LawyersUSA

WASHINGTON – Fourteen years after a jury awarded Alaskan fishermen and others affected by the worst oil spill in U.S. history $287 million in compensatory damages and $5 billion in punitive damages, the U.S. Supreme Court is considering the case.

The Court heard oral arguments yesterday in Exxon Shipping Co. v. Baker, No. 07-219, which will answer whether maritime law and the Clean Water Act permit a punitive award against Exxon Shipping Co. based on the conduct of one of its ship captains.

The justices seemed wary to rule that the company was shielded from punitive liability for allowing a recovering alcoholic to captain a supertanker that ran aground off the Alaska coast in 1989, causing 11 million gallons of oil to spill into Prince William Sound.

But they seemed equally wary to affirm such a large punitive damages award, at times struggling to find the right ratio of compensatories to punitives.

After the 1994 jury award, the 9th Circuit ultimately reduced the punitive award to $2.5 billion, a figure that would work out to about $75,000 per plaintiff in the class. Exxon paid the compensatory award, but appealed the punitive judgment.

As fisherman and other Alaskans affected by the spill looked on from the audience during the extended 90-minute oral argument session, Walter Dellinger, a partner at the Washington, D.C. office of O'Melveny & Myers who represented the oil company, argued that there is no basis in maritime law for imposing punitive liability on a company based on the actions of a ship's captain because he is too far down the corporate chain. Chief Justice John G. Roberts, Jr., like the other justices, wondered just where that line should be drawn.

"So you have to have a shareholder driving the boat before you can assess liability?" Roberts asked Dellinger. "Where do you draw the line between the CEO and the cabin boy?"

Dellinger argued that under maritime law, a captain's actions cannot make the shipowner liable for punitive damages.

Some justices seemed to have trouble with Dellinger's reasoning.

"In [the old] days, when a ship [went] to sea, the ship was sort of a floating world by itself," Justice David Souter said. "And the contact with the shipowner was simply gone until the thing came back into port again. That is certainly not the case today."

Justice Anthony Kennedy added: "The captain has this huge vessel. He can decide when it leaves. He decides the course."

But Dellinger said the captain "was unable to set policy for" Exxon.

"The reason we want to hold someone, an entity or a person, liable in punitive damages is because they make a decision that is malicious or profit-seeking," Dellinger said. "It's not the importance of the job. It's … when someone acts contrary to the interest of a company and its shareholders."

Limited punitives?

Justices Kennedy and Antonin Scalia hinted strongly that they would consider allowing maritime law punitive damage awards, but limiting them, when they asked Dellinger what factors and formula the Court should consider for limiting such awards.

"You would say one of those factors is the Clean Water Act, wouldn't you?" Justice Scalia asked. The Act provides for punitive measures for environmental abuses, and Exxon argued that it negates the need for private punitive actions.

"And I take it … you would point to the provision for a fine double the amount of the damages? That would be a factor?" Justice Kennedy asked. "If we're looking for guidelines, [is] double general damages a factor we could follow in the maritime framework?"

Justice Stephen Breyer also looked for a ratio.

"We said [in due-process cases] zero to 10 ­– and you are quite right that this is a huge amount of money – you'd say zero to five, up to five times" the compensatory award, Justice Breyer said. "It's crude, but … that's the kind of thing that we said in the due-process cases."

"The Court has said civil fines are a better guide," Dellinger argued. "And … the maximum civil fine here for both the State of Alaska and the United States would be $80 million."

Deterrent needed

Jeffrey L. Fisher, a Supreme Court litigator and professor at Stanford University Law School, argued that the Clean Water Act alone is not a sufficient deterrent.

"Even if this Court looks at the payments Exxon has made from a perspective of deterrence, there are two [indications] in which Exxon has clearly not been deterred," Fisher argued. "The first is that Exxon's own executives testified to Congress shortly after the spill that the results of the spill were … 'pretty much as we envisioned.'"

Justice Ruth Bader Ginsburg asked about the availability of other remedies for the affected Alaskans.

"Are there other cases against Exxon seeking compensation and punitive damages based on this oil spill that are still awaiting trial or decision?" Justice Ginsburg asked. "Or is this it?"

As several members of the audience shook their heads "no" in answer to the question, Fisher answered.

"By definition, Justice Ginsburg, this is a mandatory punitive class, so this is the one and only time Exxon will face … punitive damages," he said. "[So there is no need for] this Court to have such great concern about the uptick in punitive damages – here you have a single case. You have a single digit ratio which is proportionate to the harm that was shown in this case."

Justice Samuel Alito, who owns Exxon stock, recused himself from the case and was not present during oral argument.

A decision is expected later this term.

Questions or comments can be directed to the writer at kimberly.atkins@lawyersusaonline.com