Court rejects Exxon Valdez award

Posted: Thursday, November 08, 2001

SAN FRANCISCO -- The $5 billion punitive damages award against Exxon Mobil Corp. in the 1989 Valdez oil spill is excessive, a federal appeals court ruled Wednesday, ordering a judge to determine a lesser amount.

An Anchorage jury decided in 1994 that Exxon should pay $5 billion to thousands of commercial fishers, Alaska Natives, property owners and others harmed by the nation's worst oil spill.

Exxon, which later merged with Mobil, argued it shouldn't have to pay any punitive damages. The oil giant said it learned its lesson and spent more than $3 billion cleaning up the Prince William Sound area and to settle federal and state lawsuits.

The 9th U.S. Circuit Court of Appeals said some damages were justified to punish the company for its harmful behavior, but that $5 billion -- at the time, the largest punitive damage award in history -- was excessive. The amount was equal to a year's worth of Exxon's profits.

In its appeal, the company said ''the $5 billion punitive damage award is completely unwarranted, unfair and is excessive by any legal or practical measure.''

It also told its shareholders that the oil concern would ''pursue every legal means available to overturn it.''

Lee Raymond, chair of the Irving, Texas, oil concern, said the decision ''confirmed Exxon Mobil's position that the $5 billion punitive damage award related to the Exxon Valdez accident is excessive.''

R.J. Kopchak, 52, a fisher in Cordova near the oil spill, said there are no herring left in the waters and minimal salmon. Kopchak said he's angry at the court's ruling.

''We no longer can make a living commercial fishing,'' said Kopchak, whose herring fishing operation is now defunct.

David Oesting, a lawyer representing fishers in the case, said he was considering whether to ask the 9th Circuit to reconsider its decision or to request the U.S. Supreme Court to review it.

He said that no matter the outcome, he expects Exxon will be liable for a hefty penalty.

''I don't know how much, but Exxon is going to pay a substantial sum,'' Oesting said. ''It could be in the billions.''

Shares of Exxon Mobil Corp. closed down 16 cents to $39.08 Wednesday on the New York Stock Exchange.

The plaintiffs noted that the spill, which polluted Prince William Sound with 11 million gallons of crude oil and smeared black goo across roughly 1,500 miles of coastline, had reduced their property values and damaged fishing and hunting grounds.

The same jury also found recklessness by Exxon and the captain of the Valdez, Joseph Hazelwood, who caused the tanker to run aground on a charted reef.

That finding of malfeasance made Exxon liable for punitive damages.

The plaintiffs had alleged that Hazelwood ran the ship aground while drunk and that Exxon knew he had a drinking problem and still left him in charge of tankers. Hazelwood, however, was acquitted in 1990 of operating the tanker while drunk.

The jury also awarded commercial fishers $287 million to compensate them for economic losses suffered as a result of the spill. Months after the court battle, U.S. District Judge Russel Holland upheld the verdicts.

A three-judge panel of 9th Circuit left the compensatory award intact, but said that for every dollar in compensatory damages, the jury awarded more than $17 in punitive damages -- a ratio that would not get by the U.S. Supreme Court.

The appellate panel noted that the high court in 1991 ruled that a 4-to-1 ratio was ''close to the line'' between a constitutionally acceptable and unacceptable jury verdict.

Exxon's conduct was ''reprehensible because it knew of the risk of an oil spill in the transportation of huge quantities of oil through icy waters of Prince Williams Sound,'' Judge Andrew Kleinfeld wrote. ''And it knew Hazelwood was an alcoholic who was drinking. But this goes more to justify (some level of) punitive damages than to justify punitive damages at such a high level.''

Just two weeks ago, a different three-judge panel of the 9th Circuit upheld a $1 million punitive damage award to a man harassed on the job at a Washington state cardboard company because he was black. The award had a 28-to-1 ratio from the jury's $36,612 compensatory damage award.

''I'm not terribly impressed by the court's conflicting decisions,'' said Oesting, the fishers' attorney in the case.

The case is In re: the Exxon Valdez, 97-35191.

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