Exxon Valdez: Worst Oil Spill in United States History: Victims’ Compensation Still Not Awarded…

Exxon Valdez: Worst Oil Spill in United States History: Victims’ Compensation Still Not Awarded (June 2008)
“A year after the Exxon Valdez ripped open its bottom on Bligh Reef [off the Alaskan coast] and dumped 11 million gallons of crude oil, the nation’s worst oil spill is not over. Like major spills in the past, this unnatural disaster sparked a frenzy of reactions: congressional hearings, state and federal legislative proposals for new preventive measures, dozens of studies, and innumerable lawsuits.”1 The grounding of the tanker on March 24, 1989, spread oil over more than 700 miles. Oil covered 1,300 miles of coastline and killed 250,000 birds, 2,800 sea otters, 300 seals, 250 bald eagles, and billions of salmon and herring eggs, according to the Exxon Valdez Oil Spill Trustee Council, which manages Exxon settlement money. As of June 23, 2008, the court case was still pending. More controversial is Exxon’s failure to pay the $5 billion in assessed damages.2 A grand jury indicted Exxon in February 1990. At that time, the firm faced fines totaling more than $600 million if convicted on the felony counts. More than 150 lawsuits and 30,000 damage claims were reportedly filed against Exxon, and most had not been settled by July 1991, when Exxon made a secret agreement with seven Seattle fish processors. Under the arrangement, Exxon agreed to pay $70 million to settle the processors’ oil-spill claims against Exxon. However, in return for the relatively quick settlement of those claims, the processors agreed to return to Exxon most of any punitive damages they might be awarded in later Exxon spill-related cases. Exxon paid about $300 million in damages claims in the first few years after the spill. However, “lawyers for people who had been harmed called that a mere down payment on losses that averaged more than $200,000 per fisherman from 1990 to 1994.”3 The charge that the captain of the Valdez, Joseph Hazelwood, had a blood-alcohol content above 0.04% was dropped, but he was convicted of negligently discharging oil and ordered to pay $50,000 as restitution to the state of Alaska and to serve 1,000 hours cleaning up the beaches over five years.4 Exxon executives and stockholders have been embroiled with courts, environmental groups, the media, and public groups over the crisis. Exxon has paid $300 million to date in nonpunitive damages to 10,000 commercial fishers, business owners, and native Alaskan villages. In 1996, a grand jury ordered Exxon to pay $5 billion in punitive damages to the victims of the 1989 oil spill. At the time that the fish processors had entered the secret agreement with Exxon, they did not know the Alaskan jury would slap the company with the $5 billion punitive damages award. One of the judges claimed that had the jury known about this secret agreement, it would have charged Exxon even more punitive damages.5 As of 2001, Exxon had not paid any of these damages. It is also estimated that with Exxon’s reported rate of return on its investments, it makes $800 million every year on the $5 billion it does not pay. (The company would have made back the $5 billion it refused to pay with accrued interest by 2002.6) Brian O’Neill, the Minneapolis lawyer who represents 60,000 plaintiffs in the suit against Exxon, stated, “I have had thousands of clients that have gone bankrupt, got divorced, died, or been down on their financial luck” while waiting for the settlement.7 Looking back on this case, Captain Hazelwood was ordered to pick up trash on Alaska state lands. The November 2001 federal appeals court ruling opened the way for a judge to reduce the $5 billion punitive verdict. (However, the 1994 jury award of $287 million to compensate commercial fishers was not reduced.)8 In 2004, the Environmental News Network (ENN) reported that local residents and several government scientists are still at odds as to “whether Exxon Mobil Corporation should be forced to pay an additional civil penalty for the spill. . . . The landmark $900 million civil settlement Exxon signed in 1991 to resolve federal and state environmental claims included a $100 million re-opener clause for damages that ‘could not reasonably have been known’ or anticipated.” Epilogue On June 25, 2008, the Supreme Court reduced the previously determined $5 billion punitive damages award against Exxon Mobil to $507.5 million.9 Since Justice Samuel A. Alito, Jr. owns Exxon stock, he did not participate in the final decision. With regard to whether Exxon should be held accountable for Captain Hazelwood’s irresponsibility in the case, the court split 4-to-4. “The effect of the split was to leave intact the ruling of the lower court, the United States Court of Appeals for the Ninth Circuit, which said Exxon might be held responsible.”10 Justice David Souter hinted in his last paragraph on behalf of the 5-to-3 majority that this decision reflected the rule he was announcing for federal maritime cases in the Exxon case, “. . . a rule that generally dictates a maximum 1:1 ratio between a punitive damages award and a jury’s compensatory award. . . .”11 In effect, by reducing the Exxon Valdez verdict to $500 million, the court set a 1:1 ratio by passing the $507.5 million compensatory damage portion of the jury’s award in this case.12 Stakeholders were divided in the outcome of this case. It should be noted that Exxon had previously paid over $2 billion during the past 19 years on environmental cleanup and $1.4 billion in fines and compensation to thousands of fishermen and cannery workers. Exxon Chairman and CEO Rex Tillerson recently stated that, “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.”13 A different reaction came from the hard-hit Alaskan town of Cordova, where fishermen and local businesses suffered bankruptcies and even suicides in the long aftermath of the crises: “The punitive damages claim ‘was about punishing [Exxon] so they wouldn’t do it somewhere else,’ said Sylvia Lange, who owns a hotel and bar frequented by fishermen. ‘We were the mouse that roared, but we got squished.’14 As a result of the June 2008 Supreme Court decision, fishermen and others hurt by the Valdez disaster will receive about $15,000 instead of $75,000. Note that in 2007, ExxonMobil earned a record $40.6 billion in profits. The company could pay the punitive award in four days’ profits.15 Hosmer, a noted ethicist, stated: The most basic lesson in accident prevention that can be drawn from the wreck of the Exxon Valdez is that management is much more than just looking at revenues, costs, and profits. Management requires the imagination to understand the full mixture of potential benefits and harms generated by the operations of the fi rm, the empathy to consider the full range of legitimate interests represented by the constituencies of the firm, and the courage to act when some of the harms are not certain and many of the constituencies are not powerful. The lack of imagination, empathy, and courage at the most senior levels of the company was the true cause of the wreck of the Exxon Valdez.16
Questions
1. Who was at fault in this case and why?
2. Should Captain Hazelwood have been convicted of criminal drunkenness in this case? If so, how would that have changed the outcome of the settlement? If not, why?
3. Did Captain Hazelwood settle his “debt” in this case by agreeing to serve 1,000 hours in cleanup time in Alaska? Explain.
4. Describe Exxon’s ethics toward this disaster based on what it has paid over the years up to the June 15, 2008 Supreme Court decision.
5. How much should the 33,000 commercial fishermen, Alaska Native peoples, landowners, businesses, and local governments have been paid as compensation, and why?
6. Respond to Hosmer’s statement. Do you believe this sentiment applies to all responsibilities of senior executives in corporations; that is, do they need to show imagination, empathy, and courage toward all their constituencies? Explain your answer.