EXXON MOBIL v. ALABAMA

SMITH, Justice (concurring specially).

I concur with the main opinion; I also join part II of Justice See's special writing entitled "Fraud."

BOLIN, Justice (concurring specially).

I concur with the main opinion in all respects. I also join part II of Justice See's special writing entitled "Fraud," in which he discusses the State's failure to produce substantial evidence of any misrepresentations on Exxon's part and the fact that Hunt Petroleum Corp. v. State, 901 So.2d 1 (Ala. 2004), is controlling as to the State's failure to establish any reasonable reliance upon what it alleged were misrepresentations by Exxon.

SEE, Justice (concurring in part and concurring in the result).

A Montgomery County jury found that Exxon Mobil Corporation ("Exxon") had committed fraud and was in breach of certain gas leases it had entered into with the State. The jury awarded the State both compensatory and punitive damages. The main opinion holds that the trial court erred in denying Exxon's motion for a judgment as a matter of law on the fraud claim and reverses the award of punitive damages associated with that claim. The main opinion also holds that the trial court erred in denying Exxon's motions for a judgment as a matter of law on the breach-of-contract claims involving Exxon's failure to pay royalties on its manufacture of sulfur products and slop oil and on the allegedly "lost gas," but it affirms the judgment below on the other breach-of-contract claims. I concur only in the result as to the breach-of-contract claims related to certain of the lease provisions that I conclude are ambiguous, and I also write specially to address certain of the State's arguments regarding the fraud claim that are not addressed by the main opinion. Otherwise, I concur in the main opinion.

I. Beach-of-Contract Claims A. Unpaid Volumes — Fuel Gas

Exxon argues that it is entitled to a judgment as a matter of law on the State's "fuel-gas" claim because traditionally oil and gas leases allow the lessee free use of gas to develop and operate the leased area. Exxon therefore contends that it rightfully did not pay a royalty on gas used for the operation of its offshore production platforms located on the leased areas or for the operation of its onshore treatment facility. The State argues to the contrary that the leases do not allow the free use of gas except for two purposes — flaring and lift purposes.

The main opinion upholds the judgment in favor of the State on the fuel-gas claim, concluding that "[t]he lease language is clear on the matter of the fuel-gas claim." 986 So.2d at 1106. I agree with that holding, but I disagree that the terms of the leases on the matter of fuel gas are clear, that is, unambiguous, and with the consequent implication that Exxon's interpretation is not reasonable.

Paragraph 5(b) of the leases provides:

"If gas, of whatever nature or kind . . . is used, on or off the leased area, by [Exxon] for purposes . . . other than solely in the development and operation of the leased area as provided herein, [Exxon] shall pay [X]% of the net value realized by [Exxon] or affiliate from the sale or disposition of the manufactured or extracted products and [X]% of the best price realizable in the exercise of reasonable diligence for all gas used and not sold."

According to Exxon, this language "on its face" grants it royalty-free use of gas in operating the offshore production platforms because, it argues, it is using the gas in the "operation of the leased area." Exxon argues further that under standard gas-accounting guidelines the exemption extends to the gas fuel used off the leased areas at the onshore treatment facility. Such an interpretation does not appear unreasonable. The language that requires the payment of a royalty when gas is used "for purposes . . . other than solely in the development and operation of the leased area as provided herein" does suggest that the leases permit the royalty-free use of gas in the development and operation of the leased area.

However, I believe that the lease provision also can reasonably be read as the State reads it — to require Exxon to pay a royalty on gas produced from any well that is drilled, except in two limited circumstances: (1) when gas is flared for well-testing (paragraph 5(a)), and (2) when gas is recycled for lift purposes (paragraph 5(d)). The requirement of paragraph 5(b), that a royalty must be paid on all gas used on or off the leased areas except for gas used "solely in the development and operation of the leased area as provided herein," may reasonably be read to refer only to those two exceptions.

Paragraph 5(a) states that

"if any oil or gas is produced from any well drilled, whether or not sold or used off the leased area, LESSEE agrees to pay to LESSOR royalty on the oil or gas produced on the above basis, except that no royalty shall be due for gas produced and flared for well testing purposes."

Paragraph 5(d) states:

"Notwithstanding anything contained herein to the contrary . . . LESSEE may recycle gas for gas lift purposes on the leased area or for injection into any oil or gas producing formation underlying the leased area after the liquid hydrocarbons contained in the gas have been removed and no royalty shall be payable on the gas so recycled until such time as the same may thereafter be produced or sold or used in such manner as to entitle LESSOR to a royalty thereon under the royalty provisions of this lease."

As the State correctly notes, the leases contain a provision, in paragraph 27, which requires that, "[i]n the case of ambiguity, this lease always shall be construed in favor of [the State] and against [Exxon]." "A term in a contract is ambiguous only if, when given the context, the term can reasonably be open to different interpretations by people of ordinary intelligence." Lambert v. Coregis Ins. Co., 950 So.2d 1156, 1162 (Ala. 2006). Thus, if the leases reasonably can be read in the State's favor, we must adopt that understanding. Because I believe that we may reasonably construe the leases in the State's favor, I agree that the trial court did not err in denying Exxon's motion for a judgment as a matter of law as to the fuel-gas claim.

B. Payout and Unitization 1. Improper Rates

Exxon argues that it is entitled to a judgment as a matter of law on the State's "payout" claim. Under the "payout" provisions of certain of the leases, Exxon enjoys the benefit of a lower royalty rate while it recoups its direct costs of "actually drilling wells on the leased area." According to the State, Exxon has been allocating "drilling" costs to leases where no actual wells exist, thus paying the lower royalty rate on those leases. Exxon argues that the leases allow it to "allocate a proportionate share of recoverable expenses to unitized payout leases that share in production from wells on other leases in the area." Exxon's brief at 94.

Paragraph 5(a) of the leases provides that Exxon will pay a lower royalty until it reaches "payout," at which time Exxon will pay a higher royalty. Paragraph 29(1) defines payout as

"`the point in time when [Exxon] has recovered from production, after deduction of state royalty, severance and production taxes, the direct expenses incurred in actually drilling wells on the leased area beginning, for each well, with the spud date and ending on the date each well is ready to be put into production.' The cost of pipelines and treating facilities are expressly excluded as recoverable expense items."

Paragraph 28 defines "actual drilling operations" to mean

"actual drilling (commenced by spudding in) of a new well, or the good faith deepening, sidetracking, or the plugging back or attempted recompletion in a separate interval of an existing well (all such operations being commenced by actual downhole operations with adequate tools). . . . Actual drilling operations shall be deemed to terminate on the last day actual operations of any kind (such as drilling, testing, or installation of equipment) are conducted in good faith for the purpose of attempting to discover oil, gas or any other liquid or gaseous hydrocarbon mineral as a producer of same."

According to the State, this language requires actual drilling on a well site within the leased areas in order for Exxon to take advantage of the payout provision.

Paragraph 17 provides, however, that when

"acreage covered by this lease or any parts thereof is pooled or unitized by government order with other land, lease or leases in the immediate vicinity thereof . . . operations for drilling, reworking or production on the land so pooled covered by this lease and the entire acreage constituting such unit or units shall be treated for all purposes as if the same were included in this lease. . . ."

Exxon argues that because operations for drilling on one of the units is treated as if that unit were included in the leased area, then actually drilling on one of them should be considered "actual drilling" for purposes of payout.

The main opinion concludes that "[t]he meaning of the payout clause in the leases is clear. . . ." 986 So.2d at 1108. I disagree with that conclusion, though I agree with the holding in favor of the State. Paragraphs 29(1) and 17 are not readily reconcilable. I believe that Exxon's interpretation is a reasonable, perhaps even a preferable, one; nonetheless, I believe that the State's interpretation — that actually drilling on the leased area, and not on some area outside it, is required for the lower royalty rate to apply to the gas coming from that area — is also a reasonable interpretation.

Paragraph 28 and paragraph 29(1), when read together, suggest that the leases require that some activity related to drilling be actually present in order for the payout provision to apply. Thus, "actually drilling wells on the leased area" may mean that, on that leased area, drilling, as defined in paragraph 28, must be taking place. Because paragraph 27 requires this Court to construe the leases in favor of the State where the leases are ambiguous, and because the State's interpretation is a reasonable one, I agree that the trial court did not err in denying Exxon's motion for a judgment as a matter of law on this ground.

2. Capital Expenses

Exxon argues that it was entitled to include the costs of its corrosion-resistant flowlines and the costs of the offshore production platforms as drilling expenses that must be recouped before it becomes subject to the higher royalty rate. The leases specifically exclude the costs of the gathering system and the onshore treatment facility, but they are silent as to the flowlines and the offshore production platforms. Despite this silence, the main opinion concludes that the leases are clear as to what expenses may be recovered under the payout provision. I disagree that the terms of the leases are unambiguous; the leases expressly excluded the gathering system and onshore treatment facility, but they do not expressly exclude the costs of the flow-lines and the offshore production platforms. Exxon argues that the definition of drilling, found in Gulf Oil Corp. v. Reid, 161 Tex. 51, 55, 337 S.W.2d 267, 270 (1960), which this Court applied in Sheffield v. Exxon Corp., 424 So.2d 1297, 1302 (Ala. 1982), as "all physical and mechanical activities of securing oil and/or gas production in paying quantities" includes the costs of flowlines and of the oil platforms. That interpretation of the payout provision is, I believe, a reasonable one.

I agree that Sheffield does not control the disposition of this case. In that case, the Court emphasized that the determination is fact specific and that a lease could define what constitutes drilling. Further, the contract at issue in Sheffield apparently did not contain a provision requiring a construction in favor of the lessor when there is ambiguity.

Nonetheless, the definition of "actual drilling operations" that provides that such operations will "be deemed to terminate on the last day actual operations of any kind . . . are conducted in good faith for the purpose of attempting to discover oil, gas or any other liquid or gaseous hydrocarbon mineral" suggests that only those costs necessary to drill the well — rather than those costs necessary to produce gas — may be properly included as the costs of drilling wells. Because paragraph 27 requires this Court to construe the leases in favor of the State in the case of ambiguity and because the State's interpretation is a reasonable one, I agree that the trial court did not err in denying Exxon's motion for a judgment as a matter of law on this ground.

C. Cost-Netting

Exxon argues that, under the leases, natural gas is properly valued at the off shore production platform and that post-production costs of gathering and treating the gas are therefore properly deductible from the base amount on which Exxon was to pay the royalty as a percentage of its gross proceeds. Paragraph 5 provides:

"When production of oil, gas or any other liquid or gaseous hydrocarbon mineral from the leased area is obtained, [Exxon] agrees to pay [the State] . . . the following royalties: "(a) The value of [X]% of the gross proceeds from oil, distillate, condensate, gas, natural gasoline or other product covered by the lease, produced and sold from the leased area at the price received therefor or at the best price realizable in the exercise of reasonable diligence, whichever is higher. . . ."

The State argues that Exxon was prohibited from deducting the gathering, processing, treatment, and other costs from gassales proceeds in calculating the royalties owed. The main opinion concludes that the royalty provisions are clear, holding that "`gross proceeds' means `gross proceeds.'" 986 So.2d at 1109.

I believe it is reasonable to read the leases, in light of principles of oil and gas law, as establishing a valuation point and, therefore, as allowing Exxon to deduct certain costs so that the value of the gas at that particular point in the production process may be calculated. However, the State also presents a reasonable construction of the leases. The State argues that the leases do not establish a valuation point and that the "gross proceeds" language prohibits Exxon from adjusting its gross proceeds to deduct its costs in gathering and treating the oil. The leases use the term "gross proceeds" for calculating the royalty on gas produced and sold from the leased area, in contrast to the treatment in the leases of the calculation of royalties on manufactured products, where the term "net amount realized" is used. The contrast between the language used in these different contexts suggests that the leases do not allow cost-netting with regard to the calculation of the royalty for gas produced and sold.

Although it is reasonable to interpret the "produced and sold from the leased area" language as creating a valuation point, the State's interpretation is not unreasonable. The language of the leases does not unambiguously create a valuation point, and Exxon ultimately asks this Court to imply that one exists from the terms of the royalty provisions. Paragraph 27 requires us to construe any ambiguities in the leases in favor of the State. Because we may reasonably construe the leases in the State's favor, we must adopt that construction. For this reason, I agree that the trial court did not err in denying Exxon's motion for a judgment as a matter of law on the cost-netting issue.

D. Cogenerated Electricity

Exxon argues that it was entitled to a judgment as a matter of law on the State's breach-of-contract claim alleging that Exxon owes a royalty on the net proceeds of electricity produced from generators powered by fuel gas. I have already noted above that Exxon owes a royalty on fuel gas used to operate the offshore production platforms and to operate the onshore treatment facility; here I address the royalty owed on fuel gas that was used to produce surplus electricity that Exxon then sold to Alabama Power Company.

Under paragraph 5(b), Exxon owes a royalty "[i]f gas . . . is used by [Exxon] for . . . the manufacture or extraction therefrom of gasoline or other products not covered by the royalty provisions of subparagraph (a). . . ." Exxon argues that this language requires it to pay royalties only on products manufactured from gas, not products manufactured using gas. Further, it contends that only constituent products of gas are subject to royalties. The State points out that paragraph 5(b) requires that a royalty be paid on "products," not only on "hydrocarbon products." It notes that even though the need to pay a royalty is triggered only when "oil, gas or any liquid hydrocarbon material" is obtained, that fact does not eliminate the requirement that a royalty be paid whenever these materials are used to manufacture "other products." The main opinion concludes that electricity is a manufactured product as a matter of law and relies on Curry v. Alabama Power Co., 243 Ala. 53, 8 So.2d 521 (1942), to reach its conclusion. I do not believe it is necessary to resort to our caselaw to answer this question. Paragraph 5(b) reasonably can be read to require a royalty payment on gas used to manufacture electricity. The word "from" indicates the source of something. Webster's Third New International Dictionary 913 (1971). The source of the electricity is the gas that is being burned in the generator and that moves the turbines. The electricity can reasonably be said to be coming from the gas, because gas is the source of the energy that is transformed into electricity.

I recognize that this Court's cases have stated that, in various circumstances, electricity is a manufactured product; however, I do not believe that those cases conclusively decide the question in all circumstances and for all purposes. The question before us, however, is not whether our cases define electricity as a manufactured product; the question is whether the leases may be reasonably interpreted to define electricity as a manufactured product. Nonetheless, I recognize that the fact that this Court has in the past defined electricity as a manufactured product buttresses the conclusion that so defining it in this case is not unreasonable.

Paragraph 27 requires this Court to construe any ambiguities in the leases in favor of the State, and we must adopt the State's construction of the leases if it is reasonable. Because we may reasonably construe the leases in the State's favor, I agree that the trial court did not err in denying Exxon's motion for a judgment as a matter of law on this ground.

II. Fraud

I agree with the main opinion that there is a lack of substantial evidence supporting the State's fraud claim and the associated punitive-damages award. Although I generally agree with the analysis in the main opinion, I believe that the State raises several key arguments that need to be addressed. These include the State's argument that Exxon's wire transfers before December 1994 constituted misrepresentations and its various suggestions of ways in which the State relied on these alleged misrepresentations.

A. Misrepresentations

The State argues that Exxon misrepresented the fact that it was not calculating its royalty obligation in accordance with the State's interpretation of the leases. However, as early as 1990, Exxon provided the State with copies of payout statements that disclosed Exxon's interpretation of the payout provisions of the 1984 leases. In those statements, Exxon allocated payout expenses to unitized leases with no physical wells and included flowline and platform costs in payout expenses. Further, in February 1995, Nancy Cone, a revenue analyst with the State Lands Division of the State Department of Conservation and Natural Resources ("DCNR"), met with Linda Kraft and LeaAnn Jones of Exxon, who informed Cone that Exxon was taking certain deductions, was paying royalties only on cogenerated plant fuel, and was not paying a royalty on sales of sulfur. Cone informed James Griggs, director of the State Lands Division, of these facts in a March 1995 memorandum, in which she also noted that Exxon was not paying a royalty on sales of slop oil. Thus, by March 1995, at the latest, Exxon had explained to DCNR the method by which it calculated the royalties it was paying.

Further, as early as December 1994, Exxon submitted monthly production reports that showed that Exxon was taking deductions rather than paying the "gross proceeds" on the sales of gas. These reports itemized both "gross" and "net gross" proceeds. The State argues that "[b]ecause both Exxon and the State knew that post-tailgate transportation costs were deductible, it was natural for the State to assume that `net gross' simply referred to the gross amount offset by this discrete category of permissible transportation costs." State's brief at 84 n. 50. However, the royalty reports do not support this contention because the differences between the gross and net gross values were too great to be accounted for by transportation costs alone. Although DCNR apparently did not scrutinize these reports before initiating its audits, there is no contention by the State that these figures misrepresent the volumes on which Exxon based its royalty obligations. Thus, the State has not presented evidence of any misrepresentation after December 1994 sufficient to support its fraud claim.

Cone was the only DCNR employee to look at these reports before the audits, but she testified that it was not her job responsibility to review the reports to determine whether Exxon was paying in accordance with the leases. Instead, Cone testified that she merely input into a spreadsheet the same figures Exxon had provided in the reports. Cone simply "match[ed] up an individual payment . . . with individual leases."

The State also argues that "Exxon's initial royalty payments carried with them the representation, consistent with what Exxon knew to be the State's expectation and belief, that the payments amounted to the specified percentage of Exxon's `gross proceeds' from gas sales and the value of gas as fuel." State's brief at 84. However, at most, the State's evidence shows (1) that Exxon understood that DCNR officials were not interpreting the leases in a way that allowed cost-netting, and (2) that the State may have assumed that Exxon would calculate its royalty obligation according to DCNR's interpretation. The evidence does not show that Exxon ever represented to DCNR that it agreed with DCNR's interpretation of the leases, nor does it show that Exxon represented that its wire transfers were made in accordance with DCNR's interpretation.

The State points to the "Condray documents," a briefing package prepared for Exxon management regarding possible interpretations of the leases, and suggests that those documents are proof that the wire transfers constituted misrepresentations. In its brief, Exxon admits that its management "approved a narrow cost-netting approach it believed consistent with staffs recommendation that it be `fairly aggressive (given our lease terms) and pursue all cost-netting items with a 25% or greater chance of success.'" Exxon's brief at 22. Although the State argues that this decision proves that Exxon intentionally misrepresented the royalties Exxon owed, it shows at most that Exxon adopted an interpretation of the leases that it believed could be supported by the terms of the leases. Ansel Condray, a senior vice president at Exxon, testified that he chose not to adopt all the recommendations in the Condray documents, but instead rejected those that Exxon management "did not think the best reading that we could give to it entitled us to take those deductions."

The State argues that paragraph 27 of the leases required that any ambiguities be interpreted by the Court in the State's favor; however, that paragraph does not necessarily make whatever interpretation the State might choose to adopt definitive and binding. For these reasons, I do not believe that the State has produced substantial evidence of any misrepresentations by Exxon.

Chief Justice Cobb cites an article I wrote in 1989, Punitive Damages: A Supporting Theory, 40 Ala. L.Rev. 1227, 1235 (1989), for the proposition that "a rule that actively encourages individuals and companies to commit fraud for financial gain . . . is fundamentally wrong, both ethically and economically." I stand by this article. In the article, 1 emphasized that it is the defendant's active suppression or misrepresentation that justifies an award of punitive damages because, when a defendant has actively suppressed or misrepresented material facts, the legal system cannot operate efficiently, being deprived of the information necessary for determining the proper level of compensation. That principle, however, does not justify the award of punitive damages in this case, which is devoid of substantial evidence of misrepresentation or suppression.
The State argues that Exxon was aware of the State's interpretation of the leases, but did not inform the State that it interpreted the leases differently. Although this may be evidence of a dispute over contract terms, absent legally recognized misrepresentation or suppression by Exxon, there is no actionable fraud. The legal system can operate efficiently when the information needed to determine the damages required to compensate for any breach of contract is available.
The State fails to produce substantial evidence of a misrepresentation and of its reliance on that misrepresentation. Our punitive-damages statute requires not only a showing of fraud, but also that the fraud claim be supported by clear and convincing evidence. That there is not substantial evidence of fraud necessarily means that there is not clear and convincing evidence of fraud to support an award of punitive damages.

B. Reasonable Reliance

Even if this Court were to assume that Exxon had misrepresented the amount of royalties it owed by means of its wire transfers before December 1994, I believe that the State has failed to put forward substantial evidence showing that it reasonably relied on any of those alleged misrepresentations. As this Court has noted, "[a]n essential element of any fraud claim is `reasonable reliance.'" Mantiply v. Mantiply, 951 So.2d 638, 658 (Ala. 2006). Exxon argues that our decision in Hunt Petroleum Corp. v. State, 901 So.2d 1 (Ala. 2004), is controlling. I agree. In Hunt Petroleum, this Court reversed an award of punitive damages to the State based on what was alleged to have been a scheme to defraud the State of royalties under the same standard lease form that is at issue in this case. We held that the State had failed to prove fraud because it had never relied on Hunt Petroleum's reports showing the volume of gas produced. Although DCNR officials testified that they had "assumed" that the reports were correct, DCNR accepted them subject to verification through audits it had always intended to conduct.

This Court noted that, "for a plaintiff to state a fraud claim, he must show that a misrepresentation induced him to act in a way that he would not otherwise have acted, that is, that he took a different course of action because of the misrepresentation." Hunt Petroleum, 901 So.2d at 5. DCNR always had intended to verify by audit the reports that Hunt Petroleum submitted; it did not accept and rely upon the accuracy of those reports. Further, because the State produced insufficient evidence showing how it would have acted differently had the reports correctly explained the royalty owed, "the State did not meet its burden of proving by substantial evidence that it relied to its detriment on the monthly royalty reports submitted by Hunt." Hunt Petroleum, 901 So.2d at 9.

The State argues here that "the record [in this case] contains overwhelming evidence of reliance." State's brief at 96. The evidence in the record shows the contrary, i.e., that the State did not rely on any of the wire transfers as representations that Exxon was calculating its royalty obligations in accordance with the State's interpretations of the leases. Cone testified on cross-examination as follows:

"Q. When that money gets wire-transferred in and put in the State's treasury account, that doesn't mean that it is accepted as true and accurate, does it?

"A. No, sir.

"Q. Because it is in your view even at the time just conditional and subject to audit; is that not a fair statement?

"A. Yes, sir."

A memorandum from Cone to Director Griggs explained that "[t]he acceptance by DCNR of the monthly royalties does not indicate DCNR accepts the deductions Exxon is taking against the gross value of the production. The deductions will be reviewed when DCNR audits Exxon's operation." As Cone's testimony indicates, the State did not accept the wire transfers as "true and accurate."

The record demonstrates, as did the record in Hunt Petroleum, that DCNR always intended to audit Exxon's monthly reports in order to independently verify them. A memorandum from Griggs to James Martin, then commissioner of DCNR, stated that "[t]he lands division does not capture [that is, record,] the production or sales volumes associated with the royalty payments. We rely on the audits of the companies by the accounting section to verify this information as a routine part of their audit program." Griggs also testified that "our plan had been to audit every time period, and it still is to audit every time period." Thus, the State did not rely on any of Exxon's representations because it always intended to independently verify them.

The State presents several arguments in support of its position that it reasonably relied on the alleged misrepresentations. It argues that it had to rely on Exxon's royalty payments and reports in order to perform its audits of Exxon and cites testimony that its auditors relied on the truthfulness of the royalty calculations and the production volumes. However, this testimony provides only conclusory statements and does not indicate how the auditors used the information Exxon provided.

Further, as Exxon argues,

"[t]he entire purpose of the State's audits was to go behind Exxon's payments and royalty reports to determine whether Exxon owed more. To that end, the auditors used Exxon's royalty reports only to determine the dollar amount of royalties Exxon had already paid (which no one claims the reports misstated)."

Exxon's reply brief at 9. Additionally, DCNR used the production reports filed with the Alabama Oil and Gas Board, as well as Exxon's own production statements, to independently recalculate the royalties owed. The State does not contend that Exxon falsified the underlying production and sales records reflecting what Exxon actually produced and sold, nor does it contend that the wire transfers misrepresented what amounts Exxon actually paid. It is these figures that served as the basis for the audit.

The State argues further that it necessarily relied on Exxon's reports because "its auditing ability was limited." State's brief at 99. The State cites Griggs's testimony that DCNR's auditors would not be able to "look at every piece of paper for every day" and that it was unclear whether the State, because of budgetary constraints, would be able to audit for every period. State's brief at 100. However, DCNR's limited auditing ability was caused by factors wholly separate from Exxon's alleged misrepresentations, and, in any event, DCNR was unwilling to accept Exxon's royalty payments without verification of the figures.

The State suggests a number of other ways in which it would have acted differently had it not relied on Exxon's alleged misrepresentations. Several of these arguments have been previously rejected by this Court in Hunt Petroleum. There, we rejected the State's argument that "the reliance requirement in a fraud action can be met where a party accepts underpayments from another who has complete control over the payment process," concluding that such a holding would amount to adopting a "no-reliance fraud standard." Hunt Petroleum, 901 So.2d at 9 n. 8. We also rejected the argument that the State was misled into surrendering its gas because, as here, the State always intended to audit the reports and accepted royalty payments subject to that verification. Further, in Hunt Petroleum, as in this case, the State did not demonstrate how it would have acted differently had it known of the alleged misrepresentations. The State never attempted to cancel the leases and never exercised its right to take gas in kind.

The State argues that it would have sued Exxon earlier had it known of the alleged misrepresentations. However, this Court held in Hunt Petroleum that "compelling [a party] to bring [a] legal action" cannot amount to reliance by that party. 901 So.2d at 8 n. 7. The State would distinguish this language by framing its argument to suggest it has been deprived of its right to sue sooner; however, the State cites no authority for the proposition that this represents reliance.

Finally, the State argues that the alleged misrepresentations caused the State to delay the audits and resulted in more expensive and time-consuming audits. The State's witnesses testified that had they known of Exxon's interpretation of the leases, they would have recommended bringing the audits immediately. However, the evidence at trial showed that it was the State's actions that delayed the audits. Before Exxon made any wire transfers and before it submitted any reports, DCNR already had decided that it would verify by audit the information that Exxon provided.

During an audit of Shell Oil Company in 1993, DCNR had recognized that its in-house auditors were not sufficiently qualified to perform the audits on the gas leases. Defense Exhibit 157 (Memorandum from Martin to G. Sage Lyons, State Finance Director). Audits on the gas leases were delayed while DCNR decided who the outside auditor should be. Once DCNR decided on an outside firm, the audits began, as DCNR apparently always had intended. The State, thus, had decided in April 1993 to suspend its audit program, months before Exxon began the production of gas in October 1993 and months before Exxon had made any wire transfers, while DCNR attempted to retain a natural gas audit expert. Therefore, it was not the State's reliance on the alleged payment misrepresentations that caused it to delay or to perform a more expensive or more extensive audit.

In his memorandum to Lyons, Martin stated that "a decision was made not to audit any more revenues generated from offshore leases that processed natural gas through treatment plants until the natural gas plant audit expert was on board. Only Jim Griggs has the answer to the question of why it took from April of 1993 until the summer of 1995 to complete the search for the appropriate natural gas plant audit consultant." Martin further stated that the "delay in selecting a natural gas plant audit consultant [was] []not the fault of any oil and gas company."

Even after Exxon informed DCNR that it was calculating its royalty obligation based on an interpretation of the leases at variance with DCNR's interpretation, the State nevertheless did nothing different. A memorandum from Cone to Griggs in March 1994 shows that DCNR was aware that Exxon was taking deductions, paying royalties only on cogenerated plant fuel, and not paying royalties on sales of sulfur and slop oil. Nonetheless, DCNR did not initiate an audit until August 1996, and no one appears to have made use of any of the data Exxon provided before of the audits began. The State did not bring its fraud claim until August 1999. The State never attempted to cancel the leases and never exercised its right to take gas in kind. That the State did nothing different after Exxon explained in February 1995 that it did not agree with the State's interpretation of the leases strongly suggests that the State would have acted no differently had it had that information before February 1995.

Indeed, as noted above, DCNR was on notice that Exxon was taking deductions from the "gross proceeds" as early as December 1994.

A court reviewing a ruling on a motion for a judgment as a matter of law must determine whether the party that bears the burden of proof has produced substantial evidence creating a factual dispute that requires resolution by the jury. Waddell Reed, Inc. v. United Investors Life Ins. Co., 875 So.2d 1143, 1152 (Ala. 2003). The State bore the burden of proof on its fraud claim, and I agree with the main opinion that there is not substantial evidence showing that Exxon made any misrepresentations or that the State reasonably relied on any of Exxon's alleged misrepresentations. I also agree that the punitive-damages award therefore must be reversed. See Wholesale Motors Inc. v. Williams, 814 So.2d 227, 230 (Ala. 2001) (requiring "clear and convincing" evidence and a finding of fraud before allowing an award of punitive damages); John Deere Indus. Equip. Co. v. Keller, 431 So.2d 1155, 1157 (Ala. 1983) ("Punitive damages are generally not allowed in actions for breach of contract.").

III. Conclusion

For the foregoing reasons, I concur in the result as to the contract issues I raise above; otherwise, I concur in the main opinion.

LYONS, Justice (concurring in part and concurring in the result).

I concur in all aspects of the main opinion except for Part III.B., as to which I concur in the result.

Under very few legal systems could one envision a scenario where a cash-strapped government could hire lawyers to sue a party to a contract with that government, then pay the salary of the trial judge and the per diem of a panel of jurors composed of citizens of that government, and thereafter obtain an enormous judgment in its favor for punitive damages, and, on appeal, a panel of appellate judges, whose salaries are also paid by that government, would set that judgment aside. Yet, that is exactly what happened in this proceeding. That this could come to pass is a testimonial to the genius of the American system of government only if the result stands on a principled basis.

Criminal proceedings are the traditional setting in which the State pays the prosecutors, the judges, and the jurors with the goal and expectation of dispensing impartial justice. But, in that typical scenario to which we are very well accustomed, the State has no enormous economic upside, as is the case here.

Because many citizens, aware of the State's financial needs and familiar with snippets of the evidence in this case gleaned from news coverage, simply will not understand how this Court could reach such a result after two separate Alabama juries found Exxon deserving of an enormous punishment in the form of billions of dollars in punitive damages, I set forth, step by step, the process of legal reasoning through which I concluded that reversal of the judgment as to the fraud claim was required under the settled law of this State. In doing so, I have made a conscious effort to express my views in terms that can be understood by persons not learned in the law.

A dispute between parties to a contract gives rise to diverse and sometimes overlapping remedies. The availability of different remedies depends on the timing and nature of the acts giving rise to the dispute. These factors become significant because the remedy historically available for an action for breach of contract is limited to compensatory damages only. Tort-based remedies can permit the recovery of both compensatory damages and punitive damages. This case requires us to consider the elements necessary to permit a dispute between parties to a contract to have a remedy in tort. If Alabama law fails to recognize a remedy in tort under the circumstances here presented, then the trial court never should have allowed the claims of the Alabama Department of Conservation and Natural Resources ("DCNR") against Exxon grounded in tort to go to a jury, and the verdict awarding punitive damages based on fraud must be set aside.

Two separate juries of conscientious Alabama citizens have found Exxon's conduct so infuriating as to lead them to award enormous sums in punitive damages. Although these verdicts may reflect extremely adversely on Exxon's business ethics, their entry does not alter this Court's obligation to set the current verdict aside if Exxon's conduct does not, as a matter of Alabama law, constitute a tort.

We analyze the circumstances governing the availability of a remedy in tort between parties to a contract by first noting the long-standing rule applicable to fraudulent conduct during negotiations, an interval that concludes when the parties strike their bargain and enter into a contract. A party who has been the victim of a misrepresentation of a material fact or the suppression of a material fact when there is a duty to speak upon which it reasonably relied during negotiations can claim fraud in the inducement. See, e.g., Lacey v. Edmunds Motor Co., 269 Ala. 398, 402, 113 So.2d 507, 510 (1959) ("It is a well-established principle in Alabama that a buyer alleging that he was induced by fraud to enter into a contract may rescind by restoring benefits and recover payments, or affirm, retain benefits, and sue in deceit for damages. . . ."). In such cases, the aggrieved party, in effect, says, "I would never have entered into the contract if you had not induced me to do so by incorrect statements or omissions of material facts." Regardless of whether the remedy is rescission or deceit, a plaintiff can recover punitive damages when the conduct was reckless or intentional. See Old Southern Life Ins. Co. v. Woodall, 295 Ala. 235, 326 So.2d 726 (1976) (action in deceit for damages); and Mid-State Homes, Inc. v. Johnson, 294 Ala. 59, 311 So.2d 312 (1975) (action for rescission). We lay these alternative remedies aside because DCNR does not assert fraud in the inducement.

After becoming bound to the terms of a contract, subsequent events can, but as a general rule do not, give rise to a remedy in tort. Failed expectations as to performance of a contract usually result only in a remedy for breach of contract. See C C Prods., Inc. v. Premier Indus. Corp., 290 Ala. 179, 186, 275 So.2d 124, 130 (1974) ("A mere failure to perform a contract obligation is not a tort, and it furnishes no foundation for an action on the case."). Thus, a party experiencing a failure to perform a contract in the typical situation cannot characterize the other party's promise to perform as a misrepresentation and thereby convert the action to one based upon the tort of fraud. However, if a promise to perform in the future is made with no intention to perform at the time the promise was made, it is promissory fraud and will give rise to an action in tort for which compensatory and punitive damages may be recovered. Kennedy Elec. Co. v. Moore-Handley, Inc., 437 So.2d 76 (Ala. 1983). Such a claim is difficult to prove, because mere failure to perform is not evidence of a lack of intent to perform at the time the contract was formed. Campbell v. Naman's Catering, Inc., 842 So.2d 654 (Ala. 2002) (summary judgment in favor of employer). We lay this remedy aside because DCNR does not assert promissory fraud.

Another exception to the general rule against turning a breach-of-contract action into a tort allows an insured suffering a breach of an insurance contract to assert a remedy in tort when the insurer's basis for its conduct is so lacking in substance as to warrant the conclusion that it acted in bad faith when it failed to perform. State Farm Fire Cos. Co. v. Slade, 747 So.2d 293 (Ala. 1999). In such circumstance a recovery of both compensatory and punitive damages is appropriate. Because Exxon is not an insurance company and because DCNR has specifically disavowed any interest in seeking the expansion of the remedy of bad faith beyond the confines of insurance contracts, we need not further consider this circumstance.

Chief Justice Cobb's special writing, dissenting in part from the fraud section of the main opinion, repeatedly refers to the obligation to act in good faith and Exxon's failure to conform to that standard and even refers to Exxon's bad faith. However, because of the absence of a tort remedy for bad-faith breach of an oil and gas contract, such observations do not justify affirming that aspect of the judgment awarding punitive damages.

This Court has recognized the availability of a tort remedy between parties to a contract not involving insurance in instances where, after entering into the contract, the injured party can show fraud by the other party. DCNR contends that the verdict awarding punitive damages should be sustained under this theory. We must therefore examine closely our caselaw in this area in light of the facts of this case.

The leading case is Deupree v. Butner, 522 So.2d 242 (Ala. 1988), in which a developer represented to prospective purchasers of a townhome that it would give the purchasers of the townhome access to the purchasers' own boat slip. At the time of the negotiations and up until the closing, the developer experienced serious ongoing problems with regulatory authorities that cast substantial doubt on its ability to perform. Over two months after the closing and at a time when the ongoing problems had not been resolved, the developer wrote a letter reiterating its ability to construct the boat slip, stating that it was merely a matter of time before it did so. The developer ultimately failed to perform, and the purchasers sued, alleging fraudulent concealment in the inducement of the contract and fraudulent concealment during the performance of the agreement, as evidenced by the letter written after the closing. This Court, affirming a judgment entered on a jury verdict in favor of the purchasers, recognized the availability of a cause of action based on fraudulent concealment relating to the events both before and after the closing. With respect to events after the closing, this Court stated:

"The [purchasers'] fraud claim was based on [the developer's] concealment of the difficulties he was having with getting approval of the boat slips. [The developer] wrote a letter to [one of the purchasers] on July 26, 1983 [over two months after the closing], and stated that it was simply `a matter of time' until the permits would be issued."

522 So.2d at 246.

It is hornbook law that fraud is composed of multiple elements, namely, a false statement of a material fact or concealment of such a fact under circumstances where there is a duty to speak and reasonable reliance to the detriment of the victim. See, e.g., Padgett v. Hughes, 535 So.2d 140, 142 (Ala. 1988). In Hunt Petroleum Corp. v. State, 901 So.2d 1 (Ala. 2004), a case in which I recused myself, this Court did not dwell on the availability of a remedy for fraud in the performance of a contract very similar to the contract here presented; instead, it moved directly to an examination of the evidence of reliance and found it wanting. Such approach, of necessity, assumed, without deciding, the availability of fraud in the performance of the contract under the facts presented in that case. Only Justice Houston, in his special concurrence, 901 So.2d at 9, probed the availability of a remedy for fraud. In so doing, he attempted to limit the holding in Deupree to pre-closing suppression, beyond, I respectfully submit, the previously quoted holding of the Court clearly recognizing post-closing conduct as part of the basis for the fraud claim. In Bethel v. Thorn, 757 So.2d 1154 (Ala. 1999), this Court had previously embraced a broader view of Deupree than that of Justice Houston in his special writing in Hunt Petroleum. We observed, citing Deupree: "This Court has recognized that fraudulent concealment of facts after a contract has been made can support both a breach-of-contract claim and a fraud claim." 757 So.2d at 1162 (emphasis added).

Applying Deupree to this case, we must first set forth some details of the timeline of performance here. Although Exxon executed leases in 1981 and 1984, Exxon did not begin production until December 1993, when it began making monthly payments pursuant to the leases. Exxon provided no backup information to DCNR until December 1994, at which time Exxon furnished backup information for September, October, and November 1994.

DCNR accuses Exxon of both misrepresentations and suppression, relying upon internal documents of Exxon that reasonable jurors could find to be indicative of an arrogant, callous, condescending attitude toward DCNR, grossly inconsistent with the terms of the leases and involving contumacious bad faith. As previously noted, however, we have not been asked to expand the remedy of tortious bad-faith breach of contract beyond the context of an insurance policy. Further, in order to prove fraud that would justify an award of punitive damages, DCNR must prove by "clear and convincing evidence that [Exxon] consciously or deliberately engaged in . . . fraud. . . ." § 6-11-20(a), Ala. Code 1975.

Turning first to the alleged misrepresentations by Exxon, DCNR has presented absolutely no evidence of any misstatement of any facts by Exxon. Exxon never inflated the costs it claimed the right to deduct, nor did it misrepresent the volume of gas it was extracting. When DCNR insisted that Exxon furnish it with the backup information required under the leases, Exxon did so with truthful disclosure of its methodology of computing the amount due. The reports that began in December 1994 reflected that deductions were being taken from cogenerated gas and the residue of gas, with no deductions being taken from flare gas.

Chief Justice Cobb states in her special writing: "Thus, with respect to the elements of fraud, I understand the Court to be agreeing that there is substantial evidence to support the conclusion that Exxon made false representations as to a material fact, i.e., it represented that the royalty payments it was making were in the correct amounts." 986 So.2d at 1136 (Cobb, C.J., concurring in part and dissenting in part). I respectfully disagree, because I do not consider an aggressive interpretation of the legal effect of a contract, unaccompanied by any misstatement of any underlying fact and under circumstances where all underlying facts are available to the other party to the contract, to constitute "false representations as to a material fact." In the context of fraud in events leading to the formation of a contract, this Court observed in Anderson v. Ashby, 873 So.2d 168, 181-82 (Ala. 2003) (quoting Harold Allen's Mobile Home Factory Outlet, Inc. v. Early, 776 So.2d 777, 783 n. 6 (Ala. 2000)):

"`See Rutter Hendrix v. Hanover Fire Ins. Co., 138 Ala. 202, 215, 35 So. 33, 37 (1903): ("`[A]ll our decisions hold, that in the absence of a relation of trust and confidence, or of some other peculiar fact or circumstance, a misrepresentation of [a] matter of law, or of [a] matter of judgment equally open to the observation or inquiries of both parties, or of mere opinion, will not vitiate a contract.' . . . `[A] misrepresentation of the legal effect of a written instrument was, from its very nature, but the expression of an opinion upon a question of law, equally open to the observation and inquiries of both parties, and as to which, the law presumes that the party to whom it was made had knowledge.'") ([quoting Georgia Home Ins. Co. v. Warten, 113 Ala. 479, 486-87, 22 So. 288, 290 (1897); other] citations omitted); see also Restatement (Second) of Contract § 164 cmt. b, illus. 2 3 (1981).'"

I see no basis to apply a different standard to parties in a contractual relationship whose activities require periodic conduct consistent with their agreement.

Flare gas is immediately burned at the well, thus incurring no costs in treatment at an onshore facility miles from the well-head. DCNR contends that the lack of necessity for any deductions from flare gas constitutes a subtlety so far over the heads of personnel at DCNR, who drafted this complex lease agreement, that Exxon's report continued to mislead DCNR as to whether Exxon was taking any deductions. Such a contention is an assault upon the expertise of DCNR that is perhaps as offensive as any of the portions of Exxon's documents relied upon by DCNR in support of its fraud claim as proof of Exxon's contempt for the expertise of the personnel at DCNR. DCNR's contention as to its own lack of sophistication in interpreting the significance of the absence of deductions taken from gas burned immediately at the well does not constitute clear and convincing evidence of fraud by Exxon in its reports to DCNR.

DCNR also contends that knowledge of the fact of deductions appearing on the monthly reports is not in itself sufficient because, for aught appearing, these deductions might merely reflect transportation charges that Exxon could legitimately deduct. The size of the deductions were of sufficient magnitude that no reasonable person in an agency capable of drafting this complicated lease agreement could attribute the extent of Exxon's deductions to this one item. But even if the monthly reports were inadequate to put DCNR on notice as to the extent of Exxon's deductions, at a February 27, 1995, meeting with Exxon, Nancy Cone of DCNR was made fully aware of Exxon's interpretation of the leases. Thereafter, DCNR continued to accept payments from Exxon without comment and did not begin its audit until more than a year later. DCNR has failed to establish any misrepresentation of a material fact and therefore has failed to present clear and convincing evidence of any false statement.

Turning next to suppression of material facts, we must focus on the interlude between the commencement of production in December 1993 and Exxon's submission of the first reports in December 1994 and events in early 1995. DCNR contends that the agreement required Exxon to furnish information to it beginning in December 1993. Exxon contends that it furnished adequate information to the Alabama Oil and Gas Board and that, in all events, paragraph 6 of the lease agreement gave DCNR a right of access to all relevant information, and, therefore, there could have been no concealment. Accepting DCNR's contention that it, and not the Alabama Oil and Gas Board, was entitled to receive the information and, further, ignoring DCNR's contractual right of access to this information, which it failed to exercise, the period of silence of approximately one year could be viewed as a period during which Exxon suppressed material facts concerning its interpretation of the contract. But, as previously noted, DCNR must prove not only the omission of material facts under circumstances giving rise to a duty to disclose, but also reasonable reliance upon such omission to its detriment. In order to find reasonable reliance, causing damage, resulting from the concealment for approximately one year, we must assume that DCNR, had it known the suppressed facts, would have conducted itself in a manner different from the manner in which it acted during its period of ignorance, thereby enabling it to recoup damages sustained during the limited period when it lacked knowledge of the facts. However, when Exxon's position was explained to DCNR in late 1994 or early 1995, DCNR did absolutely nothing for a period in excess of the duration of DCNR's lack of knowledge between December 1993 and late 1994 or early 1995. Indeed, James D. Martin, commissioner of DCNR, acknowledged that delay in auditing was not the fault of any oil company.

Because of this inactivity during the period after DCNR had full disclosure, attribution of reliance damages in the form of the State's monetary loss between December 1993, when production began, and December 1994, when disclosure took place, is simply too speculative to support a conclusion that DCNR reasonably relied to its detriment for the period during which DCNR was ignorant of Exxon's interpretation of the leases. Nor would a liberal rule of proof of causation favorable to the plaintiff in instances of an intentional fraud, as recognized in Shades Ridge Holding Co. v. Cobbs, Allen Hall Mortgage Co., 390 So.2d 601, 607 (Ala. 1980), make a difference in this proceeding where there is simply no basis for which to conclude that DCNR would have acted differently had it received earlier disclosure.

Returning to Deupree, the purchasers there alleged both fraudulent inducement to enter into the contract and fraudulent suppression before and after consummation of the contract. As to the fraudulent-inducement claim, the purchasers could point to the existence of a contract that they said they would never have entered into but for the suppression. On appeal, the developer attacked the sufficiency of the evidence of fraud, and this Court found, among other things, detrimental reliance, both before and after entering into the contract, as well as a duty to speak. Here, unlike Deupree, DCNR has failed to establish damage from suppression of material facts by Exxon after entering into the contract and during the approximately one-year period commencing in late 1993 when gas was first produced.

Given DCNR's disavowal of any right to relief for fraud in the inducement, its disavowal of any right to relief for promissory fraud, its disavowal of any interest in expanding the remedy of bad-faith breach of contract beyond insurance contracts, its failure of proof of misrepresentation of any material facts, and its failure of proof of reliance to its detriment on any suppressed material facts during the limited period of nondisclosure, I must conclude that DCNR has not established a legally cognizable evidentiary basis for a remedy in tort. Therefore, I concur in the result as to the reversal of the judgment entered on the award of punitive damages.

We are thus left with a situation in which one of the parties to a contract has taken a hard-nosed bargaining position, cynically relying on a downside that it accurately deemed to be limited to compensatory damages plus interest, without any risk of exposure to punitive damages. Although a jury could reasonably conclude from the evidence that Exxon's business ethics would pass only the first prong of the Rotary Club's famous "4-Way Test," that circumstance does not give rise to a basis under settled Alabama law for an award of punitive damages.

According to the official Web site of the Rotary Club, www.rotary.org, Rotarian Herbert J. Taylor created the 4-Way Test, a code of ethics, in 1932. The Rotary Club adopted it in 1943. The 4-Way Test asks the following questions:

"Of the things we think, say or do

"1. Is it the Truth?

"2. Is it Fair to all concerned?

"3. Will it build Goodwill and Better Friendships?

"4. Will it be Beneficial to all concerned?"

(On the date this opinion was released, this information could be accessed online at: www.rotary.org/en/AboutUs/Rotary International/History/Pages/ridefault.aspx.)

COBB, Chief Justice (concurring in part and dissenting in part).

I am in substantial agreement with the analysis of the breach-of-contract claims in the main opinion, and I concur with the Court's opinion in that respect. However, I dissent from the majority opinion with respect to the Court's resolution of the fraud claim. I believe that the Court is substituting its judgment for the jury's regarding the weight of the evidence, particularly as to the element of reliance. The law is settled that our standard of review is a de novo assessment of the denial of Exxon's motion for a judgment as a matter of law ("JML"). That is, we consider de novo only the question whether the jury's verdict is supported by substantial evidence. Teague v. Adams, 638 So.2d 836, 837 (Ala. 1994). As Exxon acknowledged in oral argument before this Court, the law is well settled that once we recognize that a jury verdict is supported by substantial evidence, we are bound to affirm the judgment entered on that verdict. Thus, our assessment of whether the verdict is supported by substantial evidence is properly guided by the following standard:

"`"`A judgment as a matter of law is proper only where there is a complete absence of proof on a material issue or where there are no controverted questions of fact on which reasonable people could differ and the moving party is entitled to a judgment as a matter of law.'" Southern Energy Homes, Inc. v. Washington, 774 So.2d 505, 510-11 (Ala. 2000), quoting Locklear Dodge City, Inc. v. Kimbrell, 703 So.2d 303, 304 (Ala. 1997). In reviewing the denial of a motion for a judgment as a matter of law, this Court is required to view the evidence in a light most favorable to the nonmovant. Kmart Corp. v. Kyles, 723 So.2d 572, 573 (Ala. 1998).'"

Wood v. Phillips, 849 So.2d 951, 957 (Ala. 2002) (quoting Liberty Nat'l Life Ins. Co. v. Daugherty, 840 So.2d 152, 156 (Ala. 2002)). See also Cochran v. Ward, 935 So.2d 1169 (Ala. 2006); Thompson Props. 119 AA 370, Ltd. v. Birmingham Hide Tallow Co., 897 So.2d 248 (Ala. 2004); and Alabama Dep't of Transp. v. Land Energy, Ltd., 886 So.2d 787 (Ala. 2004). Moreover, with respect to fraud, our deference to the jury as the finder of fact is heightened. Ballard v. Comm'r, 544 U.S. 40, 60, 125 S.Ct. 1270, 161 L.Ed.2d 227 (2005) (in which the United States Supreme Court reversed a decision of the United States Tax Court, noting that "[f]raud cases, in particular, may involve critical credibility assessments, rendering the appraisals of the [trier of fact] vital to the [reviewing court's] ultimate determination" and specifically criticizing the Tax Court's use of terms such as "vague" and "implausible" because such terms reflected a weighing of the evidence); Thompson Properties, supra (discussing this Court's deference to the jury's findings concerning intent to defraud in light of disputed evidence of the defendant's alleged fraudulent transfers of property); and Williams v. Williams, 786 So.2d 477, 480 (Ala. 2000) (upholding the jury's verdict based upon promissory fraud and noting that this Court would "not reverse a judgment on a jury verdict on a weight-of-the-evidence basis unless the evidence, when viewed in a light most favorable to the nonmovant, shows that the verdict was plainly and palpably wrong and unjust"). See also Franklin v. Cannon, 565 So.2d 119, 121 (Ala. 1990) (discussing, in the context of reviewing a jury instruction, the jury's role as the sole arbiter of the credibility of witnesses).

With respect to the jury's verdict based on fraud, I understand the Court to be concluding that there is substantial evidence to support the following facts:

1. At the time the leases were executed, Exxon understood its obligations under those leases and understood that it was obligated to pay royalties on the "gross proceeds" of the gas produced on the leased property; it was also aware of the clause in the leases that specifically provided that all ambiguities were to be construed in the State's favor.

2. Based on an economic assessment that indicated that it would gain millions of dollars, Exxon embarked on a plan to pay less royalties than it understood it owed the State under the terms of the leases.

3. As a part of its plan to pay less than it owed, Exxon prepared a pretextual basis for paying less, i.e., that it interpreted the leases differently than did the Alabama Department of Conservation and Natural Resources ("DCNR"), or that its method of calculating payments and deductions for expenses were the usual practice in the oil and gas industry. In Exxon's terminology, it would take an "aggressive" approach to interpreting the leases in its behalf.

4. Exxon supported the rationale for its plan to pay less than it owed by recognizing that DCNR's limited ability to audit the royalty payments would result in the failure to notice that incorrect royalty payment, or, in the event that it did notice any deficient royalty payments, DCNR would accept Exxon's pretextual reason for making the incorrect payment.

5. Exxon implemented its plan for adding to its gain by paying less royalties than it owed by first simply paying less royalties. However, when DCNR noticed discrepancies between the royalty payments it expected and the payments it received, Exxon advanced its pretextual reasons for the payments.

The evidence for these conclusions is exemplified in the "Condray documents." For a description of those documents, see Exxon Corp. v. Department of Conservation Natural Resources, 859 So.2d 1096, 1106 n. 2 (Ala. 2002). I believe that the expert testimony of Saul Solomon is also relevant.

Thus, with respect to the elements of fraud, I understand the Court to be agreeing that there is substantial evidence to support the conclusion that Exxon made false representations as to a material fact, i.e., it represented that the royalty payments it was making were in the correct amounts. On this point, it should be noted that the evidence supports the inference that Exxon was making two false representations of material facts: (1) that the royalty reports and payments were accurate, and (2) that the royalty reports and payments were made in good faith based upon what it believed it owed under the terms of the leases. I believe the record does contain substantial evidence indicating that Exxon at first simply made incorrect royalty payments pursuant to its overall plan of defrauding the State when it began making lease payments. However, when Nancy Cone became employed by the State in 1994 and requested reports on its royalty payments, Exxon continued to pursue its fraudulent scheme by providing those reports with the representation that the reports included cost-netting and deductions that it was taking pursuant to its good-faith interpretation of the leases. Thus, I believe there is substantial evidence to support the conclusion that although Exxon informed DCNR in February 1995 that it was not making the royalty payments DCNR would have expected, DCNR was still acting reasonably in relying on Exxon's representations that it was acting in good faith, i.e., that it was making its payments pursuant to a reasonable understanding of its obligations under the leases. Stated another way, the record contains substantial evidence to support the conclusion that Exxon's pre-textual basis for paying royalties in a lesser amount was designed to deceive DCNR's auditing process. For example, the evidence supports a conclusion that Exxon, in dealing with Cone, disclosed the incorrect royalty payments accompanied by an explanatory report that falsely explained why those payments should be viewed as correct and further explained that Exxon was acting in a good-faith effort to comport with its obligations under the leases.

Fraud, as defined in § 6-5-101, Ala. Code 1975, includes four elements: (1) There must be a false representation; (2) the false representation must concern a material existing fact; (3) the plaintiff must rely upon the false representation; and (4) the plaintiff must be damaged as a proximate result. However, fraud may also be committed by the suppression of material facts, pursuant to § 6-5-102. Drummond Co. v. Walter Indus., Inc., 962 So.2d 753 (Ala. 2006); Cowen v. M.S. Enters., Inc., 642 So.2d 453 (Ala. 1994); and Jewell v. Seaboard Indus., Inc., 667 So.2d 653 (Ala. 1995).

However, a majority of the Court would conclude that the record does not contain substantial evidence that DCNR relied to its detriment on Exxon's royalty reports and payments. More specifically, a majority of the Court concludes that, regardless of the evidence and as a matter of law, the State could not have relied to its detriment upon Exxon's representations because of DCNR's intent to audit and right to audit Exxon's royalty payments under the legal discussion set out in Hunt Petroleum Corp. v. State of Alabama, 901 So.2d 1 (Ala. 2004). Thus, the Court substitutes its judgment for that of the jury.

With respect to evidence of the State's reliance on the payments and reports concerning the payments made by Exxon, which were the basis of DCNR's audits, I note a few examples from the record:

Testimony of Robert Macrory, at one time the chief legal counsel and the assistant commissioner for DCNR:

"Q. . . . `[L]essee,' which would be Exxon, `agrees to pay lessor,' the State, `royalty on the oil and gas produced on the above basis except no royalty shall be due for gas produced and flared for well-testing purposes.' Is that a material term in the lease?

"A. Yes.

"Q. And I want you to listen to one final, long quote from the [lease] form. `Each payment shall be accompanied by the affidavit of the lessee or lessee's authorized agent showing the gross amount of production, disposition, and the gross sales value or proceeds received of all oil, gas or other liquid or gaseous hydrocarbon mineral and their respective constituent products produced from the leased area or acreage pooled therewith.' Is that a material term of the lease?

"A. That's a very material term. We're relying on the information provided. We're relying on the correctness of the payments being made. And so it's very critical that this information be provided supporting that — those payments."

Testimony of James Griggs, the director of the State Lands Division of DCNR:

"Q. I want to talk about how the State — for a few minutes, how the State uses the information that it gets from these offshore producers. Can you explain to the jury how the State uses that information?

"A. Yes. What we do is when — when money is wired in — and these royalties are of such magnitude that they're wired rather than receiving checks; we used to receive checks — then we capture the amount of royalty that's reported. We keep those values and those amounts, and prior to Nancy Cone, we would frequently be called on by the State Finance Director or the State Budget Officer to give us not only the historical figures for how much royalty was paid month by month, but what our projections were and, based on last year's revenues, what would be — what would we anticipate in the coming years. And those figures would be used to — as I understand it, by the budget office to project how much interest indirectly would come into the general fund and how much the general fund could depend on for future year budget continuing.

"Q. All right. Does the State rely on the information that Exxon and other producers give to be truthful and accurate?

"A. Yes. We — we didn't look behind that for those particular projections or" and we assumed they're accurate. I mean, it would be wrong to assume they were not accurate.

"Q. It would be wrong to assume they were false?

"A. Yes.

"Q. Even when doing the audit, it would be wrong to just take those reports and automatically assume they're false?

"A. Sure.

"Q. And did you — after your discussions with Mr. Kahn [business-analysis manager for Exxon] and Mr. Kartzke [Exxon's Mobile Bay project manager] and the clear meaning of the lease, did you presume that they were going to be reporting correctly?

"A. Yes.

"Q. And your department relied on that information; correct?

"A. Yes, we sure did.

"Q. And the State relied on those reports, did it not?

"A. Yes.

"Q. Just because the State was going to do an audit, Mr. Griggs, doesn't mean the State wasn't relying on these statements to be truthful, accurate, and fully disclosing what was going on?

"A. And complete, because we never knew — our plan had been to audit every time period, and it still is to audit every time period. But we were not sure — I think one of the earlier memos, I testified about as to why it took so long. We weren't sure we were going to be able to perform an audit for every period because we might not have the money to do it.

"Q. All right. And I believe we discussed audits don't catch everything and not everything is shown on the monthly report?

"A. No, they do not catch everything."

Testimony of Saul Solomon, a certified public accountant and certified fraud inspector hired by the State:

"Q. In the situation like this case, can you tell us, please, to what extent you have to rely on information that's given to you in order to do your review?

"A. Well, we're almost entirely dependent upon Exxon, in this case the operator, for information. I mean, they control the information; they have the documents. We have to rely upon what they give us. We have to rely upon what they tell us, and we are just" we're basically at their mercy because we can't get the information from other sources generally. You know, we do get some information from the State regarding the payments that they received, but there's very little else we can get.

"Q. Without their cooperation?

"A. Without their cooperation. And it's really not proper for us to go to third parties, as an example, to get information in this type of review.

"Q. To what extent did you and your firm rely on information that was given to you by Exxon?

"A. We did rely. And we tried to test it by going back to the source documents. We relied on what they gave us and have utilized the information in all work.

"Q. What happens if you don't get — or if you get incomplete or inaccurate information when you're attempting to do the type of work that you did in this case?

"A. It leads to double work, triple work sometimes, and it becomes very inefficient as well as creating just a lot of delay in terms of trying to get things completed.

"Q. Does it make it more expensive?

"A. It certainly makes it a lot more expensive.

"Q. Have you gotten everything that you need from Exxon in this case?

"A. No.

"Q. Exxon's lawyers have told the jury that the State had full access to all information during these audits. Is that true?

"A. That is not true.

"Q. He also stated that every document about cost-netting and everything else was available to the State. Is that true?

"A. That's absolutely false. We're still waiting to get information on cost-netting today.

"Q. He also stated that all questions were answered and all documents were produced. Is that correct?

"A. That is not correct, no."

The State cites numerous other instances of evidence showing that DCNR did rely on Exxon's representations — first, that its payment of royalties was what DCNR expected under the lease, at least until Cone was notified in February 1995 of Exxon's pretexts for cost-netting, and, after that notification, that its reports and royalty payments were made in good faith and not pursuant to a plan to deceive DCNR's audits. Moreover, I believe that the record contains substantial evidence indicating that the State relied to its detriment upon Exxon's representations that it was acting in good faith. In addition to the "double work, triple work" testified to by Solomon and the budget projections testified to by Griggs, the State presented other evidence of what it would have done and the damage it would have avoided had it known of Exxon's bad faith:

Testimony of Macrory:

"Q. Before I get to that, let me just ask you some specific questions. When you returned to the Department — I think you said February of `95?

"A. Yes.

"Q. — did anybody from Exxon tell you that Exxon was taking deductions from gross proceeds before calculating the royalty?

"A. No.

"Q. Did anybody at Exxon tell you that they were using fuel for free?

"A. No.

"Q. If they had told you, what would have been your recommendation to the Commissioner?

"A. I would have said we need to audit Exxon now."

Testimony of Frank Snyder, in-house auditor for DCNR:

"Q. Now, can you tell us whether or not — if Exxon were paying properly, whether or not you'd even need to do an audit?

"A. Well, you always need to do an audit. It would be probably a lot less time consuming and a lot less expensive.

"Q. You'd just be checking numbers to make sure the addition and subtraction or whatever was correct?

"A. You'd have to do an audit, but it would be less expensive, a lot less time"

"Q. It wouldn't cost hundreds of thousands of dollars?

"A. I'd hope not.

"Q. If Exxon had fully explained in detail what [it was] doing, would you need to do an audit?

"A. Yes, but it would be far less time-consuming, far less expensive."

Testimony of Solomon:

"Q. All right. Now, correct me if I'm wrong. But in doing these extensive reviews and the time that you've talked about, I believe your firm has billed the State in this matter — and I'm going to go down it by year. 1999, I think it was $2,626. In the year 2000, it was $466,266 or thereabouts. In 2001, it was about $279,000. In 2002, about $37,000. And then in 2003, about [$815,000]. Can you tell us, please, why it was so large in the year 2003?

"A. Yes. Basically, we — you know, we've been continuing to get information from Exxon over the three or four years — four and a half years actually. But there were calculations that were made earlier on that had been superseded and basically redone to a large extent. This year, in 2003, we continued to get information from Exxon on expenses and on new information concerning the last three years, which is all part of the 2003 billing. The royalty audit work that was done for this three-year time period is included in there. And getting ready for this trial, depositions and so forth and getting exhibits together, it was a lot of work to do. And, basically, we had to go back in and redo a lot of what had been done previously because of new information, changed assumptions, and things of that nature. "Q. All right. Again, that doesn't directly go to you or any of the other 26 people that have worked on it?

"A. No. It's a very extensive process. There's a lot of documents. There's a lot of information to weed through and to understand. And it's just — it's very time-consuming.

"Q. Can you tell us basically what the average hourly charge has been based on the number of hours in the billing?

"A. Yes. It's about $150 an hour on average.

"Q. Now, is what you've done and your billings to the State, is that in line with any other reviews that you're aware of?

"A. Well, yes. I'm aware that another accounting firm, Ernst and — well, Ernst Ernst had reviewed the work that we had done at one point in time for about a two- to three-month time period, and they spent 2,000 hours just reviewing the work we had done through that time period. So in that very short window of time, having all of our documents as a guide, they just basically went through and reviewed what we did. Basically, what's in those binders that's in front of you, we've spent 2,000 hours in doing, which was, you know, approximately 20 percent of the entire amount of the time that we've spent in four and a half years. So I think it's in line.

"Q. So do you — what approximately would the billing have been for that?

"A. Well, I know what their billing rates average, and it would be about five to six hundred thousand dollars.

"Q. Now, is what you've done in this case in the billing to the State of Alabama, is it in line with other reviews or audits you've done for other clients?

"A. Yes. We've done, as I said before, fifteen or so of these royalty reviews for litigation like this, and it's very time-consuming."

I recognize that the record contains evidence that could support a different conclusion, perhaps a conclusion that Exxon was simply acting to maximize its profits without any overt plan of deception. However, I am clear that our standard of review does not permit us to weigh the evidence.

"`A strong presumption of correctness attaches to a jury verdict in Alabama, if the verdict passes the "sufficiency test" presented by motions for [a JML and a renewed motion for a JML]. This presumption of correctness is further strengthened by a trial court's denial of a motion for new trial.'"

Tolar Constr., LLC v. Kean Elec. Co., 944 So.2d 138, 144 (Ala. 2006) (quoting Carter v. Henderson, 598 So.2d 1350, 1354 (Ala. 1992) (citations omitted)). See also Davis v. Hanson Aggregates Southeast, Inc., 952 So.2d 330 (Ala. 2006). In fact, "`[t]his Court will not reverse a judgment based on a jury verdict on the ground that the evidence was insufficient unless the evidence, when viewed in a light most favorable to the nonmovant, shows that the verdict was "plainly and palpably wrong and unjust."'" Tolar, 944 So.2d at 144-45 (quoting Carter, 598 So.2d at 1354 (emphasis added)). Once this Court ascertains that the record contains substantial evidence of reliance and detriment resulting from that reliance, our duty is to affirm the judgment entered on the jury's verdict with respect to fraud, subject to an assessment of the propriety of the awards of compensatory and punitive damages.

I would conclude that the testimony quoted above constitutes substantial evidence supporting the conclusions (1) that the State relied upon Exxon's representations that it was acting in good faith in the payment of its royalties, (2) that had DCNR known that Exxon was acting pursuant to a fraudulent scheme it would have, at a minimum, immediately implemented the stringent auditing procedures that it was forced to implement much later and thereby would have saved hundreds of thousands of dollars in redoing work that had already been done using Exxon's false representations. I believe that this evidence also supports the conclusion that had Exxon not deceived DCNR into relying on its representation that it was acting under a good-faith interpretation of the leases, the State would have brought legal action much sooner, thereby reducing litigation costs and recovering the "time value" of its money as discussed in the oral argument of this case.

I respectfully submit that Exxon has been able to confuse two facts: (1) that it notified DCNR that it was making various deductions and cost-netting so that DCNR could no longer rely on the representation that it was making royalty payments based purely on gross proceeds, and (2) that it was not acting in good faith and that the payments it reported were based on a pretext meant to deceive DCNR. Moreover, the fact that Exxon was the sole source of information concerning the nature and quantity of the gas on which it calculated royalties makes the State's reliance on Exxon's good faith reasonable, a fact that settled authority recognizes as compelling in assessing detrimental reliance. Earle, McMillan Niemeyer, Inc. v. Dekle, 418 So.2d 97, 100 (Ala. 1982); Johnson v. Shenandoah Life Ins. Co., 291 Ala. 389, 281 So.2d 636 (1973); and Williams v. Bedenbaugh, 215 Ala. 200, 110 So. 286 (1926).

At the least, the determination of the reasonableness of the State's reliance under these circumstances is a question of fact for the jury. See, e.g., Ex parte Alabama Farmers Coop., Inc., 911 So.2d 696 (Ala. 2004) (genuine issue of material fact existed as to whether corporation had reasonably relied on audit report showing that it had no obligations under unauthorized long-term leases, so that corporation did not have notice that auditor had improperly disregarded effect of leases until corporation was sued, thus precluding summary judgment for the auditor, based on statute of limitations); Alfa Mut. Fire Ins. Co. v. Thomas, 738 So.2d 815 (Ala. 1999); ATT Info. Sys., Inc. v. Cobb Pontiac-Cadillac, Inc., 553 So.2d 529, 532 (Ala. 1989); Liberty Nat'l Life Ins. Co. v. Sherrill, 551 So.2d 272 (Ala. 1989); Southern Life Health Ins. Co. v. Smith, 518 So.2d 77 (Ala. 1987); and George v. Nevett, 462 So.2d 728 (Ala. 1984). Cf. Foremost Ins. Co. v. Parham, 693 So.2d 409 (Ala. 1997).

As an analogy, the case of Kelly v. Connecticut Mutual Life Insurance Co., 628 So.2d 454 (Ala. 1993), may be helpful. In that case, the Court recognized that the limitations period for a fraud action would be tolled when a party is put on notice of possible fraud and makes an inquiry that produces an answer that is reasonably relied upon to allay the suspicion of fraud.

Moreover, it is the settled law that in our review of the jury's findings of facts regarding the State's reliance we must "construe most favorably to [the State, as the party favored by the jury's verdict,] the facts and any reasonable inferences the jury could have drawn." Harrelson v. R.J., 882 So.2d 317, 321 (Ala. 2003). See also Mobile Infirmary Med. Ctr. v. Hodgen, 884 So.2d 801 (Ala. 2003), and Dunlop Tire Corp. v. Allen, 725 So.2d 960 (Ala. 1998). With respect to the evidence indicating that the State did rely on Exxon's representations that it was acting on a good-faith interpretation of the leases, it defies common sense for this Court to hold that the jury could not reasonably infer that the fact that Exxon was hiding its fraudulent plan from DCNR was not valuable to DCNR and that DCNR did not lose time and money during the period Exxon was successful in hiding its fraudulent plan. Who among us would reasonably contend that there is no value in knowing that the party that you are dealing with in a multi-million-dollar transaction is not acting in good faith?

However, in light of the prior ruling of this Court in Hunt Petroleum Corp., supra, the majority appears willing to hold that the State presented no evidence that it reasonably relied on Exxon's fraud because DCNR had the ability to audit Exxon's royalty payments. In my view, this belief is based on a willingness to disregard the State's evidence of detrimental reliance by improperly weighing that evidence in contravention of the applicable standard of review. I respectfully disagree with the application of the Hunt standard to the scenario presented by this case. Initially, I note that the evidence now before this Court is qualitatively and quantitatively different from the evidence before the Court in Hunt. In Hunt, the Court determined that one incident of testimony to the effect that the State "assumed" that the defendant's royalty payments were accurate was not sufficient to establish detrimental reliance in light of the State's authority and intent to audit those royalty payments.

There is no need to quibble with whether the Court's review in Hunt improperly disregarded substantial evidence, in light of the numerous incidents of specific evidence presented by the State in this case. Some of that evidence has already been noted in this writing, and it shows that the State did rely on Exxon's royalty payments and reports as being (1) an accurate accounting of amounts due under the leases, and (2) a good-faith rendition of what Exxon believed it owed under the leases. Even if DCNR had reason to suspect that it was at variance with Exxon over the amount of royalties to be paid when Cone was notified of the reports, the evidence that the State was entitled to rely on Exxon's representation that it was acting in good faith is still substantial. Unlike the evidence in Hunt, here the State has presented specific evidence that it did rely on Exxon's representations and that it did suffer loss as a result of that reliance.

The gist of the Court's holding today is that the fact that DCNR had the right to audit Exxon's royalty payments and had expressed an intent to do so means that the State could not have reasonably relied on Exxon's representations that it was making accurate royalty payments and reports and that it was doing so in good faith. The existence of DCNR's right to audit was the basis for the Court's distinction of Braswell v. ConAgra, Inc., 936 F.2d 1169 (11th Cir. 1991). In that case, the United States Court of Appeals for the Eleventh Circuit applied Alabama law to review ConAgra's appeal from a judgment on a jury verdict awarding damages to the plaintiff chicken growers. The growers were compensated based on the weight of the chickens, and they sued ConAgra alleging both fraud and breach of contract and asserting that ConAgra had made insufficient payments resulting from purposefully inaccurate weighing methods. In considering the plaintiffs' proof of detrimental reliance, the court in Braswell concluded that the fact that the plaintiffs accepted ConAgra's payments when ConAgra was in control of the weighing process constituted sufficient proof of reliance. In Hunt, the Court distinguished Braswell on the basis that the defendant oil company was subject to the State's audits and was not, therefore, in total control of the payment process. In Hunt, unlike this case, there was no apparent evidence indicating that the defendant oil company was in control of the information on which the royalty payments were based.

The Court also noted a distinction from Braswell based upon the fact that the court in Braswell was applying the "justifiable" reliance standard rather than the "reasonable" reliance standard. Because this Court is presently engaged in determining whether there was substantial evidence of any reliance, I do not view the distinction between "justifiable" reliance and "reasonable" reliance as a meaningful basis for distinction.

In this case, there is overwhelming evidence that Exxon was in complete control of the information on which the royalty payments and reports were based. This Court long ago recognized:

"`[M]isrepresentations often cause the person to whom they are addressed not to use the means of knowledge within his power. The modern tendency is certainly toward the doctrine that negligence in trusting in a misrepresentation will not excuse positive willful fraud, or deprive the defrauded person of his remedy. Especially where there is a relation of natural trust and confidence, though not strictly a fiduciary relation, the failure of the defrauded party to exercise vigilance will not deprive him of redress. And so it is where one party has peculiar or superior knowledge of the facts which enhance the reliability of his statements. Nor does the fact that the representation concerns a matter of public record exonerate the defrauder from liability.' Williston on Contracts, Rev. Ed., (1937) Vol. 5, Sec. 1516."

Bank of Loretto v. Bobo, 37 Ala.App. 139, 149, 67 So.2d 77, 86 (1953). Moreover, there is also substantial evidence in this case showing that Exxon exerted that control with an aim toward deceiving DCNR's auditing process. Thus, the factor for determining reliance in Braswell, i.e., that the plaintiff accepted the payments, should also be a factor in determining reliance in this case, particularly based upon the direct evidence presented by the State.

Courts addressing similar situations have consistently held that the reliance element of actionable fraud is satisfied when the plaintiff accepts payments in reliance upon representations that intentionally understate the amount of royalties due. See, e.g., Reis v. Peabody Coal Co., 997 S.W.2d 49 (Mo.Ct.App. 1999).

The dispositive factor, however, in any evidentiary appellate analysis is that this Court is limited in its review to determining whether the State presented substantial evidence of reliance. Wood, Cochran, and Thompson Properties, supra. Certainly DCNR's ability to audit is one consideration in determining reliance, as are the facts that the State accepted payments, and, for awhile, accepted Exxon's representation that its payments and reports were made based upon a good-faith interpretation of the leases. The fact that the State presented direct testimony by several individuals involved in the leases and in the auditing process to the effect that it had relied upon Exxon's representations and that it had incurred substantial costs and lost substantial rights to earlier contractual and legal remedies are also factors to be considered. However, that consideration is for the jury, and this Court is obligated to affirm the judgment based on the jury's determination once it concludes that the verdict is supported by substantial evidence. Thus, the references to what constitutes "sufficient" evidence set out in the opinion are entirely contrary to the long-settled precedent of this Court to the effect that the trier of fact, in this case the jury, determines credibility with regard to the sufficiency of the evidence. Moreover, none of the contentions in the majority opinion adequately addresses the evidence in this case showing that Exxon represented that it was acting in good faith, a representation upon which the State relied to its considerable detriment.

If the evidence presented in this case is disregarded as not substantial evidence of detrimental reliance in light of DCNR's statement of its intent to audit, I cannot envision a scenario in which the State could have shown reasonable reliance. The majority's application of Hunt in this case amounts to a holding, as a matter of law, that an intent to exercise a right to audit defeats any showing of reliance, thus defeating a fraud claim. Such a position is not the law in any state, and courts in other jurisdictions have soundly reflected contentions to that effect. See, e.g., United States ex rel. A+ Homecare, Inc. v. Medshares Mgmt. Group, Inc., 400 F.3d 428, 456 (6th Cir. 2005) (noting that governmental audit procedures exist "as an administrative mechanism to make `necessary adjustments due to previously made overpayments or underpayments' not as a remedial mechanism for fraud" (quoting 42 C.F.R. § 413.64(f)(1))). See also Morrill v. Becton, Dickinson Co., 747 F.2d 1217 (8th Cir. 1984); Gregory v. Chemical Waste Mgmt., Inc., 38 F.Supp.2d 598 (W.D.Tenn. 1996); Johns Hopkins Hosp. v. Peabody Coal Co., 920 F.Supp. 738 (W.D.Ky. 1996); Caterpillar, Inc. v. Jerryco Footwear, Inc., 880 F.Supp. 578, 589 (C.D.Ill. 1994); Atlantic Richfield Co. v. Lujan, 811 F.Supp. 1520 (N.D.Okla. 1992); SEECO, Inc. v. Hales, 341 Ark. 673, 697, 22 S.W.3d 157, 172 (2000); and Reis v. Peabody Coal Co., 997 S.W.2d 49 (Mo.Ct.App. 1999). Thus, a holding that the Hunt rationale concerning the State's ability to audit is dispositive on the factual issue of the State's detrimental reliance not only disregards the settled law of this State regarding the ambit of appellate review, but it also enacts a doctrine that will be unique in the United States and that is uniquely favorable to Exxon.

Finally, I am very concerned that this Court would make a presentation that effectively concludes that a thoughtful plan of fraud and deceit designed for pure economic benefit should prevail over long-settled rules requiring integrity and good faith in the conduct of business. Certainly, with respect to every contract in which a party to the contract has an opportunity to review the other party's compliance with the terms of the contract, the majority opinion is precedent for a rule that actively encourages individuals and companies to commit fraud for financial gain. I believe that this is fundamentally wrong, both ethically and economically. As one of the Justices of this Court once wrote:

"Engaging in fraud . . . or actively misleading not only produces a need for compensation, it also undermines the foundation of the legal-economic structure in such a way that we cannot even guess the degree to which the system fails to operate efficiently."

Harold See, Punitive Damages: A Supporting Theory, 40 Ala. L.Rev. 1227, 1234 (1989).

The opinion today disregards the long-settled precedent of this Court and substitutes itself for the jury so that it can make conclusions based on the credibility of witnesses and the weight of the evidence. The majority contrives this substitution for the purpose of holding blameless a practice that everyone acknowledges was deceitful and based on a rationale designed to maximize corporate profits by underpaying the agreed-upon price for the resources of the State of Alabama. Not only does the majority opinion approve of the appropriation of this State's resources by deceit, it undermines any individual or institution that would pursue honest business practices. This is neither legal nor just. I therefore dissent.