$5 billion oil spill award thrown out

Court finds penalty against Exxon too much, orders a lower amount

Posted: Wednesday, November 07, 2001

SAN FRANCISCO -- The $5 billion punitive damages award against Exxon Mobil Corp. in the 1989 Valdez oil spill is excessive, a federal appeals court ruled today, ordering a judge to determine a lesser amount.

An Anchorage jury had decided that Exxon should pay $5 billion to thousands of commercial fishermen, Alaska Natives, property owners and others harmed by the nation's worst oil spill.

Exxon, which later merged with Mobil, argued that it shouldn't have to pay any punitive damages. The oil giant said it learned its lesson and spent more than $3 billion cleaning up the Prince William Sound area and to settle federal and state lawsuits.

The 9th U.S. Circuit Court of Appeals said some damages were justified to punish the company for its harmful behavior, but that $5 billion the largest punitive damage award in history at the time was excessive.

In its appeal, the company said "the $5 billion punitive damage award is completely unwarranted, unfair and is excessive by any legal or practical measure."

It also told its shareholders that the oil concern would "pursue every legal means available to overturn it."

Shares of Exxon Mobil Corp. were down 10 cents to $39.14 today on the New York Stock Exchange when the court released its decision.

The plaintiffs noted that the spill, which polluted Prince William Sound with 11 million gallons of crude oil and smeared black goo across roughly 1,500 miles of coastline, had reduced their property values and damaged fishing and hunting grounds.

The same jury also found recklessness by Exxon and the captain of the Valdez, Joseph Hazelwood, who caused the tanker to run aground on a charted reef. That finding of malfeasance made Exxon liable for punitive damages.

The plaintiffs had alleged that Hazelwood ran the ship aground while drunk and that Exxon knew he had a drinking problem and still left him in charge of tankers. Hazelwood, however, was acquitted in 1990 of operating the tanker while drunk.

The jury also awarded commercial fishermen $287 million to compensate them for economic losses suffered as a result of the spill. Months after the court battle, U.S. District Judge Russel Holland upheld the verdicts.

A three-judge panel of the 9th Circuit left intact the compensatory award, but said that for every dollar in compensatory damages the jury awarded more than $17 in punitive damages -- a ratio that would not get by the U.S. Supreme Court.

The appellate panel noted that the high court in 1991 ruled that a 4-to-1 ratio was a "close to the line" between a constitutionally acceptable and unacceptable jury verdict.

Exxon's conduct was "reprehensible because it knew of the risk of an oil spill in the transportation of huge quantities of oil through icy waters of Prince William Sound," Judge Andrew Kleinfeld wrote. "And it knew Hazelwood was an alcoholic who was drinking. But this goes more to justify (some level of) punitive damages than to justify punitive damages at such a high level."

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