A federal judge on Wednesday rejected the criminal fine Exxon had agreed to pay for its huge 1989 oil spill, throwing a carefully negotiated settlement package into disarray.
U.S. District Court Judge Russel Holland said the proposed $100 million fine was insufficient to punish the giant oil company for the damage caused when the tanker Exxon Valdez ran aground and spilled nearly 11 million gallons of crude oil into Prince William Sound.
"I'm afraid these fines send the wrong message and suggest that spills are a cost of business that can be absorbed," he said.
"I feel very comfortable saying the fines that were proposed to me are simply not adequate.
"There is no question the Exxon Valdez oil spill was off the chart compared to other environmental disasters in this country," he said. "The damage was very great."
Last month, the state of Alaska, the U.S. Justice Department and Exxon agreed the company would plead guilty to four misdemeanor environmental crimes, pay $100 million in criminal penalties and $900 million in civil damages a package deal that may now unravel.
"The court's action today . . . threatens the . . . civil settlement to which Exxon has separately agreed," the Justice Department said in a prepared statement.
Under the terms of the proposed settlement package, Holland's ruling frees Exxon to pull out of the civil settlement. The company has until May 4 to withdraw. The state and federal governments have until May 3 to pull out.
Holland told Exxon's lawyers that they are also now entitled to withdraw their guilty pleas in the criminal case and gave them until May 24 to decide.
Gov. Wally Hickel has said he will withdraw the state's support for the civil settlement if it is not approved by the legislature, something that becomes more likely with Holland's ruling.
But in a surprise about-face, Hickel said Wednesday he is not committed to that. He said the state might still agree to the civil settlement even if the legislature votes it down.
Hickel, who made the settlement a priority and claims it as a personal victory, said Wednesday he still thinks it's a good deal and the best that could be negotiated. The agreement calls for most of the Exxon
money to be spent cleaning up and restoring Prince William Sound.
Exxon had no comment on the judge's ruling.
Legislative critics of the settlement and environmentalists were thrilled by Holland's decision.
"If I had fireworks I'd let them off," said Rep. Dave Donley, D- Anchorage. "Nobody who loved Alaska and the land could have liked that unconscionable plea agreement."
Donley and other lawmakers said the Holland ruling makes it more likely the legislature will reject the civil settlement.
Said Rep. Cliff Davidson, "I believe the judge acted in the best interest of the environment, the American people and the residents of Alaska."
"I think it goes a long way toward killing the whole thing," said Riki Ott, an environmentalist who since the wreck of the Exxon Valdez has pushed for tougher spill laws.
"I'm hoping that what the judge did will give the legislature an adrenalin shot and they will do the same thing say no."
Lawmakers saw a clear link between the $900 million civil settlement and Holland's decision that the $100 million federal criminal penalty was not enough.
"I think that tells us that the civil settlement isn't enough either," said Rep. Fran Ulmer, D-Juneau. Ulmer, Donley and Davidson are members of the House Special Committee on the Exxon Valdez Settlement.
Ulmer said the legislature may not even have to make up its mind about the settlement.
"There is a lot of speculation that Exxon will pull out," she said.
Some of that speculation is fueled by testimony given by top federal lawyers last week who said Exxon was most interested in settling the criminal, not civil, case.
"The criminal case was the major motivation driving Exxon to the table," Thomas Campbell, general counsel of the National Oceanic and Atmospheric Administration, told senators last week.
Senate Majority Leader Rick Halford, R-Chugiak, said the state should not even consider approving the civil settlement unless there is some indication that Exxon wants to stay in the deal.
Halford and House Majority Leader Max Gruenberg, D-Anchorage, said Exxon should make its intentions known as soon as possible and not make the legislature wait 10 days to find out what will happen.
Senate President Dick Eliason, who has been supportive of the settlement, said the civil agreement should not be approved unless it is renegotiated to include the $50 million the state would have gotten from the criminal plea bargain.
"If that $50 million isn't in there, its a new ball game," he said.
Several lawmakers said they hoped the deal could now be renegotiated to address legislative concerns about the amount of the settlement, the disposition of secret scientific and economic studies and the legislature's authority to appropriate settlement money.
Hickel said that's not likely.
"You accept it or reject it," Hickel said. "That's the way we took it, and that's the way we passed it on to the legislature."
Alaska Attorney General Charlie Cole said the civil settlement should still be approved.
"I feel every reason which led to the agreement is as valid this afternoon as it was when we signed the agreement on March 12," he said. If it is rejected, "We'll go back to the legal trench warfare."
The criminal case began last year when U.S. Attorney General Dick Thornburgh announced he was indicting Exxon and said the government was "throwing the environmental book" at the giant oil company and would seek fines of more than $600 million.
Wednesday the Justice Department defended its decision to let Exxon settle the criminal case for $100 million.
"The Department continues to believe that the pleas and the fine provided for represent a just and reasonable settlement of the criminal case," the statement said.
Erik Olson, an attorney with the National Wildlife Federation, said Holland's decision showed that the Justice Department was wrong.
"It sends a strong message to Exxon that punishment of $100 million didn't come close to fitting the crime and that the damage they did wouldn't be solved by Exxon's pocket change."
The first court test of the civil agreement will come Monday in U.S. District Court in Washington, D.C., where Judge Stanley Sporkin will hear complaints by Alaska Native villages that the deal undercuts their ability to collect from Exxon for ruining their traditional subsistence lifestyle.
One of the Natives' lawyers, Michael Hausfeld, said he thinks the settlement will fall apart because of Holland's ruling.
"What Judge Holland focused on was the sweetheart deal for Exxon," Hausfeld said. "He said it was not in the public interest. What we've been saying all along is that it clearly is contrary to Native interests."
Since the settlement was announced, Hickel and Cole have consistently said that if the legislature rejected the proposal, the state would pull out of the deal.
At an April 3 meeting, Cole told a special House committee reviewing the settlement that "the governor has clearly announced that if the legislature does not approve the consent decree, the state will not proceed, and will withdraw from the settlement," according to minutes of the meeting.
Wednesday, though, Hickel steered away from that commitment.
"I'm not going to comment on that until it's over," Hickel said when asked by reporters if he still planned to follow a legislative recommendation.
Hadn't the administration said over and over again that it would?
"No, we might. We might," he said.
"I'm not going back on anything," said Hickel, who then refused to answer any more questions and ended the telephone press conference from Los Angeles. "That's enough. Got to go. See you when I get back."
Lawmakers were perplexed by Hickel's statement.
"I don't know what the governor means by what he says," said Rep. Cliff Davidson, D-Kodiak.
Daily News reporters Kim Fararo and David Whitney contributed to this story.