Exxon Valdez: 'This is it; it's done'

June 26, 2008 

WASHINGTON -- In a victory for corporations seeking to limit big-dollar lawsuits, the U.S. Supreme Court on Wednesday sharply reduced the $2.5 billion in punitive damages awarded in the 1989 Exxon Valdez oil spill.

The court reduced the award to $507.5 million, dashing hopes of more than 32,000 fishermen and Alaska Natives who had been waiting for nearly 20 years to hear whether Exxon Mobil Corp. would have to pay punitive damages for grounding the tanker on Bligh Reef and spilling 11 million gallons of crude oil into the fishing waters of Prince William Sound.

An Anchorage jury originally set the award at $5 billion in 1994, but that was cut in half on appeal.

With accumulated interest, the new punitive damage award will total around $1 billion, attorneys involved in the case said.

The court held 5-3 that in maritime cases punitive damages should be no more than the compensatory, or actual, damages. That 1-to-1 ratio, a new legal standard for punitive awards, applies only to punitive damages meted out under maritime law. It is designed to address "the stark unpredictability of punitive awards," the court decided.

"The punitive damages award against Exxon was excessive as a matter of maritime common law," Justice David H. Souter wrote in the majority opinion. "In many instances a high ratio of punitive to compensatory damages is substantially greater than necessary to punish or deter," Souter wrote.

In a dissent, Justice Stephen G. Breyer wrote that the 1-to-1 ratio was too rigid for the egregious nature of Exxon's conduct. Justices Ruth Bader Ginsburg and John Paul Stevens also disagreed with reducing the punitive award.

Lawyers for the plaintiffs had argued that the big payout was necessary to punish Exxon and to compensate fishermen and others for what they described as a loss, for some, of a way of life after the spill.

"I feel bad for all the claimants, that they're not going to get enough money to put together their lives again," said Brian O'Neill, one of the main attorneys for the plaintiffs. "I feel bad for all the claimants because they're not going to get the satisfaction knowing that there was a just punishment administered to Exxon. And I feel bad for all of the claimants because the judicial system has let them down. It just isn't fair."

"They took a hell of a blow," said another attorney, David Oesting of Anchorage, who has worked on the case for two decades. "This is not anywhere near enough punishment."

Exxon chairman and CEO Rex Tillerson issued a short statement saying the company continues to regret the accident, but he did not specifically address the Supreme Court decision other than to acknowledge that the court had issued it.

"We know this has been a very difficult time for everyone involved," Tillerson said. "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."

CHECKS IN 3 OR 4 MONTHS

The case now goes back to the U.S. District Court in Anchorage within the next several weeks. The court is expected to issue a final ruling without a hearing, a step that leads to issuing payments to the plaintiffs.

Much of the money will go to commercial fishing interests, and about 22.4 percent goes to lawyer fees. The 32,677 plaintiffs can expect to begin getting money within 90 to 120 days, said Oesting.

Within 25 days, the Supreme Court will issue an order to the 9th U.S. Circuit Court of Appeals vacating its judgment and ordering a new one consistent with the high court's opinion, Oesting said. The 9th Circuit may spend a few weeks on its paperwork, which will order the U.S. District Court in Alaska to authorize the $507.5 million punitive judgment. The District Court won't even have to hold a hearing on it, Oesting said.

"This is it. It's done," Oesting said.

The vote was close. If one more justice had disagreed about setting a new compensatory limit, the split would have upheld the lower court's $2.5 billion award.

Exxon based its appeal on an 1818 court decision that holds ship owners aren't liable for punitive damages for the actions of their agents at sea unless they're complicit in their behavior. The court was divided 4-4 on that issue, so the lower court decision stands that the company was liable for the actions of the Valdez captain, Joseph Hazelwood.

Justice Samuel A. Alito, who owned Exxon stock, recused himself from the case, making it more difficult for the court to achieve any majority.

"We were within one vote of winning, and within one vote of losing the whole thing," said Lloyd Miller, who represented Native plaintiffs in the case.

TAX RELIEF ON WINDFALL?

The 32,677 plaintiffs in the case have been waiting for their compensation since the original award in 1994. The company has been appealing the verdict since then. In 2006, the 9th U.S. Circuit Court cut the award to $2.5 billion. Exxon appealed that decision to the Supreme Court, which heard oral arguments in the case Feb. 27.

Since the plaintiffs are not getting near the windfall they expected, it's crucial that they be granted some tax relief on whatever they do end up receiving, said Rochelle van Den Broek, executive director of Cordova District Fishermen United.

"It's more important than ever because we need to preserve the limited amounts the plaintiffs will get," van Den Broek said. "I'd rather the plaintiffs have it in their retirement accounts than have it go to the IRS."

Sen. Lisa Murkowski, R-Alaska, has suggested legislation that would let the plaintiffs in the case pay taxes on the punitive damages award over three years rather than just in one tax year. It's similar to tax codes that let fishermen average their income over three years.

If plaintiffs receive a windfall, they also would be allowed to put up to $100,000 of the money into retirement accounts to defer taxes. Under Murkowski's proposal, plaintiffs would be exempt from payroll or self-employment taxes on any payouts from Exxon.

Murkowski is continuing to work to attach it to a separate tax measure in the Senate, a spokesman said.

LEGAL PRECEDENT

Although business groups such as the American Petroleum Institute and the U.S. Chamber of Commerce had hoped that the Supreme Court would use the case as a way to curb large punitive damages against corporations in non-maritime cases, Wednesday's Supreme Court decision applies specifically to punitive damages under maritime law.

And $507.5 million is still "a huge amount of punitive damages," said John Kimball, who practices maritime law with Blank Rome in New York and who teaches admiralty law at New York University.

"The plaintiffs will not look at that way, but it's still a huge amount of money," he said. "Business will not get a lot of comfort from that."

Exxon won on "the narrowest grounds possible," said Jonathan Adler, the director of the Center for Business Law and Regulation at Case Western Reserve University School of Law in Cleveland.

That lessens the value of the decision for future questions of punitive damages in non-maritime cases, Adler said.

"For Exxon what matters is the check they have to write," Adler said. "Exxon got a dramatic reduction in their damages, but it was not based on some broad, sweeping principle that's going to be used in other cases."

Still, the court laid out a careful and deliberative case for curtailing punitive damages, and legal experts say it could be used as a model outside of maritime law.

It will probably begin to creep into other cases where lawyers defending corporations are seeking to scale back sizable punitive damage awards, said Amar Sarwal, the chief litigation counsel for the U.S. Chamber of Commerce.

"We see this as a very big victory, principally because we think that the court understands our concerns," said Sarwal, whose organization filed a friend-of-the-court brief on Exxon's behalf.

But the lawyers who represented plaintiffs in the case say they believe the Supreme Court showed itself Wednesday to be friendly to the interests of the world's most profitable corporation, not those with the limited means to seek punishment.

"I prefer to think of it as five of the justices on the Supreme Court going out of their way to help big business," said O'Neill, the plaintiffs' lawyer. "This is a huge favor for big business, that's what it is. They don't feel punished at all by this. It isn't even a mosquito bite. They're laughing."


Michael Doyle of the McClatchy Newspaper Washington bureau and Tom Kizzia of the Daily News contributed to this article.


What's next?

Within 25 days, the U.S. Supreme Court will issue an order to the 9th U.S. Circuit Court of Appeals vacating its judgment and ordering a new one consistent with the high court's opinion.

The 9th Circuit will order the U.S. District Court in Alaska to authorize the $507.5 million punitive judgment with interest.

Meetings with plaintiffs scheduled in Kodiak, Kenai, Cordova, Anchorage and Seattle starting Friday and continuing into next week.

Plaintiffs should receive checks within 90 to 120 days, according to an attorney for the plaintiffs.

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