The 14-year battle ends

JEANNETTE BELLIVEAU
Alaska Newspapers
editor@alaskanewspapers.com

June 26, 2008 at 9:48AM AKST

Shortly after 6 a.m. Alaska time on Wednesday the U.S. Supreme Court brought down the curtain on a 14-year battle to collect punitive damages for the Exxon Valdez oil spill.

The court voted 5-3 to cut the award from $2.5 billion to $507.5 million, spelling what appeared to be a partial defeat for the 32,677 plaintiffs hoping for a greater share of the original amount.

In 1994, an Anchorage jury found for $5 billion. In 2006, the 9th Circuit Court of Appeals trimmed the figure to $2.5 billion.

For individual plaintiffs, the decision appears to mean each will receive, on top of an earlier $15,500 in compensatory damages, an additional $22,700 in punitive damages.

Anchorage attorney David Oesting, who has been working on the case for two decades, said on Wednesday that interest had been accruing on the punitive damages award since September 1996, adding $448 million “as of today” to the $507.5 million base, to balloon the total in punitive damages to $995 million.

Exxon hadn't challenged the interest amount, he said, and claimants’ attorneys will ask that a clerk of the court order Exxon to pay both interest and principal.

If claimants’ attorneys then take about 22.4 percent of the award, a figure provided by Oesting, the math indicates a net punitive damages award of $741 million and payments to the 32,677 plaintiffs averaging $22,700 apiece.

In hindsight, the Supreme Court’s decision on Oct 29, 2007, to hear Exxon’s appeal of the $2.5 billion award spelled potential trouble for fishermen, processors and Alaska Natives touched by the biggest oil spill in U.S. history.

The move signaled willingness by a majority of the court to wade into questions of what constitute excessive punitive damages under maritime law.

As it turned out, Chief Justice John G. Roberts Jr. and Justices David Souter, Antonin Scalia, Anthony M. Kennedy and Clarence Thomas voted to reduce the damages, creating a five-vote majority despite the recusal of Justice Samuel A. Alito Jr., who owns Exxon stock.

Justices John Paul Stevens, Ruth Bader Ginsburg and Stephen G. Breyer dissented from the punitive damages part of the ruling.

“The jury could reasonably have believed that Exxon knowingly allowed a relapsed alcoholic repeatedly to pilot a vessel filled with millions of gallons of oil through waters that provided the livelihood for the many plaintiffs in this case,” Breyer wrote.

“Given that conduct, it was only a matter of time before a crash and spill like this occurred. And as Justice Ginsburg points out, the damage easily could have been much worse,” he wrote.

“When the Court of Appeals finally took matters into its own hands, it concluded that the facts justified an award of $2.5 billion,” Breyer wrote. “It specifically noted the ‘egregious’ nature of Exxon’s conduct. And, apparently for that reason, it believed that the facts of the case ‘justifie(d) a considerably higher ratio’ than the 1:1 ratio we had applied in our most recent due process case and that the Court adopts here. … I would uphold it (the $2.5 billion award).”

Stevens and Ginsburg indicated in their dissents a preference for state legislatures or Congress, rather than courts, to determine caps on punitive damages.

The majority’s decision averted a worst-case scenario, from Alaska’s viewpoint, of having all punitive damages thrown out, as Exxon’s lawyer Walter Dellinger had sought during oral arguments.

And the Supreme Court came up with a concrete figure for the damages, averting more wrangling in lower courts on a cash amount that has already fueled anxiety in Alaska fishing communities for nearly a generation.

It was Cordova’s bad luck to have Exxon’s punitive damages appeal slowed by the glacial pace of the San Francisco-based Court of Appeals as Exxon fought the $5 billion Anchorage jury award from the mid-1990s to the present.

Delays at the appeals level meant that the case, Exxon Shipping Co. v. Baker, landed at the Supreme Court at a moment in history when it was receptive to limiting excessive punitive damages.

How the court would rule had been a topic rife for speculation in Alaska’s fishing communities, from Cordova to Kodiak, after around 50 Alaskans traveled on Feb. 27 to Washington, D.C., to hear oral arguments in person.

Fishermen braved an Arctic wind to sleep overnight on sidewalks outside the court to ensure witnessing history. They had also thrown much effort into the Cordova-based Whole Truth campaign, a valiant publicity effort designed to win over the court of public opinion into preserving the $2.5 billion award.

Most Alaska court-watchers hoped that the award would be cut, at worst, to $1 billion, based on a 2-1 ratio of punitive damages to the actual damages, which had been determined to be around $500 million.

They were encouraged by the fact that Alito had recused himself based on his Exxon stock.

The State of Alaska officially and unofficially backed its fishermen, with the congressional delegation filing a friend of the court brief and Gov. Sarah Palin traveling to Washington, D.C., to bolster the Whole Truth campaign.

Five justices, however, confounded Alaska’s limited hopes and vindicated Exxon’s legal strategy that successfully reduced the original award by 90 percent.

The court used the compensatory damage award as an upper limit to any punitive damages award, holding that in maritime cases the ratio of punitive damages to compensatory damages could not exceed a 1-1 ratio.

Compensatory damages are designed to compensate for economic loss, injury or harm suffered. Punitive damages are awarded to punish and deter the defendant from reckless or intentionally malicious conduct.

Souter wrote the majority opinion.

It dismissed Exxon’s argument that the Clean Water Act precluded punitive damages and noted that the court had split 4-4 on whether maritime law allows punitive damages to be awarded against a corporation for the reckless acts of managerial employees — a concept known as derivative liability.

“The punitive damages award against Exxon was excessive as a matter of maritime common law. In the circumstances of this case, the award should be limited to an amount equal to compensatory damages,” Souter wrote.

“Although some studies show the dollar amounts of awards growing over time, even in real terms, most accounts show that the median ratio of punitive to compensatory awards remains less than 1:1,” he wrote, as the court found $507.5 million, equal to the compensatory damages, a fair amount.

“We are extremely disappointed,” wrote Sens. Ted Stevens and Lisa Murkowski and Rep. Don Young in a statement responding to the ruling.

“Three times previously, lower courts have ruled on the amount of damages and the Supreme Court, in our opinion, should have allowed the $2.5 billion judgment to stand. Today’s ruling adds insult to injury to the fishermen, communities and Alaska Natives who have been waiting nearly 20 years for proper compensation following the worst environmental disaster in our nation’s history.

The delegation noted it would maintain its efforts to get signed into law a plan to give the claimants the ability to increase retirement contributions and to obtain tax relief through income averaging of the settlements.

Alito’s recusal may have significantly affected the case and allowed Alaska plaintiffs to dodge a bullet of having all the damages thrown out.

When the court split 4-4 on Exxon’s “derivative liability” for Exxon Valdez Capt. Joseph Hazelwood’s actions, the 9th Circuit’s decision on this issue controlled this appeal. Such “derivative liability” provided a legal justification for awarding punitive damages.

“If Alito participated in the case and ruled against ‘derivative liability,” then a legal justification for the punitive damages award would have disappeared. The case would have been sent back to the District Court for a new trial on the punitive damages issue. In that event, the case would have dragged on for years unless the parties settled,” a Capitol Hill attorney familiar with appellate law and Supreme Court politics said after reading the decision.

“The opinion contains little discussion about the issues animating the good folks from Alaska — the magnitude of the harm resulting from the accident or using punitive damages to provide backdoor compensation for otherwise uncompensated damages. The court’s discussion is overwhelmingly legalistic — and not emotional — in tone,” noted the Washington, D.C.-based attorney.

Of all the Alaska fishing communities, many studied by industrial psychologists and U.N. staff, nearby Cordova suffer the greatest economic and psychological malaise in wake of the 1989 oil spill, beginning with the immediate closure of the salmon and herring fisheries and the eventual collapse of the herring fishery in 1992.

Many Cordova fishermen, whose massive losses after the collapse of the lucrative herring fishery were not accounted for in the drawn-out legal wrangling, had hoped for punitive damages in the neighborhood of $75,000 each, forecast by the original $5 billion, which would form a nest egg for retirement.

One fisherman in Kodiak offered a sympathetic assessment of Cordova’s plight.

“Gosh, Cordova never really recovered economically, did it?” said Kodiak fisherman Maggie Wall. “At least in Kodiak we had other industries and opportunities to pick up some of the slack and to rebuild on.”

“It was a very strange decision,” Dahlia Lithwick, Supreme Court writer for Slate.com, told The Cordova Times. Lithwick had written admiringly of the visiting Alaskans in her coverage of the Supreme Court’s oral arguments.

“The premise seems to be that since we don't have a standard for determining punitive damages we’ll just make one up! That’s doubly odd in light of the fact that nobody can even agree on the theory.

“This is one of those sad intersections between real life and the law, where real life is very, very real and the law seems to be pulled straight from thin air.”

Walter Dellinger, who argued for Exxon, and Jeffrey L. Fisher and David Oesting, who presented the claimants’ case, could not be reached for comment as of press time.

 

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On the Web:

The Supreme Court’s decision, Exxon Shipping Co. and Exxon Mobil Corp. v. Baker, 07-219, is available at: www.supremecourtus.gov/opinions/07pdf/07-219.pdf.