Exxon Valdez $2.5 billion oil spill ruling overturned

By James Vicini

WASHINGTON (Reuters) - The U.S. Supreme Court on Wednesday threw out the record $2.5 billion in punitive damages that Exxon Mobil Corp had been ordered to pay for the 1989 Exxon Valdez oil spill off Alaska, the nation's worst tanker spill.

By a 5-3 vote, the high court ruled that the punitive damages award should be slashed to a maximum amount equal to the total relevant compensatory damages of $507.5 million.

The justices overturned a ruling by a U.S. Court of Appeals that had awarded the record punitive damages to about 32,000 commercial fishermen, Alaska natives, property owners and others harmed by the spill.

In the majority opinion, Justice David Souter concluded the $2.5 billion in punitive damages was excessive under federal maritime law, and should be cut to the amount of actual harm.

Soaring oil prices have propelled Exxon Mobil to previously unforeseen levels of profitability in recent years; the company posted earnings of $40.6 billion in 2007.

It took Exxon Mobil just under two days to bring in $2.5 billion in revenue during the first quarter of 2007.

The Exxon Valdez supertanker ran aground in Alaska's Prince William Sound in March 1989, spilling about 11 million gallons of crude oil.

The spill spread oil to more than 1,200 miles of coastline, closed fisheries and killed thousands of marine mammals and hundreds of thousands of sea birds.

A federal jury in Alaska awarded $5 billion in punitive damages in 1994. A federal judge later reduced the punitive damages to $4.5 billion, and the appeals court further cut it to $2.5 billion.

Exxon Mobil, the largest U.S. company by market capitalization, then appealed to the Supreme Court.

Souter rejected Exxon Mobil's argument that the federal clean water law's water pollution penalties preempt punitive damage awards in maritime spill cases. But he sided with the company in slashing the award.

"We ... hold that the federal statutory law does not bar a punitive award on top of damages for economic loss, but that the award here should be limited to an amount equal to compensatory damages," he said.

In Irving, Texas, Rex Tillerson, Exxon Mobil's chairman and chief executive, said in a statement, "The Valdez oil spill was a tragic accident and one which the corporation deeply regrets."

"We know this has been a very difficult time for everyone involved. We have worked hard over many years to address the impacts of the spill and to prevent such accidents from happening in our company again," he said.

'SLAP ON THE WRIST'