Court Cuts 'Excessive' Exxon Valdez Damages by $2 Billion

By Randy Hall | July 7, 2008 | 8:24 PM EDT

( - In a 5-3 decision on Wednesday, the U.S. Supreme Court dramatically reduced a punitive-damages award against ExxonMobil that resulted from a 1989 oil spill along the Alaskan coastline.

The ruling was hailed as "good news" by a pro-business organization but dismissed as "a slap on the wrist" by a liberal group that charged: "Just like polar bears in the Arctic, the environment is on very thin ice" at the high court.

Justice David Souter wrote that a penalty should be "reasonably predictable" in its severity, even for the worst oil disaster ever to hit the United States. As a result, he cut the $2.5 billion award against the company by about 80 percent.

"Our explanation of the constitutional upper limit confirms that the 1:1 ratio is not too low," Souter stated in the ruling. "Applying this standard to the present case, we take for granted the District Court's calculation of the total relevant compensatory damages at $507.5 million," he added.

Chief Justice John Roberts and Justices Antonin Scalia, Clarence Thomas and Anthony Kennedy joined Souter in the majority, while Justices John Paul Stevens, Ruth Bader Ginsburg and Stephen Breyer dissented. Justice Samuel Alito, an Exxon stockholder, recused himself from the case.

In her dissent, Ginsburg accused the majority of engaging in "lawmaking" since federal legislators have not imposed any restrictions in such circumstances. "The new law made by the court should have been left to Congress," she wrote.

Wednesday's ruling was the latest development since the Exxon Valdez tanker crashed into a reef in Prince William Sound, Alaska, on March 24, 1989, when 11 million gallons of crude oil were spilled over 1,300 miles of the state's coastline.

Five year later, a jury hearing a civil Alaskan lawsuit on the matter ordered the company to pay $5 billion in damages to thousands of people who lived in the area.

Through various appellate rulings, that amount was cut to $4 billion in December 2002, then increased to $4.5 billion in January 2004. This past December, the U.S. Court of Appeal cut the total to $2.5 billion, which it said was more in line with legal precedent.

Responding to Wednesday's decision, ExxonMobil Chairman and CEO Rex Tillerson said in a statement that "the Valdez oil spill was a tragic accident and one which the corporation deeply regrets.

"We know this has been a very difficult time for everyone involved," he stated. "We have worked hard over many years to address the impacts of the spill and to prevent such accidents from happening in our company again."

ExxonMobil took immediate responsibility for the spill and has spent over $3.4 billion as a result of the accident, "including compensatory payments, cleanup payments, settlements and fines," Tillerson continued.

"The company cleaned up the spill and voluntarily compensated more than 11,000 Alaskans and businesses," he noted. "The clean-up was declared complete by the State of Alaska and the United States Coast Guard in 1992.

"In the aftermath of the Valdez accident, we redoubled our long-time commitment to safeguard the environment, our employees and the communities in which we operate," Tillerson added.

But as Cybercast News Service previously reported, environmental activists have long criticized ExxonMobil for earning record profits yet fighting the Valdez judgments in court for years.

On Wednesday, John Passacantando, executive director of Greenpeace USA, said in a statement that the new ruling "seals ExxonMobil's betrayal of the Alaskan communities, fishermen and others who deserved far better."

"More than 3,000 of the original plaintiffs died before they could see justice served because ExxonMobil spent 19 years fighting just compensation for those affected by the spill," he stated.

"For the Court to require a company that recorded a 2007 profit of $40.6 billion and that posted the highest quarterly results in U.S. corporate history in February to pay a mere $500 million in punitive damages to the affected Alaskans makes a mockery of justice," Passacantando charged.

"The worst environmental calamity in U.S. history will continue to haunt Prince William Sound and those dependent upon it for their livelihoods," he added. "Crude oil still can be found under rocks along the Sound's shores, and fishery scientists estimate that only 10 percent of the oil was ever cleaned up."

Kathryn Kolbert, president of the liberal People for the American Way Foundation, said that "the oil spill was an environmental and economic disaster of historic proportions. The punitive damages in the case should reflect that fact, as well as the size and scope of the responsible corporation."

Instead, "the Supreme Court let them off with a slap on the wrist," she stated.

"This award is a drop in the bucket of Exxon's enormous profits, and it certainly provides no disincentive for them to avoid another accident in the future," Kolbert stated, charging that the new ruling "is another reminder of how precarious a position we've been put in by the rightward motion of the Court."

"Just like polar bears in the arctic, the environment is on very thin ice at the Supreme Court," she added.

Nevertheless, Tom Donohue, president and CEO of the pro-business U.S. Chamber of Commerce, called Wednesday's decision "good news for companies concerned about reining in excessive punitive damages."

"For years, the Chamber has argued that punitive damages are too unpredictable and unfair, and today the Court agreed," the head of the world's largest business federation added in a news release.

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