Supreme Court makes life easier for corporate wrongdoers

Anchorage Daily News
June 26, 2008

Exxon verdict
Published: June 25th, 2008 10:28 PM
Last Modified: June 25th, 2008 11:43 PM

With Wednesday’s ruling in the Exxon Valdez punitive damages case, a 5-3 majority on the U.S. Supreme Court took it upon themselves to write new law that shields corporate wrongdoers from appropriate penalties. Their ruling makes it much harder to prevent businesses from engaging in profitable but dangerous corner-cutting.

Exxon left a known alcoholic captain, someone who didn’t even have a valid license to drive a car, in charge of an overworked, skeleton tanker crew. And wouldn’t you know, that ship ended up on the rocks, spilling 11 million gallons of sticky crude oil across more than a thousand miles of Alaska coastline.

A federal court jury listened to four months of testimony and decided Exxon’s irresponsible behavior deserved punitive damages of $5 billion. At the time, it was one year of the company’s profits.

After 14 years of appeals, the Supreme Court decided to cut the award to no more than $507 million. At Exxon’s current rate of profit, it can pay off that sum in less than five days. That’s a 98.6 percent reduction in the financial pain imposed by the award.

The only kind thing to be said about the Supreme Court ruling is, it could have been worse. Exxon tried to get almost the entire punitive damage award wiped out, using creative arguments from maritime law and the federal clean water act. The court at least had the good sense not to let Exxon off the hook altogether — although the four most reliably pro-business justices would have done so.

It’s important to remember that the $5 billion award was not the product of a runaway jury. The jury awarded only a third of the actual and punitive damages that the plaintiffs sought.

The trial judge, H. Russel Holland, repeatedly upheld an award in the $4 billion to $5 billion range. Judge Holland was no raving anti-business activist. The former law partner of Alaska’s long-serving Republican U.S. Sen. Ted Stevens, he was appointed by Republican President Reagan.

Jury foreman Ken Murray said after he and his colleagues issued the $5 billion judgment, “We looked at the company’s bottom line and financial status and said here’s a company that continued to make profits. Doesn’t look like a bad thing had happened to this company. We weighed that against what would get their attention. … Is this going to be enough to tell the Exxons of the world to stop it and to take a look at all of their safety-sensitive positions?”

Even at $5 billion, the full punitive damage judgment was not that painful to Exxon. On the first full day of trading after the ruling, Exxon’s stock actually went up 75 cents a share — suggesting that investors expected a stiffer penalty. In its annual reports in the years right after the spill, Exxon told investors that lawsuits arising from the spill would not have an adverse impact on the company.

Turns out Exxon was right about that.

And so, thanks to the U.S. Supreme Court, the message today to companies that cut corners and risk ruining the lives of thousands of innocent people is this: Go ahead; take the chance, if you want to. If you gamble and lose, you won’t lose that much. We’ve made sure that whatever you have to pay will be just another cost of doing business.

BOTTOM LINE: Exxon was the big winner in Wednesday’s ruling.

~ by fredfelleman on June 26, 2008.

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