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High court slashes Exxon Valdez oil spill damages

The ruling, a victory for Exxon, reduced the $2.5 billion punitive damages to about $500 million.

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Their lawyers alleged that Exxon managers assigned a relapsed alcoholic, Capt. Joseph Hazelwood, to command the supertanker. The jury found that Captain Hazelwood acted recklessly. But the jury found that Exxon acted recklessly, too.

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Hazelwood was ordered to pay $5,000 in punitive damages, and Exxon was ordered to pay $5 billion.

The Exxon verdict was later reduced to $2.5 billion.

In reducing that award, Justice Souter cited studies reflecting the median ratio of punitive to compensatory damages in thousands of examined cases. "The data in question put the median ratio for the entire gamut at less than 1:1, meaning that the compensatory award exceeds the punitive award in most cases," Souter wrote.

"In a well-functioning system, awards at or below the median would roughly express jurors' sense of reasonable penalties in cases like this one that have no earmarks of exceptional blameworthiness," Souter wrote.

Justices John Paul Stevens, Ruth Bader Ginsburg, and Stephen Breyer dissented. Justice Stevens said Congress, rather than the Supreme Court, should make the empirical judgments outlined in Souter's opinion.

The Exxon maritime case could hold broader implications for cases in state courts involving large punitive damages awards, analysts say. Some legal analysts suggest the same rationale used by the majority justices to winnow down the Exxon damages might also be applied in the state courts.

The Supreme Court has been sharply divided on the issue of how best to determine when a punitive damages award is too large.

"The decision could have an effect far beyond federal maritime law," said Robin Conrad, of the National Chamber Litigation Center. "Limiting punitive damages to no more than the amount of a compensatory award will go a long way in cabining unpredictable punitive damages," she said.

Other analysts say Exxon got off easily. "For the court to require a company that recorded a 2007 profit of $40.6 billion and that posted the highest quarterly results in US corporate history in February to pay a mere $500 million in punitive damages to the affected Alaskans makes a mockery of justice," said John Passacantando, executive editor of Greenpeace USA.

Fordham law professor Benjamin Zipursky saw the court's action as the epitome of a high court compromise. "Four of the justices wanted no damages at all and at least three wanted $2.5 billion," he said. "The court ended up giving Exxon an 80 percent reduction, and permitting just over $500 million in punitive damages."

Professor Zipursky added, "The case reflects a combination of the court's pro-business willingness to cut punitive damages quite sharply, its disinclination to spare Exxon all punitive damages in today's political environment, and its occasional capacity to resolve disagreement by striking a bargain."