S. Ct. Reduces Punitive Damages in Exxon Valdez Case

The court held that in maritime cases, punitive damages should be no more than the compensatory damages. That one-to-one ratio, a new legal standard, applies only to maritime law.

WASHINGTON, DC (MCT) - In a victory for corporations seeking to limit big-dollar lawsuits, the Supreme Court on Wednesday cut 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 the hopes of more than 32,000 fishermen and Alaska Natives who've been waiting for nearly 20 years to hear whether Exxon Mobil Corp. must pay billions in punitive damages for its role in the Exxon Valdez disaster.

The original multibillion-dollar punitive damages had been awarded as punishment for Exxon's role in spilling 11 million gallons of oil into the pristine fishing waters of Alaska's Prince William Sound.

Five justices signed the majority opinion; three dissented with parts of it. The court held that in maritime cases, punitive damages should be no more than the compensatory damages. That one-to-one ratio, a new legal standard, applies only to maritime law.

"The punitive damages award against Exxon was excessive as a matter of maritime common law," Justice David Souter wrote in the majority opinion. "In the circumstances of this case, the award should be limited to an amount equal to compensatory damages."

That left the lawyers for the plaintiffs sputtering.

"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 Brian O'Neill, one of the main attorneys for the plaintiffs. "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."

Rex Tillerson, Exxon's chairman and chief executive officer, issued a short statement saying that the company continues to regret the accident, but he didn't specifically address the Supreme Court decision.

"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."

The case will go back to the U.S. District Court in Anchorage, Alaska, within the next several weeks. With interest, the total award adds up to nearly $1 billion. Much of that will go to commercial fishing interests, and about 20 percent to lawyer's fees.

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Plaintiffs can expect to begin getting money within 90 to 120 days, said David Oesting, the Anchorage attorney who's been working on the case for two decades. But the court's decision means that the awards will be about one-fifth of what many people were expecting.

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"They took a hell of a blow," Oesting said of the fishermen who've been waiting for their payout. "This is not anywhere near enough punishment."

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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 9th U.S. Circuit Court of Appeals decision that had determined the company was liable for punitive damages still stands.

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

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. But most legal experts say that the scope of the decision is limited to maritime law.

Still, the court laid out a careful and deliberative case for curtailing punitive damages. The court in its decision pushed for what it called "eliminating unpredictable (excessive) punitive awards."

"In many instances a high ratio of punitive to compensatory damages is substantially greater than necessary to punish or deter," Souter wrote. "The real problem, it seems, is the stark unpredictability of punitive awards."

The decision applies specifically to punitive damages under maritime law, meaning that Exxon won on "the narrowest grounds possible," said Jonathan Adler, the director of the Center for Business Law and Regulation and the 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."

Other legal experts, however, say that they expect the decision to creep into other areas of law in which businesses face sizable punitive-damage awards.

"We see this as a very big victory, principally because we think that the court understands our concerns," said Amar Sarwal, the chief litigation counsel for the U.S. Chamber of Commerce.

The 32,677 plaintiffs in the case have been waiting for their compensation since 1994, when a jury in Anchorage returned a $5 billion punitive-damages award against Exxon Mobil. The company has been appealing the verdict since then. In 2006, the 9th U.S. Circuit Court of Appeals cut the award to $2.5 billion. Exxon appealed that decision to the Supreme Court, which heard oral arguments in the case Feb. 27.

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(McClatchy Newspapers correspondent Michael Doyle contributed to this article.)

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© 2008, McClatchy-Tribune Information Services.