Source: https://www.martenlaw.com/newsletter/20100505-deepwater-horizon-spill
Timestamp: 2019-04-26 00:04:33+00:00

Document:
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.
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.
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.
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.
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. Goreand 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.
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.
The author wishes to thank a number of reviewers, including others who participated in the Exxon Valdez litigation, for reviewing earlier drafts.
 William H. Rodgers, Jr., J.B. Crosetto III, C.A. Holley, T.C. Kade, J.H. Kaufman, C.M. Kostelec, K.A. Michael, R.J. Sandberg, J.L. Schorr, The Exxon Valdez Reopener: Natural Resource damage Settlements and Roads Not Taken, 22 Alaska L.Rev. 135, 136 (2005), available here.
 Id, at n.2. For more discussion of the Exxon Valdez spill and its continuing impacts on oil spill response, prevention and reparations in the Pacific Northwest, see J. Ferrell, Washington’s Federal Legislators Focus on Oil Spill Response, Prevention and Reparations in the Pacific Northwest, Marten Law Environmental News (Apr. 12, 2006).
 State v. Hazelwood, 946 P.2d 875 (Alaska 1997); State v. Hazelwood, 866 P.2d 927 (Alaska 1993); and Hazelwood v. State, 962 P.2d 196 (Alaska 1998).
 In re the Exxon Valdez, 296 F. Supp.2d. 1071, 1079 (D. Alaska 2004) (2nd remand on punitive damages), vacated by In re: The Exxon Valdez, Ninth Circuit Court of Appeals Cause No. 04-35182 (12/22/06).
 The author represented the state of Alaska in the natural resource damage litigation.
 United States v. Exxon Corp., No. A91-0082-CV (Clerk’s Docket No. 46 at 7-8); Alaska v. Exxon Corp., No. A91-0083-CV (Clerk’s Docket No. 26 at 7-8).
 “Exxon Asked to Pay $92M for Lingering Problems from 1989 Alaska Spill,” Jeannette J. Lee, The Associated Press (9/5/06), available here; see also Exxon Valdez Oil Spill Trustee Council web site.
 See Consent Decree and Agreement at 18 – 19, Clerk’s Docket No. 46 in United States v. Exxon Corp., No. A91-0082-CV and Clerk’s Docket No. 26 in Alaska v. Exxon Corp., No. A91-0083-CV.
 fn , supra. See also Exxon Valdez Oil Spill Trustee Council, The Reopener.
 The claims of Alaska Natives were asserted in a separate class action lawsuit against Exxon, seeking damages for loss of their subsistence way of life. The claims were split into economic damages due to loss of harvest, and non-economic damages due to injury to the subsistence culture. The economic claims were settled, and the non-economic claims were dismissed on Exxon’s summary judgment motion. The dismissal was affirmed by the Ninth Circuit. See supra, fn  at 17.
 In re Exxon Valdez, 236 F. Supp.2d 1043, 1048 (D. Alaska 2002) (1st remand on punitive damages), vacated by In re: The Exxon Valdez, Ninth Circuit Court of Appeals Cause No. 04-35182 (12/22/06).
 Phase IV was designed to try the compensatory damage claims of all plaintiffs who did not try their claims in Phase II, which included commercial fishing claims for species other than salmon and herring, natives who opted out of the certified class, oiled landowners, certain Native Corporations, oiled aquaculture associations, and a collection of other unique claims, including personal injury claims. Those claims were settled, subject to court approval of a plan of allocation setting forth, on a percentage share formula, the amount each category of plaintiffs will recover on all claims. On June 11, 1996 the District Court granted final approval to the Phase IV Settlement and the Plan of Allocation, and in 1997 and 1998 approved 50 distribution plans for each of the classes of claimants. For an interesting description of the litigation from the plaintiffs’ counsel’s perspective, see William B. Hirsch, “The Exxon Valdez Litigation: Justice Delayed: Seven Years Later and No End in Sight” (1996), available here. On August 20, 2001, the District Court appointed a Special Master to adjudicate objections of claimants to final determinations of the Exxon Qualified Settlement Fund Administrator. The Special Master continues to adjudicate those objections today.
 No. A89-0095-CV, Docket Entry No. 5716.
 Id., Docket Entry No. 5891.
 270 F.3d. 1215 (9th Cir. 2001).
 BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996); Cooper v. Leatherman Tool Group, Inc., 532 U.S. 424 (2001).
 236 F. Supp.2d at 1068.
 In re the Exxon Valdez, Ninth Circuit Court of Appeals Cause No. 04-35182 (12/22/06), at 19717.
 538 U.S. at 419. The Supreme Court again emphasized that the most important indicium of a punitive damage award’s reasonableness is the relative reprehensibility of the defendant’s conduct. Id.
 296 F.Supp.2d at 1110 – 1111. The following day, the Court approved plaintiffs’ counsel’s request for a 22.4% contingency fee, which, based on a punitive damage award of $4.5 billion, resulted in a $1.3 billion fee award. No. A89-0095-CV, Docket Entry No. 7837. Exxon appealed the fee award, but subsequently voluntarily dismissed that appeal. Court of Appeals Docket No. 04-35174, Order of dismissal filed 1/7/05.
 In the immediate aftermath of the spill, Exxon spent over $2 billion on efforts to remove the oil from the water, the adjacent shores, and from the individual birds and other wildlife impacted by the oil. It also began an extensive, voluntary claims program to settle with property owners, fishermen and others whose economic interests were harmed by the spill. Exxon spent $300 million on voluntary settlements prior to any judgments being entered against it. 270 F.3d at 1233.
 In re the Exxon Valdez, Ninth Circuit Court of Appeals Cause No. 04-35182 (12/22/06), at 19719.

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