June 26, 2008

5-3 Ruling Slashes $2.5B Penalty in Exxon Valdez Case

By Joan Biskupic

WASHINGTON -- The Supreme Court on Wednesday tossed out a $2.5 billion punitive damages award arising from the 1989 grounding of the Exxon Valdez, in a 5-3 decision that strengthens its trend of curtailing damages to punish and deter wrongdoing.

The majority found that commercial fishermen and other Alaska businesses should have won no more than $507.5 million in punitive damages for the losses caused by the supertanker's spill of 11 million gallons of crude oil into Prince William Sound.

The court declared the $2.5 billion award excessive under maritime law and said punitive damages for shipping accidents should not exceed compensatory, or actual, damages.

"A penalty should be reasonably predictable in its severity," Justice David Souter wrote for the majority. In maritime cases, he said, there should be a 1-1 ratio between punitive and actual damages. He calculated the relevant compensatory damages for the Exxon Valdez spill at $507.5 million.

The lawyer for the 32,677 Alaskans whose businesses were disrupted when the vessel hit Bligh Reef expressed disappointment. "Over 20% of them have died since the spill. And a large percentage of them have gone bankrupt," Stanford University law professor Jeffrey Fisher said. "Every time a court chips away at the award, it's a fresh injury. This is the final blow."

A jury initially awarded $5 billion in punitive damages, after finding Exxon Valdez captain Joseph Hazelwood and Exxon reckless. Evidence at the 1994 trial showed that Hazelwood, who had a record of alcohol-related problems and had been drinking before the crash, left his post on the bridge as the supertanker faced a difficult turn.

A U.S. appeals court cut the $5billion in half, and the award remained the subject of litigation for a decade. In the end, Fisher said, the money will be distributed based on the severity of an individual's loss. He estimated the average award now at $15,000.

"We know this has been a very difficult time for everyone involved," ExxonMobil Chairman and CEO Rex Tillerson said in a statement. "We have worked hard over many years to address the impacts of the spill and to prevent such accidents."

The case of Exxon Shipping v. Baker addressed the reach of maritime law. Yet some business groups and advocates for damages limits said the rationale might support their efforts in other injury cases.

Andrew Frey, a New York lawyer who has represented various companies at the court in the past two decades urging limits on damages, said he believed the ruling could persuade state judges to keep punitive damages equal to actual damages in other types of cases. "The Supreme Court may influence some state courts to go down the same road," he said.

Environmental groups criticized the decision. "The worst environmental calamity in U.S. history will continue to haunt the Prince William Sound and those dependent upon it for their livelihoods," said John Passacantando, director of Greenpeace USA, in a statement.

Justices John Paul Stevens, Ruth Bader Ginsburg and Stephen Breyer dissented. They said the $2.5 billion award should have stood. Justice Samuel Alito, who owns Exxon stock, did not take part in the dispute.