Wednesday, July 02, 2008

Supreme disappointment

The US Supreme Court has turned back a federal appeals court decision and slashed the amount of punitive damages awarded to fishermen and Native Alaskans who sued Exxon in the aftermath of the Exxon Valdez oil spill 19 years ago.

I know that many people smarter than me understand the logic underlying the theory and practice of law. I have to admit that, more often than not, it seems pretty arbitrary and capriciousness to me. So I'll just offer my uneducated opinion that this decision strikes me as one small step backward for environmental quality/ justice and one giant leap forward for corporate greed and irresponsibility. (GW)

Exxon Oil-Spill Damages Slashed by Supreme Court

Decision Could Shape How Punitive Awards Are Calculated

By Russell Gold and Jess Bravin

Wall Street Journal

June 26, 2008

WASHINGTON -- In the final act to a legal drama that began with the devastating Exxon Valdez oil spill 19 years ago, a splintered Supreme Court sliced $2 billion from punitive damages imposed on Exxon Mobil Corp., leaving fishermen, native Alaskans and local landowners with just 20% of the award approved by a federal appeals court.

The decision left Exxon pleased and the Alaskans frustrated, but its impact may reach well beyond the icy shores of Prince William Sound. Due to the unique area of law the lawsuit invoked, the justices had their first opportunity to reveal their approach to punitive damages when drawing on a blank slate, rather than applying state laws as they have in prior cases.

Writing for the majority, Justice David Souter said the $2.5 billion punitive-damages award set by the appellate court shouldn't have exceeded the actual damages of $507.5 million. In a discourse on the history of punitive damages, Justice Souter said the occasional blockbuster award skewed the field and introduced a degree of "stark unpredictability" that could render damages unjust.

Business groups cheered the move. "Future defendants can point to that standard as a means of eliminating the 'stark unpredictability' of punitive damages the court was so concerned about," said Quentin Riegel with the National Association of Manufacturers.

Anti-Exxon community activist Stan Stephens, who runs Stan Stephens Cruises & Wildlife Trips in Valdez, says he was disappointed by the ruling, but expressed happiness that the long battle was at an end. "The courts have spoken and it's time to put it to bed and get on with life," he said.

The case before the court was brought by a class of 32,677 fishermen and other interests whose business was disrupted by the oil spill. Since the lawsuit was filed 13 years ago, plaintiffs allege 20% of those eligible for damages have died. The case is separate from the more than $3.4 billion in remediation, fines, compensation and other costs that Exxon has already paid for the cleanup and to various parties.

Shortly after midnight on Good Friday, March 24, 1989, the Exxon Valdez, a 1,000-foot tanker filled with Alaskan crude oil, grounded on the Bligh Reef. Most of its cargo tanks ruptured and 258,000 barrels of crude oil spilled into Prince William Sound. Images of oil-soaked birds and rubber-boot-clad workers cleaning rocks captured the public's imagination for weeks.

The incident had a lasting impact on U.S. energy policy. A bill to allow drilling in the Arctic National Wildlife Refuge had passed out of a Senate committee earlier in 1989. The spill "was the end of it then and there. Killed it dead," says Steve Cowper, Alaska's governor at the time. Opening the refuge remains a contentious issue.

"It was an event that I believe caused the current level of distaste for the oil industry in this country," says Mr. Cowper, now chairman of a Calgary-based oil-field service company.

The blunder has made it harder to expand the nation's oil infrastructure -- from refineries to liquefied natural-gas terminals -- and has helped make the U.S. more dependent on imported energy. Distrust of the industry is one reason most federal waters remain off-limits to drilling. Only recently, as gasoline prices have topped $4 a gallon, has there been a willingness to revisit this ban.

Wednesday's decision could sour already testy relations between the oil industry and Alaska Gov. Sarah Palin, a Republican. "I am extremely disappointed," she said in a statement. "The Court gutted the jury's decision on punitive damages."

Her administration is currently trying to wrest away control from Exxon of the giant Point Thomson oil-and-gas field. She is also trying to jump-start the construction of a natural-gas pipeline, but Exxon has resisted joining the project.

Exxon Chairman and Chief Executive Rex Tillerson sounded an apologetic note Wednesday, reiterating the company's regret for what he called a "tragic accident."

The lawsuit before the court began in 1994, almost five years after the Valdez dumped 258,000 barrels of oil into the sound. After a lengthy trial, a jury awarded those harmed by the spill $287 million in compensatory damages and $5 billion in punitive damages.

The Ninth U.S. Circuit Court of Appeals in San Francisco upheld the damages against Exxon Mobil in 2001 but ordered the trial court to reduce the award. A second appeal to the Ninth Circuit in 2006 upheld the $2.5 billion in punitive damages.

The Supreme Court had three issues before it. With Justice Samuel Alito, who owns Exxon stock, sitting out, the eight remaining justices split evenly over the oil giant's claim that maritime law bars punitive damages. The split creates no national precedent, meaning the issue may someday return to the Supreme Court.

The justices rejected Exxon's argument that the federal Clean Water Act, which imposes fines for oil spills and other forms of water pollution, preempts state law, and therefore implicitly immunizes the company from punitive damages in a state lawsuit.

On the third issue, Exxon fared better. Because Congress had said nothing about maritime punitive damages, the court was free to construe the common law -- or legal rules developed by judges to cover circumstances that the legislature hasn't addressed -- as it saw fit.

For more than a decade, the justices have been dialing back so-called blockbuster punitive damage awards, the kind exemplified by an Alabama court that imposed a $2 million penalty on BMW for selling a damaged car as new. To the delight of business and the frustration of the tort bar, the court has read into the Constitution's guarantee of due process an implicit limit on punitive damages that are grossly disproportionate to actual damages. But while the court has hinted at what limits it thinks are appropriate -- perhaps no more than nine times actual damages, it suggested in one case -- it has shied from imposing ironclad rules on state liability laws.

The Exxon case, however, spun out of maritime common law, an area where the Supreme Court has broad discretion to write the rules as it sees fit, rather than play the lesser role of policing state verdicts from jumping the Constitution's outer bounds. That gave Justice Souter, writing for the majority, a chance to explore the history and criticism of punitive damages, and the peculiar factors influencing both admiralty and water-pollution cases, before arriving at the modest ratio of punitive to actual damages it considered appropriate for the massive oil spill: "about 0.65:1," and no more than 1:1. The justices directed a lower court to determine the actual figure.

Although that 1:1 ratio isn't binding on courts imposing punitive damages under state laws, the Supreme Court's reasoning is sure to be argued by defendants seeking to limit the penalties they pay. Dissenters warned that the decision could signal a future limit even on state damage awards. "On next opportunity, will the Court rule, definitively, that 1:1 is the ceiling due process requires in all of the States, and for all federal claims?" wrote Justice Ruth Bader Ginsburg.

Punitive damages, which date at least as far back as the 18th century, are imposed in addition to actual damages to punish wrongful conduct and deter such acts in the future. In the vast majority of cases, Justice Souter observed, punitive awards are modest, and most actually are less than the actual damages imposed.

Chief Justice John Roberts Jr. and Justices Antonin Scalia, Anthony Kennedy and Clarence Thomas joined Justice Souter in the majority holding limiting the punitive damages. Justice Ginsburg, as well as Justices John Paul Stevens and Stephen Breyer dissented, saying the court went too far in restricting punitive damages to a 1-to-1 ratio with compensatory damages.

The Exxon Valdez disaster did prompt some significant changes in the way the industry operates. Most notable: Congress required the phaseout of single-hulled oil tankers. Today, 77% of the world fleet of tankers are double-hulled, compared with 6% in 1989, according to Clarkson Research Services Ltd. Exxon, along with the rest of the industry, also improved its record. Exxon reported 8,000 barrels spilled last year, most of which were recovered. Most of the spills occurred on land, according to Exxon.

At the time of the Valdez spill, however, the industry's safety reputation was under fire. The captain of the Exxon Valdez admitted to drinking before the tanker left port, according to his testimony before the National Transportation Safety Board. The Alaska Oil Spill Commission later concluded that his misconduct was only one factor. The grounding of the Exxon Valdez "was the result of the gradual degradation of oversight and safety practices."

The Exxon Valdez remained a single-hulled Exxon oil tanker ferrying crude outside of the U.S., until earlier this year when it was sold to a Hong Kong company, which converted it to carry bulk ore, according to Ray Botto, a spokesman for Exxon's shipping subsidiary. It is now known as the Dong Fang Ocean.


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