Appeals Court Throws Out Exxon Valdez Penalty

The oil tanker Exxon Valdez dumped 11 million gallons of crude oil into Prince William Sound after its captain, allegedly under the influence of alcohol, ran aground on an underwater reef. The spill was the worst in U.S. history, fouling more than 3,000 square miles and crippling a sensitive ecosystem that has yet to fully recover.

In 1994, a jury in Anchorage, Alaska awarded a group of 33,000 fishers, property owners and Alaska Natives harmed by the massive oil spill a total of $5 billion in damages as well as $287 million for compensatory damages.

But on November 7, a three judge panel of the U.S. Court of Appeals for the Ninth Circuit found that award to be excessive in light of recent Supreme Court rulings on damage awards. The court ruled that Exxon, which has since merged with Mobil to become the Exxon Mobil Corporation, can be made to pay punitive damages, but only of about $1.6 billion.

The ruling sends the case back a judge at the district court in Alaska for a new ruling on damages, consistent with two earlier, precedent setting cases in which the Supreme Court outlined the factors that must be considered regarding punitive damage awards. These factors include the reprehensibility of the defendant's conduct, the ratio of the award to the harm inflicted on the plaintiffs, and the difference between the award and the civil or criminal penalties in similar cases.

Kleinfeld said Exxon mitigated its reprehensibility by spending more than $2 billion to remove the oil from the Sound, some 1,500 miles of shoreline fouled with sticky oil, "and even from the individual birds and other wildlife dirtied by the oil."

Exxon also "began settling with property owners, fishermen and others whose economic interests were harmed by the spill," Kleinfeld wrote, spending $300 million on voluntary settlements "prior to any judgments being entered against it." In 1994, an Anchorage jury determined that actual damages totaled $287 million and rejected the plaintiffs' claims for additional compensatory damages.

Exxon, which had argued that it should not be liable for any punitive damages, had called the $5 billion award -- the largest punitive damage award in history at the time, equal to a year's worth of the company's profits -- "completely unwarranted, unfair and is excessive by any legal or practical measure."

Exxon Mobil Corporation applauded the appeals court decision, saying it confirmed the company's position that the award was excessive.

The company halted its cleanup efforts in 1992, when the state of Alaska and the U.S. Coast Guard declared the cleanup complete, Raymond noted.

Environmental groups and the Alaska government criticized the court's decision. The spill killed at least a quarter million birds, and thousands of marine mammals. A study released after the 10 year anniversary of the spill showed that just two species, the bald eagle and the river otter, had fully recovered from the disaster, while 10 species showed virtually no recovery.

The spill also disrupted fishing communities, sending many fishers into bankruptcy and forcing many others to relocate from the only homes they had ever known.

Alaska Governor Tony Knowles said that the case against Exxon has gone on too long, and the current court decision will not heal the state's wounds.

Despite efforts to protect locations like this salmon hatchery with floating booms, most fisheries were seriously damaged by the spill "The Exxon Valdez oil spill has really been a cloud that has hung over those fishing families and communities for more than a decade," Knowles said. "The court decision today didn't bring any resolution to that."

The Sierra Club said the appeals court ruling could mean that polluting companies will view the risk of massive punitive damages as a see less of a deterrent, making them less likely to take steps to prevent accidents.

"Anyone who thought we could count on the courts to ensure that the oil industry keeps its promises, and acts responsibly, has had a wake up call today," said Sierra Club executive director Carl Pope. "Once again, when we match the promises of 'clean, safe, environmentally responsible oil development' against reality, the promises lose. The oil industry always has, and apparently always will, cut corners, and take risks -- and the courts will only slap them on the wrist."

"Exxon harmed the environment and threatened the livelihood of Alaskans," continued Pope. "A lower fine sends a message that you can get away with it."

The Ninth Circuit appeals court noted that the suit was "not a case about befouling the environment. This is a case about commercial fishing."

"The verdict in this case was for damage to economic expectations for commercial fishermen," the court said.

Because the lower court found that Exxon and the captain of the Valdez, Joseph Hazelwood, were guilty of recklessness in causing the tanker to run aground on a charted reef, the company is liable for punitive damages, the appeals court said.

"Plaintiffs correctly argue that Exxon's conduct was reprehensible because it knew of the risk of an oil spill in the transportation of huge quantities of oil through the icy waters of Prince William Sound," the court ruled. "And it knew Hazelwood was an alcoholic who was drinking. But this goes more to justify punitive damages than to justify punitive damages at so high a level."

Lawyers for some of the fishers and property owners said they might challenge the ruling, or even try to take the case to the Supreme Court.

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