Supreme Court greatly reduces damages in Exxon Valdez spill

The Supreme Court on Wednesday brought to a close the 19-year legal battle over the Exxon Valdez oil spill by sharply reducing the punitive damages to be paid by Exxon Mobil Corp. The court ruled that the oil giant must pay $507 million -- about one-tenth of the original jury award -- to punish it for recklessly putting a known alcoholic in charge of a supertanker traveling a treacherous channel.

The justices described Exxon’s conduct as “worse than negligent but less than malicious.” Capt. Joseph Hazelwood had been drinking and was not on the bridge when the ship ran aground on a reef in March 1989, spilling almost 11 million gallons of crude oil into Alaska’s Prince William Sound.

Last year, Exxon Mobil netted a record $40.6 billion in profits. At that rate, it could pay the punitive damages with about four days’ worth of profits. But in the end, the punitive damages will amount to only a small part of the company’s payout: Exxon already has spent $2 billion on environmental cleanup and paid $1.4 billion more in fines and compensation to thousands of fishermen and cannery workers.

In a statement Wednesday, Exxon Mobil Chairman and Chief Executive Rex W. Tillerson said that “the Valdez oil spill was a tragic accident and one which the corporation deeply regrets. . . . We have worked hard over many years to address the impacts of the spill and to prevent such accidents from happening in our company again.”

But some lawmakers and environmentalists faulted the court for giving a big-money reprieve to one of the world’s richest companies. Exxon Mobil earned more than $10 billion in profits in the first quarter of this year.

“This ruling is another in a line of cases where this Supreme Court has misconstrued congressional intent to benefit large corporations,” said Senate Judiciary Committee Chairman Patrick J. Leahy (D-Vt.).

The executive director of Greenpeace called the decision a betrayal of Alaskan communities and their fishermen. They “deserved far better after their long and difficult battle to hold Exxon Mobil accountable,” said John Passacantando. He described the oil spill as “the worst environmental calamity in U.S. history.”

At issue Wednesday were the punitive damages awarded to more than 32,000 fishermen, cannery workers and Alaska natives whose livelihoods were damaged or destroyed by the oil spill. A jury in Alaska agreed that the company should be punished for its recklessness, and it handed down a $5-billion award.

Exxon appealed, insisting that verdict was out of line. Its lawyers pointed out that for centuries, shipowners were not punished for accidents on the high seas even if their captain was at fault. (In earlier times, shipowners had no way to contact captains after they had left port.)

Eventually, the U.S. 9th Circuit Court of Appeals reduced the punitive damages to $2.5 billion. But Exxon appealed to the Supreme Court, arguing that the judgment should be thrown out entirely.

The court stopped just short of doing that. The justices split, 4 to 4, over whether the company could be punished for Hazelwood’s actions. Justice Samuel A. Alito Jr. had withdrawn from the case because he owns Exxon stock. Had he participated, he probably would have joined the rest of the court’s conservative bloc and voted to throw out the entire award.

The tie, however, had the effect of upholding the ruling that Exxon could be punished. Then, by a 5-3 majority, the court voted to reduce the award. The majority said $2.5 billion was too high an amount to punish a shipowner for an accident at sea.

Justice David H. Souter said the court decided the issue as a matter of maritime law. This in turn meant the justices themselves had to decide the law, because neither Congress nor the state has written laws to resolve disputes on the seas.

Souter cited several studies showing that punitive damages, on average, were no larger than the actual damages -- except when a company or defendant deliberately and maliciously hurt or cheated its customers. This is not such a case, Souter said. Although Exxon’s conduct was “reprehensible,” he said, the shipowner did not intend or deliberately cause its vessel to run aground.

Lacking any other guideposts, Souter concluded that a 1-1 ratio between the compensatory damages and punitive damages made sense in this case. “Some will murmur that this smacks too much of policy and too little of principle,” he said.

The trial judge in Alaska had set the compensatory damages at $507.5 million, and the high court ordered the judges to set “the punitive damages accordingly.”

Wednesday’s ruling will reduce the average plaintiff’s award to $15,000, down from the approximately $75,000 each of the fishermen and workers had been expecting when the case reached the high court.

Chief Justice John G. Roberts Jr. and Justices Antonin Scalia, Anthony M. Kennedy and Clarence Thomas joined Souter’s opinion in Exxon Shipping Co. vs. Baker.

Justices John Paul Stevens, Ruth Bader Ginsburg and Stephen G. Breyer dissented and objected to reducing the award. They said the court should have either looked to Congress or relied on the jury’s decision.

In the hard-hit Alaskan town of Cordova, there was frustration Wednesday. Many fishermen were put out of work by the spill, leading to widespread financial hardship, bankruptcies and suicides. The punitive damages claim “was about punishing [Exxon] so they wouldn’t do it somewhere else,” said Sylvia Lange, who owns a hotel and bar frequented by fishermen. “We were the mouse that roared, but we got squished.”

Business leaders, however, praised the ruling and said they hoped it would affect other cases. “This is good news for companies concerned about reining in excessive punitive damages,” said Thomas J. Donohue, president of the U.S. Chamber of Commerce. “For years, the chamber has argued that punitive damages are unpredictable and unfair, and today the court has agreed.”

Since the mid-1990s, the Supreme Court has moved to rein in large punitive awards. Unlike dealing with most civil verdicts, in which actual losses can be calculated, juries must decide on their own how much to punish a corporate wrongdoer.

In recent years, the justices have overturned jury awards against cigarette makers, automakers and others on the grounds that the amounts were excessive. They have not, however, come up with a formula for deciding how much is too much.

Wednesday’s ruling may not have a direct effect on other corporate cases because it involved an accident on the high seas, not general liability law.

Nonetheless, Souter said, the court remained concerned about the “stark unpredictability of punitive awards.” And Alito probably will join his conservative colleagues in future cases when the justices are called upon to limit these verdicts.

david.savage@latimes.com

Times staff writer Nicholas Riccardi in Denver contributed to this report.