US appeal court rules $5 billion Valdez fine was excessive

Citation

(2002), "US appeal court rules $5 billion Valdez fine was excessive", Disaster Prevention and Management, Vol. 11 No. 3. https://doi.org/10.1108/dpm.2002.07311cab.005

US appeal court rules $5 billion Valdez fine was excessive

US appeal court rules $5 billion Valdez fine was excessive.

A US federal appeal court has ruled that the $5 billion fine for punitive damages awarded against ExxonMobil for the 1989 Exxon Valdez oil spill was excessive. The award, the largest punitive damages award in American history when it was made in 1994, represented about one year's net profits for the entire worldwide operation of Exxon. A three-judge panel of the Ninth Circuit Court of Appeals said the award was too high in the light of two Supreme Court decisions reached since the 1994 trial in Alaska. The two cases, Cooper Indus v. Leatherman Tool and BMW of North America v. Gore, were cited by the court as providing a benchmark to acceptable punitive damages awards. "The $5 billion punitive damages award is too high to withstand the review we are required to give it under BMW and Cooper Industries," Justice Andrew Kleinfeld said in his judgment. "It must be reduced. Because these Supreme Court decisions came down after the district court ruled, it could not apply them. We therefore vacate the award and remand so that the district court can set a lower amount." The 17-1 ratio between punitive damages and actual damages in the award far exceeded the constitutionally acceptable ratio of 4-1 that the Supreme Court said was "close to the line" between a "constitutionally acceptable" and "constitutionally unacceptable" jury verdict. The panel did, however, reject Exxon's arguments that punitive damages ought to have been barred as a matter of public policy. The judges also held that the evidence supported a jury verdict that Exxon was liable for the reckless acts of itself and of the master of the Exxon Valdez, Joseph Hazelwood. "Captain Hazelwood's conduct, interpreting the evidence most strongly against him, was extremely reckless considering the difficulty and potential risk of his task, and Exxon was reckless to allow him to perform this task despite its knowledge that he was drinking again," the judgment said. The news of the decision has angered Alaskans, who have vowed to fight to have the award upheld when the case returns to the Alaskan district court. About 40,000 fishermen, property owners and others affected by the spill joined in a class action against Exxon over the accident. According to Bob Henrichs, a native leader in Cordova, the centre of the Prince William Sound fishing industry, "I wouldn't want to be anyone from an oil company in this town today." Exxon representatives were particularly unwelcome, he said. ExxonMobil Corp. chairman Lee Raymond said that the appeal court decision "confirmed" ExxonMobil's position that the $5 billion award was excessive. Mr Raymond said in a statement that the Valdez oil spill was "a tragic accident that the company deeply regrets". The company spent $2.2 billion on cleaning up the spill and says that 11,000 people and businesses received more than $300 million in compensation. "An Anchorage jury in 1994 determined that actual damages totalled $287 million and reject the plaintiffs' claim for additional compensatory damage," Exxon said. Lead counsel for the plaintiffs David Oesting said: "I don't see this in the least as the end of the line. We are going to get punitive damages in the case – the question is just how much." John Hughes of the Oil Companies International Marine Forum declined to comment.

(Sandra Speares, Lloyd's Casualty Week, Vol. 326 No. 8, 16 November 2001).