Exxon Valdez Award Questioned at U.S. Supreme Court

Posted by Oil Tycoon

February 29, 2008

U.S. Supreme Court justices questioned the $2.5 billion punitive damage award assessed against Exxon Mobil Corp. for the 1989 Valdez oil spill, the largest in American history.

Hearing arguments today in Washington, some justices suggested that federal law bars Exxon Mobil from being punished for the conduct of the tanker’s captain, Joseph Hazelwood. The 83-day trial included evidence that Hazelwood was drunk on the night the vessel crashed into a reef in Alaska.

“I don’t see what more a corporation can do,” Chief Justice John Roberts said, pointing to the company’s prohibition on alcohol use by on-duty vessel officers.

Other justices, including Stephen Breyer and David Souter, suggested they might vote to limit the company’s payment, while stopping short of barring the award altogether. Exxon Mobil contends that it has paid enough — $3.4 billion in cleanup costs, fines and other spill-related expenses.

Souter raised the possibility that punitive damages would be limited to “double” the damages for actual harm caused by the spill. That reasoning might slash the award to $1 billion or less.

Still, the 90-minute argument session made clear that the court was likely to be divided, possibly 4-4 on some aspects of the case. Justice Samuel Alito, who said on his 2007 financial disclosure report that he owned Exxon stock, isn’t taking part.

Victim Group

The punitive award would go to a group that originally consisted of 33,000 commercial fishermen, seafood processors, landowners, native Alaskans and small businesses. The victims sued in 1989, won a $5 billion punitive damage award in 1994, then saw the case spend the next 14 years bouncing up and down the court system.

Justice Ruth Bader Ginsburg emerged as perhaps the staunchest champion for the victims among the justices today.

“The jury could have found that Exxon knew that this captain had a severe alcohol problem, and yet they let him stay on voyage after voyage and did nothing about it,” she said.

Unlike similar cases the court has considered, the fight doesn’t involve the constitutional limits on punitive awards. Exxon Mobil instead says the award violates federal maritime law, a largely judge-made set of principles governing the rights and duties of commercial vessels.

In maritime cases, “there’s no established tradition of punitive damages,” argued Exxon’s lawyer, Walter Dellinger.

Exxon Argument

Exxon Mobil last year broke its own record for annual profit by a U.S. corporation with $40.6 billion. The company, based in Irving, Texas, has obtained a letter of credit and set aside $5.4 billion to cover its payments in the case. Exxon fell 50 cents to $89.39 at 4:01 p.m. in trading on the New York Stock Exchange.

Exxon Mobil contends that Congress laid out the criminal and civil penalties for oil spills in the Clean Water Act and that courts can’t use maritime law to impose additional punishment.

Alternatively, Exxon Mobil says maritime law doesn’t permit “vicarious” punitive damages — those that punish a company for the misconduct of its employees. A victory on that issue could mean a new trial in the case.

The company also contends that, even if punitive damages are permissible, the Valdez award is too large. Should the company pay the full award, plus more than $2 billion in accrued interest, it would be the largest-ever punitive damage payment.

The victims’ lawyer, Jeffrey Fisher, argued that Exxon should be held responsible for Hazelwood’s actions.

“He was the person who decided on behalf of Exxon that it was safe to leave port the night of March 23, 1989,” Fisher argued.

Scalia and Kennedy

Fisher met resistance on that issue from Roberts, Antonin Scalia and Anthony Kennedy, who questioned whether Hazelwood’s position in the company was high enough to warrant punishing Exxon Mobil.

“Certainly he was not entitled to set aside the policy of Exxon that you cannot navigate a vessel while intoxicated,” Kennedy said.

To win the case, Exxon Mobil must secure five votes — most likely Roberts, Scalia, Kennedy, Clarence Thomas and either Breyer or Souter.

Neither Breyer nor Souter offered much support for Dellinger’s contention that Exxon Mobil shouldn’t be punished for Hazelwood’s actions. Both, however, have backed constitutional limits on punitive damages and today voiced interest in applying the reasoning from those cases to the maritime context.

Alaska’s top political leaders, including its Republican governor and U.S. senators, are backing the victims, as are 34 states. The Bush administration, taking a low profile, didn’t file a Supreme Court brief even though the dispute involves the meaning of the U.S. Clean Water Act.

Damage estimates vary. Up to 2,800 sea otters and 250,000 seabirds died in the days after the spill, according to a 2003 study published in Science magazine. Harbor seals, killer whales and other wildlife also died, and the herring fishery in the village of Cordova closed.

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

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