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Shell Rejected by High Court on $54 Million Award in Oklahoma Lease Case

A Royal Dutch Shell Plc unit’s appeal of a $54 million punitive damage award was rejected by the U.S. Supreme Court. Photographer: Jason Alden/Bloomberg

By Greg Stohr – Dec 13, 2010 3:05 PM GMT+0000

The U.S. Supreme Court rejected a Royal Dutch Shell Plc unit’s appeal of a $54 million punitive damage award in a decades-old Oklahoma dispute over oil and gas profits.

Declining to consider putting tighter restrictions on damages, the justices today left intact an Oklahoma state court decision that said the award was within constitutional bounds.

The case stemmed from Shell’s failure from 1973 to 1985 to pay $750,000 to the owners of rights connected to an Oklahoma lease. The jury that considered the case added as much as 12 percent a year in interest, as allowed under an Oklahoma oil- and-gas statute, bringing the sum to $13 million. The jury then added the punitive damages for a total award of $67 million.

Shell’s appeal pointed to Supreme Court rulings that tie the constitutional limit for punitive awards to the amount awarded in so-called compensatory damages, those designed to pay people for the losses they suffered.

In upholding the award, an Oklahoma state appeals court classified the interest portion as compensatory damages. That meant the punitive award was about four times the compensatory damages — within constitutional boundaries, the court said.

Houston-based Shell Oil said in its appeal that the interest award was “functionally punitive” and shouldn’t have been used to justify adding even more damages.

Payment Incentive

The group suing Shell, led by Nancy Fuller Hebble, countered in court papers that Oklahoma set the interest rate at 12 percent to give producers an incentive to make payments on time and to provide compensation for the “time value of money.”

Hebble and her fellow litigants “would have earned greater returns had the money been distributed to them on time when the oil and gas was produced,” they argued.

Business groups urged the court to take up the Shell Oil Co. appeal, saying some state courts aren’t following Supreme Court rulings imposing constitutional limits on punitive damages.

“They have ignored the letter of the court’s rulings, their spirit or both,” the U.S. Chamber of Commerce argued in a court filing supporting Shell. “The result has turned punitive damage justice into a nationwide lottery game.”

The case is Shell Oil v. Hebble, 10-349.

To contact the reporter on this story: Greg Stohr in Washington at [email protected].

To contact the editor responsible for this story: Mark Silva at [email protected].

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