Supreme Court hears Exxon Valdez punitive damages arguments

Nick Snow
Washington Editor

WASHINGTON, DC, Feb. 28 -- The US Supreme Court heard arguments Feb. 27 over whether ExxonMobil Corp. should pay punitive damages arising from the 1989 crude oil spill into Alaska's Prince William Sound from its tanker, the Exxon Valdez.

The company already has paid a $25 million criminal penalty and earlier agreed to pay $900 million over 10 years for environmental restoration. The punitive damages case before the high court arose from a separate action in 1994 in which more than 32,000 plaintiffs, including commercial fishermen, private landowners, Alaskan Natives, and associated individuals and businesses, sued the vessel's captain, Joseph J. Hazelwood, and ExxonMobil, the ship's owner and Hazelwood's employer.

At that time a jury awarded the plaintiffs $287 million in compensatory damages. It also assessed punitive damages of $5,000 against Hazelwood and $5 billion against ExxonMobil, saying that these awards were "necessary in this case to achieve punishment and deterrence." The US Ninth Circuit Court of Appeals affirmed the compensatory damage award and the jury's determination to award punitive damages but reduced the punitive damages award to $2.5 billion. ExxonMobil appealed to the Supreme Court, which on Oct. 29, 2007, agreed to hear the case.

More than 300 people lined up outside the court Feb. 27, hoping to be admitted to watch the arguments. Many were Alaskans who said damages from the spill continue and are substantial. Arguments before the court centered on whether punitive damages are allowed under federal maritime law or are preempted by the Clean Water Act. They also discussed whether ExxonMobil could be held liable for continuing to employ Hazelwood as a tanker captain when management had received reports that his drinking problems had returned.

'Problem ran deeper'
Jeffrey L. Fisher, a partner in Davis Wright Tremaine LLP's Seattle office, argued on behalf of the suit's plaintiffs: "The same district judge who heard the criminal case sat on our trial. He saw in that first case that the environment was damaged and ruled that the limit should be $25 million. He also found that the captain and third mate were negligent. It wasn't until our trial that it was shown the problem ran much deeper, and the judge found that the company was liable."

But Walter Dellinger, a partner in O'Melveny & Myers LLP's Washington office who spoke on ExxonMobil's behalf, said other federal laws preempt assessing the company for punitive damages. "The one thing that Congress has done, whether in the Trans-Alaska Pipeline Authorization Act of 1973, the Clean Water Act in 1977, or the Oil Pollution Act of 1990, was to provide specific instead of open-ended remedies," he told the justices.

Dellinger maintained that the $3.4 billion that ExxonMobil has already paid in fines, damage awards, and cleanup and environmental restoration costs addresses deterrence. There clearly was no malicious intent by the company since the spill cost it so much money and harmed its public image, Dellinger said. "When you look to punishment, it can't be a black hole where limits to damages disappear," he said.

Fisher responded that Exxon did not enforce its policy banning work aboard its tankers by intoxicated employees. "We showed 33 instances where other employees drank with Hazelwood. For 3 years, Exxon received reports that this was happening," he said.

Dellinger said reckless hiring could lead to corporate punitive damages if management clearly knew an employee was incompetent. "The jury could have found this was the case. It also could have found that Hazelwood had a problem with alcohol and was getting treatment," he said.

Justices' questions
Chief Justice John G. Roberts Jr. asked at what level an employee's actions make a corporation liable. Fisher said that Hazelwood qualified in this instance because he had charge of substantial property. Dellinger disputed this because operating policies were established farther up in the organization and Hazelwood simply was responsible for carrying them out.

"It seems to me this captain was managerial for some purposes and not for others. But he was not authorized to set aside the company's policy not to operate a vessel while intoxicated," Associate Justice Anthony M. Kennedy said.

Associate Justice Stephen G. Breyer asked if there were examples where federal laws regarding managerial liability had changed. "When you deal with multinational corporations which have hundreds of divisions, you need to be able to assign liability below the very top management," Fisher replied. Dellinger said it still is difficult to decide what level of employee can implicate a company.

Roberts said: "This was a very dramatic accident. But accidents happen every day. If it has not been normal to assign liability for an employee's conduct under maritime law before now, what basis exists to require it now?"

Fisher said that without a punitive damage award, each plaintiff would receive only $15,000 in compensatory damages. Dellinger said that a punitive damage total for billions of dollars was the relevant issue.

Eight of the Supreme Court's nine members heard the arguments. Associate Justice Samuel A. Alito Jr. recused himself because he owns ExxonMobil stock worth several hundred thousand dollars.

Contact Nick Snow at nicks@pennwell.com.

Related Articles

PHMSA proposes pipeline accident notification regulations

07/02/2015 The US Pipeline and Hazardous Materials Safety Administration has proposed new federal oil and gas pipeline accident and notification regulations. ...

FourPoint Energy to acquire Anadarko basin assets from Chesapeake

07/02/2015 FourPoint Energy LLC, a privately owned Denver company, plans to acquire oil and gas assets from Chesapeake Energy Corp. subsidiaries Chesapeake Ex...

Puma Energy completes purchase of Murco’s UK refinery, terminals

07/02/2015 Singapore-based Puma Energy Group Pte. has completed its purchase of UK midstream and downstream assets from Murco Petroleum Ltd., a subsidiary of ...

BP to settle federal, state Deepwater Horizon claims for $18.7 billion

07/02/2015 BP Exploration & Production Inc. has agreed in principle to settle all federal and state claims arising from the 2010 Deepwater Horizon inciden...

MARKET WATCH: NYMEX oil prices plummet on crude inventory build, Iran deadline extension

07/02/2015 Oil prices plummeted more than $2/bbl July 1 to settle at a 2-month low on the New York market after a weekly government report showed the first ri...

API to issue recommended practice to address pipeline safety

07/01/2015 The American Petroleum Institute expects to issue a new recommended practice in another few weeks that addresses pipeline safety issues, but the tr...

Shell Midstream Partners takes interest in Poseidon oil pipeline

07/01/2015 Shell Midstream Partners LP has completed its acquisition of 36% equity interest in Poseidon Oil Pipeline Co. LLC from Equilon Enterprises LLC, a s...

MARKET WATCH: Oil prices decline as US crude inventories post first gain in 9 weeks

07/01/2015 Oil prices on July 1 surrendered much of their gains from the day before after the release of a government report showing the first rise in US crud...

FWS issues Shell letter of authorization on Chukchi Sea lease

07/01/2015 The US Fish & Wildlife Service issued Shell Gulf of Mexico Inc. a letter of authorization (LOA) related to the potential disturbance of polar b...
White Papers

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by
Available Webcasts

On Demand

OGJ's Midyear Forecast 2015

Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST


Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected