U.S. Supreme Court Overturns Valdez Oil Spill Damage Award

WASHINGTON, DC, June 25, 2008 (ENS) - The U.S. Supreme Court has dealt a blow to victims of the 1989 Exxon Valdez disaster, cutting the $2.5 billion in punitive damages award for the worst oil spill in U.S history to $507 million. The court, by a 5-3 margin, ruled the punitive damages awarded against the oil giant were excessive under maritime law.

Justice Samuel Alito, who owns Exxon stock, recused himself from the case.

The ruling brings to a close a long-running legal battle between Exxon and a group of 33,000 commercial fishermen, cannery workers, native Alaskans and others affected by the disaster.

The Exxon Valdez, grounded on Bligh Reef, leaks oil into Prince William Sound. (Photo courtesy USGS)

The plaintiffs filed a class action suit against Exxon and in 1994 an Alaska jury awarded them $5 billion in punitive damages.

Exxon appealed the ruling. In December 2006 the Ninth Circuit Court of Appeals reduced the punitive damages to $2.5 billion, roughly $75,000 per individual plaintiff.

The oil giant appealed again, was denied by the Ninth Circuit and then appealed to the Supreme Court.

Today's ruling leaves each surviving plaintiff with about $15,000 each, down from the $75,000 each would have been awarded had the lower court's ruling been upheld.

The court's deliberations largely rested on three questions of maritime law. The first question centered on whether Exxon can be held liable for punitive damages for the actions of the ship's captain, Joseph Hazelwood.

Prior to the accident, Hazelwood had maneuvered the vessel out of the shipping lane to avoid ice. He subsequently left other crew members in charge with instructions on when to return the shipping lane - in violation of company rules.

Hazelwood, an alcoholic, also admitted to drinking alcohol prior to the accident. Exxon had argued that Hazelwood was not in effect a "managerial agent" of the company, meaning it could not be held liable for punitive damages stemming from his actions.

The Supreme Court remained divided 4-4 on this first question, thereby upholding the lower court's decision that rejected Exxon's view. The justices unanimously rejected Exxon's second argument - the company had claimed that the Clean Water Act preempted punitive damage awards in maritime spill cases.

These two answers cleared the way for consideration of the third question, whether the $2.5 billion award was excessive.

The divided court determined that punitive damages in the case should not exceed the $507 million Exxon has already paid in compensatory damages.

The oil slick from the Exxon Valdez approaches rocky cliffs. (Photo courtesy Exxon Valdez Oil Spill Trustee Council)

The Supreme Court has in recent years moved to limit punitive damage awards and much of the majority opinion, written by Justice David Souter, reflects debate over how such limits can be justified.

"The consensus today is that punitives are aimed not at compensation but principally at retribution and deterring harmful conduct," Souter wrote. "The real problem, it seems, is the stark unpredictability of punitive awards."

Amid a long discussion of different ratios of punitive to compensatory damages, Souter noted the Valdez case was "one of recklessness" not an intentional or malicious act.

The court does not suggest "that Exxon's and Hazelwood's failings were less than reprehensible," Souter wrote, but a judgment that allows more than a one-to-one ratio between punitive and compensatory damages is unjustified and unreasonable under maritime law.

The three dissenting justices disagreed, arguing that the court should have upheld the $2.5 billion punitive damage award imposed by the appellate court.

By mandating the one-to-one ratio, the court has effectively taken on a responsibility that should be left to Congress, argued Justice John Paul Stephens.

"Both caps and ratios of the sort the Court relies upon in its discussion are typically imposed by legislatures, not courts," Stephens wrote in his dissent. "…Congress is far better situated than is this Court to assess the empirical data, and to balance competing policy interests, before making such a choice."

The majority ruling creates more questions than it answers, Justice Ruth Bader Ginsburg wrote in her separate dissent.

The court has decided that the one-to-one ratio is good for this case "because Exxon's conduct ranked on the low end of the blameworthiness scale" and the company was not trying to "augment profit" or with a purpose to injure, she wrote.

"What ratio will the Court set for defendants who acted maliciously or in pursuit of financial gain?" Ginsburg asked. "Should the magnitude of the risk increase the ratio and, if so, by how much? … On next opportunity, will the court rule, definitively, that one-to-one is the ceiling due process requires in all of the states?"

Business interests, however, praised the majority opinion and hope that it will have an impact on cases far beyond maritime law.

"This is good news for companies concerned about reining in excessive punitive damages," said Tom Donohue, president and CEO of the U.S. Chamber of Commerce. "For years the Chamber has argued that punitive damages are too unpredictable and unfair, and today the Court agreed."

Sticky oil from the Exxon Valdez coated shellfish in the intertidal zone. (Photo courtesy Exxon Valdez Oil Spill Trustee Council)

But several prominent lawmakers and other supporters of the plaintiffs blasted the court's ruling.

"This ruling is another in a line of cases where this Supreme Court has misconstrued congressional intent to benefit large corporations," said Senate Judiciary Committee Chairman Patrick Leahy, a Vermont Democrat.

The court has given Exxon Mobil a "$2 billion windfall by reading into the Constitution a protection for corporations that simply does not exist," he added. "This is activism, pure and simple."

Alaska's three members of Congress - Senators Ted Stevens and Lisa Murkowski along with Representative Don Young, all Republicans - called the decision "extremely disappointing" and contend the court should have let the $2.5 billion award stand.

"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," they said in a joint statement.

John Passacantando, executive director of Greenpeace USA, agreed and said the plaintiffs deserved "far better" noting that nearly 3,000 of the plaintiffs have died during the 14-year legal struggle over the punitive damage award.

"For the Court to require a company that recorded a 2007 profit of $40.6 billion and that posted the highest quarterly results in U.S. corporate history in February to pay a mere $500 million in punitive damages to the affected Alaskans makes a mockery of justice," he said.

ExxonMobil Chairman and CEO Rex Tillerson said today in a statement, "The company cleaned up the spill and voluntarily compensated more than 11,000 Alaskans and businesses. The clean-up was declared complete by the State of Alaska and the United States Coast Guard in 1992."

But the Exxon Valdez Oil Spill Trustee Council, made up of representatives of state and federal agencies, denies that the company's cleanup was complete, saying, "Not all beaches were cleaned; some beaches remain oiled today."

Plaintiffs, noting the company's recent record profits, were upset by the ruling.

"As a plaintiff and resident of Cordova, Alaska I am very disappointed!" said one man who wishes to remain anonymous. "It was a cheap way out - they didn't deny us damages, but they made them nearly worthless."

"The compensatory damages that we received were based on projected losses for 1989 to 1990 and did not reflect what we continued to lose for the many years after," he said. "The herring fishery didn't collapse until 1992 and that has been proven to be a result of the spill."

"Exxon did not 'make us whole' as they promised, they were grossly negligent and I will continue to boycott them in every way," the plaintiff said.

Exxon Shipping Company, which operated the Exxon Valdez tanker, has been renamed Sea River Shipping Company. The Exxon Valdez was repaired and renamed the Sea River Mediterranean and today is used to haul oil across the Atlantic Ocean.

The ship is prohibited by law from returning to Prince William Sound.

Copyright Environment News Service (ENS) 2008. All rights reserved.