A high-stakes appeal before a high court

The US Supreme Court moved one step closer to addressing a $2.5 billion question this term when it placed Exxon Shipping Co. vs. Baker on its docket on Feb. 1 and scheduled arguments for Feb. 27.

The case stems from the March 24, 1989 grounding of the tanker Exxon Valdez in Prince William Sound and the resulting discharge of more than 11 million gallons of crude oil into the Alaskan coastal waters.

More than 250 lawsuits by area fishermen, processors, Alaska Natives, landowners, businesses and others were consolidated into a single action. A jury awarded plaintiffs $297 million of compensatory damages and $5 billion of punitive damages following a four-month trial in 1994.

Exxon Mobil Corp. appealed the punitive damages award, which the Ninth US Circuit Court of Appeals cut to $2.5 billion on Dec. 22, 2006. The company's attorneys appealed to the Supreme Court, which agreed on Oct. 29, 2007, to hear the petition.

In a statement at the time, Exxon Mobil expressed deep regret for the spill and said that all compensatory claims have been resolved. "We have spent over $3.5 billion as a result of the accident, including compensatory payments, cleanup payments settlements and fines," it noted.

'Further punishment'

"The punitive damages case has never been about compensating people for actual damages. Rather it is about whether further punishment of Exxon Mobil is warranted. The company does not believe any punitive damages are warranted in this case," the statement continued.

Alaskan government officials disagree. In a brief that it filed with the Supreme Court on Jan. 29, it asserted that maritime law permits a court to hold what then was Exxon Corp. responsible for the conduct of its employee, Joseph J. Hazelwood, the ship's captain. It also argued that the federal Clean Water Act does not prevent injured parties from obtaining punitive damages, which the state considers a deterrent to unsafe conduct.

"Exxon's arguments, if they prevail, would not only deny Alaskans compensation to which they are due, but would reduce the incentive for those who use our coastal waters to operate in a careful and safe manner." Alaska Attorney General Talis Colberg maintained.

Alaska's congressional delegation also filed a brief. So did the state's legislature, which was joined by former governors Walter J. Hickel, Tony Knowles, Steve C. Cowper and William J. Sheffield. The high court also received briefs from 26 other groups and individuals including the International Association of Tanker Owners, American Petroleum Institute, International Association of Drilling Contractors, US Chamber of Commerce, American Institute of Marine Underwriters, Jean-Michel Cousteau and other scientists, and Maryland and 33 other states.

Three primary questions

In its docket placement notice, the Supreme Court said that Exxon Mobil indicated that Exxon Mobil's lawyers asked three primary questions:

First, may punitive damages be imposed under maritime law against a ship's owner (as the Ninth Circuit held, contrary to decisions of the First, Fifth, Sixth and Seventh Circuits) for conduct of a ship's master at sea without a finding that the owner directed, countenanced or participated in that conduct, and even when the conduct was contrary to policies established and enforced by the owner?

Second, when Congress has specified the criminal and civil penalties for maritime conduct in a controlling statute (the Clean Water Act in this case) but has not provided for punitive damages, may judge-made federal maritime law (as the Ninth Circuit held contrary to four other circuits) expand the penalties Congress provided by adding a punitive damages remedy?

Third, is this $2.5 billion punitive damages award, which Exxon Mobil's lawyers said is larger than the total of all punitive damages awards affirmed by federal appellate courts in US history, within the limits allowed by (1) federal maritime law or (2) if maritime law could permit such an award, constitutional due process?

The Supreme Court granted a writ of certiorari to all but the second part of the third question. The arguments before the court on Feb. 27 should be interesting. The court's decision later this year promises to be very significant.

Contact Nick Snow at nicks@pennwell.com.

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