War of Attrition
Feb 28 2008
The Supreme Court heard arguments Wednesday on whether a $2.5 billion punitive-damage award against Exxon Mobil was excessive. What might warrant a penalty that severe? The Exxon Valdez disaster.
In 1994, a federal court jury in Anchorage awarded $286 million in actual damages and $5 billion in punitive damages.
Since the verdict came down, however, Exxon has been fighting in court, bouncing between district court in Anchorage and the 9th Circuit appeals court in San Francisco, with more than four years of waiting between one appeal and a decision. The Supreme Court agreed to take the case last fall.
Meanwhile, more than 6,000 of the 32,677 fishermen, landowners, and Native Americans who were plaintiffs in the case have died. Hundreds more have gone bankrupt, many due to lingering effects of the spill.
"There was a lot of arm wrestling between the court of appeals and the district judge," says Andrew Frey of Mayer Brown, who filed an amicus brief in the case, Exxon Shipping v. Baker, on behalf of the American Petroleum Institute.
While more than 13 years of litigation may seem like a lot of years to the average citizen, Frey just shrugged. "These cases take time," he says.
Time has certainly worked in Exxon's favor. At the time the jury acted, its original $5 billion award was equal to the company's profit for about a full year. The current award, reduced to $2.5 billion in the appeals process so far, represents only "about three weeks of Exxon's current net profits," according to the plaintiff's brief to the Supreme Court. With interest, the award would amount to about $4.8 billion.
If the lawsuit itself seems old, the case law cited by Exxon is a real barnacle: It cites the 1818 case, The Amiable Nancy. That case established the principle that a ship's owner could not be held accountable for a robbery committed by its crew.
If the first reports on the arguments are any indication, several justices, including Scalia, don't seem to believe that The Amiable Nancy shackles them to a decision from 1818.
But Exxon could both "lose and win" said Lyle Denniston, a veteran Supreme Court reporter, writing on the SCOTUSblog. Justices Anthony Kennedy and David Souter both suggested that a reasonable number for punitive damages might be twice what the company has already paid to compensate victims for their economic losses. Walter Delinger, who argued the case for Exxon, said those costs amount to $500 million.
The high court has tended to take punitive-damage cases when it believes something has gone wrong. "It's unsurprising that the defendants have been relatively successful," Frey says of Exxon.
