Supreme Court slashes Exxon Valdez fine by $2 billion

A divided U.S. Supreme Court on Wednesday reduced punitive damages that had been leveled against Exxon Shipping Co. as a result of the 1989 Exxon Valdez oil spill -- from $2.5 billion to about $500 million.

Originally a jury had awarded $5 billion in punitive damages, but it had been cut in half in an earlier Ninth Circuit Court of Appeals decision.

With Justice Samuel Alito recusing himself from the case because he owns Exxon-Mobil stock, the court voted 4-3 to remand the case back to the Ninth Circuit Court of Appeals with orders that punitive damages in the case should not exceed compensatory damages awarded in the case: $507.5 million.

Given the need to protect against the possibility (and the disruptive cost to the legal system) of awards that are unpredictable and unnecessary, either for deterrence or for measured retribution, we consider that a 1:1 ratio, which is above the median award, is a fair upper limit in such maritime cases, the court said.

Alaska Gov. Sarah Palin said the Supreme Court gutted the jury's decision on punitive damages and undercut one of the principal legs of deterrence for those engaged in maritime shipping in Alaska.

It is tragic that so many Alaska fishermen and their families have had their lives put on hold waiting for this decision, she added. My heart goes out to those affected, especially the families of the thousands of Alaskans who passed away while waiting for justice.

The court was divided on the issue of whether general maritime law supports punitive damages on the basis of acts by managerial agents, in this case, Capt. Joseph Hazelwood who the court noted had a history of alcohol abuse and whose blood still had a high alcohol content 11 hours after the spill. A jury had found both Hazelwood and Exxon reckless and thus potentially liable for punitive damages, and this had been allowed to stand by the Appeals Court.

The Supreme Court said since the eight members hearing the case were equally divided on the issue, the Ninth Circuit's opinion would remain undisturbed, but it noted that by doing so, it was not setting any precedent.

This was an issue watched closely by the shipping industry.

A friend of the court brief filed by Chet Hooper of Holland & Knight on behalf of the International Chamber of Shipping, BIMCO, the Chamber of Shipping of America, Teekay Corp., and the Bahamas Shipowners Association, contended that general maritime law does not support the award of punitive damages for vicarious liability.

The court has put off until another day any ruling on whether maritime law allows for vicarious liability, wrote Dennis L. Bryant of Holland & Knight in his daily newsletter Haight's Maritime Items. Unfortunately, this leaves the federal court courts divided on this important issue. Overall, though, the broad uncertainty that previously existed with regard to punitive damage awards has been clarified.

This is good news for companies concerned about reining in excessive punitive damages, said Tom Donohue, president and chief executive officer of the U.S. Chamber of Commerce. For years the Chamber has argued that punitive damages are too unpredictable and unfair, and today the court agreed.

The decision could have an effect far beyond federal maritime law, according to Robin Conrad, an executive vice president at the chamber.

Limiting punitive damages to no more than the amount of a compensatory award will go a long way in cabining unpredictable punitive damages.

Source: American Shipper