$100-Million Exxon Spill Fine Too Low, Judge Rules : Environment: Decision threatens to unravel $1-billion settlement of suits brought by U.S. and Alaska.

A federal judge in Alaska on Wednesday rejected part of a $1-billion agreement to settle government claims arising from the Exxon Valdez oil spill, declaring that a negotiated criminal fine against the oil company was not large enough.

U.S. District Judge H. Russel Holland, in a decision that stunned parties to the settlement, threw out a $100-million criminal fine agreed to in a plea-bargain by Exxon Corp. and government attorneys. The fine would have been the largest ever paid for polluting.

“The fines which were proposed to me were simply not adequate,” Holland said. “There is no question that the Exxon Valdez oil spill was off the chart.”

Holland’s rejection of the penalty threatens to unravel the entire settlement package, put together to resolve suits brought by the United States and Alaska. In addition to the criminal fine, Exxon had agreed to pay $900 million in civil damages to Alaska and the U.S. government and as much as $100 million more for possible damage to natural resources not yet foreseen.

But the package was contingent on court approval of the criminal penalty. Holland’s rejection of the fine gives all parties to the agreement the opportunity to cancel it.

Exxon, which was given 30 days to respond to the ruling, declined comment. The company and its shipping subsidiary had agreed to plead guilty to four misdemeanors on condition that the fine be no more than $100 million and that other charges, some of them felonies, be dropped.

Exxon can now enter a new plea or try to negotiate a new criminal fine.

A Justice Department official close to the case said he would not be surprised if the settlement collapses. He said Exxon could be assessed criminal penalties as high as $700 million under the law, and he doubted whether the company would agree to a $1-billion settlement that did not have a cap on the criminal fine.

The official, who declined to be identified, was openly skeptical about achieving as much in a trial as the government had with the proposed settlement. If the government won the case, Exxon could appeal the decision up to the U.S. Supreme Court, he noted.

“I wouldn’t be surprised if five years passes before a dollar is actually seen,” he said. “Now what’s the value of that? Plus the cost of litigation. Are we really going to come out ahead?”

Others said they expected Exxon to try to reach another settlement rather than risk the negative publicity of a trial.

“I think they will continue to try to settle,” said William Brown, an energy analyst with Kidder, Peabody & Co. in New York. “They’ll go back to square one and start all over again. I’d be very surprised if the company came out and said, ‘This was our best offer, forget it and let’s go to trial.’ I think they want to get as much of this behind them as they can to proceed with the normal course of business.”

Word of the rejection did not reach Exxon officials until after company Chairman Lawrence Rawl had told the giant energy firm’s annual shareholders meeting in Florida that the settlements were “expected to have no further material effect on current or future earnings.”

In the first quarter of 1991, Exxon announced that net income was up 75%, to $2.24 billion from $1.28 billion in the first quarter of 1990. Revenues rose to $30.69 billion from $26.71 billion. Exxon shares closed unchanged at $78 Wednesday on the New York Stock Exchange.

The company’s shareholders on Wednesday overwhelmingly rejected a resolution of principles proposed as an environmental guide after the oil spill. Rawl said the so-called Valdez principles would have imposed excessive reporting requirements.

Environmental groups, which had complained that the government settled too cheaply, rejoiced at Holland’s decision.

“That’s fantastic, I can’t believe it,” said Sarah Chasis, senior attorney with the New York-based Natural Resources Defense Council. “My God! We’re dumbfounded.”

The council and other environmental groups had asked Holland, an appointee of former President Ronald Reagan, to throw out the criminal fine as inadequate. The groups contended that Exxon could have been legally fined $2 billion to $6 billion in criminal penalties.

“I think the Justice Department is going to have to be a tougher bargainer than they were before,” said Rep. George Miller (D-Martinez), who also had criticized the settlement. “It’s clear there was a rush by the Justice Department and the state of Alaska governor’s office to engage in a settlement. It wasn’t in the public interest.”

The Justice Department official suggested that Exxon might seek a change of venue in the hopes of getting a more sympathetic judge outside Alaska, where 11 million gallons of North Slope crude oil spilled into Prince William Sound and killed hundreds of thousands of animals in March, 1989. The official said he did not know if the government would oppose such a motion.

Capt. Joseph T. Hazelwood, skipper of the Exxon Valdez, was convicted in April, 1990, of negligently discharging oil. A spokesman for the U.S. Coast Guard station in Long Beach said Wednesday that Hazelwood’s license to work as a master of a U.S. steam or motor vessel was being returned to him today, ending a suspension.

Alaska Gov. Walter J. Hickel said that he hopes the civil settlement will hold up despite the judge’s ruling on the criminal penalty.

“The Justice Department and everyone else involved thought the $100 million was an adequate fine,” Hickel said. “As to the civil settlement, I think it’s the best settlement we’ll ever get, even if we litigate it.”

Alaska’s state Legislature has until May 3 to accept the civil settlement, and it was unclear how the judge’s ruling might affect its vote. Before the ruling, Alaskan environmental activists had predicted that lawmakers would approve the package.

A special committee of the Alaska Senate has issued a “decisively neutral” recommendation to the full body, according to a legislative insider. On the House side, a special committee has yet to issue a recommendation, though testimony ran strongly against the settlement.

“There is some perception that the criminal pleas were something of a hammer over Exxon’s head to get them to the table to negotiate on the civil stuff,” said a legislative aide, “so some people believe that, had the judge accepted the (criminal) plea agreement . . . the state (Legislature) would have been somewhat more reluctant to turn down the civil settlement.”

Alaska Rep. Cliff Davidson (D-Kodiak), a member of a House special committee who opposes the deal, predicted that “people will be less afraid to speak out and speak up” against the settlement now. He added: “A whole new game plan is needed, and we don’t even know the shape of the ball yet.”

Rep. Max Gruenberg (D-Anchorage), chairman of the House special committee, is sending letters to state Atty. Gen. Charles Cole and officials at both Exxon and the federal government asking them to declare their intentions today.

“I’m just sort of dismayed that we have to continue this process,” said state Sen. Richard Eliason (R-Sitka), president of the Senate and chairman of the special committee. “I thought we were going to bring it to a conclusion in a few days; this is just another element that complicates the matter.”

Previously, Exxon’s Rawl noted that the company could deduct the $900 million in civil damages from its corporate income taxes but not the $100-million criminal penalty.

Times staff writer Ronald Ostrow in Washington contributed to this report.

BACKGROUND

The Exxon Valdez tanker ran aground on a reef in Prince William Sound on March 24, 1989, fouling more than 700 miles of Alaska’s shoreline, wildlife refuges and national parks. Hundreds of thousands of birds, at least 3,500 sea otters and 200 harbor seals perished. Economists who studied the spill for the federal and state governments estimated that the disaster will eventually cost $2.5 billion to $5 billion in damages. The $1-billion settlement allowed Exxon to pay $900 million for restoration of the sound and studies for 10 years.