Petitions to Watch | Conferences of 10.26.07 and 11.2.07

The latest edition of “Petitions to Watch,” featuring highlighted petitions on the Court’s ‘paid’ docket up for consideration at the Justices’ conferences on Oct. 26 and Nov. 2, is now available here.

To read the “Conference Call” feature in Legal Times, focusing on the petition in No. 07-219, Exxon v. Baker, click here (subscription required) or continue reading below.

Conference Call: Exxon Appeals Award to High Court

Justices consider challenge of a $2.5 billion decision

By Ben Winograd

The Titanic may have cost more lives, but the Exxon Valdez oil spill undoubtedly ranks as the most expensive shipping accident in history. On top of $2.1 billion spent on the cleanup effort, Exxon paid more than $900 million in fines to the U.S. and Alaska governments for environmental damage. And that was before a federal jury in Alaska tagged on a $5 billion punitive damages award for a class of local landowners and fishermen who suffered private economic harm.

The U.S. Court of Appeals for the 9th Circuit eventually reduced the total to $2.5 billion. On Oct. 26, the Supreme Court will consider whether to hear Exxon’s appeal of the award, which argues that even the reduced amount remains excessive under both maritime law and constitutional due process. (The petition is No. 07-219, Exxon v. Baker.)

In late March 1989, the tanker left the Port of Valdez well after dark. The tanker’s captain, Joseph Hazelwood, ventured outside the shipping lane to avoid ice — leaving it on course to strike an outcropping known as Bligh Reef — and then left the bridge, he said, to do paperwork. When the tanker’s third mate failed to turn the 900-foot vessel on time, the ship collided with Bligh Reef, spilling nearly 11 million gallons of oil into Prince William Sound.

Testimony at trial in 1994 revealed that Hazelwood was a relapsed alcoholic and, moreover, that Exxon executives were aware he was drinking both on board ships and in waterfront bars. Over Exxon’s objection, Judge H. Russell Holland of the U.S. District Court for the District of Alaska instructed the jury that “the reckless act or omission of a managerial officer or employee of a corporation, in the course and scope of the performance of his duties, is held in law to be the reckless act or omission of the corporation,” regardless of whether it violated the employer’s established policies.

After hearing evidence on Exxon’s net worth, the jury returned the $5 billion punitive award — equal to one year’s worth of Exxon profits at the time. Taking into account that the spill was unintentional, the billions Exxon already had spent on cleanup efforts, and consumers’ interests in having moderate fuel prices, the 9th Circuit found the total excessive. After a series of remands — both before and after the Supreme Court’s 2003 decision in State Farm Mutual v. Campbell — the 9th Circuit late last year cut the award to $2.5 billion, or five times the district court’s $500 million calculation in total losses.

Represented by Walter Dellinger of O’Melveny & Myers in Washington, Exxon filed a petition for certiorari arguing that even the reduced award still exceeds the total of all previous punitive damages awards affirmed by federal appellate courts. In upholding the jury instructions, the 9th Circuit “departed from 200 years of maritime law,” the petition contends, and created a conflict with the 1st, 5th, 6th and 7th Circuits.

Citing The Amiable Nancy (1818), a maritime law case authored by Justice Joseph Story, the petition says ship owners cannot be held vicariously liable for actions of a shipmaster or crew unless they directed or participated in the incident. According to the petition, the instructions required the jury to award punitive damages so long as it found the captain acted recklessly, without regard for whether Exxon’s behavior met that standard.

The petition quotes at length from Judge Alex Kozinski’s dissent from the denial of rehearing en banc in May. Wrote Kozinski, “Shippers everywhere will be put on notice: If your vessels sail into the vast waters of the 9th Circuit, a jury can shipwreck your operations through punitive damages and the fact that you did nothing wrong won’t save you.”

Exxon’s due process argument occupies only a few pages at the end of the petition. However, Dellinger and Exxon emphasize that the courts below ignored State Farm’s statement that when accompanied by substantial compensatory awards, even a 1-1 ratio for a punitive damages award may reach the “outermost limit” of due process protection.

The brief in opposition, submitted by David Oesting of Davis Wright Tremaine in Anchorage, Alaska, counters that the jury properly punished Exxon for its own recklessness. “An alcoholic culture” pervaded the company’s shipping operations at the Port of Valdez, Oesting writes.

For example, two weeks before the spill, Exxon received a report that a drunken Hazelwood had hurled insults at another captain over the ship’s radio. On the night of the incident, the brief continues, Hazelwood admitted to consuming at least five “doubles” of 80-proof alcohol at a portside bar before boarding the ship.

Indeed, Oesting argues, the district court only permitted the punitive damages phase of the trial to proceed after the jury independently found that Exxon acted recklessly. Moreover, the brief in opposition notes, the $2.5 billion award amounts to little more than $75,000 for each original class member — and less than four weeks of Exxon’s current net profits.

Overall, the Court has received 13 amicus briefs in the case, all in support of the petitioners. The justices could announce their decision as early as Oct. 29.

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