Court Vacates $5 Billion Award in Exxon Valdez Oil Spill

Nov. 9, 2001
The Ninth Circuit Court of Appeals has vacated the $5 billion punitive damages award against the Exxon Mobil Corp. and Exxon Shipping Co. in the case involving the Exxon Valdez oil spill.

The three judge panel of the Ninth Circuit Court of Appeals in San Francisco vacated the punitive damages award against Exxon Mobil Corp. and Exxon Shipping Co. in the Exxon Valdez Oil Spill Litigation.

The T/V Exxon Valdez, commanded by Captain Joseph Hazelwood, ran aground on Bligh Reef in Prince William Sound, Alaska, on March 23, 1989, spilling 11.8 million gallons of oil into the sound and killing thousands of birds and animals. Residents of the area claim that the spill permanently disrupted or destroyed the livelihoods of people in the commercial fishing industry and Native Alaskans dependent upon subsistence food harvests.

In a trial in September 1994, a jury ordered Exxon to pay about $287 million in compensatory damages to commercial salmon and herring fishermen, plus $5 billion in punitive damages for behavior that led to the 1989 oil spill.

Exxon spent more than $2 billion cleaning up the polluted beaches of Prince William Sound and another $1 billion settling government claims.

Exxon Mobil Corp. Chairman Lee Raymond said the Valdez oil spill "was a tragic accident that the company deeply regrets." He added that the company took "immediate responsibility for the spill, cleaned it up, and voluntarily compensated those who claimed direct damages."

ExxonMobil voluntarily began paying damage claims immediately after the accident to fully compensate those directly damaged by the spill. More than 11,000 people and businesses received more than $300 million in compensation. The company did not dispute the $287 million compensatory damage award, but it balked at paying the $5 billion punitive award and has been appealing the case since 1994.

The Ninth Circuit Court of Appeals on Wednesday ruled in favor of Exxon Mobil, agreeing that the $5 billion in punitive damages was constitutionally excessive under standards announced by the Supreme Court in recent decisions. The circuit court said the award is "too high to withstand the review we are required to give it under BMW and Cooper Industries.'''' (The Supreme Court decisions to which the circuit court referred, Cooper Industries v. Leatherman Tool and BMW of North America v. Gore, set parameters for acceptable punitive damage awards in similar cases.)

In recent cases, the U.S. Supreme Court set a 4-to-1 ratio of punitive damages to actual harm claimed. According to the Supreme Court, a punitive award that is more than four times the amount of the harm claimed is not constitutionally acceptable. The Exxon award is approximately 17 times larger than the harm claimed in the case.

"The plaintiffs here were almost entirely compensated for their damages years ago,'''' the court ruled in its unanimous decision. "The punitive damages at issue were awarded to punish Exxon, not to pay back the plaintiffs."

The court remanded the case to the District Court to set a new punitive award in light of the numerous cases which had not been decided at that court''s first review of the award.

One interesting note, the U.S. Supreme Court was asked by Exxon last year to review the case. Exxon claimed that the award should be set aside because of irregularities during jury deliberations. The Supreme Court rejected that argument.

Not surprisingly, Alaskans were shocked and angered by the decision. "Obviously, there''s disappointment around here. Peoples'' lives have been on hold a long time, since 1989, trying to get this thing resolved,'''' said Sue Aspelund, executive director of Cordova District Fishermen United, the organization representing Prince William Sound commercial fishermen affected by the spill.

The lead counsel for more than 40,000 private victims of the spill and the more than 120 law firms representing them said that the fight is not over yet.

"I don''t see this in the least as the end of the line,'''' commented attorney David W. Oesting. "We are going to get punitive damages in this case -- the question is just how much."

Oesting has served as lead counsel since 1989 when he was appointed to the role by the U.S. District Court and State Superior Court for Alaska. He serves as partner-in-charge of Davis Wright Tremaine''s Anchorage, Alaska office and has been with the firm for more than 31 years.

He noted that although the circuit court vacated the award, it affirmed the decision that "some punitive sanctions should be assessed against Exxon, leaving open only the question of the appropriate amount under recent Supreme Court decisions."

He said that the court rejected every technical legal argument put forth by Exxon in an effort to defeat plaintiffs'' recovery of punitive damages. "All that remains to be decided is the appropriate amount," said Oesting.

Riki Ott, a commercial fisherman environmentalist ,has been active in studying the effect the spill had on the environment and fishing industry in Alaska. According to Ott, "It''s a black day in the neighborhood. I''m stunned. I think this is going to be devastating to people, just devastating."

In Phase I of the trial in June 1994, the jury found Exxon and Joseph Hazelwood guilty of "recklessness'''' in the 1989 oil spill. Phase II in August 1994 awarded compensatory damages of $287 million to commercial fishermen. In Phase III in September 1994, the jury awarded $5 billion in punitive damages, making it the largest monetary award at that time.

All remaining miscellaneous compensatory damages claims were settled on June 11, 1996 making it possible to enter the final judgment ending the contested trial court phase of the litigation. All parties began their appeals in February 1997.

by Sandy Smith

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