Exxon Valdez Oil Spill and the Supreme Court

Sunrise in wintertime, Kennecott Glacier, Wrangell - St. Elias National Park, Alaska.

Hey Folks,

I was going to write tonight about another company that I’ve had great dealings with, and do a little plug for them, but I’ve changed my mind. The news has been all about the Exxon Valdez case, so maybe I’ll make a few notes here about this subject. For those of you who haven’t been following it (and I haven’t followed this latest round too closely), the US Supreme Court is currently hearing arguments from Exxon and the plaintiffs, folks from the the Prince William Sound, Alaska area, specifically concerning punitive damages. I’m no lawyer, so my comments are worth the price you’re paying to read them – but I’ll share them here regardless. 🙂

In late March 1989 the Exxon Valdez oil tanker dumped nearly 11 million gallons of crude oil into Prince William Sound. These estimates come largely from simple math – 53 million (the number of gallons originally onboard), minus what was later reclaimed from the vessel equalled 10.8 million gallons missing, i.e., spilled. Many watch groups argue these estimates, though widely accepted, are underreported, because much of the oil recovered from the ship was diluted with sea water. The accident occurred, investigations found, primarily because the ship’s captain was drunk and sleeping at the time.

An initial courtcase found Exxon Mobil guilty, and charged with $287 million actual damages, plus a further $5 billion in punitive damages. Later appeals led to a reduction to $2.5 billion punitive damages. The latest go-round is an argument largely revolving around how this relates to a history of maritime law, and whether Exxon should be charged further damages – they claim they’ve already paid around $3.4 billion in fines, compensatory damages and cleanup costs.

Claims that the ship’s captain isn’t a high enough “manager” to warrant the corporation being held responsible are, IMO, somewhat absurd. If a minimum wage earning coffee maker is an integral enough part of the MacDonald’s corporation that a scalded customer can sue MacDonald’s, then I see no reason why a ship’s captain is to be deemed not equally so. Further, investigations found the accident the fault of a drunk captain (Exxon knew the man was a relapsed alcoholic – how would you feel if Delta Airlines had a known alcoholic flying your plane? – The guy had lost his driver’s license in 2 states for multiple drink driving offences .. and reports were handed in to high-level Exxon management as recently as the week before the accident about him drinking on duty) and a tired overworked, understaffed crew (Exxon reduced the number of the ship’s mates from 4 –> 3 in order to save nearly $100 000 a year in wages – the on duty mate was supposed to have had 6 hours off-duty in the 12 hours before his watch, but wasn’t able to because of the smaller number of workers – Exxon didn’t increase this crewsize back to 4 until right before their initial trial).

I won’t go on about this – Exxon clearly ought be held responsible for the accident, and for not ensuring a safe passage of its ship and cargo. I won’t even go on here about the scope of environmental damage the accident incurred – 1500 miles of shoreline, hundreds of thousands of otters, seals, birds and other animals died, thousands of Alaska natives and fisherman and other locals effectively lost a way of life they’d known for far longer than Exxon have even been in business. Scientists are still finding new and potentially harmful long-term environmental impact from the toxic crude oil. Oil is still being found in feeding grounds today. Dr. Charles H. Peterson, says “Alumni Distinguished professor of marine sciences at the University of North Carolina at Chapel Hill. “… the environmental consequences of the Exxon Valdez oil spill went far beyond the more than 250,000 seabirds, thousands of marine mammals and countless numbers of other coastal marine organisms killed in the first days, weeks and months.” Here’s an article among others, that discusses some of those impacts:

Science Daily Article.

This latest round is apparently not about guilt or responsibility, Exxon claim it’s about a justice system that is out of control – punitive damages being too high, that they’ve already paid enough money, etc. What they don’t say is that of the money they’ve already paid, nearly $800 million of it was paid by the insurance company, Lloyd’s of London. They don’t say that for the $1billion in civil and criminal liability, Exxon’s actual cost was around $450 million (or less than half), the rest effectively paid for by the tax deductions they were allowed through the settlement. They don’t say that Exxon were allowed to deduct its actual cleanup costs (nearly $40 million) from its civic settlement payment – i.e., the Govt actually paid for the cleanup. In short, Exxon claim to have already paid nearly $3 billion. When we subtract the Insurance payment, and the net cost of Civil payment, the true cost is a little over $1.5 billion .. about half, or about 2 weeks profit for them today.

Regarding a cap on punitive damages, based on actual damages, I’d say it’s quite simple. Any form of punishment ought be based on 2 things – the scope of the damage incurred in the incident or crime, and the potential effect the punishment might have on the guilty party. This principle ought hold no differently for a misbehaving child as for a supranational corporation. The root of the word “punitive” is the Latin “punit”, past participle of “punire” which means punish. In legal-ese, punitive damages are awarded as punishment. Exxon are effectively claiming that the money they’ve paid already, including cleanup costs, are punishment enough. I’d argue those, and compensatory damages, are not a punishment at all, those are a responsibility. If I steal a car, having to return the car is not a punishment, it’s restoration. If Mike Tyson bites off your ear, him paying for your following medical bills is not punishing Mike Tyson – it’s simply incurring the cost of his actions. If my vehicle leaks oil on your driveway, me cleaning it up isn’t punishing me, it’s me taking responsibility for my vehicle. The cost of that isn’t a punishment at all.

Further, in matters like this, to argue it’s already cost a lot of money ignores the scope of the business Exxon do. $2.5billion, half of the original award, from an accident that occurred nearly 20 years ago, is pocket change to Exxon – they probably paid a quarter of that in hiring so-called “scientists” to frump up studies indicating the Prince William Sound ecology has been restored to a healthy and viable ecosystem. They’ve probably paid a quarter of that hiring lawyers get their ass out of trouble. They pay an equally absurd amount of money every year funding scientific consensus studies to refute global warming and other environmental concerns. At their current rate of income, it’s about 5 weeks worth of profit – profit, not income. How can they reasonably claim this amount is any way extravagant? How can they even claim “extravagant” isn’t appropriate, in light of their irresponsibility directly causing the greatest man-made environmental disaster in history (short of maybe, global warming, of which they’re also a culpable and major contributing factor)? I’d propose the punishment OUGHT be extravagant. How can they even claim sincerity when they’ve twice now been convicted of fraudulently underpaying the State of Alabama gas drilling rights almost $3.6 billion (none of which, of course, has been paid)?

The US Supreme Court has, IMO, a responsibility to uphold the punishment the lower court dealt Exxon for their irresponsibility. I guarantee you they’d do exactly that if it were me, or you, on trial for some misdemeanor. IMO, the scope of the accident, and the scope of the business and their public visibility ought require them be held MORE responsible than any individual might, not less. Their ability to absorb the punishment must be a factor in a decision of the amount – I can’t understand how it cannot be.

Fry ’em, I say.

Cheers

Carl

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15 thoughts on “Exxon Valdez Oil Spill and the Supreme Court

  1. Mark

    I hear ya. For such an environmental disaster, no punishment seems too great. Quite frankly, the company should be buried – and no easy out BS like filing bankruptcy. Unfortunately, with the oil-friendly administration appointed judges, I am skeptical on the outcome. I certainly hope I am surprised.

  2. Beth Lunsford

    I say fry em”, too!! What an astronomical ecological disaster! And when you think about that poor woman who stupidly scalded her mouth with “hot” coffee…. Whaaaaaaa!! By the way, that is one incredible picture. Stay safe!!

  3. Carl Donohue

    Hey Mark

    I completely agree .. buried. IMO, fining a corporation for something of this scope is simply ridiculous. A buddy of mine says “Take upper management and march their heads through town, held high on pointed sticks”. 🙂

    Hey Beth,

    Yeah, that was quite a story about hot coffee, who’d ever have thought it. Thanks for the kind words on the photo.

    Hey Ron,

    Exactly. A month’s profits for the kind of long-term disaster they directly caused, it’s amazing the Supreme Court is even discussing the case .. if they go the wrong way on this one, it’ll be hard to understand what’s so “Supreme” about that court.

    Cheers

    Carl

  4. John Heneghan

    Good article, I did not relaize the cleanup costs were tax deductable. if a pilot on an airlines is found to be drunk or drinking, he is gone. It seems with large corporations, they pay attention when you take $$$$$$ out of their pocket. Thanks Carl!!

  5. David Bostedo

    Hey Carl – Saw the link to this on NSN (or NPN – can’t keep em straight sometimes). Nicely written, and I agree. But I do think there are a couple of points that you should change/clean up.

    McDonald’s didn’t lose that lawsuit because of one employee. It lost because it’s corporate policy was to serve coffee much hotter than needed, hotter than other establishments served, and it had already settled with other burn victims to the tune of $500,000 without changing the way the coffee was dealt with. It actually wasn’t as much of a farce as a lot of people think.

    And being able to deduct the cleanup costs doesn’t mean that the government paid for it – only part of it (the money they would have gained from Exxon’s taxes on the $40 million). I’m not positive about corporate taxes, but I think this is correct.

    Finally that’s a great explanation of punitive damages in this case….

    David Bostedo

    PS – Also keep in mind that my comments are worth the price you paid me to write them. 🙂

  6. Carl Donohue

    Hey David

    Thanks for the comment and input man, I appreciate it.

    My point about the McDonald’s case was not so much about the ridiculous nature of it. That’s another issue. The issue here is whether a ship’s captain is in a ‘managerial’ position, which would warrant liability on the behalf of the corporation. I don’t think it’s unreasonable to draw a parallel to any number of cases .. I could’ve used Union Carbide/Bhopal as an example. The bottom line is that a corporation, i.e., a profit-making fictional entity, could, on a technicality, be argued to not be responsible at all, in any case. A corporation is not a tangible, physical entity, so how can it be the responsibility of “McDonalds”™, if “McDonalds”™ isn’t an actual entity? Clearly the fault lies with the individuals, either the coffee maker, or the persons responsible for “policy development”, ad infinitum. The reality, of course, is that just as the corporation, at the end of the day, benefits via profit from the actions of the workers, the corporation ought also be held accountable for the actions of the workers. Any system that doesn’t abide this simple principle is every bit the farce you suggest, and bound for failure.

    Regarding the cleanup costs, in actuality, yes, the Govt did pay for it. I perhaps didn’t write that section too clearly – the tax deductions and the cleanup cost deductions are two separate things. Exxon were allowed to deduct the cleanup costs they paid from its 1992 civic settlement payment to the Govt – they were supposed to pay the Govt $150 million in 1992, but they were granted an allowance to deduct the money they’d spent on cleanup ($40million).

    Let’s say I borrow your car, and I break it. You take me to court. My charm, cool Aussie accent and general good nature sways the judge into giving me a minor slap – a $200 fine and I have to get your car fixed. If the car repair costs me $20.00 and I only pay you $180.00, you effectively paid for fixing your car. There’s probably some nifty little economic or legal term for this kind of manipulation, but I’m not clever enough to know what it is.

    As for the tax deductions, no, I didn’t mean to imply that through tax deductions the Govt paid for the cleanup. Through tax deductions, Exxon’s net cost for what was supposed to be a $1billion payment of civil and criminal liability, was around $450million. There was a Congressional Research Service (CRS) Report that came out in maybe 91 or 92 that spelled this out pretty clearly (much clearer than I’m able to).

    Lastly, remember there was clause in the initial criminal case stipulating, and both parties agreed to, were compensatory, remedial and non-punitive, and distinct from any other fines and payments that could be imposed – that is, they agreed, at the time, that the fines initially imposed were not a form of punishment, and that punitive fines could be imposed later. They’re now arguing that they’ve already been punished enough.

    I hope the Supreme Court turns all the way around, re-imposes the original $5billion punitive damages payment, adds 20 years interest to the charges, and says Exxon are not allowed to continue to operate until they’ve paid – and if they try to jack their petrol prices to cover the costs, then their entire board of directors should be slapped silly.

    Cheers

    Carl

    PS – did you ever try to cash that check I paid you with? 🙂

  7. Mike D

    Hey Carl,

    Good on you for posting this; contains a lot of information of which I was unaware.

    Ever since the incident I’ve not bought one molecule of Exxon gasoline, even if it meant having to pay lots more at the next station. Too bad a more widespread boycott never really caught on (or died out too quickly).

    Mike

  8. Carl Donohue

    Hey Mike,

    Thanks for stopping by, and taking the time to comment, I appreciate it.

    I’m with ya, I was just talking with Ron Niebrugge the other day about this – we agreed we’d rather push our vehicle on to the next station than stop at Exxon. One of the problems, of course, is finding a company to buy your gas/petrol from that deserves your business. Shell are next on my list after Exxon to not buy from, but unfortunately that list seems to be getting longer rather than shorter. 🙂

    Thanks again.

    Cheers

    Carl

  9. heo

    You should share on a larger Blog-site where more can see your toughts, they are very good and sometimes it feels like these issues are getting lost in time; it has been 19 years this case has stretched out?

    I wish someone could do a simulation of what 1,200 miles of coastline destroyed on the east coast would look like. Can you imagine a whole states coastline destroyed? Would it have taken 19 years to settle, if this same disaster had happened off RI or NJ? Would the east coast have settled for 2.5 bil or would Exxon have been even hit harder maybe put out of business? I wonder, if Alaska just seems too far away and less populated for people to truly understand what this spill looked like. It would be a great disater movie showing this spill happening on the Populated eastern seaboard.

    It will be sad if the Supreme Court does not give punative damages and sides with Exxon.
    Won’t seem like the correct perpective of the American idea of law and justice.

  10. Carl Donohue

    Hey Heo

    Thanks for stopping by and for commenting, I do appreciate it. Thanks for the kinds words about my post.

    I agree, a big part of the reason there’s so little pressure on Exxon and the Court is that the incident occurred where it did .. Out of sight, out of mind for many people .. it’s like the Hurricane Katrina/New Orleans thing in a way – if it doesn’t directly adversely affect the bulk of the population, people forget and move right along.

    It’ll be a very sad day if the Supreme Court decides in Exxon’s favor on this case, for many reasons. I really hope they get it right – if anyone can afford justice it’s Exxon Mobil.

    Thanks again.

    Cheers

    Carl

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  12. Guy in Michigan

    the people of alaska got hosed. sure exxon paid 2 billion in clean up. but they got a pretty good chunk of insurance money for there boat. and to reduce here fines today when they post record profits at the nations exspence with gas at $4 a gal.
    i sorry the court got it wrong

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