Federal Judiciary

Exxon Valdez: $500 million interest due

By Akin Gump Supreme Court Practice Group

In a ruling that the Ninth Circuit Court said it hoped would bring to an end the years-long legal battle over harms done by the massive oil spill from the supertanker Exxon Valdez in Alaskan waters in 1989, a three-judge Circuit panel on Monday found that the ship’s owner must pay about $500 million in interest to fishermen, other small businesses, and groups that had sued for damages.  That represents more than 12 years of interest; Exxon Mobil Corp. had fought to limit the interest to less than a year’s worth.

The Circuit Court’s opinion, found here, also rejected Exxon Mobil’s plea that the other side pay at least 90 percent of the company’s court costs of $70 million, run up in challenging the punitive damages verdict against it.  The Circuit Court said each side should pay its own costs — the part of the ruling that produced a 2-1 split on the panel.

The ruling on interest requires Exxon Mobil (unless it can overturn the decision in a further appeal) to pay interest at 5.9 percent dating from Sept. 24, 1996 — the date on which a federal District Court first ordered the company to pay punitive damages.  This rate will be applied to the $507.5 million in punitive damages that is now the final figure, in the wake of a Supreme Court decision last June that cut the punitive award from $2.5 billion; at an earlier point, the punitive award had been at $5 billion, but was reduced by lower courts. 

The Circuit Court did not calculate exactly how much the interest payment would now be, but lawyers for both sides had told the panel that using the 1996 starting date would yield an interest payment of about $500 million.

That would be on top of the $507.5 million in compensatory damages (which Exxon Mobil paid some time ago).  While the Supreme Court said the punitive damages could be no more than the compensatory damages were — that is, $507.5 million — that actually represents only the figure upon which interest is to be calculated.

Exxon Valdez actually owed a total of $507.5 million in the punitive award, and, so far, it has paid $383 million of that to those who sued.  The difference apparently represents money that the company had held back, in hopes of winning a court costs award — that is, up to $70 million == plus a portion of the punitive award that it had been promised would be returned to it by some seafood processing companies under a settlement deal the company had arranged with them.

In all, then, the company’s obligation (beyond earlier amounts it had paid to the federal and Alaska state governments) stands at somewhere above $1.4 billion.

After the Supreme Court had ruled a year ago that punitive damages could be assessed for a maritime incident like this one, but also said the ratio to punitive damages could be no higher than 1-to-1, the interest issue arose.  Those who sued then returned to the Supreme Court, asking the Justices to issue a further ruling that they were entitled to interest from the late 1996 date when the District judge made the punitive award.  Exxon Mobil replied that the Court should rule on the interest issue; if it did not, the company said, it would owe no interest under Supreme Court rules.

In August, the Justices declined to decide the interest issue, sending it back to the Ninth Circuit “without prejudice to the position of any party.” (The Court’s order on the interest question was discussed in this post.)

The case was returned to the Circuit Court last Aug. 15, and the panel put it formally into effect on Sept. 10 (its order for entry of a judgment of $507.5 million in punitive damages can be found here).

Full post as published by SCOTUSBLOG on June 15, 2009 (boomark / email).