Posted on May 24, 2010 by Bradley Marten
A number of us in the Pacific Northwest can remember the phone call that came in the spring of 1989 telling us to come to Alaska. There had been an oil spill, the caller said, and we had better get up there right away. We packed up and left, sometimes with just a couple of sets of clothes, and ended up staying for months, or years. We were lawyers, not scientists, and we could neither contain the spill nor predict its impacts. What we could do – or thought we could do – was assess blame and assign damages. That turned out to be harder than any of us imagined.
Nearly twenty years of litigation followed the Exxon Valdez spill, and there was not a single case, but many. By understanding some of the history of the Exxon Valdez cases, one can appreciate what the lawyers working on the Deepwater Horizon case have in front of them. At the same time, the many differences between the two spills suggest that history will not repeat itself. The legal response to the Deepwater Horizon case, like the cleanup response being carried out in the Gulf at this time, is likely to be far more complex, involve even more parties, and possibly even more time. By way of example:
- The federal Oil Pollution Act of 1990 (“OPA 90”), one of the principal laws likely to be invoked in response to the Deepwater Horizon, was enacted after (indeed, in response to) the Exxon Valdez. While the elements of the liability case against responsible parties under OPA 90 are similar to those asserted under the Clean Water Act in the Exxon case, OPA 90 allows plaintiffs to potentially recover a broader range of compensatory damages, including: damages to real or personal property; subsistence use; federal, state, and local tax revenues; lost profits and earning capacity; and the cost of providing additional public services resulting from the spill. In that sense, the law is more complex now than it was at the time of the Exxon Valdez spill, involves more parties and more and different potential claims. There is also very little case law decided under it;
- The causation issues in the Exxon Valdez case were far simpler than in the present spill. There was no question as to the cause of the 1989 spill into Prince William Sound – a tanker hit a reef. In the case of the Deepwater Horizon, on the other hand, press reports and briefings by BP point to a chain of events, each of which may have contributed to the explosion and to the still mounting damages;
- Unlike the Clean Water Act, OPA 90 expressly allows for contribution claims among responsible parties that were not available under the Clean Water Act. Therefore, the party that initially responds to the spill (BP) may have statutory claims that they choose to assert against other responsible parties at some future time;
- The Exxon case involved a single state (Alaska) and the federal government (and Alaska Native corporations). By comparison, several states have already become involved in the Deepwater Horizon spill (including Louisiana, Mississippi and Alabama), raising potential jurisdictional questions and possible conflicting claims among the governmental plaintiffs;
- In oil spill cases, one of the potentially largest claims the government can bring is for natural resource damages. In order to do so, however, the government has to establish a “baseline” of pre-spill conditions. This is much more difficult to do in some of the ports and commercial areas along the Gulf Coast that are already impacted by hydrocarbons, as opposed to the relatively pristine waters of Alaska’s Prince William Sound.
II. The Exxon Valdez Litigation
Against this backdrop, it may be helpful to review the history of the litigation that began in March, 1989 with the grounding of the oil tanker Exxon Valdez on Bligh Reef in Prince William Sound, Alaska. Estimates of the quantity of oil spilled range from 10.8 million to 30 million gallons. More than 1,200 miles of coastline were contaminated, 250,000 birds were killed, and 330 civil lawsuits were filed.
- Criminal Prosecution
The state of Alaska criminally prosecuted the Exxon Valdez’s captain, Joe Hazelwood. The United States prosecuted Exxon for various environmental crimes, including criminal violations of the Clean Water Act, the Refuse Act, and the Migratory Bird Treaty Act. Exxon Corporation pled guilty to one count of violating the Migratory Bird Treaty Act, and Exxon Shipping pled guilty to one count each of violating the Clean Water Act, the Refuse Act, and the Migratory Bird Treaty Act. The corporations were jointly fined $25 million and were ordered to pay restitution of $100 million.
- Civil Litigation: The Natural Resource Damage Claims
The United States and the state of Alaska sued Exxon for natural resource damages. That litigation was settled by entry of a consent decree under which Exxon agreed to pay $900 million over a period of ten years. The money was used at the direction of the Oil Spill Trustee Council for species and habitat restoration and recovery. The consent decree contain a reopener provision that allowed the governments to make additional claims of up to $100 million for natural resource damages not known when the settlements were reached.
In 2006 the Department of Justice and the State of Alaska asserted a claim against Exxon under the reopener provision, seeking payment of $92 million clean up oil the governments contend remains in the environment from the 1989 spill. Exxon responded that the nearly 350 studies that have been conducted demonstrate that the spill has left no lingering damages in Prince William Sound, and that the governments’ demands do not satisfy the requirements of the settlement agreement. No case has yet been filed.
- The Private Party Claims
Most of the private civil lawsuits were consolidated before Judge H. Russell Holland in the United States District Court for the District of Alaska. The damages trial proceeded in phases: Phase I determined whether Exxon was liable for punitive damages, and held that it was. Phase II determined the amount of compensatory damages owed to the plaintiffs. Phase III determined the amount of punitive damages to award to the plaintiffs. Subsequent proceedings adjudicated the claims of members of the fifty classes of claimants in the consolidated class action lawsuit.
On August 11, 1994, following the second phase of the trial, the jury returned a verdict of compensatory damages against Exxon of nearly $287 million. On September 16, 1994, following the third phase of the trial, the jury returned a $5 billion punitive damages verdict against Exxon. Exxon appealed, marking the start of an additional fifteen years of litigation and three appeals to the Ninth Circuit and, ultimately, the Supreme Court.
In the first appeal, the Ninth Circuit remanded the punitive damage award to the district court to be reconsidered in light of intervening decisions by the United States Supreme Court addressing the constitutionality of punitive damage awards. In BMW v. Gore and Cooper Industries v. Leatherman Tools, the Supreme Court articulated factors a court must consider when reviewing a punitive damage award: the reprehensibility of the defendant’s conduct; the ration of the award to the harm inflicted on the plaintiff; and the difference between the award and civil and criminal penalties in comparable cases. The district court conducted an extensive analysis of those factors, and concluded the actual harm to plaintiffs was more than $500 million and a ratio of punitive damages to harm was 10 to 1, supporting the original $5 billion award. Nonetheless, the court reduced the punitive damages to $4 billion, to conform to what it viewed as the Ninth Circuit’s mandate. Exxon appealed.
While the second appeal was pending, the Supreme Court issued another punitive damages opinion, State Farm Mut. Auto Ins. Co. v. Campbell. State Farm instructed courts to weigh five specific considerations in calculating punitive damages, and “strongly indicated the proportion of punitive damages to harm could generally not exceed a ration of 9 to 1.” Those five factors are (1) whether the harm caused was physical as opposed to economic; (2) whether the conduct causing the plaintiff’s harm showed “indifference to or a reckless disregard of the health or safety of others;” (3) whether the “target of the conduct” was financially vulnerable; (4) whether the defendant’s conduct involved repeated actions as opposed to an isolated incident; and (5) whether the harm caused was the result of “intentional malice, trickery, or deceit, or mere accident.” The Ninth Circuit summarily remanded the second appeal of the punitive damage award to the district court for recalculation in light of State Farm. On remand, the district court again determined actual harm to be $513.1 million and increased the punitive damage award to $4.5 billion, a ratio of just under 9:1. Exxon appealed again, and this time, the plaintiffs cross-appealed, seeking reinstatement of the $5 billion award.
In the third appeal, Exxon argued that all of its settlement and other pre-judgment compensatory payments to the plaintiffs, which totaled approximately $493 million, had to be subtracted from the more than $500 million in actual harm before calculating the ratio of punitive damages to actual harm. As a result, Exxon argued, the measure of damages would be reduced to $20.3 million. Applying what it contended was the appropriate ratio, 1:1, Exxon argued that a punitive damage award should be capped at $25 million. This time, the Ninth Circuit accepted the District Court’s approximation of $500 million as the amount of actual harm, but in determining the appropriate ratio of punitive damages to actual damages, took into account the fact that while Exxon’s conduct (its “reckless decision to risk the livelihood of thousands by placing a relapsed alcoholic in command of a supertanker”) was particularly egregious and the economic damages significant, it was not intentional. And, as a mitigating factor, Exxon promptly took steps to ameliorate the harm. Thus, Exxon’s conduct, “though inexcusable,” warranted a ratio of 5:1 rather than 9:1, resulting in a punitive damage award of $2.5 billion dollars.
The parties then appealed to the United States Supreme Court. In 2008, the Supreme Court reversed the Ninth Circuit and limited the punitive damage claim to a 1:1 ratio, or roughly $507 million. However, the high court declined to decide whether Exxon was required to pay interest on the amount of the award, and sent the issue back to the Ninth Circuit. Two months later, the appeals court held that Exxon was required to pay the interest, dating back to 1996, roughly doubling the amount of the final award. The average award to the 33,000 claimants came to about $15,000 — roughly 20% of the amount that was awarded by the jury in 1994.
III. What Happens Next
Press reports indicate that a number of economic damage cases have already been filed against BP, Halliburton and Transocean over the Deepwater Horizon spill, and there are almost certain to be many more, depending on the impact of the spill. The government has yet to file litigation, but it can be expected to do so, under a variety of federal laws including OPA, the Clean Water Act, the Refuse Act, and the Migratory Bird Treaty Act, among others. There will be a lengthy and expensive natural resource damage assessment that the defendants will be expected to pay for. There are potential insurance claims, potential shareholder claims, and possibly contractual and statutory contribution claims between the responsible parties, among others. And if the sum of these were not enough to challenge even the most battle-tested lawyers on all sides, there is the reputational and political overlay which can dominate the legal and scientific issues at play, including Congressional hearings. A spill the size of this one not only impacts BP and its partners, but the entire industry. It also will test the legal system and the brightest minds in it.
For more information regarding the legal impacts of the Gulf spill, please contact Brad Marten or any other member of Marten Law’s Energy, Climate Change or Waste Cleanup practices.