Exxon To Press High Court For Award Reversal

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Exxon To Press High Court For Award Reversal In Valdez Suit
February 27, 2008

WASHINGTON -(Dow Jones)- The Exxon Valdez oil spill won't go away.

On Wednesday, the U.S. Supreme Court is hearing arguments in a $2.5 billion punitive damages case against Exxon Mobil Corp. (XOM) brought by fishermen and others harmed by the massive oil spill that occurred almost 19 years ago.

The appeal is rife with superlatives. The damages, cut from an original award of $5 billion, is the largest punitive damages award ever approved by a federal appeals court and is in addition to $3.4 billion in separate fines, payments and settlements. The class-action lawsuit represents 32,677 fishermen, individuals and businesses that could get an average of $76,500 each in punitive damages if the award is upheld by the high court. The case has been in litigation for 13 years, a time frame in which the plaintiffs allege 20% of those eligible for damages have died.

In recent years the Supreme Court has in several rulings reined in the scope and size of punitive damages awards against corporations. But how the justices might rule in this particular case isn't clear because maritime law, an obscure and limited field of law governing the sea, has little to say about extracting financial punishments in class-action cases.

Exxon Mobil attacks the award on several fronts, arguing that maritime law doesn't allow punitive damages awards and that the federal Clean Water Act, which guided more than $900 million sanctions and fines related to the spill, also bars the punitive damages award.

"Punitive damages should not have been awarded here because Exxon's payment of $3.4 billion in fines, penalties, cleanup costs, claims payments and other expenses has fully achieved both punishment and deterrence," the company said in a court brief.

The plaintiffs, however, said the award and its size are allowed under a variety of legal precedents. "The award satisfies any set of guideposts this court might apply," attorneys for the plaintiffs said. "The jury had ample reason to reject Exxon's contention that prior penalties and cleanup expenditures had punished and deterred Exxon enough."

The case began in 1994, almost five years after the Valdez supertanker dumped 258,000 barrels of oil into the Prince William Sound after striking a reef when the ship's captain, Joseph Hazelwood, left the ship's bridge with the third mate at the helm. After a lengthy trial, a jury awarded those harmed by the spill $ 287 million in compensatory damages and $5 billion in punitive damages.

The 9th U.S. Circuit Court of Appeals in San Francisco first ruled in the case in 2001 when it upheld damages against Exxon Mobil but ordered the trial court to reduce the award. A second appeal to the Ninth Circuit was decided in 2006 that upheld the $2.5 billion punitive damages figure.

More than 20 groups and interested parties filed friend-of-the-court briefs, even though the court's eventual ruling may not extend beyond maritime law. On Exxon Mobil's side, a number of business groups and oil interests urged the Supreme Court to reject the award or, at a minimum, provide guidance on punitive damages awards in shipping cases.

The Alaskan government and congressional representatives filed briefs on the side of the plaintiffs. Sen. Ted Stevens, R-Alaska, wrote his own brief in which he offered advice to the Supreme Court on why the Clean Water Act doesn't bar the damages award. "In order to preempt long-established common law principles, a statute must provide clear intent to do so," Stevens wrote. "When enacting legislation, Congress is presumed to be aware of and supplementing - not supplanting - existing damages frameworks."

Justice Samuel Alito recused himself from the appeal without providing an explanation. However, he disclosed in his 2006 financial statements that he holds between $100,000 and $250,000 in Exxon Mobil stock. With only eight justices hearing the case, a deadlock that allows the lower court ruling to stand is one possible outcome.

The case is Exxon Shipping Co. and Exxon Mobil Corp. v. Baker, 07-219. A decision will be released by July.

-By Mark H. Anderson, Dow Jones Newswires; 202-862-9254; mark.anderson@dowjones.com