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Lessons learned from the Exxon Valdez case

The fishermen, and their attorneys, in the Exxon Valdez oil spill case will get $500.7 million in punitive damages, or about 20 percent of the $2.5 billion the lower court had awarded them, according to a U.S.

Today’s lesson for Exxon, and presumably other mega companies hit with large punitive damages?

It pays to drag the case through the courts for as long as possible. Consider the effect of the courts’ decisions regarding punitive damages against the oil giant, which has been enjoying record profits.
After the Exxon Valdez ran aground in pristine Prince William Sound in 1989, a jury said Exxon had to pay the Alaskan fishermen $5 billion as punishment. That’s $5 billion in 1996 dollars.

Exxon appealed and in 2004 another court cut the punitive damages to $2.5 billion, plus interest. Exxon appealed that, and today, more than 19 years after the incident, the U.S. Supreme Court cut the damages again, this time to $500.7 million, or about 10 percent of the original verdict.

That’s $500.7 million in 2008 dollars, at a time when the value of the dollar is sinking faster than a penguin soaked in crude oil.
So what does it mean for the Alaska fishermen and the Minneapolis-based Faegre & Benson lawyers who represented a majority of them? With interest, the $500.7 million almost doubles to $1 billion, still a significant chunk of change.

Brian O’Neill, Faegre partner who spearheaded the litigation, said a formula was devised years ago to figure out fees to the lawyers, based on their involvement in the case and years with the firm, and the amounts of money that go to the thousands of fishermen, based on the size of their businesses before the spill.

With this decision, they all know that the X in the formula now equals $1 billion. Mechanisms are in place to cut checks within 60 days, O’Neill said.

“At the time of the first decision, Faegre & Benson went out of its way to tell partners not to count on this money and to live their lives as though it never happened,” said David Lebedoff, author of “Cleaning up — The story behind the biggest legal bonanza of our time,” published in 1997.  “That was very wise advice.”

Legal significance

What does the decision (PDF) mean for the law?

A couple of things. Exxon appealed to the U.S. Supreme Court saying that maritime law, which says shipping companies are not responsible for their vessels, should apply here. Maritime law was written centuries ago, the fishermen argued, when ships would be at sea for months without contact with their owners. With today’s communication owners can be in constant touch with their captains, they argued. The lower court agreed with the fishermen, and since the Supreme Court justices split 4 to 4 (Justice Sam Alito recused himself), the lower court decision stands. Now, shipping companies are responsible for their ships.
While maritime law is probably of little interest to landlocked Minnesotans, the question of punitive damages is more important in a state that manufactures medical devices and other products that could go wrong.

The law says a company can be punished at an amount equal to the damage the event caused. In this case, the state of Alaska estimated the damage at $500.7 million to its shoreline and fishermen.

The court made a point of noting that Exxon did not set out to harm Alaska. “Reckless conduct is not intentional or malicious, nor is it necessarily callous toward the risk of harming others,” the majority said.

While the matter is of huge interest to Minnesota’s legal community, and most of Alaska, Wall Street didn’t seem to care. Exxon stock opened at $87.25 a share today and dipped to $85.95 just after the decision was released, then bumped back up again, finishing the day at $87.60.