Justices uphold award against Exxon

Jury said oil company must pay gas station owners up to $1.3 billion

June 24, 2005|By BLOOMBERG NEWS

WASHINGTON - Exxon Mobil Corp., the world's largest publicly traded oil company, will have to pay as much as $1.3 billion in damages after losing a U.S. Supreme Court fight with gas station owners who didn't receive promised fuel discounts.

The court rejected Exxon's bid for a new trial, ruling yesterday that the claims of 11,000 station owners were properly included in a single class action lawsuit in Miami. The 5-4 ruling will have limited application beyond the Exxon dispute, because a federal law enacted in February will govern future class actions.

The award will be the largest Exxon has ever paid as a result of a jury verdict. Exxon took an after-tax charge of $550 million last year to cover part of the damages in the case.

The market factored in a decision against the company since Exxon took the charge, said Gene Pisasale, who helps manage $33 billion in investments at Wilmington Trust Corp. in Wilmington, Del., including 8.6 million Exxon shares. "Investors had been expecting this," Pisasale said.

Exxon shares fell 65 cents to close at $59.02 yesterday on the New York Stock Exchange.

Exxon is disappointed by the ruling, a company spokeswoman said.

"We continue to believe that Exxon Mobil operated its discount-for-cash program in good faith and met its obligations in the best interest of our dealers and customers," said Prem Nair. "This case has never been clear-cut."

Exxon argued that the case shouldn't have included station owners who were seeking less than $50,000, which at the time was the threshold for certain types of stand-alone federal lawsuits.

Justice Anthony M. Kennedy, writing for the court, said the trial judge properly exercised "supplemental jurisdiction" over those claims because they were attached to larger claims.

Chief Justice William H. Rehnquist and Justices Antonin Scalia, David H. Souter and Clarence Thomas joined Kennedy in the majority. Justices John Paul Stevens, Stephen G. Breyer, Ruth Bader Ginsburg and Sandra Day O'Connor dissented.

The dispute focused on Exxon's August 1982 "discount-for-cash" program, which promised station owners a price reduction to offset a new fee on credit-card sales. The station owners said Exxon eliminated the price cut about seven months later, while telling dealer representatives for years that it was still providing the discount.

Lawyers filed the suit in 1991 on behalf of 10,000 station owners in 34 states and the District of Columbia. The jury in 2001 awarded them an average 1.3 cents per gallon for the 40 billion gallons of gasoline sold. With interest, that totals about $1.3 billion, according to both Exxon and the lead lawyer for the stations, Eugene Stearns.

"We are obviously pleased with the decision announced today by the Supreme Court," said Stearns, a lawyer with Stearns Weaver Miller in Miami. "The manner in which Exxon dealt with its dealers was simply outrageous."

In June 2003, the Atlanta-based 11th U.S. Circuit Court of Appeals upheld the jury verdict and the judge's certification of the suit as a class action.

Claims for less than $50,000 represent 7 percent to 10 percent of the $1.3 billion, Stearns said. Exxon's Supreme Court argument went beyond that segment, however, as the company argued that the inclusion of the smaller claims tainted the entire proceeding and necessitated a new trial.

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