystal clear video with sound of the assailant plunging a bloody knife into the victim’s chest,” Alabama’s lawyers told McCooey in a motion to compel production of the document. McCooey agreed and, at trial, the state used the letter to buttress its theory that Exxon had defrauded the state by knowingly and intentionally construing the lease in a way that they had already concluded may not be legally defensible. ON STAGE Oral argument of the appeal was held in an auditorium at Samford University’s Cumberland School of Law in Birmingham, Ala. The attorneys argued from podiums set up on stage. The eight-judge panel sat before them on a riser, Dellinger said. He estimated that the case drew an audience of 500 to 1,000 people. Propped up behind Dellinger for the duration of the argument was a large poster-sized version of the Broome letter. Lifland’s brief had explained how attorney-client privilege applies in the context of in-house counsel communications. Building on that brief, Dellinger told the court that if McCooey’s ruling was upheld, “it is not clear that any Alabama attorney could ever in the future compose a legal memorandum with the assurance that confidentiality would be respected in litigation.” Lifland said, “Obviously it would have great ramifications if in-house lawyers’ opinions on legal questions put to them by their clients were usable in litigation because there are so many things … and so many factors that go into assessing a position.” Because the case is not over, neither Dellinger nor Lifland would comment on how the absence of the letter might affect the state’s case in the retrial. Cooper downplayed the critical nature of the letter in proving the state’s case. He asserted that it was only representative of other cumulative evidence admitted during the trial. “We’ll have to live without it, and live without it we will,” he said. Because the state supreme court tackled the privilege argument first, it did not reach or rule on Exxon’s assertion that the punitive award was excessive. No new trial date has been set.

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