Justices Slash Damages for Exxon Oil Spill

By Robert Barnes
Washington Post Staff Writer
Thursday, June 26, 2008

Nearly two decades of legal battles over the Exxon Valdez oil spill came to an end yesterday when the Supreme Court slashed the punitive damages imposed against Exxon Mobil from $2.5 billion to $500 million.

The justices ruled 5 to 3 to limit Exxon Mobil's punishment to the same amount of money a lower court awarded to compensate for actual economic losses: $507.5 million. Lawyers on both sides parsed the decision to determine whether the court was sending a signal on how to resolve the contentious issue of punitive damages.

"Given the need to protect against the possibility (and the disruptive cost to the legal system) of awards that are unpredictable and unnecessary, either for deterrence or for measured retribution, we consider that a 1:1 ratio . . . is a fair upper limit in such maritime cases," Justice David H. Souter wrote for the majority.

Though the decision dealt only with maritime liability, corporate leaders hailed it as a reasonable way to assess punitive damages, imposed to deter future action, on a company that did not intentionally harm the environment. Political leaders and environmental groups denounced the decision as an easy out for one of the world's most profitable firms.

Chief Justice John G. Roberts Jr. and Justices Antonin Scalia, Clarence Thomas and Anthony M. Kennedy joined Souter in the majority. Justices John Paul Stevens, Ruth Bader Ginsburg and Stephen G. Breyer dissented. Justice Samuel A. Alito Jr., who owns Exxon Mobil stock, recused himself from the case.

A jury had originally awarded $5 billion to the nearly 33,000 fishermen, Native Alaskans and landowners brought together in the class-action lawsuit against Exxon Mobil, and the U.S. Court of Appeals for the 9th Circuit reduced the amount to $2.5 billion.

The Exxon Valdez oil tanker left the port of Valdez, Alaska, late on the evening of March 23, 1989, loaded with 53 million gallons of crude oil. Capt. Joseph Hazelwood, who had been drinking that night, was in charge when the nearly 1,000-foot vessel aground on a reef, and nearly 11 million gallons of oil flowed into Prince William Sound. It was the worst oil spill in North America.

Stevens said that, given the facts of the case, the damages should have been upheld.

"In light of Exxon's decision to permit a lapsed alcoholic to command a supertanker carrying tens of millions of gallons of crude oil through the treacherous waters of Prince William Sound, thereby endangering all of the individuals who depended upon the sound for their livelihoods, the jury could reasonably have given expression to its 'moral condemnation' of Exxon's conduct in the form of this award," he wrote.

Exxon Mobil, through its Washington attorney Walter E. Dellinger, argued that it had been punished enough. The company said it has paid $3.4 billion in cleanup costs and other penalties for the oil spill, which polluted 1,200 miles of Alaskan coastline.

The company issued a statement from chairman and chief executive Rex W. Tillerson that said, in part: "We know this has been a very difficult time for everyone involved. We have worked hard over many years to address the impacts of the spill and to prevent such accidents from happening in our company again."

Alaska politicians denounced the decision. "Today's ruling adds insult to injury to the fishermen, communities and Alaska natives who have been waiting nearly 20 years for proper compensation following the worst environmental disaster in our nation's history," Sens. Ted Stevens and Lisa Murkowski and Rep. Don Young, who are all Republicans, said in a joint statement.

Sen. Patrick J. Leahy (D-Vt.), chairman of the Judiciary Committee, said the court "has given Exxon Mobil a $2 billion windfall."

The legal battle has gone on for so long that attorneys for the plaintiffs estimate that at least 20 percent of them are now dead. While the punitive damages will be disbursed on the basis of individual loss, Stanford law professor Jeffrey L. Fisher, who argued the case before the court, said yesterday's action will reduce the average award from $75,000 to about $15,000.

At the time of the jury's original award, $5 billion represented about one year of Exxon Mobil profits. In 2007, the company posted earnings of $40.6 billion.

Souter wrote that the case placed the Supreme Court, which has in recent years has struggled with how to review punitive-damage cases from state courts, in a different role. Because this case involved federal maritime law, the court could assess the reasonableness of the award, rather than just looking at constitutional questions about whether it violated due process.

Souter acknowledged that "some will murmur that this smacks too much of policy," and he was right. Ginsburg said that the "new law made by the court should have been left to Congress."

Stevens complained that in deciding on the precise 1:1 ratio, the majority had developed a "bright-line" rule beyond what any state court had ever imposed.

The court in a previous case had suggested that a ratio of punitive damages to compensatory damages somewhere in the single digits might serve as a constitutional guideline in all but the most exceptional cases, and Souter reaffirmed that in a footnote yesterday.

Robin Conrad, executive vice president of the National Chamber Litigation Center, said: "The decision could have an effect far beyond federal maritime law. Limiting punitive damages to no more than the amount of a compensatory award will go a long way in cabining unpredictable punitive damages."

Amar Sarwal, the chamber's general litigation counsel, agreed that Souter's 42-page opinion could serve as a "persuasive precedent" in guiding state courts.

But Kathleen Flynn Peterson, president of the American Association for Justice (formerly known as the Association of Trial Lawyers of America), emphasized that the case involved only maritime law.

"Those in the business community who claim this decision stands for a generalized punitive damage limit are wrong," she said.

Dellinger had argued that maritime law also prevented Exxon Mobil from being punished for Hazelwood's actions. But Souter said the justices split equally on that question, meaning that the lower court decisions on that issue stood.

Staff writer William Branigin contributed to this report.

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