Above the Law

Above the Law

How Big Oil got out of jail free

The Tern
Published: 07/01/2008

By "Tern" Alexa Schirtzinger--At first, I was mad. Last week, Exxon Mobil—the same company that raked in a record $40.6 billion in profits last year—had been excused of $2 billion in damages it still owed for the Exxon Valdez oil spill. But then I got curious: What legal justification could there possibly be for a get-out-of-damages-free card awarded to the incarnation of Big Oil?

Most of us know the story: In 1989, the tanker Exxon Valdez, piloted by an egregiously drunk Captain Joseph Hazelwood (experts estimated his blood alcohol level at the time of the crash was 0.241, three times the legal limit in most states), ran aground on a reef, spilling 11 billion gallons of crude oil into southern Alaska’s Prince William Sound and creating an ecological disaster of epic proportions. Hundreds of thousands of seabirds, fish and marine mammals perished, it destroyed local fisheries, and it left Alaska natives and residents with 1,200 miles of utterly contaminated shoreline. Oil residues and toxic chemicals continue to plague the Alaskan ecosystem today—and studies indicate this could continue for decades to come.

Following the spill, an Alaska jury considered the question of what Exxon should have to pay in damages. There were two types at stake: compensatory damages (to reimburse the victims for actual loss or injury) and punitive damages (meant as a punishment to the defendant or deterrent against future wrongdoing). The jury set compensatory damages to Alaskans at $507.5 million. 

Based on the four factors that determined punitive damages--“reprehensibility of the defendants’ conduct, their financial condition, the magnitude of the harm, and any mitigating facts” (as per Justice Souter's majority opinion in the latest Exxon Supreme Court decision)--the jury awarded $5 billion in damages against Exxon. In ensuing appeals, punitive damages were reduced by half, to $2.5 billion. And last week, the Supreme Court voted 5-3 (Justice Alito, who holds stock in Exxon, recused) to slash them down to $507.5 million.

To understand why, consider the qualifications for punitive damages: 

1) Reprehensibility. 
Court documents indicate that the higher-ups at Exxon knew Hazelwood had a drinking problem. And as Justice Stevens wrote in his partly-dissenting opinion, Hazelwood wasn’t exactly playing tiddlywinks: 

"[Exxon chose] to permit a lapsed alcoholic to command a supertanker carrying tens of millions of gallons of crude oil through the treacherous waters of Prince William Sound, thereby endangering all of the individuals who depended upon the sound for their livelihoods," Stevens wrote.

2) Financial condition. 
I believe I've made it clear that, financially, Exxon's doing just fine.

3) Magnitude of harm.
Compensatory damages to fishermen and Alaska residents, while essential, don’t take into account environmental issues. How do you compensate the otters that are eating contaminated mussels? Or the mussels themselves, for that matter? Can we put a price on an ecosystem?

4) Mitigating facts. 
Herein lies the silver bullet. But first, let me back up.

When the Exxon case reached the Supreme Court this February, it was considered to fall under maritime law--which, since it involves the inherent risk of being at sea, has lower limits for compensatory damages.

"Say I crash my boat into yours," said a law student friend, "and swimming back to shore is a traumatic experience for you...You only collect the damages to your boat." Because I can't be paid in compensatory damages for my emotional distress, though, a court can cover my therapy bills with punitive damages.

The Supreme Court set Exxon's punitive damages at $507.5 million because it said that in similar maritime law cases, the amount awarded in punitive and compensatory damages was usually roughly equal. But two problems arise here: Because of the limits on compensatory damages in maritime law, punitive damages should be allowed to be greater (in other areas, a lawyer friend said, punitive damages can be up to ten times that of compensatory). Also, the basis for the Exxon case's comparison with other cases rested on the Court's assumption that Exxon's behavior wasn't reprehensible--but in my view, and in the three dissenting justices', it was.

It takes Exxon about 24 hours to rake in $507.5 million in petroleum sales. I can't imagine that even begins to cover the toll the oil spill continues to take on one of our last, best wilderness areas.

There’s not a lot we can do here, aside from hoping against hope that Exxon will step up and pay the extra $2 billion anyway. With rising oil prices stoking consumer resentment, Big Oil could use a little PR boost. A show of magnanimity by Exxon, and a much-needed boost for Alaska’s ecosystem, would almost be enough to make me buy some shares. “Almost” being the operative word.