Supreme Court to review Exxon Valdez award

The high court will determine if the $2.5 billion in punitive damages owed for the 1989 Alaska oil spill is excessive.

By Bill Mears, CNN Supreme Court Producer

NEW YORK (CNN) -- The Supreme Court will decide whether a $2.5 billion punitive damages award against Exxon Corp. -- now Exxon Mobil -- for its role in the 1989 Exxon Valdez oil spill in Alaska was excessive.

The justices agreed to hear the case Monday, and oral arguments will be held sometime next year.

The suit was brought by fishermen, landowners, local governments and native Americans who claimed private economic harm from the spill. The company claimed it had already paid many millions in government fines, as well as $3.4 billion in cleanup costs.

A jury originally awarded $5 billion in 1994. A federal court later cut that amount in half, but it still was believed to be the largest punitive damages judgment of its kind in U.S. courts.

Much of the initial blame in the accident was placed on Capt. Joseph Hazelwood, whose alcohol abuse was found to have contributed to mistakes that let the ship to run aground. The company and the plaintiffs used different arguments when citing Hazelwood's actions, in efforts to boost their respective cases.

The issue was whether, based on past high court precedent limiting punitive awards, the judgment was too high. The company argues it should not have to pay any damages, and that the case has dragged on too long. Special maritime laws govern these kinds of disputes, and previous such cases will be important benchmarks when the justices grapple for a ruling.

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

Exxon Mobil (Charts, Fortune 500) issued a news release saying it welcomes the Supreme Court's decision.

"This case has never been about compensating people for actual damages. Rather it is about whether further punishment is warranted in a case where the company voluntarily compensated most plaintiffs within a year of the spill, and has spent over $3.5 billion, including compensatory payments, cleanup payments, settlements and fines. We do not believe any punitive damages are warranted in this case," according to the news release issued by company spokesman Tony Cudmore.

"It is also important for the Supreme Court to uphold long-standing maritime law that provides that ship owners are not liable for punitive damages based upon conduct by the ship-master who disregarded the owner's rules and policies," the company said in the statement.

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 in most cases punitive damages should match "actual" damages.

In the Exxon case, a federal appeals court said the company should be given some credit for paying for the cleanup costs.

The case is Exxon v. Baker (07-219). A ruling is expected by late June. Top of page