A Sound Verdict: Jury Sent Exxon a Message of Deterrence

Since the verdict in the Exxon Valdez case was handed down on Sept. 16, most commentators have praised the fairness of the Jury’s award. A New York Times editorial, for example, said: "Despite its size, the penalty is appropriate to the scale of the ecological havoc wrought by the spill and the reckless behavior that caused it. But The San Diego Union-Tribune, in an editorial entitled "Deter, Don’t Destroy" (reprinted by The Daily Journal, Sept. 27) indicated that the award was excessive.

The fact is, though, that "deter, don’t destroy" is exactly what the jury in the Exxon Valdez case was attempting to accomplish – to punish Exxon and deter it and other oil companies from disastrous oil spills in the future, without destroying Exxon. After a 4 ½-month trial, this independent and tough-minded jury would appear to have accomplished its task. To state otherwise is to ignore the facts of the case.

In order to gain approval for the Trans-Alaska Pipeline, Exxon and its six oil company partners promised to use double-hulled tankers, to have pilots and escort tugs during the entire transit of Prince William Sound and to do all other things necessary to prevent a major spill in the Sound. Also, they promised to have cleanup equipment on hand that could clean up a 200,000 barrel spill.

Shortly after the oil began to be transported through Prince William Sound, these promises were broken. The Exxon Valdez was single-hulled, the pilot got off shortly after entering Prince William Sound, there were no escort tugs and there was no capacity to clean up a spill one-tenth the size of the Exxon Valdez spill. We characterize this as uncaring of the risks to Prince William Sound, one of the last pristine environments in the world.

In Phase I of the case, the jury found that Exxon acted recklessly when it permitted a known alcoholic captain to run its largest ship - a ship manned by a skeleton crew required to work such long hours that many were chronically fatigued.

Exxon had reduced the number of mates on the Exxon Valdez from four to three to save approximately $100,000 per year. The mate in charge of the vessel at the time the Exxon Valdez ran aground was in violation of a federal statute passed in 1913, which required the mate to have six hours off-duty in the 12 hours before he started watch. The National Transportation Safety Board found crew fatigue to be a contributing cause of the grounding and oil spill. Exxon did not increase the number of mates back to four until years after the spill, just in time to go to trial.

During an investigation in 1985, Capt. Joseph Hazelwood admitted to drinking aboard ship and coming back to the ship drunk. He went through a 21-day company alcohol rehabilitation program. Following this, Exxon failed to offer him a shoreside job, and instead put him back to sea as a captain. There was no program for monitoring him.

Although Exxon officials testified before Congress and to the jury that Hazelwood was the most carefully monitored person in the Exxon fleet, they could not produce a single piece of paper which confirmed any monitoring at all. Many of Hazelwood’s superiors, including port captains and fleet coordinators who were supposed to be monitoring him, testified that they had no knowledge that he was monitored.

Despite numerous reports to high-level management about Joseph Hazelwood's drinking, including one the week before this fateful voyage, no action was taken by Exxon to remove the risk of a drinking captain. The person in charge of Exxon’s alcohol policy testified to the jury that Exxon’s policy would permit a relapsed alcoholic to be captain on the company’s ships.

Indeed, at the time of the grounding, Hazelwood had no valid driver's license, having had them revoked in two states for multiple drunken driving convictions. Despite the fact that that Hazelwood had no valid license to drive the smallest of cars, Exxon gave him the reins to its largest oil-laden supertanker. It is little wonder that the jurors found Exxon reckless and provided a fine that they felt was warranted by the devastation Exxon’s failed policies and greed had caused.

Although the Union-Tribune’s editorial stated that Exxon had endeavored to make whole the persons harmed by the spill, the truth is otherwise. After at first paying claims, Exxon soon changed and did everything it could to avoid its liability to those harmed. It unleashed its corporate coffers, paying millions in legal defense fees to bring every obstructive motion possible, hide behind every protective law, while steadfastly refusing to enter into any settlement negotiations with fishermen and other victims.

This scorched-earth policy of delay and refusal to pay for the harm continues today. Rather than pay just claims, Exxon clings to its money and uses it to make a 14 percent internal rate of return. As the jury saw, many of the beaches remain oiled, and Exxon has refused to make additional efforts to clean things up.

While the Union-Tribune editorial characterized the jury as gullible, you should know that Exxon praised the jurors in the compensatory-damage phase of the case and lauded them for their meticulous handling of the complicated issues placed before them. They took five weeks to review the evidence and answer 72 issues presented to them, awarding only one-third of the damages requested. Again, Exxon praised the jury. Now that the jury has finally spoken, Exxon refuses to accept its decision. Instead, Exxon has marshaled its public relations people to slander the very jurors who it said before were acting as judges should.

Will the $5 billion verdict destroy Exxon? Exxon's comptroller testified that Exxon could pay $10 to $12 billion without a material adverse impact on the company.

While fishermen saw their lives and incomes destroyed because of the continuing impact of the oil spill on the fisheries in Prince William Sound, Cook Inlet, Kodiak and elsewhere, Exxon's stock has climbed more than $20 billion since the spill. Exxon generates approximately $110 billion in revenues each year. The question is not whether $5 billion in punitive damages will destroy Exxon, but whether it is sufficient punishment to deter its conduct.

If the post-spill stock market reaction is any indication, it may not be. In fact, after the verdict, Exxon stock went up. Will this verdict be sufficient punishment for the reckless oiling of 1,500 miles of Alaska shoreline, the killing of hundreds of thousands of birds and thousands of otters, seals and other animals, and the ruination of the way of life of tens of thousands of Alaska natives and fishermen? Will it deter Exxon and others? We can only hope so.

Corporations, unlike individuals, cannot be put in jail. A person who commits a criminal act may be very apologetic afterward, but nonetheless society holds that person responsible for the conduct giving rise to the criminal act. Likewise, a corporation can only be punished through its pocketbook. Just as with any criminal defendant, Exxon must be held responsible.

We hope that this verdict will cause Exxon and the other oil companies to think twice before they put the environment at risk of permanent damage as a result of their reckless operations. If this verdict, small in relation to Exxon's size, accomplishes this, then the two purposes of punitive damages, to punish and to deter, will have been fulfilled.