Damages Cut Against Exxon in Valdez Case
Published: June 26, 2008
WASHINGTON — The Supreme Court on Wednesday reduced what had once been a $5 billion punitive damages award against Exxon Mobil to about $500 million. The ruling essentially concluded a legal saga that started when the Exxon Valdez, a supertanker, struck a reef and spilled 11 million gallons of crude oil into the Prince William Sound in Alaska in 1989.
John Gaps/Associated Press
Workers cleaned a beach in Alaska after the Exxon Valdez supertanker spilled 11 million gallons of crude oil in 1989.
John Gaps III/Associated Press
Crude oil from the Exxon Valdez swirls on the surface of Alaska’s Prince William Sound on April 9, 1989.
The decision may have broad implications for limits on punitive damages generally. Punitive damages, which are meant to punish and deter, are imposed on top of compensatory damages, which aim to make plaintiffs whole.
Justice David H. Souter, writing for the majority in the 5-to-3 decision, said a ratio between the two sorts of damages of no more than one-to-one was generally appropriate, at least in maritime cases. Since Exxon has paid about $507 million to compensate more than 32,000 Alaska Natives, landowners and commercial fishermen for the damage caused by the spill, it should have to pay no more than that amount in punitive damages, Justice Souter said.
The plaintiffs have received an average of $15,000 each as compensation, and Wednesday’s decision means they will receive a similar amount in punitive damages.
Justice John Paul Stevens, in a dissent, said he would have upheld the punitive damages award, which the federal appeals court in California had reduced to $2.5 billion.
“In light of Exxon’s decision to permit a lapsed alcoholic to command a supertanker carrying tens of millions of gallons of crude oil though the treacherous waters of Prince William Sound, thereby endangering all of the individuals who depended upon the sound for their livelihoods,” Justice Stevens wrote, “the jury could reasonably have given expression to its moral condemnation of Exxon’s conduct in the form of this award.”
The Exxon Valdez spill was the worst in American history, damaging 1,300 miles of shoreline, disrupting the lives and livelihoods of people in the region and killing hundreds of thousands of birds and marine animals. It occurred after the ship’s captain, Joseph J. Hazelwood, left the bridge at a crucial moment. Mr. Hazelwood, an alcoholic, had downed five double vodkas on the night of the disaster, according to witnesses.
The question remaining after Wednesday’s decision is whether the one-to-one ratio will apply outside of maritime cases. In the Exxon case, the Supreme Court was acting as a state appellate court typically might, assessing the reasonableness of the punitive award under the common law rather than asking whether it violated constitutional due process protections.
The one-to-one ratio was not grounded in statutory law or other maritime cases. Justice Souter relied instead on studies showing that in hundreds of cases, the median punitive damage award was about 65 percent of the compensatory award.
“We consider that a 1:1 ratio, which is above the median award, is a fair upper limit in maritime cases,” Justice Souter wrote.
It is not clear what effect the decision will have in cases presenting the constitutional question. In 2003, in State Farm v. Campbell, the court ruled that a single-digit ratio (that is, no more than nine-to-one) was appropriate as a matter of due process in all but the most exceptional cases. In cases where compensatory damages are substantial, the State Farm decision went on, “a lesser ratio, perhaps only equal to compensatory damages,” might be warranted.
Justice Souter’s last footnote in Wednesday’s decision, Exxon Shipping v. Baker, No. 07-219, underscored the suggestion in State Farm that in cases with substantial compensatory awards “the constitutional outer limit may well be 1:1.”
The Exxon decision may also be influential in cases where state court judges are making their own common-law assessments of reasonableness. While the Supreme Court’s reasoning in a federal maritime case is not binding on them, at least some state judges will find it instructive and persuasive.
Justice Samuel A. Alito Jr. owns Exxon stock and did not participate in the decision. As a consequence, the court split 4-to-4 on a separate question, whether Exxon may be held accountable for Mr. Hazelwood’s recklessness. The effect of the split was to leave intact the ruling of the lower court, the United States Court of Appeals for the Ninth Circuit, which said Exxon might be held responsible.
In addition to Justice Stevens, two other justices issued dissents from the majority’s ruling reducing the punitive award.
Justice Stevens wrote that imposing a broadly applicable rule is a job for Congress, not the courts. He acknowledged the problem of “large outlier awards” but said courts could address those case by case.
Justice Ruth Bader Ginsburg asked a series of pointed questions in her dissent. For instance: “What ratio will the court set for defendants who acted maliciously or in pursuit of financial gain?” And: “On the next opportunity, will the court rule, definitively, that 1:1 is the ceiling due process requires in all of the states, and for all federal claims?”
In his dissent, Justice Stephen G. Breyer wrote that Exxon’s conduct warranted “an exception from strict application of the majority’s numerical rule.”
Jeffrey L. Fisher, a lawyer for the plaintiffs, said there was “a great deal of sadness” among his clients. “What is painful,” Mr. Fisher said, “is that there seems to have been some disagreement between the dissenters and the majority on how reprehensible Exxon’s conduct was.”
In a statement, Rex W. Tillerson, the chairman and chief executive of Exxon Mobil, said: “The company cleaned up the spill and voluntarily compensated more than 11,000 Alaskans and businesses. The cleanup was declared complete by the State of Alaska and the United States Coast Guard in 1992.”
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