High court to hear Exxon Valdez damages case

At issue: Should the company pay $2.5 billion in punitive damages for the 1989 oil spill?

Nineteen years after the tanker Exxon Valdez spilled some 258,000 barrels of oil into the pristine waters of Alaska's Prince William Sound, the debate still rages over how much Exxon should pay beyond the $3.4 billion it has already spent on cleanup.

On Wednesday, that question arrives at the US Supreme Court, where the justices must decide whether to uphold a $2.5 billion punitive-damages judgment against Exxon Shipping. It is said to be the largest punitive damages award ever sustained by a federal appeals court.

The case, Exxon Shipping Co. v. Grant Baker, is being closely followed by shipping executives, environmental activists, oil-industry officials, and commercial fishermen, among others. It has also attracted the attention of scholars monitoring the Supreme Court's emerging jurisprudence on excessive punitive damages.

Lawyers for Exxon offer three main arguments for invalidating the punitive damages.

Under maritime law, Exxon should not be held liable to pay punitive damages for the negligent acts of a tanker captain at sea unless there is evidence that Exxon directed or participated in grounding the tanker, they say.

Second, the Clean Water Act establishes a comprehensive regime to punish and deter illegal behavior that pollutes the nation's water resources. But Exxon lawyers say Congress did not include a provision in the act permitting punitive damages.

Third, the lawyers say punitive damages are unnecessary in a situation like the Exxon Valdez cleanup where Exxon has already willingly paid criminal and civil fines, penalties, compensatory damages, cleanup costs, and other expenses.

"The $3.4 billion Exxon has already paid is enough to deter anyone from anything," writes Washington lawyer Walter Dellinger in his brief to the court on behalf of Exxon Mobil Corp.

Some analysts note that the oil spill was an accident rather than a product of corporate greed. "This is not a case where Exxon was cutting costs to try to increase profits," says Theodore Frank, a legal expert at the American Enterprise Institute in Washington. "Exxon lost money on this. They are not trying to deliberately steer ships aground and lose their oil."

Others say Exxon's massive cleanup expenses are beside the point. The spill caused extensive damage, not only to the fragile environment but also to the lives of Alaskan residents.

"The implication that Exxon has somehow suffered enough is simply offensive," says Jennifer Gibbons, executive director of Prince William Soundkeeper, a clean-water watchdog group. "Exxon can never make these people whole. You can't replace 19 years of somebody's life," she adds.

"Fleecing a corporation? No. This is about accountability," Ms. Gibbons says. "The true significance of this case is the future accountability of corporate America to clean water."

The current Supreme Court case began in 1994, when a group of 32,677 Alaskans harmed by the oil spill sued Exxon seeking compensation and additional punishment for the oil giant.

At the heart of their case is the allegation that Exxon managers assigned command of the Exxon Valdez to a relapsed alcoholic, Joseph Hazelwood. They argued during a five-month trial that Captain Hazelwood was intoxicated when the ship ran aground. Exxon denied that Hazelwood was drunk, and he was found not guilty of that charge in a separate trial.

Nonetheless, the 1994 jury found that Hazelwood acted recklessly, and that Exxon also acted recklessly. The jury ordered Hazelwood to pay $5,000 in punitive damages, and directed Exxon to pay $5 billion. A federal appeals court later reduced those damages to $2.5 billion.

Exxon can easily afford to pay the damages, says David Oesting, an Anchorage, Alaska, lawyer representing the Alaskan residents, in his brief. The $2.5 billion verdict represents three weeks of Exxon's current net profits, he says.

In answer to Exxon's Clean Water Act argument, Mr. Oesting says the CWA was not the controlling statute during the 1994 trial. The trial judge determined that another statute, the Trans-Alaska Pipeline Authorization Act, was the appropriate law. Oesting says neither the TAPAA nor the CWA imposes limits on punitive damage suits.

Lawyers for the residents dispute claims that Exxon's compensation payments provide an effective deterrent to future oil spills. "The only money Exxon has paid above and beyond what an entirely innocent spiller would have paid for this oil spill was the $25 million criminal penalty for harming the environment," Oesting writes.

Exxon could have assigned a captain who was not an alcoholic to take the helm of the Exxon Valdez. But it decided instead to employ Hazelwood despite the risks, Oesting says.

"Alaskans who depended on the sound for their lives and their livelihoods had no way to protect themselves from Exxon's recklessness," Oesting writes in his brief.