Court stands by Exxon Valdez damages

SAN FRANCISCO (Reuters) - A U.S. appeals court declined on Wednesday to reconsider its decision to make Exxon Mobil Corp. pay $2.5 billion in punitive damages for the 1989 Exxon Valdez oil spill.

The punitive damages ruling against Exxon -- originally $5 billion in 1994 -- has been the subject of a long legal battle between the oil company and 32,000 fishermen, Alaska natives and property owners who were awarded the damages.

The 9th Circuit Court of Appeals based in San Francisco has already looked at the Exxon Valdez case on three occasions, taking into account new U.S. Supreme Court rulings in later examinations of the biggest oil spill in U.S. history.

In December, the court had already cut $2 billion off a $4.5 billion verdict against the company, saying the earlier penalty was too harsh when compared with the economic harm caused by the spill.

The split three-judge panel court had also said the energy company's prompt action to clean up the oil and compensate fishermen and others for economic losses lowered the reprehensibility of Exxon's conduct.

But the company had asked the court to rehear the case in hopes to further reduce the penalty. It has argued that punitive damages should not be more than $25 million.

Exxon Mobil said Wednesday it would appeal the case to the Supreme Court, the last avenue for reconsideration.

"The Ninth Circuit Court ruling now allows the case to be appealed to the U.S. Supreme Court where the case should be decided," said Exxon spokesman Mark Boudreaux.

"We have said many times that it is our continued view that the U.S. Supreme Court needs to provide more definitive guidance to the lower courts on the law governing punitive damages," he added.

DISSENTING VIEWS

In its ruling on Wednesday, the court said a larger 15-member en banc group of judges would not reconsider the matter.

"A judge of the court called for a vote on whether to rehear the matter en banc," the court wrote. "The matter failed to receive a majority of votes of the nonrecused active judges in favor of en banc consideration."

Two judges who dissented from the decision not to reconsider the matter wrote that punitive damages were not appropriate in the much-litigated case.

"For centuries, companies have built their seaborne businesses on the understanding that they won't be subject to punitive damages if they '(n)either directed it, nor countenanced it, nor participated in' the wrong," Judge Alex Kozinski wrote.

The Supreme Court ruled in April 2003 that punitive damages must be reasonable and proportionate to the harm that was suffered.

"The plaintiffs here suffered no physical injuries - their only claim was that the oil spill harmed their commercial fishing interests," wrote Judge Kozinski, who was appointed by President Ronald Reagan.

"After the accident, Exxon acted as a model corporation - it spent over $2 billion to remove oil from the water and adjacent shore and $900 million to restore damaged natural resources."

The Romanian born-judge, famous for his caustic remarks, also added: "If your vessels sail into the vast waters of the Ninth Circuit, a jury can shipwreck your operations through punitive damages."

(Additional reporting by Michael Erman in New York)