U.S. Sup. Ct. reduces Exxon Valdez award by 2.2 billion – Punitive damages can’t exceed compensatory damages in this case

By Mark H. Anderson    June 25, 2008

This ruling was based on Maritime Law and does not necessarily apply to general damages law, however, Justice Ruth Bader Ginsburg, in her dissent, expressed concern the one-to-one restriction could later be reflected in a broader punitive-damages ruling by the court

 

WASHINGTON -(Dow Jones)- The U.S. Supreme Court Wednesday said punitive damages are allowed in a lawsuit over the 1989 Valdez oil spill, but by a 5-3 vote ordered lower courts to reduce the $2.5 billion award to no more than $ 507.5 million.

Justice David Souter, in the court’s majority opinion, said the punitive- damages award should be brought into line with compensatory damages calculations made by lower courts earlier in the litigation.

 

“The award here should be limited to an amount equal to compensatory damages,” Souter wrote, adding the high court ruling endorses a $507.5 million amount calculated by a federal trial judge in 2002. “Our explanation of the upper limit confirms that the one-to-one ratio is not too low,” Souter added.

 

The high court otherwise split 4-4 on whether maritime laws allow Exxon to be punished for the actions of the oil tanker’s captain, who created one of the largest environmental incidents in U.S. history. But a majority also concluded that federal environmental laws, which were also at issue in the appeal, don’t bar punitive damages against the oil giant.

This split vote occurred because Justice Samuel Alito, who has a sizable investment in Exxon Mobil stock, was recused from the case. The decision adds to other recent examples where stock-related recusals have limited the court’s ability to resolve an appeal. Alito in 2007 voted with the majority to limit punitive damages in a case involving Altria Group Inc.’s (MO) Philip Morris unit, but it isn’t clear how his participation might have altered the Exxon Mobil case.

 

The high court ruling threw out the $2.5 billion damages award, previously upheld by the 9th U.S. Circuit Court of Appeals in San Francisco in 2006. The case now goes back to lower courts so a new punitive-damages award that does not exceed $507.5 million can be determined, the opinion said.

 

Exxon Mobil, in a statement, said the Valdez oil spill is an accident the ” corporation deeply regrets” and that after taking responsibility for the spill it “spent over $3.4 billion as a result of the accident, including compensatory payments, cleanup payments, settlements and fines.”

 

“I am extremely disappointed with today’s decision by the U.S. Supreme Court,” Alaska Gov. Sarah Palin said. “While the decision brings some degree of closure to Alaskans suffering from 19 years of litigation and delay, the Court gutted the jury’s decision on punitive damages.”

 

Business groups, which count reducing punitive-damages awards as a top priority, reacted positively to the opinion. Robin Conrad, head of the U.S. Chamber of Commerce’s litigation arm, said that although the ruling is limited to maritime disputes, it could ultimately lead to tighter restrictions on punitive damages. “Limiting punitive damages to no more than the amount of a compensatory award will go a long way in cabining unpredictable punitive damages,” Conrad said.

 

Justice Ruth Bader Ginsburg, in her dissent, expressed concern the one-to-one restriction could later be reflected in a broader punitive-damages ruling by the court. Currently, Supreme Court precedent – beyond maritime law – generally limits punitive damages to single-digit ratios. “On next opportunity, will the court rule, definitively, that one-to-one is the ceiling due process requires in all of the states?” Ginsburg wrote.

Chief Justice John Roberts Jr. and Justices Antonin Scalia, Anthony Kennedy and Clarence Thomas joined Souter in the majority holding limiting the punitive damages under maritime law.

 

Justices John Paul Stevens, Ginsburg and Stephen Breyer dissented, saying the court went too far in restricting punitive damages to a one-to-one ratio with compensatory damages.

 

“The punitive-damages award before us already represents a 50% reduction from the amount that the District Court strongly believed was appropriate. I would uphold it,” Justice Breyer wrote in his dissent. Justices Stevens and Ginsburg also wrote dissenting opinions separately that explained their reasoning for rejecting the court’s limitation of the damages.

 

Exxon Mobil could not immediately be reached for comment.

The Exxon Valdez spilled millions of gallons of oil into Alaska’s Prince William Sound almost 19 years ago in one of the largest environmental accidents in U.S. history. The company has paid over $3.4 billion in remediation, fines, compensation and other costs.

The case before the court was brought separately by a class of 32,677 fishermen and other interests that had business disrupted by the oil spill. The case has been in litigation for 13 years, a timeframe in which the plaintiffs allege 20% of those eligible for damages have died.

 

Exxon Mobil had attacked the award on several fronts, arguing that maritime law doesn’t allow punitive-damages awards and that the federal Clean Water Act, which guided more than $900 million in sanctions and fines related to the spill, also bars the punitive-damages award. Neither argument appeared likely to prevail in the eventual Supreme Court ruling.

 

The lawsuit before the court began in 1994, almost five years after the Valdez supertanker dumped 258,000 barrels of oil into the Prince William Sound. After a lengthy trial, a jury awarded those harmed by the spill $287 million in compensatory damages and $5 billion in punitive damages.

 

The Ninth Circuit 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 in punitive damages.

The case is Exxon Shipping Co. and Exxon Mobil Corp. v. Baker, 07-219.

 

 

This case will be posted shortly at Latest Slip Opinions

 

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