WASHINGTON - The Supreme Court on Wednesday slashed the $2.5 billion punitive damages award in the Exxon Valdez disaster
to $500 million, a decision that could have broader implications for
limiting how much courts can order businesses to pay.
The decision was hailed by the business community and decried by environmentalists and Alaskans.
The court ruled that the victims of the worst oil spill in U.S. history may collect punitive damages from Exxon Mobil Corp. that amount to an average of $15,000 for each person who filed a claim against the energy company.
Justice David Souter
wrote for the court that punitive damages may not exceed what the
company already paid to compensate victims for economic losses, $507.5
million, an amount equal to about four days worth of Exxon Mobil Corp.'s profits last quarter.
The Exxon Valdez case
involves reckless action that was "profitless" for the company and that
has already resulted in substantial recovery for substantial injury,
Souter wrote. A penalty should be "reasonably predictable" in its
severity, he added.
The case grew out of the 1989 crash of the Exxon Valdez,
a supertanker that dumped 11 million gallons of crude oil into Alaska's
Prince William Sound, fouling 1,200 miles of coastline.
A jury decided in 1994 that Exxon should pay $5 billion in punitive damages. In 2006, a federal appeals court cut that verdict in half.
Exxon asked the Supreme Court to reject the punitive damages
judgment altogether, saying the company already has spent $3.4 billion
to clean up the spill and compensate Native Alaskans, landowners and
Nearly 33,000 plaintiffs are in line to share in the award approved
Wednesday, an average of about $15,000 a person. They would have
collected an average of $75,000 each under the $2.5 billion judgment.
The Supreme Court was divided on its decision, 5-3. Justice Samuel Alito took no part in the case because he owns Exxon stock.
Amar Sarwal, general litigation counsel for the U.S. Chamber of
Commerce, said the ruling gives an "extraordinary amount of guidance"
to courts beyond the Exxon Valdez case.
Plaintiffs attorneys pushed back, saying that the ruling applies solely to cases involving maritime law.
"Those who claim it stands for a generalized punitive damage limit
are wrong," said Kathleen Flynn Peterson, president of the American
Association for Justice, a national group of plaintiffs attorneys.
Souter wrote that the legal landscape is filled with examples of ratios and multipliers for punitive damages versus compensatory damages, saying most of them fall short of offering reasonable limitations in the Exxon Valdez case.
Osa Schultz of Cordova, Alaska, said she was "pretty disappointed"
with the amount of the settlement. "On the other hand, I'm relieved
they slapped Exxon in the face," Schultz said, adding that a $15,000
award wouldn't even begin to cover the losses to her and her husband's
gillnet fishing business.
Exxon has fought vigorously to reduce or erase the punitive damages verdict by a jury in Alaska for the accident that dumped 11 million gallons of oil into Prince William Sound. The environmental disaster led to the deaths of hundreds of thousands of seabirds and marine animals.
In an opinion dissenting from the Souter decision, Justice John Paul Stevens
endorsed the $2.5 billion figure for punitive damages, pointing out
that Congress has chosen not to impose restrictions in such
Justice Ruth Bader Ginsburg
also dissented, saying the court was engaging in "lawmaking" by
concluding that punitive damages may not exceed what the company
already paid to compensate victims for economic losses.
"The new law made by the court should have been left to Congress," wrote Ginsburg. Justice Stephen Breyer made a similar point, opposing a rigid 1 to 1 ratio of punitive damages to victim compensation.
Writing for the majority, Souter said that traditionally, courts
have accepted primary responsibility for reviewing punitive damages and
"it is hard to see how the judiciary can wash its hands" of the problem
by pointing to Congress for a solution.
On the question of whether Exxon was on the hook for punitive
damages at all, the court split 4-4, which leaves the appeals court
opinion saying that Exxon is liable. Had Alito participated, he could
have been the deciding vote on the question, possibly leaving the
victims with no punitive damages.
The problem for the people, businesses and governments who waged the lengthy legal fight against Exxon is that the Supreme Court in recent years has become more receptive to limiting punitive damages awards. The Exxon Valdez case differs from the others in that it involves issues peculiar to laws governing accidents on the water.
Overall, Exxon has paid $3.4 billion in fines, penalties, cleanup costs, claims and other expenses resulting from the worst oil spill in U.S. history.
The commercial fishermen, Native Alaskans, landowners,
businesses and local governments involved in the lawsuit have each
received about $15,000 so far "for having their lives and livelihood
destroyed and haven't received a dime of emotional-distress damages,"
their Supreme Court lawyer, Jeffrey Fisher, said when the court heard arguments in February.
First-quarter profits at Exxon Mobil Corp. were $10.9 billion. The company's 2007 profit was $40.6 billion.
Associated Press writers Mark Thiessen and Rachel D'Oro in Anchorage, Alaska, contributed to this story.
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