Top U.S. Court Near Decision on Exxon Valdez Interest Payments

By Greg Stohr

July 24 (Bloomberg) -- The 19-year story of the Exxon Valdez legal fight has one more chapter still to come.

The U.S. Supreme Court in the next several days may say whether Exxon Mobil Corp. must pay $488 million in interest to tens of thousands of victims of the 1989 Alaska oil spill, the worst in U.S. history.

The high court last month reduced the punitive-damage award in the case to $507.5 million from $2.5 billion. That ruling didn't address whether fishermen and other victims also get interest dating back to 1996, and both sides in the case now want the justices to weigh in on the issue.

The interest question ``should be decided by this court and should be decided now,'' Exxon Mobil, the world's biggest energy company, argued in court papers filed earlier this month in Washington.

The issue is one that has never been addressed by the high court, according to Jeffrey Fisher, the lawyer who argued the victims' case before the justices. The question turns on a Supreme Court rule that governs interest on damage awards, a provision that isn't clear about cases involving a reduction.

The victims are seeking interest, which under federal law is 5.9 percent, dating to the original trial court judgment in 1996.

The two sides are asking the court to address the matter when it issues its formal judgment, an action that under court procedures it can take as soon as July 28. The justices have several options and could either rule on interest themselves or leave the issue for a federal appeals court.

Disputed Rule

The disputed section of the rule says that when a lower court ruling is ``modified or reversed with a direction that a judgment for money be entered below,'' the Supreme Court will address interest at the time it releases its judgment.

The victims say that language has no bearing on the Valdez case and was designed only to give interest to plaintiffs who win damages for the first time at the Supreme Court.

The group is asking the high court to declare that the rule doesn't apply. That would clear the way for the federal appeals court to award interest, a step the victims say the lower court is poised to take.

A trial judge added interest when he first issued judgment on punitive damages in 1996, after a jury had awarded $5 billion. The San Francisco-based 9th U.S. Circuit Court of Appeals eventually reduced the award to $2.5 billion without confronting the interest question. Appeals courts often don't address interest until they issue their formal ``mandate'' closing out the appeal.

Direct Order

As an alternative, the victims say the Supreme Court might instead directly order an award of interest.

Exxon Mobil is asking the justices to award interest accruing only from the date of the Supreme Court ruling, providing the victims with a fraction of the amount they seek.

The company also suggested the high court might say nothing. Exxon Mobil contends that would resolve the question in the company's favor because of the ``default rule'' that a reviewing court is the one that determines whether interest is awarded.

The 1989 Valdez spill dumped 11 million gallons of oil into Alaska's Prince William Sound, devastating wildlife and local businesses.

In its 5-3 decision on June 25, the Supreme Court reduced the punitive damages to the level of compensatory damages, or the actual harm suffered by the spill victims. The majority said a 1- 1 ratio with compensatory damages was ``a fair upper limit'' in maritime cases that don't involve intentional wrongdoing or a company effort to ``augment profit.''

`Punitive Sting'

The victims argued in court papers that, without interest, awards would lose their ``punitive sting'' during appeal.

``The practical effect of granting Exxon Mobil's request would be to reduce the punitive award allowed by this court to $257.5 million in 1996 dollars, or roughly one-half of the $507.5 million this court held the jury was entitled to award them,'' the group argued.

The group says that Exxon Mobil, by not paying the award immediately, has earned $3.9 billion on the money, based on its internal rate of return.

Exxon Mobil, represented by former U.S. solicitor general Walter Dellinger, said the high court in June ``held that $507.5 million is the legally correct amount necessary to deter Exxon and others from future oil spills.''

The company, which is based in Irving, Texas, also says those pressing the suit bear the blame for the delays in the case because they urged the trial judge to ignore higher court decisions calling for a reduction.

``There is also no reason to penalize Exxon by awarding another $488 million in damages when the substantial delay here was not in any sense Exxon's fault,'' the company argued.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net.