Court Overturns $5-Billion Judgment Against Exxon in ’89 Alaska Oil Spill

A federal appeals court Wednesday struck down a $5-billion punitive damage judgment against Exxon Mobil Corp. stemming from the massive 1989 Exxon Valdez oil spill in Alaska.

The U.S. 9th Circuit Court of Appeals, based in San Francisco, ruled, 3 to 0, that the award was excessive on several grounds.

At $5 billion, the punitive award--the largest ever at the time it was awarded--was 17 times more than the $287-million in compensatory damages granted by a jury in 1994. That ratio was considerably higher than the 4-1 ratio that the Supreme Court suggested was “constitutionally acceptable” in a 1991 decision, wrote Judge Andrew J. Kleinfeld of the 9th Circuit.

But the judges rejected Exxon’s claim that the plaintiffs were entitled to no punitive damages, including the contention that such damages are barred under the federal Clean Water Act.

The company’s conduct was “reprehensible because it knew of the risk of an oil spill in the transportation of huge quantities of oil through the icy waters of Prince William Sound,” Kleinfeld wrote. “And it knew [Valdez captain Joseph] 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.”

The spill dumped 11 million gallons of oil into Prince William Sound and is considered the worst environmental disaster in U.S. history.

Exxon Mobil officials hailed the court’s ruling, but it stunned Alaska fishermen, many of whom said they have waited years for promised compensation and expressed a profound lack of confidence in the legal system’s ability to give them justice.

The appeals court sent the case back to federal trial judge Russell Holland in Anchorage to hold further hearings on punitive damages and reduce the award in light of two Supreme Court decisions on the subject issued since the 1994 trial in the Exxon case.

Kleinfeld wrote that in assessing the damages at a future hearing Holland should consider how reprehensible Exxon’s conduct was, any penalty imposed for similar misconduct in another case and the ratio of the damage award to the actual harm inflicted on the plaintiffs.

The appeals court judges noted that in this case that “there was no violence, no intentional spilling of oil and no executive trickery to hide or facilitate the spill.”

The judges also emphasized that this case was solely about harm to individuals, not for environmental harm, since Exxon already had paid $900 million to Alaska and the federal government for damages to irreplaceable natural resources, $25 million for a criminal fine and $100 million in restitution for the harm it caused.

Kleinfeld, joined by Judges Mary M. Schroeder and James R. Browning, stressed that at a sentencing hearing in the criminal case, the U.S. attorney and the Alaska attorney general had said that the amount of the fine would discourage similar behavior.

In addition, the judges emphasized that the punitive damages in this case vastly exceeded the $1.2 billion granted in a human rights case against the estate of former Philippine dictator Ferdinand E. Marcos--a case in which “the defendant intentionally caused thousands of people to be tortured and killed.”

Company Lauds Court’s Ruling

Exxon Mobil Chairman Lee Raymond said the ruling confirmed the company’s position that the award was too high. The company contended in its appeal, filed by Los Angeles lawyer John Daum, that the award was “excessive by any legal or practical measure.”

Raymond said that the company had also paid more than $300 million in compensation to 11,000 people and businesses damaged by the spill.

He said Wednesday that the spill “was a tragic accident that the company deeply regrets” and that the company took “immediate responsibility.”

The mood was far different in Cordova, a fishing town on Prince William Sound that has never really recovered from the oil spill.

After the spill, the herring fishery disappeared in Cordova and never returned. Crab disappeared. The salmon catch plunged, and even though their numbers recovered somewhat, market prices never returned to what they were before the spill. Families who for generations were able to make a very lucrative living at fishing have not been able to since the spill.

Some fishermen--those with licenses for valuable fisheries, who had their own big boats--were looking at very large shares of the damage award, in some cases exceeding $1 million. They came to be known as “spillionaires,” in anticipation of damages they have not yet received.

“I think shock would be an apt description,” said John Hopkins, 55, of Cordova. “It’s been going on so long, some people are saying, ‘I kinda figured that’s what it would be. You can’t trust the system to work for you.’ There’s a lot of disappointment. For me, it’s a tough nut to swallow.”

Hopkins said he still fishes in the summer but has to find any other job he can to find to supplement his income, mainly construction. Before the spill, Hopkins planned to have his three daughters work in his fishing business to put themselves through college. “Now, of course, my oldest daughter, she’s waiting tables, where she could have been in school.”

‘Sick Feeling in My Stomach’

Similar sentiments were expressed by Robbie Maxwell, 43, who comes from a family of fishermen. “I got a really sick feeling in my stomach right now about it,” Maxwell said.

“That [verdict] was the only thing that was going to pull us out of the ditch here,” said Maxwell, who now works three jobs and has one daughter in college on a full scholarship. “Nobody made no money this summer at all. . . . The only hope we had was that Exxon would pay off.”

With the combination of reduced fishing and depressed salmon prices, “there’s no money in this town right now at all. None,” declared Maxwell, who believes he would have garnered about $800,000 from the judgment before paying fees to the attorneys.

And Phil Lian, another Cordova fisherman, described his disgust by comparing Wednesday’s ruling to the case where O.J. Simpson, represented by a battery of the nation’s top criminal defense lawyers, was acquitted of murdering his former wife, Nicole Brown Simpson, and her friend, Ronald Goldman.

“It’s just like the O.J. Simpson case--if you’ve got the money, the judicial system does not work,” for the other side, Lian said. “This has been 12 years? Come on. Where is the justice? There isn’t any.”

Wednesday’s ruling also was decried by Riki Ott, a Cordova marine biologist who has spent years documenting the economic and environmental effects of the oil spill.

In a book Ott is writing on the spill, she quotes former Exxon public relations specialist Don Cornett, who met with Cordova residents a few days after the spill:

“You have had some good luck, and you don’t realize it. You don’t have the Glacier Bay spill. You have Exxon. . . . We will do whatever it takes to make you whole. What have you lost at this point that I can compensate you for? . . . . If your nets don’t fill up, that we can take care of. If you show that your motel goes out of business, that we can take care of. If you can show that you have a loss as a result of this spill, we will compensate it.”

On Wednesday, Ott said, “we assumed at the time that they meant right away. Here we are 12 years out, and Exxon is fighting doing what they promised. This is not a corporation that can be trusted.”

Despite the setback, attorneys Brian O’Neill and David Oestig, who are co-counsel for the plaintiffs, said they were looking forward to the next phase of the case.

“I am confident that when the case comes back to trial judge Russell Holland, he will analyze the facts and he will make a large punitive award--in the billions,” Oestig said.

O’Neill agreed, but he added, “the unfortunate thing is that it will take another year or two to get money to the fishermen and the natives. I am embarrassed that the judicial system has not gotten money to these people in 12 years.”

Oestig also said it was possible that he would ask a larger panel of 9th Circuit judges to review the ruling.

Oestig said he disagreed with the court’s analysis that a 17-1 ratio was too high and contended that the appeals court had misinterpreted the earlier Supreme Court decision.

He also noted that two weeks ago another panel of 9th Circuit judges approved a punitive damage judgment of $1 million that was 28 times as large as the compensatory damage award in a race discrimination case.

The 9th Circuit’s ruling Wednesday was lauded by the American Tort Reform Assn., a group that has been lobbying Congress to attempt to set caps on punitive awards, an idea that has been endorsed by President Bush.

More than 30,000 commercial fishermen, property owners and Alaska natives contended that their livelihood had been severely damaged by the massive spill. The disaster polluted more than 1,200 miles of shoreline, killed thousands of marine mammals and hundreds of thousands of sea birds and caused continuing damage to wildlife, according to government scientists.

Award Was Exceeded by Tobacco Judgment

The $5-billion award was the largest in U.S. history until it was dwarfed last year by the $145-billion punitive damage judgment a Florida jury rendered against the nation’s major cigarette companies in a class-action suit. That verdict is now on appeal.

Ted Eisenberg, a professor at Cornell Law School who is an expert on punitive damages, said he was troubled by the ruling.

Eisenberg noted that Exxon had spent $2.2 billion cleaning up the spill--an amount that he said was “a better reflection of the harm the company caused” than the $287-million compensatory damage verdict rendered by the jury.

“If the harm was about $2.2 billion and the punitive award was $5 billion, that’s a ratio of a little more than 2-1,” which is hardly extraordinary, Eisenberg said.