Exxon Valdez oil spill ruling overturned

WASHINGTON (Reuters) - The U.S. Supreme Court on Wednesdaythrew out the record $2.5 billion (1.3 billion pounds) inpunitive damages that Exxon Mobil Corp had been ordered to payfor the 1989 Exxon Valdez oil spill off Alaska, the nation'sworst tanker spill.

By a 5-3 vote, the high court ruled that the punitivedamages award should be slashed to a maximum amount equal tothe total relevant compensatory damages of $507.5 million.

The justices overturned a ruling by a U.S. Court of Appealsthat had awarded the record punitive damages to about 32,000commercial fishermen, Alaska natives, property owners andothers harmed by the spill.

In the majority opinion, Justice David Souter concluded the$2.5 billion in punitive damages was excessive under federalmaritime law, and should be cut to the amount of actual harm.

Soaring oil prices have propelled Exxon Mobil to previouslyunforeseen levels of profitability in recent years; the companyposted earnings of $40.6 billion in 2007.

It took Exxon Mobil just under two days to bring in $2.5billion in revenue during the first quarter of 2007.

The Exxon Valdez supertanker ran aground in Alaska's PrinceWilliam Sound in March 1989, spilling about 11 million gallonsof crude oil.

The spill spread oil to more than 1,200 miles of coastline,closed fisheries and killed thousands of marine mammals andhundreds of thousands of sea birds.

A federal jury in Alaska awarded $5 billion in punitivedamages in 1994. A federal judge later reduced the punitivedamages to $4.5 billion, and the appeals court further cut itto $2.5 billion.

Exxon Mobil, the largest U.S. company by marketcapitalization, then appealed to the Supreme Court.

Souter rejected Exxon Mobil's argument that the federalclean water law's water pollution penalties preempt punitivedamage awards in maritime spill cases. But he sided with thecompany in slashing the award.

"We ... hold that the federal statutory law does not bar apunitive award on top of damages for economic loss, but thatthe award here should be limited to an amount equal tocompensatory damages," he said.

In Irving, Texas, Rex Tillerson, Exxon Mobil's chairman andchief executive, said in a statement, "The Valdez oil spill wasa tragic accident and one which the corporation deeplyregrets."

"We know this has been a very difficult time for everyoneinvolved. We have worked hard over many years to address theimpacts of the spill and to prevent such accidents fromhappening in our company again," he said.

'SLAP ON THE WRIST'

In Alaska, Tim Joyce, mayor of the Prince William Soundtown of Cordova, where most of the area's fishing fleet isconcentrated, said, "Instead of taking a large corporation tothe woodshed, they just gave them a slap on the wrist."

Compared to Exxon's billions of dollars of quarterlyprofit, "$500 million, that's lost in the rounding," he said."A lot of people had their whole lives ruined because of this."

Alaska Gov. Sarah Palin also denounced the ruling and said,"The court gutted the jury's decision on punitive damages."

A joint statement from Alaska's congressional delegationsaid, "Today's ruling adds insult to injury to the fishermen,communities and Alaska natives who have been waiting nearly 20years for proper compensation following the worst environmentaldisaster in our nation's history."

Tom Donohue, president of the U.S. Chamber of Commerce,said: "This is good news for companies concerned about reiningin excessive punitive damages." The business group said theruling could have an impact far beyond federal maritime law.

Company lawyers had called the $2.5 billion the largestpunitive damage award ever affirmed by a federal appellatecourt -- larger than the total of all punitive damage awardsupheld by federal appellate courts in U.S. history.

The case was decided by eight Supreme Court members. Theninth, Justice Samuel Alito, who owns Exxon Mobil stock,recused himself from the case.

Dissenting Justices John Paul Stevens, Ruth Bader Ginsburgand Stephen Breyer would have upheld the award. Stevens andGinsburg said Congress, not the court, should set limits onpunitive damages under maritime law.

Breyer said this was no ordinary reckless behaviour case.

RELAPSED ALCOHOLIC

"The jury could reasonably have believed that Exxonknowingly allowed a relapsed alcoholic repeatedly to pilot avessel filled with millions of gallons of oil through watersthat provided the livelihood for the many plaintiffs in thiscase," he said.

"Given that conduct, it was only a matter of time before acrash and spill like this occurred," Breyer said.

Exxon has not set aside any legal reserves for possibledamages as the company has argued that it was not possible topredict the ultimate outcome. The ruling will likely take asmall bite out of upcoming earnings.

Immediately after the ruling was announced, Exxon Mobilshares dropped around 80 cents, or just less than 1 percent.

But the company's shares later recovered and closed up 68cents at $87.60 on the New York Stock Exchange.

The ruling could create a new public relations challengefor Exxon, which is already facing heat from Congress andconsumers because of high gasoline prices.

"They are already being vilified in the news because oftheir profits," said Argus Research analyst Phil Weiss, whosaid the company's tenacious legal defence was good for itsshareholders.

"But if I'm a consumer who doesn't own Exxon stock anddoesn't care about Exxon stock, I'm looking at the money I'mpaying to put gas in my tank and thinking 'Here they are,taking advantage of somebody else,'" Weiss said.

(Additional reporting by Michael Erman in New York andYereth Rosen in Alaska; Editing by Dave Zimmerman, Gerald E.McCormick, Toni Reinhold)