Court cuts judgment in Exxon Valdez case (June 25, 2008)

The Supreme Court has cut the final bill that the Exxon Mobil Corporation must pay for the 1989 accident that caused the Exxon Valdez to spill 11 million gallons of oil into Prince William Sound.

Although the litigation in the case has spanned more than a decade, the parties and the various courts that have considered the issue are nowhere near agreement on the size of the final punitive damages award. The company has urged in its petition for certiorari that it is insulated from punitive damages because maritime law bars punitive awards against ship owners for the actions of their employees. In contrast, the dissenting judge in the Ninth Circuit urged his colleagues to uphold district court's award of $4.5 billion.

The facts of the case are well-known: the Exxon Valdez supertanker ran aground in Alaska's Prince William Sound in 1989 while under the command of Joseph Hazelwood, a relapsed alcoholic. According to the Ninth Circuit, "Exxon knew Hazelwood . . . had resumed drinking, knew that he was going on board to command its supertankers after drinking, yet let him continue to command the Exxon Valdez through the icy and treacherous waters of Prince William Sound." 270 F.3d at 1237-38.

The lower courts have had difficulty settling on a punitive award in the case because it has coincided with a sea change in the Supreme Court's approach to punitive damages calculation. When the jury originally heard the case, the Court had issued two opinions suggesting that "grossly excessive" punitive damages awards could violate due process. But those opinions, in Pacific Mutual Life Ins. Co. v. Haslip, 499 U.S. 1 (1991) and TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443 (1993), did not provide any numerical guidance as to when an award would cross the constitutional line.

Against that backdrop, the jury awarded $5 billion in punitive damages against Exxon after imposing a compensatory award of $287 million.

Exxon appealed the award and during the briefing of that appeal, the Supreme Court decided BMW of America, Inc. v. Gore, 517 U.S. 559 (1996), instructing courts that an excessive ratio of compensatory to punitives was impermissible. The Ninth Circuit concluded that the $5 billion award was too hefty and remanded the case to the district court to reconsider in light of the BMW opinion. On remand, the district court lowered the award to $4 million. That award was appealed and during the pendency of that appeal, the Supreme Court clarified the calculation of punitives once again, this time announcing that any ratio in excess of 9:1 was suspect. State Farm Mut. Auto Ins. Co. v. Campbell, 538 U.S. 408 (2003). The Ninth Circuit decided to remand the case a second time for reconsideration in light of State Farm. This time, the district court hiked the award to $4.5 billion.

In its third review of the award, the Ninth Circuit decided that although Exxon's conduct in giving Hazelwood command of the ship was reprehensible, it was not malicious. Moreover, it observed, Exxon's cleanup efforts were laudable. Weighing these factors, it decided that an award of $2.5 billion was appropriate.

Exxon unsuccessfully sought en banc review. However, Circuit Court Judge Alex Kozinski dissented from the denial of rehearing. Kozinski's dissent posited that in awarding punitive damages against Exxon for the reckless actions of an employee, the Ninth Circuit had parted ways with its sister circuits' interpretation of maritime law.

Exxon took up the gauntlet in its petition for certiorari, asking the Court to clarify whether maritime law would permit a punitive award for employee misbehavior and whether maritime law allows judge-made remedies when Congress has not authorized them. In its grant of certiorari, the Court specifically declined to review the more general question of whether the award passed constitutional muster, although the Ninth Circuit opinion focused solely on that question.

On June 25, the U.S. Supreme Court vacated the Ninth Circuit’s decision, cutting the $2.5 billion punitive damages award to $500 million.

Writing for the 5-3 majority, Justice David H. Souter noted that the court is “equally divided on the owner’s derivative liability, and hold that the federal statutory law does not bar a punitive award on top of damages for economic loss, but that the award here should be limited to an amount equal to compensatory damages.”

Justices John Paul Stevens, Ruth Bader Ginsburg and Stephen G. Breyer concurred in part and dissented in part. Justice Samuel Alito did not participate in the decision because he owns stock in Exxon.