Ninth Circuit orders Exxon Valdez punitive damage award cut by $2 billion
July, 2008
On December 22, 2006 the Ninth Circuit Court of Appeals added another chapter in the 17-year battle over punitive damages flowing from the Exxon Valdez oil spill, when it entered an order cutting the 1994 $4.5 billion punitive damage award against Exxon to $2.5 billion.[i] The order, which reduces the Anchorage jury's award to nearly 33,000 fishermen and other Alaskans whose property and livelihoods were harmed by the 1989 grounding of the Exxon Valdez, is the third time the Court has ordered the punitive damage award reduced. This time, however, instead of again remanding the matter to the district court to calculate a reduced award, the Ninth Circuit calculated the award itself. Although the Court noted that it made the calculation itself because "[i]t is time for this protracted litigation to end," the third time still may not be the charm. Given the amount of money at stake and ExxonMobil's firmly-stated position that "the facts of this case do not warrant an award of" $2.5 billion,[ii] it is not surprising that Exxon is seeking review of the decision.[iii]
The 1989 Exxon Valdez Spill and Ensuing Litigation
In March, 1989 the oil tanker Exxon Valdez ran aground on Bligh Reef in Prince William Sound, Alaska and caused the largest oil spill in United States history.[iv] Estimates of the quantity of oil spilled range from 10.8 million to 30 million gallons.[v] More than 1,200 miles of coastline were contaminated, 250,000 birds were killed, and 330 civil lawsuits were spawned.[vi]
Criminal Prosecution
The state of Alaska criminally prosecuted the Exxon Valdez's captain, Joe Hazelwood.[vii] The United States prosecuted Exxon for various environmental crimes, including criminal violations of the Clean Water Act, the Refuse Act, and the Migratory Bird Treaty Act.[viii] Exxon Corporation pled guilty to one count of violating the Migratory Bird Treaty Act, and Exxon Shipping pled guilty to one count each of violating the Clean Water Act, the Refuse Act, and the Migratory Bird Treaty Act. The corporations were jointly fined $25 million and were ordered to pay restitution of $100 million.[ix]
Civil Litigation: The Natural Resource Damage Claims
The United States and the state of Alaska[x] sued Exxon for natural resource damages. That litigation was settled through the entry of consent decrees under which Exxon agreed to pay $900 million over a period of ten years.[xi] Of that $900 million, approximately $145 million remains, the remainder having been used at the direction of the Exxon Valdez Oil Spill Trustee Council for species and habitat restoration and recovery.[xii] The consent decrees contain a reopener provision that allows the governments to make additional claims of up to $100 million for natural resource damages not known when the settlements were reached.[xiii]
On August 31, 2006 the Department of Justice and the State of Alaska Department of Law asserted a claim against Exxon under the reopener provision, demanding payment of $92 million to find and clean up oil the governments contend remains in the environment from the 1989 spill.[xiv] Exxon contends that the nearly 350 studies that have been conducted demonstrate that the spill has left no lingering damages in Prince William Sound, and that the governments' demands do not satisfy the requirements of the settlement agreement.[xv] Investigation is ongoing.
The In re the Exxon Valdez Litigation
Most of the civil lawsuits ultimately were consolidated into In re the Exxon Valdez before Judge H. Russell Holland in the United States District Court for the District of Alaska[xvi] where, remarkably, litigation continues to this day.[xvii] The damages trial proceeded in phases: Phase I determined that Exxon was liable for punitive damages. Phase II determined the amount of compensatory damages to award. Phase III determined the amount of punitive damages to award.[xviii] Subsequent proceedings, which are ongoing, have adjudicated the claims of members of the fifty classes of claimants in the consolidated class action lawsuit.[xix]
On August 11, 1994, following the second phase of the trial, the jury returned a verdict of compensatory damages against Exxon of nearly $287 million.[xx] On September 16, 1994, following the third phase of the trial, the jury returned a $5 billion punitive damages verdict against Exxon.[xxi] Exxon appealed, marking the start of an additional twelve years of litigation and three appeals to the Ninth Circuit that has continued to the present.
In the first appeal,[xxii] the Ninth Circuit remanded the punitive damage award to the district court to be reconsidered in light of intervening decisions by the United States Supreme Court addressing the constitutionality of punitive damage awards. In BMW v. Gore and Cooper Industries v. Leatherman Tools, the Supreme Court articulated factors a court must consider when reviewing a punitive damage award: the reprehensibility of the defendant's conduct; the ration of the award to the harm inflicted on the plaintiff; and the difference between the award and civil and criminal penalties in comparable cases.[xxiii] The district court conducted an extensive analysis of those factors, and concluded the actual harm to plaintiffs was more than $500 million and a ratio of punitive damages to harm was 10 to 1, supporting the original $5 billion award. Nonetheless, the court reduced the punitive damages to $4 billion, to conform to what it viewed as the Ninth Circuit's mandate.[xxiv] Exxon appealed again.
While the second appeal was pending, the Supreme Court issued another punitive damages opinion, State Farm Mut. Auto Ins. Co. v. Campbell.[xxv] State Farm instructed courts to weigh five specific considerations in calculating punitive damages, and "strongly indicated the proportion of punitive damages to harm could generally not exceed a ration of 9 to 1."[xxvi] Those five factors are (1) whether the harm caused was physical as opposed to economic; (2) whether the conduct causing the plaintiff's harm showed "indifference to or a reckless disregard of the health or safety of others;" (3) whether the "target of the conduct" was financially vulnerable; (4) whether the defendant's conduct involved repeated actions as opposed to an isolated incident; and (5) whether the harm caused was the result of "intentional malice, trickery, or deceit, or mere accident."[xxvii] The Ninth Circuit summarily remanded the second appeal of the punitive damage award to the district court for recalculation in light of State Farm. On remand, the district court again determined actual harm to be $513.1 million and increased the punitive damage award to $4.5 billion, a ratio of just under 9:1.[xxviii] Exxon appealed again, and this time, the plaintiffs cross-appealed, seeking reinstatement of the $5 billion award.
In the third and latest appeal, Exxon argued that all of its settlement and other pre-judgment compensatory payments to the plaintiffs, which totaled approximately $493 million,[xxix] had to be subtracted from the more than $500 million in actual harm before calculating the ratio of punitive damages to actual harm. As a result, Exxon argued, the measure of damages would be reduced to $20.3 million.[xxx] Applying what it contended was the appropriate ratio, 1:1, Exxon argued that a punitive damage award of should be capped at $25 million.[xxxi] The Ninth Circuit disagreed, explaining that "Exxon's argument goes too far. It would produce, in Exxon's analysis, a $25 million limit on punitive damages when the harm was $513 million but $493 million was paid before judgment."
In the end, the Ninth Circuit accepted the District Court's approximation of $500 million as the amount of actual harm, but in determining the appropriate ratio of punitive damages to actual damages, took into account the fact that while Exxon's conduct (its "reckless decision to risk the livelihood of thousands by placing a relapsed alcoholic in command of a supertanker") was particularly egregious and the economic damages significant, it was not intentional. And, as a mitigating factor, Exxon promptly took steps to ameliorate the harm. Thus, Exxon's conduct, "though inexcusable," warranted a ration of 5:1 rather than 9:1, resulting in a punitive damage award of $2.5 billion dollars.[xxxii]
Reaction: An End or Another Chapter in the Litigation?
In the aftermath of the decision, plaintiffs' lead counsel David Oesting said that the plaintiffs were considering whether to ask for rehearing by all fifteen judges of the Ninth Circuit, or whether to seek review in the Supreme Court.[xxxiii] An Exxon spokesman criticized the decision, and a press release issued in response to inquiries about the Ninth Circuit's decision noted that "[i]t is [Exxon's] view that the U.S. Supreme Court needs to provide more definitive guidance to the lower courts on the law governing punitive damages. In our opinion, the facts of this case do not warrant an award of this size."[xxxiv]
Mr. Oesting earlier predicted, in late January, 2006 following oral argument on the appeal, that "[t]his is almost the end of the road. This will not be reviewed again. They'll pick the number and tell us what it is."[xxxv] He was at least half right – the Ninth Circuit panel picked a number and told the parties what it was. But the punitive damage award may yet be reviewed again -- Exxon has already requested reconsideration by the panel that issued the December 22, 2006 opinion, or rehearing by the entire Ninth Circuit.
Many of the plaintiffs, worn out by litigation that has spanned 17 years, likely agree with the court's conclusion that "it is time for this protracted litigation to end." Given the money at stake, however, an end does not seem to be in sight.[xxvi]
For more information, contact Connie Sue Martin.
[ii] "ExxonMobil Response to Inquiries About the 9th Circuit Court of Appeals 12/22/06 Ruling on Valdez Punitive Damages."
[iii] Exxon appeals $2.5B compensation for Valdez victims, 1/17/07, Greenwire (subscription required).
[iv] William H. Rodgers, Jr., J.B. Crosetto III, C.A. Holley, T.C. Kade, J.H. Kaufman, C.M. Kostelec, K.A. Michael, R.J. Sandberg, J.L. Schorr, The Exxon Valdez Reopener: Natural Resource damage Settlements and Roads Not Taken, 22 Alaska L.Rev. 135, 136 (2005), available at http://www.law.duke.edu/shell/cite.pl?22+Alaska+L.+Rev.+135.
[vi] Id, at fn 2. For more discussion of the Exxon Valdez spill and its continuing impacts on oil spill response, prevention and reparations in the Pacific Northwest, see Washington's Federal Legislators Focus on Oil Spill Response, Prevention and Reparations in the Pacific Northwest, http://www.martenlaw.com/news/?20060412-oil-spill-response.
[vii] State v. Hazelwood, 946 P.2d 875 (Alaska 1997); State v. Hazelwood, 866 P.2d 927 (Alaska 1993); and Hazelwood v. State, 962 P.2d 196 (Alaska 1998).
[viii] In re the Exxon Valdez, 296 F. Supp.2d. 1071, 1079 (D. Alaska 2004) (2nd remand on punitive damages), vacated by In re: The Exxon Valdez, Ninth Circuit Court of Appeals Cause No. 04-35182 (12/22/06).
[x] Brad Marten, of Marten Law Group PLLC, represented the state of Alaska in the natural resource damage litigation.
[xi] United States v. Exxon Corp., No. A91-0082-CV (Clerk's Docket No. 46 at 7-8); Alaska v. Exxon Corp., No. A91-0083-CV (Clerk's Docket No. 26 at 7-8).
[xiii] See Consent Decree and Agreement at 18 – 19, Clerk's Docket No. 46 in United States v. Exxon Corp., No. A91-0082-CV and Clerk's Docket No. 26 in Alaska v. Exxon Corp., No. A91-0083-CV.
[xvi] The claims of Alaska Natives were asserted in a separate class action lawsuit against Exxon, seeking damages for loss of their subsistence way of life. The claims were split into economic damages due to loss of harvest, and non-economic damages due to injury to the subsistence culture. The economic claims were settled, and the non-economic claims were dismissed on Exxon's summary judgment motion. The dismissal was affirmed by the Ninth Circuit. See supra, fn 3 at 17.
[xviii] In re Exxon Valdez, 236 F. Supp.2d 1043, 1048 (D. Alaska 2002) (1st remand on punitive damages), vacated by In re: The Exxon Valdez, Ninth Circuit Court of Appeals Cause No. 04-35182 (12/22/06).
[xix] Phase IV was designed to try the compensatory damage claims of all plaintiffs who did not try their claims in Phase II, which included commercial fishing claims for species other than salmon and herring, natives who opted out of the certified class, oiled landowners, certain Native Corporations, oiled aquaculture associations, and a collection of other unique claims, including personal injury claims. Those claims were settled, subject to court approval of a plan of allocation setting forth, on a percentage share formula, the amount each category of plaintiffs will recover on all claims. On June 11, 1996 the District Court granted final approval to the Phase IV Settlement and the Plan of Allocation, and in 1997 and 1998 approved 50 distribution plans for each of the classes of claimants. For an interesting description of the litigation from the plaintiffs' counsel's perspective, see William B. Hirsch, "The Exxon Valdez Litigation: Justice Delayed: Seven Years Later and No End in Sight" (1996), available at http://www.lieffcabraser.com/wbh_exxart.htm. On August 20, 2001, the District Court appointed a Special Master to adjudicate objections of claimants to final determinations of the Exxon Qualified Settlement Fund Administrator. The Special Master continues to adjudicate those objections today.
[xx] No. A89-0095-CV, Docket Entry No. 5716.
[xxi] Id, Docket Entry No. 5891.
[xxii] 270 F.3d. 1215 (9th Cir. 2001).
[xxiii] BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996); Cooper v. Leatherman Tool Group, Inc., 532 U.S. 424 (2001).
[xxiv] 236 F. Supp.2d at 1068.
[xxv] 538 U.S. 408 (2003).
[xxvi] In re the Exxon Valdez, Ninth Circuit Court of Appeals Cause No. 04-35182 (12/22/06), at 19717.
[xxvii] 538 U.S. at 419. The Supreme Court again emphasized that the most important indicium of a punitive damage award's reasonableness is the relative reprehensibility of the defendant's conduct. Id.
[xxviii] 296 F.Supp.2d at 1110 – 1111. The following day, the Court approved plaintiffs' counsel's request for a 22.4% contingency fee, which, based on a punitive damage award of $4.5 billion, resulted in a $1.3 billion fee award. No. A89-0095-CV, Docket Entry No. 7837. Exxon appealed the fee award, but subsequently voluntarily dismissed that appeal. Court of Appeals Docket No. 04-35174, Order of dismissal filed 1/7/05.
[xxix] In the immediate aftermath of the spill, Exxon spent over $2 billion on efforts to remove the oil from the water, the adjacent shores, and from the individual birds and other wildlife impacted by the oil. It also began an extensive, voluntary claims program to settle with property owners, fishermen and others whose economic interests were harmed by the spill. Exxon spent $300 million on voluntary settlements prior to any judgments being entered against it. 270 F.3d at 1233.
[xxx] In re the Exxon Valdez, Ninth Circuit Court of Appeals Cause No. 04-35182 (12/22/06), at 19719.
[xxxiv] Id; see also, fn 2, supra.