Appeals court rules Exxon Valdez award was excessive

Appeals court rules Exxon Valdez award was excessive

James M. Taylor

James M. Taylor is senior fellow for environment and energy policy at The Heartland Institute, and... (read full bio)

A federal appeals court has thrown out a $5.3 billion punitive damages award against Exxon Mobil Corporation for the 1989 Exxon Valdez oil spill, concluding the award was excessive.

The decision by the Ninth Circuit Court of Appeals, issued November 7, sends the issue of punitive damages back to a jury for recalculation of an appropriate award.

Damage award exceeded Court standard

The punitive damages were awarded in a suit filed by individual residents, mostly Alaskan commercial fishermen and property owners, to recover compensation for property damage and lost income as a result of the spill. A federal district court had determined plaintiffs suffered between $288 million and $418 million in damages meriting compensation.

In its November review of the district court's decision, the appeals court noted the $5.3 billion punitive damages award created a 17:1 ratio of punitive damages to compensatory damages. Remanding the case for a jury redetermination of punitive damages, the Ninth Circuit pointed out the U.S. Supreme Court had recently set an appropriate punitive damages ratio of roughly four to one. That ratio would suggest a maximum punitive damages award in the Exxon Valdez matter of between $1.1 billion and $1.7 billion.

Environmental issues already addressed

Radical environmentalist groups were predictably unhappy with the Ninth Circuit's ruling.

"We feel that Exxon is getting let off the hook," said Greenpeace spokesperson Gary Skulnik. "They have committed environmental atrocities, and they are not being made to pay the price for it."

Skulnik's criticism was misdirected, according to the Ninth Circuit. The court noted Exxon had already addressed environmental concerns related to the spill. The company, according to the appellate court, spent over $3 billion to clean up the spill, going so far as to remove oil "even from the individual birds and other wildlife"; acted on its own to compensate thousands of persons for their losses even before any suits were filed; and made additional environmental outlays as dictated by Congress.

"This is not a case about befouling the environment," noted the court. "The verdict in this case was for damage to economic expectations for commercial fishermen."

Working at cross-purposes

The Ninth Circuit's decision illustrates the fine line Exxon is being forced to walk in the aftermath of the Valdez spill.

Although Exxon performed admirably in the aftermath of the spill and has spent billions of dollars on environmental improvement, the company still must defend itself against ongoing green animosity.

Simultaneously, the company has had to defend itself against government lawsuits claiming it has gone too far in the direction of environmental safety.

Mindful that the Valdez lawsuits were based on an allegation the company negligently allowed a captain with an alleged history of alcoholism to guide the ship, Exxon implemented a policy forbidding persons who had undergone substance abuse treatment from holding certain safety-sensitive positions, such as captain of an oil ship.

The U.S. Department of Justice had helped Exxon develop that policy and urged the company to adopt it. But immediately after Exxon did so, the U.S. Equal Employment Opportunity Commission (EEOC) sued the company, claiming the policy violated the Americans with Disabilities Act (ADA).

In pursuing its ADA claim against Exxon, the EEOC tried to prevent former Justice Department officials from testifying about their role in formulating the company's substance abuse policy. Realizing Justice Department testimony would doom their case, the EEOC argued that government ethics standards prevented the former government officials from testifying against the government in its ADA claim.

The federal Fifth Circuit Court of Appeals rejected the EEOC's argument and allowed the former Justice Department officials to testify.

James M. Taylor

James M. Taylor is senior fellow for environment and energy policy at The Heartland Institute, and... (read full bio)