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.

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