WASHINGTON — In a victory for corporations seeking to limit big-dollar lawsuits, the U.S. Supreme Court on Wednesday cut the $2.5 billion in punitive damages awarded in the 1989 Exxon Valdez oil spill.
The court reduced the award to $507.5 million, dashing the hopes of more than 32,000 fishermen and Alaska Natives who've been waiting for nearly 20 years to hear whether Exxon Mobil Corp. must pay billions in punitive damages for its part in the spill.
The original multibillion-dollar punitive damages had been awarded as punishment for grounding an oil tanker on Bligh Reef and spilling 11 million gallons of oil into the pristine fishing waters of Alaska's Prince William Sound.
The court held 5-3 that punitive damages in maritime cases should be no more than the compensatory damages. That one-to-one ratio, a new legal standard for punitive awards, applies only to punitive damages meted out under maritime law. It's designed to address "the stark unpredictability of punitive awards," the court decided.
"The punitive damages award against Exxon was excessive as a matter of maritime common law," Justice David Souter wrote in the majority opinion. "In many instances a high ratio of punitive to compensatory damages is substantially greater than necessary to punish or deter."
In a dissent, Justice Stephen Breyer wrote that the one-to-one ratio was too rigid for the egregious nature of the company's conduct. Justices Ruth Bader Ginsburg and John Paul Stevens also disagreed with cutting back the award.
Justice Samuel Alito, who owned Exxon stock, recused himself from the case.
For many Alaskans, the ruling cuts by four-fifths the windfall they were expecting.
The decision is "a total slap in the face," said Andy Wills of Homer, a former Prince William Sound salmon and herring fisherman. "It just shows how corrupt our country has become. This won't even pay off a credit card."
The ruling is a bitter disappointment to thousands of people who were expecting to see Exxon punished for ruining a way of life for thousands of fishermen, said Brian O'Neill, one of the main attorneys for the plaintiffs.
"I feel bad for all the claimants, that they're not going to get enough money to put together their lives again," O'Neill said. "I feel bad for all the claimants because they're not getting the satisfaction knowing that there was a just punishment administered to Exxon. And I feel bad for all of the claimants because the judicial system has let them down. It just isn't fair."
There's some concern that lowering punitive damages undercuts an effective financial deterrent against marine shipping accidents in Alaska, Gov. Sarah Palin said.
"It is tragic that so many Alaska fishermen and their families have had their lives put on hold waiting for this decision," Palin said. "My heart goes out to those affected, especially the families of the thousands of Alaskans who passed away while waiting for justice."
Rex Tillerson, Exxon's chairman and chief executive officer, issued a short statement saying that the company continues to regret the accident, but he didn't specifically address the Supreme Court decision other than to acknowledge that the court had issued it.
"We know this has been a very difficult time for everyone involved," Tillerson said. "We have worked hard over many years to address the impacts of the spill and to prevent such accidents from happening in our company again."
The case will go back to the U.S. District Court in Anchorage within the next several weeks. The court is expected to issue a final ruling without a hearing, a step that leads to issuing payments to the plaintiffs.
With interest, the total award adds up to nearly $1 billion. Much of that will go to commercial fishing interests, and about 22.4 percent to lawyer's fees. The 32,677 plaintiffs can expect to begin getting money within 90 to 120 days, said David Oesting, the Anchorage attorney who's been working on the case for two decades.
Exxon based its appeal on an 1818 court decision that holds ship owners aren't liable for punitive damages for the actions of their agents at sea unless they're complicit in their behavior. The court was divided 4-4 on that issue, so the lower court decision that the company is liable for the actions of the Valdez captain, Joseph Hazelwood, will stand.
The plaintiffs have been waiting for their compensation since 1994, when a jury in Anchorage returned a $5 billion punitive-damages award against Exxon Mobil. The company has been appealing the verdict since then. In 2006, the 9th U.S. Circuit Court of Appeals cut the award to $2.5 billion. Exxon appealed that decision to the Supreme Court, which heard oral arguments in the case Feb. 27.
Although business groups such as the American Petroleum Institute and the U.S. Chamber of Commerce had hoped that the Supreme Court would use the case as a way to curb large punitive damages against corporations in non-maritime cases, Wednesday's Supreme Court decision applies specifically to punitive damages under maritime law.
Exxon won on "the narrowest grounds possible," said Jonathan Adler, the director of the Center for Business Law and Regulation at Case Western Reserve University School of Law in Cleveland.
Still, the court laid out a careful and deliberative case for curtailing punitive damages, which some legal experts say could be used as a model outside maritime law.
It probably will begin to creep into other cases in which lawyers defending corporations are seeking to scale back sizable punitive-damage awards, said Amar Sarwal, the chief litigation counsel for the U.S. Chamber of Commerce.
"We see this as a very big victory, principally because we think that the court understands our concerns," said Sarwal, whose organization filed a friend-of-the-court brief on Exxon's behalf.
(Michael Doyle in Washington and the Anchorage Daily News' Tom Kizzia in Anchorage contributed to this article.)