Supreme Court may be split on Exxon damages

Nearly 19 years after the Exxon Valdez oil spill fouled Alaska’s Prince William Sound, the Supreme Court debated Wednesday whether the world’s largest oil company must pay a record $2.5 billion in punitive damages.

The eight justices who heard the case appeared closely split, although several of them said they were looking for a way to reduce the size of the award. Justice Samuel A. Alito Jr. sat out the case because he is an Exxon stockholder. His stock holdings could prove costly to the company: A tie vote would have the effect of affirming the $2.5-billion verdict.

No one disputed that the oil spill was an extraordinary disaster. The company’s lawyer described it as “one of the worst environmental tragedies in U.S. maritime history.”

And no one disputed that Exxon was responsible for paying for the cleanup and for the losses suffered by fishermen, cannery workers and other Alaska residents. Exxon paid $900 million in cleanup costs, and a jury ordered it to pay $287 million to 32,000 Alaskans, many of whom lost their livelihoods when the fishing industry was destroyed.

At issue Wednesday was whether extra damages were needed to punish Exxon for corporate recklessness.

In 1994, a jury in Alaska imposed $5 billion in punitive damages, money that would go to the plaintiffs. Years of appeals followed, and the verdict was cut in half. During this same stretch, the Supreme Court began putting limits on punitive damages, believing the amount should be tied to the actual harm.

The case heard Wednesday was unusual because it was apparently the first before the high court involving punitive damages for an accident on the high seas.

In centuries past, maritime law shielded ship owners from being punished for damage caused by their vessels. This made sense during the era of sailing ships, said Justice David H. Souter. “In those days, when a ship put to sea, the ship was sort of a floating world by itself,” he said. It was gone and out of the control of its owner for months, even years, until it returned to port.

Representing Exxon, Washington lawyer Walter Dellinger cited this principle of maritime law and urged the court to throw out the entire punitive verdict. He cited the case of the Amiable Nancy in 1818 as having set a historical precedent shielding ship owners.

But his argument quickly ran aground. “It’s rather, I think, an exaggeration to call it a long line of settled decisions in maritime law,” said Justice Ruth Bader Ginsburg. Souter and others also noted that times have changed. These days, ship owners can control where their ships go.

As a fallback, Dellinger argued that the $2.5-billion verdict was too high. He cited several federal laws that fine those who pollute the environment. Typically, he said, these legal fines may total millions of dollars, but not billions.

He also urged the justices to keep in mind that the spill was an accident: “This was not an intentional act. It was not malicious. The company did not make one dollar of profit.”

But Stanford law professor Jeffrey L. Fisher, representing the Alaskan workers, said Exxon deserved to be punished for “putting a drunken master in charge of a supertanker.”

He said the jury heard testimony that Exxon officials knew Captain Joseph Hazelwood was an alcoholic and had 33 reports that he had gone back to drinking. “Up and down the corporation, for three years, upper management was receiving reports that this man was drinking aboard the vessel,” Fisher said.

On March 24, 1989, Hazelwood had been drinking and left the bridge of the supertanker. The third mate left in charge failed to turn the giant ship in time, and it hit Bligh Reef. About 11 million gallons of crude oil were spilled.

Fisher said the captain was an agent of Exxon’s management. “It is perfectly appropriate to expose the corporation to punitive damages based on the reckless acts of such an individual,” he said.

Chief Justice John G. Roberts Jr. and Justice Antonin Scalia questioned why a corporation should be punished if one of its officials violates its corporate policy. Exxon had a firm policy against drinking.

“What if there is a breach of the corporate policy? What more can a corporation do?” Roberts asked.

Fisher said the company should have enforced its policy. “There was no serious enforcement,” he said, since the warnings about Hazelwood were ignored.

Three other justices -- Anthony M. Kennedy, Stephen G. Breyer and Souter -- said they saw a need to reduce the punitive damages.

Kennedy and Souter said it might make sense to limit punitive damages to twice the amount of compensatory damages. If that view were adopted, the punitive verdict in this case would have been limited to about $600 million.

Breyer strongly hinted that he would vote to reduce the award. “This is a very dramatic accident . . . but there are accidents every day,” he said. He questioned whether “negligence or recklessness is now going to be not only imputed to the corporation but subject [to] punitives. . . . It will be a new world for the shipping industry.”

If the justices are evenly divided in this case, Exxon vs. Baker, they could hand down a one-line order next week. More likely, however, they will work on writing an opinion to be handed down in several months.

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david.savage@latimes.com