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Extra6/26/2008 3:31 PM ET

ExxonMobil dodges $2 billion payout

A Supreme Court ruling this week slashes punitive damages stemming from the 1989 Valdez tanker disaster. In boardrooms across the country, top executives must be breaking out the champagne.

By Christian Science Monitor

The Supreme Court has struck down a $2.5 billion punitive damages award against oil giant ExxonMobil (XOM, news, msgs) for its role in the 1989 Exxon Valdez oil spill in Alaska.

The high court said the award should be reduced to the amount of compensatory damages in the case -– $507.5 million.

Until the June 25 ruling, the $2.5 billion award was the largest punitive damages award ever upheld by the U.S. courts. But the Supreme Court ruled 5 to 3 that the punishment was excessive.

Writing for the majority, Justice David Souter said punitive damages could be awarded under maritime law, but the verdict against Exxon "under the circumstances of this case" should be limited to an amount equal to the damages already paid by the Irving, Texas, company to compensate victims of the oil spill.

The ruling marked a significant victory for Exxon, which has been waging legal battles related to the oil spill for 19 years.

Business groups also praised the opinion as a move by the high court toward reducing the level of uncertainty in punitive damages cases.

"This is good news for companies concerned about reining in excessive punitive damages," said Tom Donohue, president of the U.S. Chamber of Commerce. "For years the Chamber has argued that punitive damages are too unpredictable and unfair, and today the court agreed."

Environmentalists and other analysts said the court got it wrong. "Exxon was responsible for one of the greatest environmental disasters our country has ever seen, and the Supreme Court let them off with a slap on the wrist," said Kathryn Kolbert, president of People for the American Way Foundation, a liberal advocacy group.

"The award is a drop in the bucket of Exxon's enormous profits, and it certainly provides no disincentive for them to avoid another accident in the future," Kolbert said.

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Only eight justices of the nine-member court participated in the case. Justice Samuel Alito recused himself because he owns ExxonMobil stock.

The case, Exxon Shipping Company v. Baker, stems from the March 24, 1989, grounding of the Exxon Valdez supertanker on Bligh Reef in Prince William Sound. Some 258,000 barrels of crude oil poured from the tanker into the sound's pristine waters. The tanker's name has since become synonymous with environmental disaster.

Continued: Tanker skipper acted 'recklessly'

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