High court reduces Exxon oil spill damages

Supreme Court cuts punitive damages for Exxon in 1989 oil spill.

WASHINGTON (CNN) -- The Supreme Court on Wednesday reduced a $2.5 billion punitive damages award against energy giant Exxon for its role in an infamous 1989 maritime oil spill off the coast of Alaska.

The high court concluded that punitive damages should roughly match actual damages from the environmental disaster, which were about $507 million. Lower courts were asked to reassess the jury verdict, extending the years-long litigation in the case.

"The award here should be limited to an amount equal to compensatory damages," wrote Justice David Souter.

Justices Ruth Bader Ginsburg, John Paul Stevens and Stephen Breyer agreed in part and disagreed in part with the majority ruling. In such cases, it is left open to interpretation whether their dissent is strong enough to be considered a vote against the majority.

In the incident, commonly known as the Exxon Valdez spill, 11 million gallons of crude oil spilled in pristine waters off the southern end of the state when a supertanker - the Exxon Valdez - ran aground on an offshore reef. Petroleum soaked some 1,200 miles of coastline, killing countless birds and marine life.

Much of the initial blame for the accident was placed on Capt. Joseph Hazelwood, who was cited by various courts for relapsed alcoholism that contributed to mistakes, leaving his vessel helplessly stuck on Bligh Reef.

Witnesses said he had been drinking heavily before the Exxon Valdez left port that night, and had left the ship's bridge when it left the normal shipping channels to avoid ice. Both actions violated Coast Guard and company policies.

A class-action lawsuit was brought against Exxon by nearly 33,000 plaintiffs - including fishermen, landowners, local governments and Native Americans - who claimed private economic harm from the spill.

The company, now known as Exxon Mobil (XOM, Fortune 500), has already paid $3.4 billion in cleanup costs and millions in government fines and it argues it should not be forced to continue to pay for the spill.

A jury in 1994 awarded $5 billion in the class-action suit. A federal court later cut that amount in half, but it was still believed to be the largest punitive-damages judgment of its kind in U.S. courts. Punitive damages are designed to punish a wrongdoer, while compensatory damages compensate a wronged party for the loss they suffered.

The issue before the justices was whether the judgment was too high, based on past high court precedents limiting punitive awards.

Lawyers for the plaintiffs claimed the company has deep financial pockets, and noted in their appeal that even a multibillion-dollar judgment amounts only to "barely more than three weeks of Exxon's net profits."

Alaska residents who attended oral arguments in April held signs noting the Texas-based company reported an annual profit last year of $40.6 billion, a record for a U.S. firm.

Exxon Mobil claimed the federal Clean Water Act does not allow for punitive damages for oil spills and other open-water environmental incidents similar to the Exxon Valdez. And they said federal maritime law prevents company owners from being held liable for personally negligent conduct by the captain or crew.

Souter wrote, "The common sense of justice would surely bar penalties that reasonable people would think excessive for the harm caused in the circumstances."

The ruling was applauded by organizations such as the U.S. Chamber of Commerce, the world's largest business federation.

"This is good news for companies concerned about reining in excessive punitive damages," said Tom Donohue, the chamber's president and CEO, in a written statement. "For years, the chamber has argued that punitive damages are too unpredictable and unfair, and today the court agreed."

The high court has generally tried to limit punitive damages that are deemed "excessive." Last term, it threw out a $79 million award to an Oregon smoker's family who claimed tobacco giant Philip Morris contributed to his death by cancer. The justices, in their divided ruling in that case, said punitive damages almost always should match "actual," or compensatory, damages.

Justice Samuel Alito withdrew from deciding the case. Although no reason was given, financial disclosure reports indicated the newest justice had owned substantial amounts of Exxon stock.

Meanwhile, the long-running case has made it hard for residents of the community to move on, Travis Vlasoff, a native Chugach fisherman from Tatitlek, told CNN after oral arguments in the case. Vlasoff said the long legal fight has taken a financial and emotional toll among his family and friends.

"It's very difficult to advance the healing process without any sort of finality," he said. "Each turn has reopened long, deep wounds within the community and with individuals."

The case is Exxon Shipping Co. v. Baker (07-219).