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A small firm lawyer who normally handles legal malpractice cases has won a $50 million jury award in the punitive damages phase of a fraud trial against Shell Oil, a wholly owned subsidiary of Royal Dutch Shell, the largest company in the world.

The punitives award follows a compensatory damages award of $1.65 million in 2008 in which a jury found that the company intentionally concealed environmental problems with a Shell gas station it sold to an individual franchisee.

William Gwire of the five-lawyer firm Gwire Law Offices in Los Angeles represented the plaintiff in the two trials.

Gwire’s trial theme of “small guy takes on big business” played out on another level in the courtroom: while the defense table was populated with trial lawyers, Gwire tried both cases alone.

“It was just me and my client. He was helping me with boxes and easels. On the other side, they had five or six people scurrying around with paralegals and exhibits. I never addressed that with the jury, but it demonstrated the resources Shell was prepared to throw at this case,” said Gwire.

Defense attorneys Kenneth Chiate and Duane Lyons of Quinn Emanuel declined comment.

A spokesperson for Shell e-mailed a statement indicating disappointment with the verdict and stating that the company “will be filing post-trial motions for the judge to review the award and [is] confident that it will be substantially reduced.”

Sale of gas station

The trial was the culmination of a multi-layered dispute over the sale of a gas station in Riverside, Calif.

Elias Atallah, an immigrant who fled civil war in Lebanon at age 17, had gradually worked his way up from being a mechanic to operating the station as a franchisee.

“He’s an American success story, an entrepreneur and honest to a fault,” said Gwire.

Atallah had worked there for ten years when Shell decided to sell the station but did not give him the right of first refusal as required under federal law.

He sued to enforce the law and the right to purchase the station at a fair price.

In the time thereafter and just before Shell agreed to sell the station to Atallah for $759,000, state water agencies raised concerns about contamination of groundwater, specifically a well within 1,000 feet of the station that the state wanted to change from agricultural to potable water.

The company stipulated that it never disclosed these meetings to Atallah.

“There are storm clouds brewing over my guy’s station, then they sold it to him,” said Gwire.

By 2004, escrow was set to close, but Shell extended the escrow period. This allowed the conditional use permit on the station, which only Shell knew about, to lapse.

The permit’s renewal was opposed by the water authorities, another fact only Shell knew, leaving Atallah stuck with a station that remains defunct.

Atallah first contacted Gwire’s firm to find out if the lawyer who represented him in the federal suit had failed to disclose the environmental problems.

It turned out that “the lawyer was as duped the client,” Gwire said.

Gwire agreed to represent Atallah in the suit against Shell.

The road to punitives

In the first trial, the jury found unanimously that Shell acted with “oppression, fraud or malice” toward the plaintiff – predicate acts for a finding of punitive damages.

But the trial judge ruled that punitives could not be awarded after excluding financial information about the parent company, Royal Dutch Shell, and concluding that the plaintiff had insufficient evidence in the record of the subsidiary’s financial information other than the parent’s net worth.

In an unpublished decision, an appeals court reversed and sent the case back for trial on punitives, finding that the plaintiff could have relied on financial evidence other than the net worth of the parent company and that the jury’s verdict made the company answerable for punitive damages.

In order for the second jury to determine a number for punitives, it had to hear the crux of the evidence in the first trial: that Shell sold Atallah an inoperable business by keeping him in the dark about environmental problems that would have cost half a million dollars to clean up and $40,000 a year to keep clean, plus liability of over $20 million for contamination, as well as indemnification of the water agencies.

The defense argued that it was all an oversight, said Gwire, but other evidence showed that Shell owned another gas station at the same intersection which it originally planned to keep but later closed because of the environmental problems.

A moment that stood out at trial was when Shell’s western regional manager, equivalent to a CEO, testified that if he had known about the problems, he would have fixed them.

When Gwire followed up by asking whether he ever said he was sorry once he did learn of the problems, the manager said, “That’s not how it happens in real life.”

Gwire said this evoked an “an audible groan from the jury.”

“It’s not what they needed or wanted to hear,” he said, adding that the company could have offered to make it right by selling Atallah another station.

“They only owned 3,000 other stations in Southern California they could have sold him,” asserted Gwire, who believes that the deception was retaliation for the first federal suit to enforce the sale.

Financials: gross or net?

The issue of financial condition re-emerged in the second trial, this time over the issue of accounting practices.

Shell reports financials under one method and its parent Royal Dutch reports under a different method, the main difference being the treatment of inventory.

“The results are hugely different, with net worth increasing by six times under [the parent]‘s method,” said Gwire.

Gwire told the jury that instead of reconciling or choosing between the two vastly divergent accounting numbers, it should rely on Shell’s gross revenues – a far greater number.

In the end, Gwire asked for $125 million, which he called a “very small percentage” of the company’s gross revenues.

Meanwhile, the defense asked the jury to award no punitive damages at all.

The jury’s award fell in between at $50 million, but jurors didn’t reveal which accounting method they employed, or whether they used neither and went with Gwire’s recommendation of awarding a percentage of gross revenues.

Plaintiff’s attorney: William Gwire of Gwire Law Offices in Los Angeles.

Defense attorneys: Kenneth Chiate and Duane Lyons of Quinn Emanuel in Los Angeles.

The case: Atallah v. Equilon Enterprises; March 9, 2010; Los Angeles Superior Court; Judge Alan S. Rosenfield.

Questions or comments can be directed to the writer at: sylvia.hsieh@lawyersusaonline.com

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