CNNMoney.com: High Court Could Lower $2.5 Billion Exxon Valdez Oil Spill Award

February 27, 2008: 12:37 PM EST

WASHINGTON -(Dow Jones)- The U.S. Supreme Court Wednesday was skeptical of Exxon Mobil Corp.’s (XOM) bid to overturn a $2.5 billion punitive damages award over the 1989 Valdez oil spill, but the justices indicated they may order the award be reduced.

At oral arguments the attorney for Exxon Mobil, Walter Dellinger, gained little traction for his arguments the award should be thrown out entirely. Instead, several justices indicated they were looking at applying a ratio of punitive damages to the compensatory damages fishermen harmed by the oil spill were awarded in the case.

Both Justices Anthony Kennedy and David Souter focused on provisions in criminal law that allow punitive damages that are double actual damages and suggested that figure could be applied to the maritime laws at issue in the Exxon Valdez lawsuit.

“This gives us a very valuable construction,” Justice Kennedy said immediately after Justice Souter suggested the court needed a number.

Recent Supreme Court precedent generally sets constitutional limits on punitive damages at a single-digit ratio to actual damages. But those cases have limited legal application to federal maritime law, which has rarely dealt with punitive damages issues.

A large portion of the arguments focused on whether Joseph Hazelwood, the Valdez ship captain, met requirements as a high-ranking corporate official who could expose Exxon to punitive damages. Dellinger argued that Hazelwood did not have sufficient authority, but several justices did not appear persuaded.

“Where do you draw the line between CEO and cabin boy?,” Chief Justice John Roberts Jr. said. “I suspect someone driving one of these tankers is closer to CEO than cabin boy.”

The Exxon Valdez spilled millions of gallons of oil into Alaska’s Prince William Sound almost 19 years ago, creating one of the largest environmental accidents in U.S. history. The company has paid over $3.4 billion in remediation, fines, compensation and other costs.

The case before the court was brought separately by a class of 32,677 fishermen and other interests that had business disrupted by the oil spill. The case has been in litigation for 13 years, a time frame in which the plaintiffs allege 20% of those eligible for damages have died.

Exxon Mobil attacked the award on several fronts, arguing that maritime law doesn’t allow punitive damages awards and that the federal Clean Water Act, which guided more than $900 million sanctions and fines related to the spill, also bars the punitive damages award. Neither argument appeared likely to prevail in the eventual Supreme Court ruling.

Jeffrey Fisher, the Stanford, Calif., attorney for the plaintiffs, argued that Capt. Hazelwood’s violation of policy by leaving the ship’s bridge before the accident was “perfectly appropriate to expose a company to punitive damages.” He added that all the other fines and payments made by Exxon hasn’t been enough to deter the company from acting in a manner that could create another oil spill. ” They have taken no action inside the company to express that they have been deterred,” Fisher told the court.

The case began in 1994, almost five years after the Valdez supertanker dumped 258,000 barrels of oil into the Prince William Sound. After a lengthy trial, a jury awarded those harmed by the spill $287 million in compensatory damages and $5 billion in punitive damages.

The 9th U.S. Circuit Court of Appeals in San Francisco first ruled in the case in 2001 when it upheld damages against Exxon Mobil but ordered the trial court to reduce the award. A second appeal to the Ninth Circuit was decided in 2006 that upheld the $2.5 billion punitive damages figure.

More than 20 groups and interested parties filed friend-of-the-court briefs, even though the court’s eventual ruling may not extend beyond maritime law. On Exxon Mobil’s side, a number of business groups and oil interests urged the Supreme Court to reject the award or, at a minimum, provide guidance on punitive damages awards in shipping cases. Justice Samuel Alito recused himself from the appeal without providing an explanation. However, he disclosed in his 2006 financial statements that he holds between $100,000 and $250,000 in Exxon Mobil stock. With only eight justices hearing the case, a deadlock that allows the lower court ruling to stand is one possible outcome.

The case is Exxon Shipping Co. and Exxon Mobil Corp. v. Baker, 07-219. A decision will be released by July.

-By Mark H. Anderson, Dow Jones Newswires; 202-862-9254; mark.anderson@ dowjones.com 

  (END) Dow Jones Newswires
  02-27-08 1237ET
  Copyright (c) 2008 Dow Jones & Company, Inc.

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