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STEVEN INSKEEP, host:

It's MORNING EDITION from NPR News. I'm Steve Inskeep.

RENEE MONTAGNE, host:

And I'm Renee Montagne.

In 1989, the nation woke up to news of the biggest oil spill in North American history. A supertanker, owned by Exxon, had run aground. At the time, people feared that the spill might never be fully cleaned up. Nineteen years later, the Supreme Court is tackling the legal mess.

INSKEEP: Today, the high court hears a case that's been in court for years. It has lasted through elections, wars, boom times and recessions. The question now is whether Exxon Mobil should pay $2.5 billion in punitive damages.

Here's NPR legal affairs correspondent Nina Totenberg.

NINA TOTENBERG: March 24, 1989 the Exxon Valdez, traveling in the dead of night, struck Bligh Reef in Prince William Sound, Alaska. Captain Joseph Hazelwood, who'd abandoned the bridge during the treacherous crossing, first reported the accident to the Coast Guard.

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Captain JOSEPH HAZELWOOD (Exxon Valdez): Yeah. It's Valdez (unintelligible). We should be on your radar there. We've fetched up hard aground north of Goose Island, off Bligh Reef. I know we are leaking some oil.

TOTENBERG: The oil spill in fact turned out to be the largest on record in North America: 11 million gallons of crude oil, spread across 600 linear miles — larger than the distance from Washington, D.C. to Atlanta.

For Alaska and its citizens, the spill was an ecological and economic disaster of huge proportions. And for Exxon, it was a public relations nightmare, as evidence mounted that the captain had been drunk, and not for the first time.

A week after the disaster, Exxon CEO Lawrence Rawl said of the captain...

(Soundbite of audio)

Mr. LAWRENCE RAWL (CEO, Exxon): He was drunk.

TOTENBERG: And Rawl acknowledged that the corporation had known about Hazelwood's drinking, had ordered him into rehab, and then had allowed him back at the helm despite numerous reports that he'd fallen off the wagon.

Mr. RAWL: The judgment to put him back on the ship was a bad judgment.

TOTENBERG: The federal government indicted Exxon on five criminal charges, with potential penalties totaling $5 billion. The company soon agreed to plead guilty to three counts with a fine of $25 million, plus $900 million more in civil fines to be paid over a 10-year period to the government. In addition, the company paid $2.1 billion in cleanup costs, and several hundred million dollars more to fishermen for their lost summer catch. In all, the company would pay $3.4 billion.

But the fishing industry, plus businesses affected by the spill, and the native Alaskans whose very way of life had been ruined, contended that Exxon had not paid enough.

At Exxon's request, the federal court in Alaska certified 32,000 individuals with potentially valid claims to sue as a single group. In closing arguments, their lawyer asked for between $5 billion and $20 billion in punitive damages. That is damages meant not to compensate but to punish and deter such conduct in the future. Exxon, in closing arguments, said there should be no punitive damages. The jury awarded $5 billion, which, after two appeals, was reduced to $2.5 billion, or roughly $75,000 per person.

Now, the U.S. Supreme Court has agreed to hear Exxon's latest appeal, prompting this reaction from Alaska's Republican Governor Sarah Palin.

Governor SARAH PALIN (Republican, Alaska): It was like kind of a kick in Alaska's collective gut, here. And it's seeming to be a case now of justice delayed being justice denied.

TOTENBERG: The Exxon Valdez case being argued today represents the latest twist in a two-decade campaign by the business community to get the courts to eliminate punitive damages altogether. In recent decades, corporate America has won a series of cases challenging punitive damages, but has not succeeded in getting rid of them completely because punitive damages are largely a matter of state law.

The Supreme Court, however, has by and large reduced punitive damages, most recently laying down a general rule that they cannot be more than nine times the actual damages. In this case, the courts have said the punitive are only five times the actual damages. But Exxon contends that because this accident occurred at sea and is governed by maritime law, which is the sole province of the federal courts, there should be no punitive damages at all.

Today in the Supreme Court, Exxon's lawyer, Walter Dellinger, will tell the justices that punishments for oil spills like this were set out in the Clean Water Act and preempt punitive damages in a private lawsuit. The Alaskans dismiss that argument, contending that Congress passed the Clean Water Act to protect the environment, not to outlaw individual damage suits for bad conduct.

Most importantly, Exxon contends that under maritime law, a ship owner is not subject to punitive damages for the conduct of the ship's captain unless the conduct was directed by the ship's owners.

Exxon's lawyer Walter Dellinger.

Mr. WALTER DELLINGER (Lawyer): No court has ever upheld an award of punitive damages for either the intentional or unintentional discharge of hazardous substances.

TOTENBERG: Stanford law professor Jeffrey Fisher, representing the Alaskan plaintiffs, will make the contrary argument.

Professor JEFFREY FISHER (Law, Stanford): It's been accepted for hundreds of years that punitive damages are available in maritime law, basically under the same circumstances they are available in tort law, when a defendant acts egregiously or in callous disregard for the rights of others.

TOTENBERG: Exxon contends that it did not do that. It now contends that Captain Hazelwood wasn't legally drunk, and that it couldn't remove him from his job because it didn't know that he'd relapsed into drinking on the job after his initial period of rehabilitation.

The plaintiffs counter by pointing to the federal court finding that Exxon management knew for three years that Hazelwood had resumed drinking onboard their ships.

Exxon concedes that its behavior in allowing Hazelwood to remain at the helm of the ship could have been an issue in the punitive damages phase of the trial, but it wasn't. The company says yes, that Hazelwood leaving the bridge on the night of the accident was reckless, but it contends that Exxon's failure to remove Hazelwood was not an issue.

Exxon Lawyer Walter Dellinger.

Mr. DELLINGER: The idea that it was proven or determined that they knowingly put a lapsed alcoholic who was drinking on the job in charge of a ship was not even a question the jury was told that they needed to resolve.

TOTENBERG: Not so, says Jeffrey Fisher.

Mr. FISHER: The entire Phase Three of trial was all about Exxon's corporate knowledge of Hazelwood's drinking.

TOTENBERG: Indeed, says Fisher, Hazelwood dropped out of the post-rehab program. Exxon management knew that Hazelwood had subsequently had his license to drive a car revoked because of a drunken-driving charge. Fifteen witnesses testified at trial about his drinking, often with Exxon personnel. And Exxon supervisors were informed of his drinking, including by report to the president of Exxon Shipping.

Exxon notes that punitive damages are not meant to make any individual whole. The company contends that plaintiffs had their chance to get compensatory damages, and that in all the company paid $500 million to the fishermen. Exxon argues that punitive damages are simply not appropriate here, because the company didn't profit from the accident and lost its own ship and cargo.

Walter Dellinger.

Mr. DELLINGER: Where a company is seeking to make big profits from reckless behavior, then big punitive damages are a response to that. But here there was no profit made, no profit sought, by any of the wrongful acts that are charged to the company and upon which the company has acknowledged responsibility.

TOTENBERG: Professor Fisher counters that it is the very irrationality of Exxon's actions which justify punitive damages.

Mr. FISHER: An alcoholic culture pervaded the company such that officials didn't want to blow the whistle on a friend. This is precisely what makes Exxon's conduct so egregious and that necessitates punishment like this. There is no good reason for what Exxon did. And it just showed utter disregard for the environment and for the tens of thousands of Alaskans that depended on the bounty of Prince William Sound.

TOTENBERG: Fisher argues that the punitive damages here are just barely enough to punish and deter, since the $2.5 billion represents only three weeks of Exxon's current net profits. Exxon, on the other hand, says the award amounts to more money than all the punitive damage awards ever upheld by the federal courts combined.

A Supreme Court decision is expected by summer.

Nina Totenberg, NPR News, Washington.

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