Supreme Court Rules $2.5 Billion Exxon-Valdez Damages Excessive

By James Vicini
June 25, 2008

The Supreme Court Wednesday overturned the record $2.5 billion in punitive damages that Exxon Mobil Corp had been ordered to pay for the 1989 Exxon Valdez oil spill off Alaska.

The nation's highest court ruled that the punitive damages should be limited to an amount equal to the total relevant compensatory damages of $507.5 million.

In the court's opinion, Justice David Souter concluded that the $2.5 billion in punitive damages was excessive under federal maritime law, and should be cut to the amount of actual harm.

By a 5-3 vote, the justices overturned a ruling by a U.S. Court of Appeals that had awarded the record punitive damages to about 32,000 commercial fishermen, Alaska natives, property owners and others harmed by the nation's worst tanker spill.

Soaring oil prices have propelled Exxon Mobil to previously unforeseen levels of profitability in recent years, posting earnings of $40.6 billion in 2007.

It took the company just under two days to bring in $2.5 billion in revenue during the first quarter of 2007.

The Exxon Valdez supertanker ran aground in Alaska's Prince William Sound in March 1989, spilling about 11 million gallons of crude oil.

The spill spread oil to more than 1,200 miles of coastline, closed fisheries and killed thousands of marine mammals and hundreds of thousands of sea birds.

A federal jury in Alaska awarded $5 billion in punitive damages in 1994. A federal judge later reduced the punitive damages to $4.5 billion, and the appeals court further cut it to $2.5 billion.

Exxon Mobil, the largest U.S. company by market capitalization, appealed to the Supreme Court, arguing it already has paid more than $3.5 billion for the spill.

In Alaska, Riki Ott, a fisherman and scientist and longtime environmental activist in the Prince William Sound town of Cordova, where most of the area's fishing fleet is concentrated, was disappointed by the ruling.

"We were really counting on punitive damages paying for our long-term losses in the fishery. That's obviously not going to happen," Ott said. "Well, that's an affront to everyone's sense of justice."

Company lawyers have called the $2.5 billion the largest punitive damage award ever affirmed by a federal appellate court, larger than the total of all punitive damage awards upheld by federal appellate courts in U.S. history.

Lawyers for the plaintiffs said the award represented just a few weeks of Exxon Mobil's current net record profits.

The case was decided by eight Supreme Court members. The ninth, Justice Samuel Alito, who owns Exxon Mobil stock, recused himself from the case.

The dissenting justices were John Paul Stevens, Ruth Bader Ginsburg and Stephen Breyer. Breyer wrote in his dissent that he would have upheld the $2.5 billion award.

Exxon has not set aside any legal reserves for possible damages as the company has argued that it was not possible to predict the ultimate outcome. The ruling will likely take a small bite out of upcoming earnings.

Immediately after the ruling was announced, Exxon Mobil shares dropped around 80 cents, or just less than 1 percent.

The company's shares were down 51 cents at $86.41 in late morning trading on the New York Stock Exchange.

(Additional reporting by Michael Erman in New York and Yereth Rosen in Alaska) (Editing by Dave Zimmerman)