Supreme Court to Hear Exxon Valdez Punitive Damages Award

WASHINGTON -(Dow Jones)- The U.S. Supreme Court Monday extended its examination of punitive damages against corporations by taking up a $2.5 billion award against Exxon Mobil Corp. (XOM) over the 1989 Valdez oil spill in Alaska.Although the lawsuit turns on the narrow field of federal maritime law, the appeal presents both the chance for the oil giant to reduce or overturn the award and for the justices to put a finer point on how courts reach financial figures in punitive damages cases.

The punitive award against the oil giant is the largest ever levied in a U.S. federal court proceeding and is the final major litigation left from the Valdez oil spill. It stems from class-action litigation brought by Alaska fishermen and others seeking compensation for lost business due to the oil spill. Exxon Mobil has separately paid more than $3.4 billion in claims and fines relating to the spill, which dumped 258,000 barrels of oil into the Prince William Sound after the Valdez oil tanker ran aground.

Exxon Mobil’s appeal, supported by numerous business groups, challenges the award with several legal arguments. Among other things, the company argued a federal appeals court ignored both recent punitive damages precedent and improperly allowed the damages award under maritime law.

In recent years the Supreme Court has put restrictions on the size of punitive damages awards and limited the use of awards to punish broader conduct outside the scope of a particular case.

In granting the appeal, the court was careful to note it was limiting its review to how punitive damages should be handled under maritime law.

Exxon Mobil, in its appeal, argued its case has broader implications.

“This record punitive award unquestionably raises important issues of constitutional dimension,” the company said. Exxon Mobil argued the $2.5 billion punitive damages award was excessively large when compared with $500 million in actual damages awarded in the case.

Attorneys for the plaintiffs said the award covers 32,677 claimants and grants them reasonable damages from the spill. “The jury awarded punitive damages proportionate to the harm,” the attorneys said. “None of Exxon’s arguments for further review has force.”

Plaintiffs in the case include fishermen, cannery workers, property owners and other businesses in the Prince William Sound area.

The trial in this case began in 1994 and resulted in a $5 billion award against the oil company. The 9th U.S. Circuit Court of Appeals in San Francisco first ruled in the case in 2001 when it upheld damages against Exxon Mobil but ordered the trial court to reduce the award. A second appeal to the Ninth Circuit was decided in 2006 that upheld the $2.5 billion punitive damages figure.

The case is Exxon Shipping Co. and Exxon Mobil Corp. v. Baker, 07-219. Oral arguments will be held in early 2008 and a decision will be released by July, 2008.

Justice Samuel Alito recused himself from the appeal but did not give a reason for doing so.

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