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NEW YORK - A US appeals court cut US$2 billion ($2.85 billion) off the US$4.5 billion in punitive damages owed by Exxon Mobil for the Exxon Valdez oil spill, saying the earlier penalty was too harsh compared with the economic harm caused by the 1989 spill off Alaska.
The San Francisco-based US 9th Circuit Court of Appeals said in its ruling on Friday that it sliced the penalty almost in half in light of US Supreme Court decisions on punitive damages.
The court said the company's prompt action to clean up the oil and compensate fishermen and others for economic losses lowered the reprehensibility of Exxon's conduct.
"In addition, in considering the relationship between the size of the award and the amount of harm, we concluded in our earlier punitive damages opinion that the substantial costs that Exxon had already borne in clean-up and loss of cargo lessen the need for deterrence in the future," the court wrote.
Exxon Mobil said in a statement that while it is reviewing the ruling, it still believes the punitive damages are too high. It said the plaintiffs were compensated for damages and most were compensated within one year of the spill.
"It is our view that the US Supreme Court needs to provide more definitive guidance to the lower courts on the law governing punitive damages," the company said.
The Supreme Court ruled in April 2003 that punitive damages must be reasonable and proportionate to the harm that was suffered. In that decision, the top US court struck down a US$145 million award against State Farm Mutual Automobile Insurance Co. for mishandling a claim.
The punitive damages ruling against Exxon - originally US$5 billion in 1994 - has been the subject of a decade-long legal battle between the oil giant and 32,000 fishermen, Alaska natives and property owners who were awarded the damages for the biggest oil spill in US history.
The company has argued that it should not be required to pay punitive damages of more than US$25 million in the case.
The Exxon Valdez supertanker ran aground in Alaska's Prince William Sound in March 1989, spilling about 11 million gallons
of crude oil. Fishermen throughout the US Northwest struggled as the price of salmon plummeted and herring stocks declined dramatically over the next few years.
Exxon is the world's largest publicly traded company and is expected to earn nearly US$40 billion in profit this year.
The decision to lower punitive damages against Exxon was disappointing, said David Oesting, the Anchorage, Alaska-based lawyer serving as court-appointed lead counsel for the fishermen and others suing Exxon.
But he said some of his clients might feel that "closure is more important than 100 per cent vindication."
Indeed, Ross Mullins, a retired fisherman in the Prince William Sound town of Cordova, was pleased at the news.
"I've always thought if they split the difference that they'd have something people could live with," he said. "That's good news. We've been wondering what's been taking them so long."
Since the spill, the town has suffered a crash of herring stocks that residents attribute to the spill, according to Mullins. He stopped fishing in 2002 and said that his future was linked to the outcome of the case.
Still, he expects Exxon to continue to resist the award.
"I don't think there's anything novel in the case that will take it to the Supreme Court, although that attempt will be made by Exxon. It's part of their scorched-earth policy," Mullins said.
Oppenheimer analyst Fadel Gheit said he also believes the company will appeal the ruling.
"Exxon is not likely to write a check any time soon -- they are ready to take it all the way to the Supreme Court," Gheit said.
"It is a matter of principle ... They don't believe they've
done anything wrong to warrant billions of dollars in punitive damages," he said.
The corporate world has long complained about skyrocketing awards of punitive damages, which are aimed at punishing companies for bad conduct. Business groups say these big awards can be grossly excessive and arbitrary.
In July, for example, the Florida Supreme Court refused to reinstate a US$145 billion punitive damages award against big cigarette companies that were found liable for selling a dangerous product, saying the award was too high. Still, the ruling allows individual suits by smokers who contend they were harmed by cigarettes.
Shares of Exxon fell 46 cents to close at US$75.41 on the New York Stock Exchange on Friday.
- REUTERS
