WASHINGTON — The Supreme Court on Wednesday slashed the $2.5 billion punitive damages award in the Exxon Valdez disaster to $500 million, a decision that could have broader implications for limiting how much courts can order businesses to pay.
The decision was hailed by the business community and decried by environmentalists and Alaskans.
The court ruled that the victims of the worst oil spill in U.S. history may collect punitive damages from Exxon Mobil Corp. that amount to an average of $15,000 for each person who filed a claim against the energy company.
Justice David Souter wrote for the court that punitive damages may not exceed what the company already paid to compensate victims for economic losses, $507.5 million, an amount equal to about four days worth of Exxon Mobil Corp.’s profits last quarter.
The Exxon Valdez case involves reckless action that was “profitless” for the company and that has already resulted in substantial recovery for substantial injury, Souter wrote. A penalty should be “reasonably predictable” in its severity, he added.
The case grew out of the 1989 crash of the Exxon Valdez, a supertanker that dumped 11 million gallons of crude oil into Alaska’s Prince William Sound, fouling 1,200 miles of coastline.
A jury decided in 1994 that Exxon should pay $5 billion in punitive damages. In 2006, a federal appeals court cut that verdict in half.
Exxon asked the Supreme Court to reject the punitive damages judgment altogether, saying the company already has spent $3.4 billion to clean up the spill and compensate Native Alaskans, landowners and commercial fishermen.
Nearly 33,000 plaintiffs are in line to share in the award approved Wednesday, an average of about $15,000 a person. They would have collected an average of $75,000 each under the $2.5 billion judgment.
The Supreme Court was divided on its decision, 5-3. Justice Samuel Alito took no part in the case because he owns Exxon stock.
Amar Sarwal, general litigation counsel for the U.S. Chamber of Commerce, said the ruling gives an “extraordinary amount of guidance” to courts beyond the Exxon Valdez case.
Plaintiffs attorneys pushed back, saying that the ruling applies solely to cases involving maritime law.
“Those who claim it stands for a generalized punitive damage limit are wrong,” said Kathleen Flynn Peterson, president of the American Association for Justice, a national group of plaintiffs attorneys.
Souter wrote that the legal landscape is filled with examples of ratios and multipliers for punitive damages versus compensatory damages, saying most of them fall short of offering reasonable limitations in the Exxon Valdez case.
Osa Schultz of Cordova, Alaska, said she was “pretty disappointed” with the amount of the settlement. “On the other hand, I’m relieved they slapped Exxon in the face,” Schultz said, adding that a $15,000 award wouldn’t even begin to cover the losses to her and her husband’s gillnet fishing business.
Exxon has fought vigorously to reduce or erase the punitive damages verdict by a jury in Alaska for the accident that dumped 11 million gallons of oil into Prince William Sound.
In an opinion dissenting from the Souter decision, Justice John Paul Stevens endorsed the $2.5 billion figure for punitive damages, pointing out that Congress has chosen not to impose restrictions in such circumstances.
Justice Ruth Bader Ginsburg also dissented, saying the court was engaging in “lawmaking” by concluding that punitive damages may not exceed what the company already paid to compensate victims for economic losses.
“The new law made by the court should have been left to Congress,” wrote Ginsburg. Justice Stephen Breyer made a similar point, opposing a rigid 1 to 1 ratio of punitive damages to victim compensation.
Writing for the majority, Souter said that traditionally, courts have accepted primary responsibility for reviewing punitive damages and “it is hard to see how the judiciary can wash its hands” of the problem by pointing to Congress for a solution.
On the question of whether Exxon was on the hook for punitive damages at all, the court split 4-4, which leaves the appeals court opinion saying that Exxon is liable. Had Alito participated, he could have been the deciding vote on the question, possibly leaving the victims with no punitive damages.
Overall, Exxon has paid $3.4 billion in fines, penalties, cleanup costs, claims and other expenses resulting from the worst oil spill in U.S. history.
First-quarter profits at Exxon Mobil Corp. were $10.9 billion. The company’s 2007 profit was $40.6 billion.
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