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The U.S. Supreme Court agreed yesterday to review the $2.5 billion punitive damage award levied against Exxon Mobil for its role in the massive Exxon Valdez oil spill off the coast of Alaska 18 years ago. Exxon Mobil and an array of maritime and other business groups asked the court to knock down what would otherwise be the highest damage award ever approved by a federal court. The 9th U.S. Circuit Court of Appeals last December cut the jury award down from $5 billion. The case before the court is Exxon Shipping Co. v. Baker. Even the diminished award, Exxon Mobil told the court, is “123 times the compensatory damages awarded, and five times what the court found was the total, fully compensated loss to all private economic interests.” Former Acting Solicitor General Walter Dellinger, now with O’Melveny & Myers, wrote the brief for the oil giant. “This case has never been about compensating people for actual damages,” Exxon Mobil said in a statement yesterday. “We do not believe any punitive damages are warranted in this case.” But the lawyer for the more than 32,000 claimants against the company told the justices in his brief, “The jury awarded punitive damages proportionate to the harm.” David Oesting of Davis Wright Tremaine summarized the case this way: “Exxon’s highest executives condoned placing an alcoholic who they knew had relapsed at the helm of an oil supertanker that regularly transited the resource-rich waters of Prince William Sound.” The tanker’s captain, Joseph Hazelwood, had left the helm when the vessel struck Bligh Reef and leaked 11 million gallons of crude oil into the sound on March 24, 1989. For the business community, the case has the prospect of clarifying and expanding recent successes in winning judicial support for limits on punitive damages. Several business groups that filed briefs urging the high court to review the Exxon Mobil case said lower courts are still divided and confused over applying the Supreme Court’s limits on punitive damages. In a series of cases, including BMW v. Gore in 1996, State Farm v. Campbell in 2003, and Philip Morris v. Williams this past spring, the court has offered benchmarks for lower courts to determine when a punitive award is excessive, including scrutinizing the ratio between compensatory and punitive damages and the degree of reprehensibility of the conduct. The 9th Circuit’s endorsement of a $2.5 billion punitive award “exacerbates the court of appeals’ disarray with respect to the application of the constitutional guideposts for punitive damage awards,” wrote Sidley Austin’s Carter Phillips in a brief for the U.S. Chamber of Commerce. “Massive differences in punitive damage awards turn on the fortuity of where a case happens to be filed.” The Exxon Valdez case arises in maritime law, a unique area of the law in which the Constitution gives federal courts broad power to create common law, comparable to the role of some state courts. If the high court finds the award excessive under maritime law, says Mayer Brown partner Evan Tager, “it may lead by example” and encourage state courts to “incorporate [limits] into the fabric of state law” and make federal court review less necessary in the future. Tager was part of a Mayer Brown team that authored a brief for the American Petroleum Institute in support of review. Significantly, the court limited the questions that it will review in the case in such a way as to sidestep Exxon Mobil’s argument that the high award violates the Constitution’s due process clause as well as maritime law. Tager speculated that the court’s action may have been a nod to Justices Antonin Scalia and Clarence Thomas, who have long declined to find that high punitive damages violate the Constitution. “They may have decided to set aside that distraction and just make maritime law,” Tager said. Also complicating the issue was the decision by Justice Samuel Alito Jr., announced yesterday, to recuse in the court’s action on the Exxon Mobil case – raising the possibility of a 4-4 split, which would have the effect of upholding the 9th Circuit’s $2.5 billion award. In his latest financial disclosure statement, Alito indicated that he owns between $100,001 and $250,000 in Exxon Mobil stock.

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