Supreme Court Overturns Exxon Valdez Verdict

| Wed Jun. 25, 2008 10:59 AM EDT

Exxon today has proven the benefits of the endless appeal. After spending hundreds of millions of dollars fighting the $5 billion punitive damage award handed down by an Alaska jury in 1994 for its role in the massive oil spill in Prince William Sound, Exxon today landed a major victory at the Supreme Court. In a 5-3 ruling, with Alito sitting out, the court overturned a lower court decision that had reduced the verdict to $2.5 billion, and sent the case back saying that the punitive damage award was excessive and should not exceed about $500 million, the same as the compensatory damages.

The decision strikes yet another blow against what is essentially the capital punishment of the civil justice system, in a long-running campaign by Exxon and other big companies to try to abolish these sorts of awards entirely. Punitive damages are the extra damages added to a jury verdict to punish especially egregious conduct by a civil defendant. As the former West Virginia Supreme Court Justice Richard Neely once wrote, punitive damage awards aren't given out for innocent mistakes, but are generally reserved for "really stupid defendants, really mean defendants, and really stupid defendants who could have caused a great deal of harm by their actions but who actually caused minimal harm." Punitive damages put the real teeth in the legal system, and serve as an ad-hoc form of regulation by standing as a potential deterrent to all sorts of egregious behavior. That, of course, is why business really hates them.

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In the Valdez case, an Alaska jury concluded that Exxon was a really stupid defendant, and they hoped to send a message to the company to change its behavior with a punitive damage award that was the largest in American history at the time. Commercial fishermen had filed the suit after the captain of the Valdez ran the ship aground and spilled millions of gallons of oil into previously pristine fishing grounds. The fishermen alleged that Exxon had wrecked their livelihoods. Exxon countered in court that it had already paid out billions in clean-up costs and fines to the government for violating the Clean Water Act, and that the jury verdict essentially constituted double jeopardy.

The case has dragged on so long now that the interest Exxon has earned on the original $5 billion award is now close to paying the award twice over. It's bounced back and forth between the trial court and the 9th Circuit appellate court so many times that in the last ruling in the case, in 2006, the 9th Circuit practically begged Exxon to give up, writing with exasperation, "It's time for this protracted litigation to end." More than 6,000 of those original plaintiffs—a fifth of the total—have since died as Exxon has tried every conceivable angle to avoid paying the award, including buying expensive social science research from Nobel Prize-winning economists designed to prove that juries are incapable of fairly awarding punitive damages in lawsuits.

Clearly the campaign was successful, if for no other reason than that Exxon was able to drag on the appeal long enough for President Bush to stack the court with two new business-friendly justices who are fairly hostile to the notion that regular people sitting on juries ought to be able to hit big companies where it hurts—in the pocketbook--for reprehensible conduct. The court expressed the business community's concern that punitive damages can be too unpredictable to be fair. In the majority opinion, written by Justice Souter, the court explained that, "A penalty should be reasonably predictable in its severity, so that even Holmes's "bad man" can look ahead with some ability to know what the stakes are in choosing one course of action or another."

Taken another way, most good trial lawyers translate this to mean that big business wants to know with more certainty just how much it will cost to kill someone (or fish, in this case), so the cost can be factored into the bottom line. In his dissent, Justice Stevens suggested that the court had gone too far in reducing punitive damages in the case and in maritime lawsuits in general and was legislating from the bench. He said the justices ought to respect the decisions of the lower courts, particularly the Alaska jury, whose decision was reviewed no fewer than four times by the District Court and upheld three times. After all, he writes, "In light of Exxon's decision to permit a lapsed alcoholic to command a supertanker carrying tens of millions of gallons of crude oil through the treacherous waters of Prince William Sound, thereby endangering all of the individuals who depended upon the sound for their livelihoods, the jury could reasonably have given expression to its "moral condemnation" of Exxon's conduct in the form of this award."

Stevens' view, though, didn't prevail, and Supreme Court instead rewarded Exxon for its tenacity—in a signal to other companies that such scorched-earth litigation tactics will definitely pay off. Hopefully for the plaintiffs, at least, this should finally be the end of the story.

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