Exxon Valdez Oil Disaster and Class Action Lawsuit
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ARTICLE
THE EXXON VALDEZ LITIGATION
JUSTICE DELAYED:
SEVEN YEARS LATER
AND NO END IN SIGHT (1996)
by William B. Hirsch
Introduction
Five years after the Exxon Valdez crashed into Bligh Island, triggering
the greatest environmental disaster in history, twelve jurors looked out
on an overflowing courtroom and began a four and a half month odyssey that
culminated in a $5 billion punitive damages award against Exxon Corporation.
Now, more than seven years after the spill and nearly two years after the
jury verdict, no final judgment on the jury verdict has been entered by
the federal court, the agonizingly long appeals process has not yet begun,
and the ten thousand fishermen who won at trial face years of additional
litigation and delay. Moreover, thousands of other victims of the spill
have helplessly watched the federal court dismiss their claims on technical
legal grounds, leaving these individuals with appellate rights but little
else.
Exxon can afford to stall, and actually benefits from delay, but the commercial
fishermen and others injured by the oil spill have not yet recovered, financially
or emotionally. Perhaps a decade after the oil spill -- maybe in 1999 --
this case will end. More likely, the gloating prediction of Exxon's chief
strategist will turn out true, and the case will stretch into the 21st century.
And even if plaintiffs are ultimately successful, they will have paid twice:
once for the spill, which devastated their communities and left many in
financial ruin, and again for daring to demand justice, which has already
consumed their time, energy and hopes for seven years. Meanwhile, Exxon
has continued to make record profits, spent hundreds of millions of dollars
to defeat the injured victims and their lawyers, and nurtured a public image
that is directly contradicted by the approach and strategy it has pursued
throughout the litigation.
Newspapers in Alaska recently carried articles about the "spillionaires," victims
of the oil spill who stand to make a million dollars or more if the $5 billion
punitive damage award stands up. It is true -- some of the victims may end
up rich. But none chose this path, and few, if any, would wish to relive
the last seven years, whatever their potential recovery may be. Indeed,
if justice comes, it will be hard to recognize.
In the following pages, we will explain how the litigation has developed
over the last seven years, and what is likely to happen in the future. In
the process, we will see how Exxon has skillfully used the judge, the law,
and its own vast resources to ensure that the litigation will continue into
the 21st century, even though the whole world knows -- and Exxon admits
-- that it is responsible for the greatest environmental disaster in history.
Unlike many toxic or environmental disasters, there is no doubt about what
happened here. At its simplest, Exxon's largest ship, the Exxon Valdez,
ran into Bligh Island, and spilled 11 million gallons of oil into prime
fishing grounds in Prince William Sound ("PWS") and beyond. The
thick messy oil spread throughout PWS, washed up on beaches and land, and
killed thousands of fish, otters, whales, birds and other wildlife. The
ownership of the Exxon Valdez and its cargo was never in dispute, and Exxon's
liability seemed obvious, especially since Lawrence Rawls, Exxon's Chairman,
announced on national television a week after the spill (Face the Nation)
that Captain Joseph Hazelwood was drunk at the time and that it was "gross
error" and "bad judgment...in a going-in basis" on Exxon's
part to return Hazelwood to his position as captain given his history of
alcohol abuse. In a public letter published in newspapers across the company
a few days after the spill, Rawls said that Exxon would "meet our obligations
to all those who suffered damage from the spill."
Immediately after the spill, Exxon sent teams of public relations specialists
to the area, and conducted many public meetings where it again proclaimed,
in the words of one of its most ardent spokesmen: "You are lucky. You
have got Exxon. We take care of our problems." Within weeks of the
spill, Exxon set up a "claims program" to provide fishermen and
others with immediate relief and to pay for the damages they suffered. Many
other fishermen and other local residents were hired by Exxon for spill
clean-up and were well-paid for their boats, equipment and time. All told,
Exxon claims that it spent $3.5 billion cleaning up the spill, without coercion
from the government or the courts.
Exxon's clean-up effort, however, was inadequate. Alyeska Pipeline Service
Company, which was formed by Exxon and the other oil companies, and which
was responsible for creating an emergency response plan and responding to
an oil spill, was similarly unable to cope with an oil spill of this magnitude.
Perhaps 15% of the oil was picked up. Much of it still lies beneath the
sand and beaches of PWS.
Moreover, the claims payments paid by Exxon did not fully compensate the
victims for their losses. For many, like the fishermen, these losses stretched
for years into the future. For others, their losses were not covered by
the claims program.
Most of all, amidst the environmental destruction and the agony suffered
in towns and villages throughout PWS, Kodiak Island, and Cook Inlet, everyone
wanted to know how this happened. How could Exxon let a known alcoholic
with a long history of alcohol abuse captain a supertanker carrying 55 million
gallons of crude oil in precarious and environmentally sensitive waters,
endangering a wonderfully rich and diverse ecosystem and exposing the local
communities and their residents to financial ruin? Who was going to pay
for the real damage, the long-term damage caused by this senseless tragedy?
And what could be done to make sure nothing like this ever happened again?
So, despite Exxon's promise to take responsibility for the spill and to
compensate the victims, individual and class action lawsuits were filed
almost immediately. And from the beginning, it was clear that the Exxon
Valdez case would not be just about liability and compensatory damages.
It was and always has been about punitive or exemplary damages. That is
the real question, and the driving force behind the litigation.
Plaintiffs filed class and direct action lawsuits in both federal and state
court. This is permissible under our federal form of government, which in
many areas of the law (including maritime claims) grants overlapping jurisdiction
to the federal and state courts.
In both courts, claims were made by commercial fishermen, natives, native
corporations, land owners, area businesses, municipalities, tenderers, cannery
workers, processors, recreational users and others. The primary defendants
were Exxon and Alyeska.
From the beginning, Exxon pursued a complicated and sophisticated legal
strategy. In the early stages of the litigation, Exxon, with the assistance
of Alyeska, vigorously fought efforts by the plaintiffs to treat the case
as a class action and sought to dismiss the claims of large numbers of injured
parties on technical legal grounds. When it became apparent that the federal
judge, the Honorable H. Russel Holland, was generally sympathetic to Exxon's
position and more likely to rule in its favor on major issues than the state
judge, the Honorable Brian Shortell, Exxon managed to transfer the bulk
of the state cases to federal court, where they were dismissed by Judge
Holland.
Finally, nearly five years after plaintiffs filed their original motion
seeking class action treatment, Exxon changed its earlier position and persuaded
Judge Holland to certify a "mandatory punitive damages class," thus
stripping Judge Shortell of his authority to try punitive damages in his
courtroom and limiting Exxon's exposure to a single punitive damages trial.
Prior to trial, Exxon's strategy to narrow and limit the case worked according
to plan.
Narrowing The Claims
Plaintiffs sued Exxon and Alyeska under various legal theories, including
common law negligence, nuisance, and misrepresentation. Plaintiffs also
brought claims in federal court for strict liability under the Trans-Alaska
Pipeline Authorization Act ("TAPAA"); in state court, the strict
liability claim was brought under the Alaska Environmental Conservation
Act (the "Alaska Act").
Typically, common law claims are based on state law. However, the Constitution
establishes that the federal judicial power extends to "all cases of
admiralty and maritime law." Once admiralty jurisdiction is established,
the substantive law of admiralty is applied.
Early on in this litigation, both the federal and state courts were asked
to decide whether maritime law applied to the case, whether it preempted
state common law, and whether, under maritime law, certain types of claims
were precluded. These questions were of critical importance: the answer
would determine which groups of injured plaintiffs would be legally entitled
to bring claims.
In February 1991, nearly two years after the catastrophe, the federal court
gave its answer. In Order No. 38, Judge Holland first ruled that the oil
spill was a "maritime tort" since it satisfied the "locality" and "maritime
nexus" tests, which together are used to determine whether maritime
jurisdiction is invoked. Judge Holland then ruled that maritime jurisdiction
applied not only to injuries suffered at sea, but also to injuries that
occurred on land, so long as they were proximately caused by a vessel at
sea. Thus, for example, owners of a restaurant, a boatyard, and a marine
supply company, whose businesses were damaged by the spill, were swept within
the jurisdiction of maritime law.
The next step in Judge Holland's analysis was crucial. Applying what has
become known as the Robins Dry Dock rule, Judge Holland concluded that,
in the absence of physical injury to person or property, a party may not
recover for pecuniary or economic losses suffered as a result of a maritime
tort. In other words, liability is limited to those physically touched by
the oil. While the justification for this rule is usually couched in terms
of public policy (the need to limit claims in order to prevent an endless
chain of recoverable economic harm), the reality is grounded in commercial
policy: the Robins Dry Dock rule limits the liability of the shipping industry
in order to enhance business. Indeed, this judicial liability limitation
is inconsistent with, and contradicted by, the legal standard applied to
similar incidents occurring on land.
Finally, Judge Holland ruled that maritime law preempted all state common
law. In other words, the Court held that an injured plaintiff was only permitted
to seek redress under maritime law, and could not also pursue claims under
state law. This was the key, for claims for negligence under state law permit
an injured plaintiff to recover for all damages that are "proximately
caused" by the wrongful act. Under a traditional proximate cause analysis,
there is no prohibition against recovering for economic loss, even in the
absence of physical injury.
The significance of this ruling cannot be overemphasized. Order No. 38
became the law of the case, and led to a number of rulings just before trial
dismissing the claims of the following groups of plaintiffs: processors,
cannery workers, tenderers, area businesses, and municipalities. Judge Holland
also dismissed the claims of "unoiled" property owners for devaluation
of their property, and the Alaska Natives' claims for injury to their subsistence
culture.
The only group to escape under this ruling were the commercial fishermen,
and only because of a 1974 ruling by the Ninth Circuit Court of Appeals
creating a commercial fishermen exception to the Robins Dry Dock rule. And
even as to this exception, Judge Holland took a narrow view, ruling that
other groups that lived off of the sea -- such as tenderers (those who take
the fish from the fishermen at sea, weigh the fish, and deliver the fish
to the seafood processors) -- could not pursue claims under Robins Dry Dock,
even though there was no principled distinction between them and commercial
fishermen. Moreover, even as to the commercial fishermen, Judge Holland
ruled that they were not permitted to recover for the devaluation of their
boats or fishing permits, because such damages, unlike lost harvests, were
not directly related to fishing. Judge Holland also dismissed the fishermen's
claims for "hedonic" damages (damages for loss of the quality
and enjoyment of life), on the grounds that the Oppen exception does not
apply to fishermen's non-economic injuries.
An ironic and important twist in this case is that Judge Shortell disagreed
with Judge Holland, and ruled in plaintiffs' favor on these issues. Judge
Shortell held that state law was not preempted by maritime law, and that
a long line of Supreme Court cases permitted states to supplement rights
of recovery provided by maritime law, especially where the state was exercising
its right to provide remedies for oil pollution within its own territorial
waters. Thus, it appeared for a time that claims that were disallowed in
federal court were still viable in state court, providing plaintiffs with
an alternate avenue for recovery.
However, as will be discussed more fully below, after it became clear that
Judge Holland was more sympathetic to Exxon's positions than Judge Shortell,
Exxon concocted a number of legal theories designed to remove cases from
state court to federal court, effectively diminishing the role of Judge
Shortell. Ultimately, most plaintiffs were forced into federal court, where
claims that were viable under the rulings of Judge Shortell were dismissed
by Judge Holland.
The end result was that Exxon, after publicly and loudly proclaiming that
it would compensate all victims of the spill, relied on esoteric legal rulings
and a sympathetic judge to avoid compensating thousands of individuals for
the economic injuries inflicted upon them by the Exxon Valdez oil spill.
Within days if not hours of the spill, seemingly hundreds of lawyers descended
on small towns and villages throughout Alaska. Lawyers from Alaska, mostly
untrained in complex litigation and unprepared to mount the huge financial,
logistical, and strategic effort necessary to battle a major corporation
such as Exxon in a case such as this, were joined by lawyers from every
part of the country, most of whom had no knowledge of Alaska, oil or commercial
fishing.
These lawyers fell into two groups. One group, the "direct action" lawyers,
sought to represent individual fishermen and other victims of the spill
in the traditional manner. These lawyers were hired by and entered into
contracts with their clients, and eventually brought suits on behalf of
the individuals who engaged them. Some of these lawyers sued on behalf of
hundreds of individuals, with a few representing more than a thousand plaintiffs.
The other group of lawyers were "class action" lawyers. In a
class action, a small group of individuals bring a lawsuit on behalf of
a larger group who have suffered similar injuries in a similar way. However,
to proceed as a class action, the case must be "certified" as
a class action: that is, a court must determine that the class action criteria
set forth in Rule 23 of the Federal Rules of Civil Procedure have been met.
The court must make that determination "as soon as practicable after
the commencement of the action."
Rule 23 has two prongs. The first prong (Rule 23(a)) has four requirements,
commonly referred to as numerosity, commonality, adequacy, and typicality.
Each of these elements must be satisfied in every class action. The second
prong (Rule 23(b)) has three parts. If any one of these three conditions
is satisfied, the court may certify the class.
A class certified under Rule 23(b)(3) is distinct from a class certified
under Rule 23(b) (1) or (2) in one important way. If a Rule 23(b)(3) class
is certified, "notice" of the class action must be sent to class
members and an opportunity to "opt out" of the class must be provided.
Any potential class member who opts out is not bound by any legal determinations
made in the case, or by the results at trial, but is also not entitled to
participate in any monetary recovery that may be obtained on behalf of the
class. In contrast, a class certified under Rule 23(b)(1) or (2) is "mandatory," notice
is not required, and no class member may opt out.
In this case, class actions were brought on behalf of commercial fishermen,
Alaskan natives, local governments, property owners, area businesses, cannery
workers, and recreational users. Initially, most of these plaintiffs sought
to have their classes certified under Rule 23(b)(3).
The main arguments for and against class certification were not substantially
different here than in most mass tort cases. Plaintiffs argued that Exxon
and the other defendants engaged in a common course of conduct that did
not vary from plaintiff to plaintiff, ensuring that common questions of
law and fact would predominate over questions regarding individual damages
and causation. Plaintiffs also argued that a class action would be superior
to other methods of adjudicating the claims because it would be more efficient
and economical, and enable the court to more effectively manage the litigation.
As the Sixth Circuit observed in a similar type of case:
In mass tort accidents, the factual and legal issues of a defendant's liability
do not differ dramatically from one plaintiff to the next. No matter how
individualized the issue of damages may be, these issues may be reserved
for individual treatment with the question of liability tried as a class
action.
In contrast, Exxon and the other defendants argued that questions regarding
individual damages and causation would predominate over the common questions
and that a class action would not be superior to the claims program and
other administrative procedures available to resolve the claims. Some of
the direct action plaintiffs also joined Exxon in opposing class certification,
arguing that they had been engaged by a large number of individuals, all
of whom would opt out, and that a class action therefore would not be superior
to other methods of adjudicating the claims.
The same arguments were played out in both federal and state court. However,
once again, Judge Holland and Judge Shortell ruled differently. On December
14, 1990, Judge Holland denied class certification, while on the same day
Judge Shortell certified a class of cannery workers and, two months later,
four additional classes (commercial fishing, area business, Alaska Native,
and property owner classes). This provided yet another reason for Exxon
to seek a way to divest Judge Shortell of jurisdiction.
By late 1991, it was clear that both Exxon and Alyeska preferred to be
in federal court. The problem was how to get the cases out of state court
and into federal court, and keep them there.
On November 8, 1991, Judge Shortell issued a pretrial order setting an
April 1993 trial date for both compensatory and punitive damages. This apparently
brought the matter to a head, for a few days later, Exxon began "removing" cases
to federal court.
A defendant can "remove" (transfer) any case from state to federal
court by filing a petition asserting that the state court case raises a
federal issue. Once a case is removed, it may be "remanded" (sent
back) to state court on the grounds that the removal was improper. However,
the decision to remand must be made by the federal court.
The first case Exxon removed to federal court in November 1991 was the
consolidated class action. At the beginning of the case, Judge Shortell
had ordered the class plaintiffs to join all of their complaints into a
single consolidated complaint, with each class separately asserting its
own claims. As explained above, Judge Shortell certified several of the
classes, but not others. After Exxon removed all of the cases joined in
the consolidated complaint to federal court, Judge Holland refused to send
any of the cases back to state court, employing a complicated and highly
attenuated analysis.
In essence, Judge Holland held that one group of plaintiffs (a group of
environmental organizations) had raised a "federal question" in
a brief they had filed solely on their own behalf in support of their motion
for class certification, thus justifying removal to federal court. Judge
Holland further ruled that the commercial fishermen class, the native class,
and every other plaintiff class that Judge Shortell had certified had also
properly been brought into federal court, because they, along with the environmental
plaintiffs, had been part of the consolidated complaint.
The lawsuits brought by many of the direct action plaintiffs were also
removed to federal court (this time by Alyeska, not Exxon), and kept there
by Judge Holland. The justification, however, was different. Alyeska argued,
and Judge Holland ruled, that certain direct action plaintiffs were properly
removed to federal court based on a 50 page document they filed in state
court listing factual issues that they intended to prove at trial. On page
9, plaintiffs stated that one factual issue was whether Exxon was reckless
because the Exxon Valdez was a single hull, not a double hull, tanker, and
thus more likely to spill great quantities of oil in the event the hull
was damaged.
At the time that the Alaska pipeline was built, the state of Alaska passed
a law requiring that tankers be equipped with double hulls. In 1978, in
a case called Chevron U.S.A. v. Alaska, the Alaska federal court ruled that
this state statute was preempted by federal law, thus stripping the state
of the power to impose this requirement on oil companies. Fifteen years
later, Judge Holland held that certain direct action plaintiffs had "collaterally
attacked" this ruling by stating that the use of a single hull tanker
was reckless, thus raising a federal question and justifying the removal
of all of these claims to federal court. Judge Holland made this ruling
even though no plaintiff in this case was a party in Chevron, no claim in
this case is based on or mentions Chevron, and Chevron did not purport to
bind private litigants.
Not surprisingly, plaintiffs appealed these rulings to the Ninth Circuit
Court of Appeals, which has jurisdiction over claims filed in federal court
in Alaska. The Ninth Circuit accepted the appeal, and oral argument was
held in July 1993, with the promise of an early determination. The Ninth
Circuit, however, did not rule until May of 1994, after the federal trial
had begun. And the Ninth Circuit's one page ruling appeared confused and
poorly thought out. In essence, it ordered Judge Holland to remand the direct
action cases (but not the class action cases) back to state court.
However, by this time, plaintiffs and Exxon had already agreed to a federal
trial plan which would resolve the claims of all salmon and herring fishermen
on an aggregate basis. This would be impossible to do in the federal trial
if the claims of some fishermen were remanded, and at best would cause delay
and confusion. Since no one wanted to try the same claims twice, the parties
agreed, prior to the Ninth Circuit's ruling, to be bound by the federal
verdict regarding these claims. In the event that either the class or direct
action cases were remanded, thus resurrecting certain types of claims dismissed
by Judge Holland but not Judge Shortell (e.g., permit devaluation claims),
these would subsequently be tried in state court in a separate trial.
Ultimately, after Exxon filed a motion for reconsideration, the Ninth Circuit
issued an order requiring Judge Holland to remand the direct action cases,
unless there was some other basis for federal jurisdiction. Exxon responded
by resurrecting a declaratory relief action that it had filed before it
began its removal campaign, and which Judge Holland had stayed. Known as
Airport Depot Diner, this action sought to invest the federal court with
jurisdiction over all claims. Exxon argued that federal jurisdiction was
necessary to protect the uniformity of federal maritime law, because the
state court intended to apply state law, not federal maritime law, to the
claims before it.
In 1995, Judge Holland clung to this theory to keep the direct action cases
in federal court, and then dismissed them under Robins Dry Dock. However,
by this time, plaintiffs were of a mixed mind, since remand would mean a
separate trial and appeal of these claims, and would possibly prolong the
federal litigation. Since plaintiffs are satisfied with the jury award in
the federal case, most believe that their primary task is holding on to
the jury award, not augmenting it and subjecting the case to yet another
round of litigation and appeals.
In July 1993, Alyeska settled with all plaintiffs for $98 million, forever
changing the dynamics of the litigation. Alyeska had reluctantly joined
hands with Exxon, forging a united front in the litigation even though its
members were critical of Exxon's scorched earth tactics. The Alyeska settlement
caught Exxon by surprise, and was kept secret from it until the last minute.
The reason: this was a fundamental break in ranks. It was a public repudiation
of Exxon and its handling of the spill, the cleanup, and the litigation.
The groundwork for the settlement was laid six months earlier, in San Diego.
There, for the first time, plaintiffs' counsel began the arduous task of
analyzing their own case and putting themselves in position to settle all
claims on a global basis. San Diego was a watershed because plaintiffs as
a group recognized that there could be, and would be, no resolution of their
collective claims unless all of the different groups of claimants agreed
on a common method to allocate any recovery among themselves.
Plaintiffs had originally joined forces to conduct discovery and litigate
the case, but the San Diego conference was the first time that plaintiffs
explicitly set forth the conditions for forging an all-inclusive alliance
to settle the case. Until San Diego, plaintiffs could not, or would not,
join hands because of the perceived opportunity to settle with Exxon piecemeal;
either by group of claimants (e.g., Alaska natives) or, more likely, by
an individual lawyer on behalf of all of his clients. However, when plaintiffs
finally realized that Exxon was not interested in settling with any one
group, on any terms, plaintiffs decided that no settlement would ever be
possible unless they could present a unified front, and the prospect of
a global resolution of all claims.
In San Diego, plaintiffs' counsel started with a rudimentary evaluation
and comparison of the damages suffered by all groups of plaintiffs, and
unleashed a process that, except during trial, would consume much of their
time and energy for the next three years. The idea was simple: build a damage "matrix" from
the ground up. This was done by identifying each respective group of claimants,
including a breakdown of the commercial fishermen by species, area and gear
type (e.g., PWS salmon seine), and using expert reports to "objectively" determine
each group's damages. By adding up the damages of each group, a total damage
figure could be ascertained, and each group's percentage share could be
determined. Using this matrix as a base, each group could then calculate
what any particular settlement offer was worth to it.
The matrix was further refined since it divided each group of claimants
into "class" and "non-class" segments. For non-class
claimants, each group was further divided according to the attorney representing
each plaintiff. This enabled every group and sub-group of plaintiffs, and
every attorney, to determine their shares of any settlement.
At the time of the Alyeska settlement, this damage matrix was still in
a rudimentary stage of development. Over the next two and a half years,
counsel for plaintiffs would refine the expert reports, undergo extensive
and often tense negotiations, and make adjustments based on additional information
obtained from the working groups formed to analyze the matrix. Crude as
it was, the original damage matrix enabled the plaintiffs to settle with
Alyeska, because it provided a mechanism to allocate the gross settlement
of $98 million among the different groups of plaintiffs.
Unlike settlements in individual cases, class action settlements require
notice to the class members and the approval of the court. Normally, proposed
class action settlements involve a three step approval process: (1) the
proposed settlement is presented to the court for preliminary approval;
(2) after preliminary approval, notice of the settlement is sent to the
class members, with an opportunity to object; and (3) final approval is
granted (or denied) by the court, after a formal and open hearing. This
process ensures that the court is able to perform its role as the guardian
of the interests of the class, by enabling the court to scrutinize a settlement
and approve it only if it is a "fundamentally fair, adequate and reasonable" compromise
of class claims.
Convincing plaintiffs that the settlement was in their interest and should
be approved required class counsel to confer with their clients and spend
considerable time explaining the benefits of the settlement and the matrix.
Counsel organized mass meetings in towns throughout PWS, Kodiak and Cook
Inlet, and met and talked with hundreds of individuals outside of these
meetings. The talks were not easy. While $98 million is a lot of money,
the damage matrix was based on total damages of approximately $2 billion.
To many of the plaintiffs, Alyeska was no less a villain than Exxon, for
they believed that Alyeska was not properly prepared for a major emergency,
and that the contingency plans it had routinely filed with the state were
fundamentally flawed and inadequate to cope with a major spill.
However, emotion aside, the settlement made sense. It eliminated a significant
but nevertheless subsidiary defendant, allowing plaintiffs to focus on Exxon
for trial. It provided a small but welcome source of recovery for plaintiffs,
helping them through yet another weak fishing season. It provided a war
chest for the litigation, helping to alleviate the strain on plaintiffs'
counsel, who were funding the litigation out of their own pockets and on
a pure contingency basis.
The parties conditioned the settlement on the issuance of a court order
barring Exxon from seeking "contribution" or "indemnity" from
Alyeska in the event Exxon lost at trial. Such a "contribution bar
order" is a standard part of any settlement where there are multiple
defendants, for it is the mechanism that ensures that the settling defendant
(here, Alyeska) buys "total peace." However, as the non-settling
defendants are entitled to offset the settlement against any trial award
they are required to pay, a court must determine whether the amount of the
settlement will be offset against an adverse judgment pro tanto (dollar
for dollar) or on the basis of "proportionate fault." To ensure
that the settlement would not diminish the ultimate recovery against Exxon,
plaintiffs agreed to proceed with the settlement only if the offset was
pro tanto.
Exxon, however, wanted to tie up the settlement in court, and delay its
implementation and the distribution of money to plaintiffs. Exxon therefore
devised a very clever strategy. First, Exxon agreed that the offset should
be pro tanto, but it insisted that a "good faith" hearing would
be necessary. Such a hearing, however, would negate many of the advantages
of the settlement, since it would require a full evidentiary hearing on
each of the parties' relative culpability. From the plaintiffs' perspective,
such a hearing would have been interesting, for it would have pitted the
two defendants against each other. However, Judge Holland ruled that a separate
good faith hearing was not necessary to determine that the settlement was
fair.
Exxon next argued that the contribution bar order should be reciprocal,
but that it did not apply to either party's contractual rights for indemnity.
Judge Holland agreed. However, since Alyeska was unwilling to go forward
with the settlement on these terms because it wanted to seek contractual
indemnification from Exxon for the costs of the clean-up, the settlement
was stalled. Faced with the prospect of trying a case against "an empty
chair" at trial, the parties finally agreed that Exxon would be entitled
to additional offsets based on plaintiffs' recovery.
The effect of Exxon's maneuvers was to delay distribution of the Alyeska
money for over a year, placing further pressure on plaintiffs as they went
to trial.
The last significant legal development before trial was Judge Holland's
certification of a "mandatory punitive damages class" in March
1994. The class action plaintiffs had originally sought to have such a class
certified by Judge Shortell in 1990, but Judge Shortell did not do so, in
the face of vehement opposition from Exxon, Alyeska, and certain of the
plaintiffs. However, once the cases were removed to federal court, and trial
was imminent, Exxon brought its own motion, before Judge Holland, to certify
a mandatory punitive damage class.
Under Rule 23(b)(1)(B), a court may certify a mandatory class (no opt outs)
if there is a risk that the resolution of the claims of some plaintiffs
would be "dispositive of the interests" of other class members
or would "substantially impair or impede their ability to protect their
interests." Courts have interpreted this to mean that a mandatory class
is appropriate in circumstances where there is a "limited fund" available
to compensate victims. This may occur, for example, when a company does
not have sufficient resources to satisfy the claims against it, or the only
money available is in the form of an insurance policy which is not large
enough to pay all of the victims in full. To avoid a race to the courthouse,
where the first plaintiff to get a judgment gets the money, leaving nothing
(or much less) for other equally deserving plaintiffs, all plaintiffs with
the same type of claim can be placed in a mandatory class. This ensures
that the available funds for recovery are divided equitably.
In this case, such a theory seems absurd, given the fact that Exxon has
revenues of over $100 billion a year, average net profits of $5 billion
a year, and equity of approximately $35 billion. Even on a bad day, Exxon
appears capable of paying any conceivable judgment. However, Judge Holland,
at Exxon's urging, nevertheless certified a mandatory punitive damage class
on a limited fund theory.
In essence, Judge Holland based his ruling on Supreme Court precedent establishing
that any punitive damage award should be no greater "than reasonably
necessary to punish and deter" and that the "Due Process Clause
of the Fourteenth Amendment imposes substantive limits beyond which penalties
may not go." While the Supreme Court has resisted drawing a bright
line marking the acceptable ratio, it has insisted that in each particular
case, punitive damages cannot be so great as to be disproportionate to the
value of the actual damages suffered. Since this test establishes some outside
limit on the amount of punitive damages that may be awarded, Judge Holland
reasoned that there was a limited fund:
...it is apparent that a defendant's assets are not the only consideration
which may limit a punitive damages award. Substantive due process also limits
punitive damages by placing reasonable limits on punishment. A defendant
with tremendous assets, such as Exxon, does not face unlimited punitive
damages. Rather, due process places a limit on punitive damages and, in
substance, creates a limited fund from which punitive damages may be awarded.
To ensure that the limited fund is equitably divided among all potential
claimants, and not exhausted before all plaintiffs have had their day in
court, Judge Holland certified a punitive damages class consisting of "all
persons or entities who possess or who have asserted claims for punitive
damages against Exxon...which arise from or relate in any way to the grounding
of the EXXON VALDEZ or the resulting oil spill."
Many plaintiffs' attorneys opposed certification of a mandatory punitive
damages class, and viewed it as another ploy by Exxon to divest Judge Shortell
of his authority. By prohibiting Judge Shortell from trying punitive damages
as part of the claims of those few plaintiffs that were still in his court,
Exxon sought to hold the punitive damage trial in a favorable courtroom
with a favorable judge. Plaintiffs, of course, had the same perception,
and were concerned that Judge Holland would, in essence, minimize the risk
to Exxon by setting up a trial stacked in Exxon's favor and, if necessary,
protecting Exxon if the jury imposed a large punitive damage judgement against
Exxon. In contrast, if Exxon faced a punitive damage trial in state court,
where its risks were greater, some plaintiffs' attorneys were convinced
that Exxon would come to the bargaining table.
For these reasons, those plaintiffs still in state court and scheduled
to begin trial in June 1994, a month after the federal trial was scheduled
to begin, sought Ninth Circuit "interlocutory review" of Judge
Holland's order. These plaintiffs argued that Judge Holland's order violated
the Anti-Injunction Act. This act, which was designed to ensure that federal
courts do not unnecessarily infringe on the jurisdiction of state courts,
prohibits federal courts from enjoining state court actions except in a
narrow set of circumstances, including where it is "necessary in aid
of its jurisdiction."
The Ninth Circuit heard the petition for review on an expedited basis,
within days of receiving the petition and in a hearing held by telephone
(since all the parties were in Alaska, preparing for trial). In ruling on
the petition, the Ninth Circuit did not reach Exxon's argument that the
order was necessary to aid the jurisdiction of the federal court, an argument
that plaintiffs contended was spurious. Instead, the Ninth Circuit affirmed
Judge Holland's order on the grounds that it did not even implicate the
Anti-Injunction Act. According to the Ninth Circuit, Judge Holland did not
explicitly prohibit Judge Shortell from permitting plaintiffs to try their
claim for punitive damages, but simply "requested" that Judge
Shortell voluntarily comply with the order as a matter of "comity" and
common sense.
Although in a technical, legal sense Judge Shortell voluntarily complied
with Judge Holland's request, there was no doubt that he had no real alternative,
without risking open warfare with a federal judge and inviting further direct
orders from Judge Holland. However, the Ninth Circuit (with one dissenting
voice) took the easy way out, and determined that, since Judge Shortell
had not been formally enjoined to comply with the order, the Anti-Injunction
Act was not at issue.
In the end, none of this mattered. Exxon's legal strategy prevailed --
there was a single punitive damage trial before Judge Holland. And Judge
Holland provided Exxon with almost all of the procedural protections it
sought. However, the jury still decided that a punitive damage award of
$5 billion was necessary to deter and punish Exxon, and Judge Holland has
consistently refused to disturb the jury's award.
Discovery in a mass tort or environmental case is usually expensive, time-consuming,
and exhaustive. The issues concerning liability, causation and damages are
difficult, and often involved complex legal as well as factual questions.
Millions of pages of documents must be produced and reviewed, witnesses
must be deposed, and experts must be hired to conduct studies and submit
reports.
During discovery, the parties figure out the case, and their angle on the
facts. From the perspective of the plaintiffs' attorneys, discovery is the
vehicle that travels inside the company and into the corporate boardroom,
allowing plaintiffs an opportunity to figure out what defendants knew and
when, and what they did, or did not do. During discovery, defendants start
to look past their indignation at being sued, and analyze the risks they
face.
In this case, discovery took almost five years, and was conducted during
the same time that the legal issues discussed above were hashed out. The
defendants collectively produced millions of pages of documents. Plaintiffs
took over a thousand depositions. Exxon took the deposition of thousands
of plaintiffs, including virtually every fishermen, native and anyone else
who brought an individual case, and required these plaintiffs to produce
tax returns, business records, and other documents related to their damages.
In addition, plaintiffs and Exxon each designated over a hundred individuals
as expert witnesses. Most of these produced expert reports, collectively
costing tens of millions of dollars, and were deposed, often for several
days.
Plaintiffs conducted discovery on two fronts: liability and damages. As
to liability, no one could contest that the Exxon Valdez crashed into the
rocks, sending millions of gallons of oil into prize fishing grounds and
onto the beaches and land bordering Prince William Sound. However, there
were questions as to what caused the crash (Hazelwood's drunkenness, or
crew fatigue) and the legal cause of the damages (were there intervening
causes, such as a faulty steering mechanism or inadequate emergency clean-up
plans). And of course, the key question for punitive damages, if not liability
itself, was whether Exxon was reckless, not merely negligent. This turned
in large part on Exxon's internal policies, its monitoring of Captain Hazelwood
after he was released from an alcohol treatment center in 1985, and its
response to warning signals and problems in the weeks and days proceeding
the spill. While much of this discovery involved documents and fact witnesses,
experts were engaged by both sides to analyze each of these issues.
The other front was damages, a field primarily for experts. These experts
analyzed the impact of the spill on the environment, the fishing grounds,
the communities and the different classes of plaintiffs. There were scientists,
economists, sociologists, and individuals involved in the fishing industry.
For example, experts studied the impact of the spill on the salmon and fishing
harvests for 1989 and beyond, the price of fish in the market (the "taint" effect),
and the value of fishing permits and fishing boats. There were also other
experts analyzing the impact of the spill on property values, native culture,
and the local communities. Studies were also conducted to assess the social
and psychological impacts of the spill.
The Battle Over Privileged Documents
Discovery is also characterized by disputes: what documents are privileged,
what documents are relevant, whether responses to interrogatories (written
questions) are adequate. Here, the battle over privileged documents illustrates
how a party can use discovery as a tactical weapon, causing delay and increasing
the burden and expense on another party.
Typically, a party must produce all documents which are admissible at trial
or likely to lead to admissible evidence. This standard is broader than
the relevance standard used at trial, for discovery is just that, a time
for exploration, within reasonable limits. Nonetheless, a party may withhold
all privileged documents and all documents protected by the "work product
doctrine." The law has established certain privileges, including the
attorney-client privilege and the psychotherapist-client privilege. Any
document not produced on the grounds of privilege or work product must be
listed on a "privilege log," in which the author, recipients,
subject matter and the claimed privilege of each document must be listed.
A party may challenge the claim of privilege and, if necessary, file a motion
with the court compelling the other party to produce the document.
Here, Exxon produced a series of privilege logs, on which it listed over
12,000 documents. However, plaintiffs were not able to evaluate the privilege
claim based on the information contained in the privilege logs. Although
plaintiffs tried to force Exxon to file more complete privilege logs, the
parties, at Exxon's request, were ultimately ordered by the court to follow
a "protocol" setting forth the rules and procedures for "challenging" documents
claimed to be privileged. This process was enormously time-consuming. The
end result was that plaintiffs were only able to challenge 3,000 of the
12,000 documents on Exxon's privilege log. While Exxon eventually produced
over 90% of the challenged documents, over 9,000 documents were never challenged,
even though it is likely that many of them were not privileged and should
have been produced. Whether important but unprivileged documents were thus "hidden" on
the privilege log will never be known.
By the time the trial started in May 1994, nearly everyone in the country
remembered the sickening pictures of oil drenched animals and thousands
of dying otters, birds and fish. Most, however, thought the case was over,
that Exxon had long ago admitted responsibility and paid the victims for
their losses. Of course, Exxon had widely publicized its clean-up efforts
after the spill and its $900 million settlement (consent decree) in 1991
with the state and federal governments for damage to the environment. And
by the time the lawyers gave their opening statements in May of 1994, the
criminal trial and acquittal of Captain Joseph Hazelwood was long over.
So, when the trial against Exxon began, many were surprised. Plaintiffs
were also surprised, for few thought that Exxon would actually permit a
jury to sit in judgment. After all, a jury is perhaps the only institution
beyond the control of a corporation like Exxon -- a corporation that dwarfs
most countries and stands as the 26th largest organization (including the
major industrial nations) in the world.
Yet, Exxon had successfully shaped and limited the case before trial, and
the trial was conducted according to rules favoring Exxon. Most evidence
that Exxon found objectionable or "prejudicial" was excluded from
the trial, and the jury instructions ultimately delivered were, at least
in plaintiffs' view, tilted in Exxon's favor. And perhaps even more important
from Exxon's perspective, Anchorage, Alaska was probably the best forum
in the country to try this case. After all, the major industry in Alaska
is oil, many Alaskans migrated to Alaska because of the great economic boom
fueled by the Alyeska pipeline in the 1970s, and Alaska's 500,000 residents
do not pay state taxes because the taxes collected from the oil industry
are sufficient to finance government activities at the state level. Even
more ominous for plaintiffs, commercial fishermen are not beloved throughout
the state, and many residents consider them to be greedy, spoiled and selfish.
If nothing else, Exxon has been consistent. At no time before (or after)
trial has Exxon expressed an interest in serious settlement negotiations.
Perhaps Exxon thought it would defeat plaintiffs' claim for punitive damages.
Perhaps it thought that Judge Holland would bail them out if the amount
awarded was too large. Or perhaps Exxon was simply prepared to take its
best shot and, if it lost, it was further prepared to delay the day of reckoning
for several more years.
Prior to trial, the parties agreed on a four-phase trial plan. Phases I-III
were to be tried before the same jury, and would determine: (1) in Phase
I, whether Exxon was reckless (not merely negligent), thus entitling plaintiffs'
to punitive damages; (2) in Phase II, the amount of compensatory damages
to be paid to the commercial fishermen for salmon and herring losses; and
(3) in Phase III, the amount of punitive damages, if plaintiffs prevailed
in Phase I.
Phase IV, to be conducted at some later time before another jury, would
determine compensatory damages for any plaintiffs whose claims were not
tried in Phase II, including other types of fishermen (e.g., crab, shrimp),
certain property owners whose land was touched by the spilled oil, and aquacultural
associations.
In Phase I, the jury determined liability. For tactical reasons, Exxon
stipulated before trial that it was negligent (what else could it say and
maintain its credibility?). However, as punitive damages cannot be awarded
based on negligent conduct, the question was whether Exxon's conduct was
reckless.
Phase II of the trial plan was designed to try the claims of all commercial
fishermen on an aggregate basis. This was possible because their claims
for economic damages were based on lost fishing harvests for the years 1989-1994,
and diminishment of fish prices due to the fact that salmon and herring
from PWS and other areas were "tainted" in the market because
of the spill. The jury was not asked to determine the damages suffered by
any one fisherman, but it did determine damages suffered by fishermen, broken
down by area (e.g. PWS, Kodiak, Cook Inlet), year, and species of fish.
In many "mass tort" class actions, such a trial structure would
not be viable. For example, while liability can be determined on a classwide
basis, damages for personal injuries caused by a toxic spill or a defective
product are individual in nature. There is no total damage figure, since
damages are based on personal injuries that can not be aggregated. Here,
however, there are only so many fish, and the question of which fishermen
would have caught them does not affect the total damages caused by the spill.
This simple fact allowed the parties to try the case without requiring every
plaintiff to come into court and prove his or her damages.
Motions To Exclude Evidence At Trial
Motions "in limine" are filed prior to trial. They have two purposes:
(1) to prevent the other side from introducing potentially prejudicial or
irrelevant evidence at the trial and (2) to establish a grounds for appeal,
should the evidence be admitted. For these reasons, motions in limine have
great tactical, as well as practical, significance. For example, a party
may file a motion in limine seeking to exclude certain evidence, hoping
or expecting to lose the motion, in order to create an issue for appeal
if it loses at trial. Or a party may oppose a motion in limine, even though
it has no intention of introducing the evidence, to create an issue for
appeal if it loses at trial. Or a party confident of victory at trial may
decide that it does not want to introduce certain evidence, even if permitted
to do so, for fear of creating an issue on appeal. At the same time, victory
is never certain, and failure to introduce important evidence, even if it
creates an appealable issue, can backfire.
Exxon's strategy was to exclude as much potentially damaging evidence as
possible. For weeks before the trial, and before Phases II and III, Exxon
filed motion after motion seeking to exclude evidence. With very few exceptions,
Judge Holland ruled in Exxon's favor. Thus, the Court excluded evidence
of other groundings and oils spills for which Exxon was responsible, evidence
regarding the full extent of Captain Hazelwood's drinking history and alcohol
abuse, evidence of damages to natural resources and the environment, evidence
that at least $700 million of the money Exxon claims it spent on the spill
was actually borne by others, and evidence that Exxon could pay $1 billion
a year for ten years without incurring any "material affect" on
its business strategies, operation or financial condition. Judge Holland
also excluded evidence of the psychological, emotional and social impacts
of the spill, on the grounds that such evidence did not relate to the economic
injuries that were suffered. The Court even excluded evidence that would
impeach testimony that Exxon and Hazelwood introduced. For example, plaintiffs
were precluded from introducing testimony contradicting Hazelwood's testimony
that he had not had a drink since the night of the spill.
It is ironic that losing motions in limine is a blessing, if one wins at
trial. While plaintiffs' legal team at trial was at times discouraged and
battered by what seemed like a string of defeats, victory at trial left
them grateful for the result. Indeed, Exxon's great success in excluding
evidence has significantly reduced the issues it can raise on appeal.
In the American legal system, judges decide legal issues and juries decide
factual issues. The factual issues, however, cannot be decided in the abstract.
The law determines which factual issues must be decided, which factors may
be considered, and the applicable standard of proof. The judge has the job
of instructing the jury on the law, after the evidence has been heard and
before the jury meets to discuss and decide the factual issues. However,
before the judge instructs the jury, each party submits proposed jury instructions
to the judge, supported by legal arguments and case authority. This is a
very important part of the case, and sets up issues for appeal, because
a party cannot argue on appeal that a jury instruction misstated the law
unless that issue is first raised with the court prior to the issuance of
the jury instructions.
Here, Judge Holland, as requested by Exxon, went well-beyond what the Supreme
Court recently held were sufficient jury instructions regarding punitive
damages. For example, the jury was told that it could not focus on Exxon's
gross assets or earnings, and that it could consider the impact punitive
damages would have on shareholders. Judge Holland also imposed an additional
threshold on the decision to award punitive damages, instructing the jury
that punitive damages should not be award unless the jury determined that
Exxon's conduct was sufficiently "reprehensible," even though
the jury had decided in Phase I that the plaintiffs were entitled to punitive
damages because Exxon's conduct was reckless. The jury was further told
that, as mitigating factors, it could consider Exxon's post-spill remedial
acts and whether the wrongful conduct was conducted by low-level employees
and violated Exxon's policies. None of this was mandated by the Supreme
Court.
In fact, in its post-trial motions, discussed below, Exxon did not challenge
any of the Phase III jury instructions, and only three Phase I instructions.
Since over 35 of the Phase I and III jury instructions were disputed before
trial, it is clear that Exxon prevailed most of the time.
The trial lasted four and a half months. It began on May 2, 1994 when lawyers
for both sides gave "mini" opening statements to all potential
members of the jury. It ended on September 16, 1994 when the jury returned
its Phase III verdict against Exxon for $5 billion. Each side had victories,
both perceived and real. The jury listened to hundreds of witnesses, and
sat through months of both entertaining and riveting testimony, as well
as highly technical scientific evidence. By the end, everyone was exhausted.
Each side spent months preparing for trial. Thousands of exhibits were
reviewed and selected, and every deposition was scrutinized for useful testimony.
Witnesses were interviewed and selected, and experts were prepped. Mock
trials were conducted, jury consultants were hired, and charts, graphs and
other demonstrative evidence was prepared. Every exhibit was bar coded,
and could be instantly called up on a large video screen in the courtroom.
Trial outlines were drafted, direct examinations were rehearsed, and cross-examination
questions were choreographed so that any "wrong" answer could
be readily impeached by prior inconsistent testimony or exhibits. And each
day and night, final preparations were made for the next day.
At trial, Exxon had lawyers from two large national law firms and a famous
trial attorney from Tennessee, and Captain Hazelwood had a lawyer of his
own. It was often difficult to figure out who was calling the shots. In
contrast, plaintiffs had a clear lead attorney at trial; only one other
attorney played a significant role in the courtroom.
In Phase I, plaintiffs put on evidence demonstrating that Exxon was aware
of the risks involved in transporting crude oil in PWS and of the risk of
assigning a master with an alcohol abuse problem to captain its supertankers;
that Exxon ignored the risk of having a known relapsed alcoholic captain
a supertanker; that Exxon was reckless in returning Hazelwood to sea without
effectively monitoring or supervising his activities; and that Hazelwood
had abused alcohol on the night of the grounding, was impaired at the time
of the grounding, and was reckless in leaving the bridge and turning the
ship over to an inexperienced, unqualified and fatigued third mate. Exxon
denied that Hazelwood was drunk, claimed that Hazelwood was the "most
carefully watched man in the fleet," and that others (the Coast Guard,
the third mate) were responsible for the spill. Exxon also defended its
internal policies and procedures, claiming that they were sufficient and
that they were followed.
On the morning of June 13, 1994, after eight days of deliberation, the
jury returned its verdict. This was the most important day of the trial,
for there would be no Phase III if the jury found in Exxon's favor. It did
not. Plaintiffs and their lawyers celebrated, ecstatic that their years
of hard work had paid off.
In Phase II, the parties put on evidence of damages to commercial fishermen.
Plaintiffs wanted to present a tight, hard-hitting case which maximized
the total damages awarded, without regard to the particular damages of any
one group of fishermen. Therefore, to ensure that there was a joint and
cooperative effort, to maximize the total recovery, and to minimize the
risks facing any particular group, plaintiffs' counsel entered into a "Joint
Prosecution, Settlement, and Damages Allocation Agreement" that set
the percentage of the total recovery that would be allocated to each group,
regardless of the outcome at trial. These percentages were based on a refined
version of the Alyeska damage matrix. It also included shares for other
groups of claimants, who were not part of the Phase II trial, with discounts
applied to their share to account for their chance of success on appeal.
The goal was to ensure that each group would receive its fair share of any
recovery, based on its damages as quantified by plaintiffs themselves.
Plaintiffs asked for total Phase II damages in the neighborhood of $900
million, based on lost harvests and diminished prices due to the spill.
Most of the evidence concerned salmon and herring harvests since 1989 and
beyond, the impact of the spill on the fisheries, and global environmental
factors affecting salmon and herring runs.
However, from a monetary perspective, the most important evidence concerned
the impact of the spill on salmon and herring prices, which precipitously
dropped after the spill and never recovered, after hitting an all-time high
in 1988, the year before the spill. Plaintiffs put on evidence that the
drop in price was due to the "taint effect" of the spill, which
caused Alaskan sockeye salmon (and other species) to lose their premium
position in the world market and especially in Japan. Plaintiffs claimed
that there was a taint effect in 1989, 1990 and 1991, based on econometric
studies demonstrating that no other market factors could account for the
drop in price. Exxon argued that the drop in price was due to increased
competition from "farmed salmon" from Norway, Chile and other
places, which began flooding the market in 1989; high salmon inventories
at the time of the spill; increased supplies of canned salmon; decreased
consumer demand; and other non-spill related factors.
This time, Exxon won. After 16 days of deliberation, the jury returned
a verdict of $287 million, well below what plaintiffs had requested. The
jury had been required to answer nearly 80 special interrogatories on the
verdict form, setting damages for each species of salmon and herring, for
each year, for each geographical area. The jury rejected claims for price
diminishment after 1989 (a claim valued at about $430 million) and lost
harvest damages for every year after 1989, except PWS salmon in 1992-93
and PWS herring in 1993. When Judge Holland read the verdict, the courtroom
was very quiet.
Phase III was very short, lasting just a few days. The Supreme Court has
set forth a set of criteria that should be considered by a jury that is
deciding on the amount of punitive damages to award. These criteria include
the defendant's conduct, the harm caused or likely to be caused by such
conduct, and the defendant's financial position.
Prior to the Phase III trial, the parties stipulated to the harm caused
by the spill, in addition to the damages ascertained in Phase II. The parties
stipulated because the punitive damage award applies to all members of the
punitive damage class; this included all plaintiffs with a potential claim
against Exxon, not just the commercial fishermen who tried their compensatory
damages claims in Phase II. The stipulated amounts were read to the jury,
with the caveat that Exxon admitted that there was some loss, but contended
that the loss was lower than the stated amount.
In addition, plaintiffs put on evidence of Exxon's financial condition,
to show what it would take to "send a message" to Exxon, the largest
and most powerful corporation in the world, with staggering resources. Although
plaintiffs did not ask for a specific amount in punitive damages, plaintiffs
used various financial indicators to suggest what it would take to deter
and punish Exxon. Thus, for example, plaintiffs showed that Exxon had annual
average net profits of $5 billion a year since the spill, had annual average
cash flow of $10-12 billion since the spill, had paid dividends of over
$17 billion since the spill, and had watched its stock increase in value
by nearly $20 billion in the years after the spill. Plaintiffs also showed
that Exxon rewarded its top corporate executives after the spill with huge
bonuses, stock options, and salary increases, and took no action against
any individual except Captain Hazelwood.
In response, Exxon put on evidence showing that it was a "good corporate
citizen," and that it had "voluntarily" spent $2.7 billion
after the spill, to clean up the oil, provide injured plaintiffs with emergency
money, and otherwise remedy its mistake. Exxon also trumpeted the remedial
measures it had taken since the spill, and countered the financial information
by showing that Exxon's profits from operations in the United States and
especially in Alaska were not substantial.
The jury again deliberated for a long time. Most of the attorneys working
on the case went home, or on vacation, and those who stayed packed boxes.
After 13 days of deliberation, the jury returned a verdict of $5 billion.
Ironically, Exxon's stock went up the next day, for the market had expected
an even higher award.
POST-TRIAL STRATEGY AND MOTIONS
After the jury verdict, plaintiffs had one goal: get Judge Holland to enter
a "final judgment" so that the "interest clock" would
start running on the punitive damage award and so that the appeals process
would begin. Nearly two years later, plaintiffs are still waiting. Every
day, plaintiffs lose more than $700,000 in interest.
Immediately after the jury verdict was announced, plaintiffs requested
and Judge Holland entered a final judgment in the case. However, Exxon soon
filed a motion to vacate the entry of judgment, on the grounds that final
judgment could not be entered until all post-trial motions regarding Phases
I-III had been decided and Phase IV had concluded. Judge Holland vacated
his prior order.
A month after the jury announced its Phase III verdict, Exxon filed eleven
post-trial motions asking for judgment as a matter of law on various issues
or, in the alternative, for a new trial. In five of these motions, Exxon
attacked the Phase I and III verdicts, and in the other six motions, Exxon
challenged the Phase II verdict. In both types of motions, Exxon faced a
strict standard of proof.
In January 1995, Judge Holland denied each of the eleven motions. He ruled
that the jury had a reasonable basis for every one of its findings, and
he refused to second guess the jury or re-weigh the evidence. Judge Holland
specifically refused to reduce or throw out the punitive damage award, stating
that "the oil spill was the greatest environmental disaster in American
history [and] disrupted the lives of tens of thousands of people." Judge
Holland concluded:
The jury received conservative and comprehensive instructions on the purpose
of punitive damages and the manner in which they were to be assessed. The
comprehensive instructions insured that the jury was not left to whim, conjecture,
or speculation....The jury did not vote precipitously...This verdict and
the amount awarded were not the result of passion or prejudice against Exxon.
In the end, Judge Holland provided Exxon with every conceivable procedural
safeguard at trial, but he stood by the jury and the jury system. Had Judge
Holland done anything else, he would have admitted failure.
Prior to trial, the parties agreed to try the Phase II compensatory claims
in the aggregate, and submit proposed adjustments to the verdict to Judge
Holland prior to entry of final judgment. Specifically, the parties agreed
to adjust the Phase II verdict because of payments made to plaintiffs through
the Exxon claims program, the Alyeska settlement, and the TAPLF fund, and
because of opt-outs, dismissed plaintiffs, and released claims.
After trial, however, Exxon claimed that it was entitled to other adjustments,
not specifically agreed upon, based on general language in these agreements
referring to "other offsets or adjustments." Using this language
as a lever, Exxon made a demand on plaintiffs for adjustments that according
to Judge Holland amounted to "a massive assault on the jury determinations." For
months, Exxon stretched out negotiations with the plaintiffs to resolve
these issues, in effect making demands that would have left plaintiffs owing
Exxon money. The strategy was to delay entry of final judgment (and payment
of interest), and force plaintiffs to agree to reduce the Phase II verdict
as the price of entry of final judgment.
Ultimately, the parties filed motions to adjust the Phase II verdicts because
they could not agree on the amount of the stipulated adjustments, or on
the additional adjustments requested by Exxon. With respect to additional
adjustments, Exxon not only sought to reduce the verdict by arguing that
the jury failed to make certain findings or consider certain evidence, it
also asked Judge Holland to reduce the Phase II verdict because, by spilling
the oil, it argued that it had enabled plaintiffs to avoid certain costs
or enjoy certain benefits. Judge Holland rejected all such arguments, concluding
that "it is specious for Exxon to argue that it conferred a benefit
on commercial fishermen by spilling oil."
However, as a result of the offset motion, the Phase II verdict was reduced
from $287 million, to $116 million. Eventually, it was further reduced to
$20 million, plus interest. These orders, however, were not issued until
September 1995, a year after the trial ended.
The last issue preventing entry of final judgment is the resolution of
Phase IV. Phase IV was designed to try the compensatory damage claims of
all plaintiffs who did not try their claims in Phase II. This included commercial
fishing claims for species other than salmon and herring, opt-out natives,
oiled landowners, certain Native Corporations, oiled aquacultural associations,
and a collection of other claims, many unique, including some for personal
injury. The prospect of trying these claims was daunting: it would be complex,
time-consuming and expensive. Most important, it would delay bringing the
action to a close and entry of a final judgment on the punitive damages
awarded by the jury.
Therefore, after months of negotiations, plaintiffs finally agreed to settle
the Phase IV claims for a relative pittance ($3.5 million, none of which
will be paid due to offsets), because the cost of delay was much greater
than the possible value of the Phase IV claims. This was true, even if the
true value of the Phase IV claims was set at $100 million, or $200 million,
or higher. For Exxon, driving down the settlement of the Phase IV claims
will not only reduce the amount it must pay, but, more significantly, it
will permit Exxon to argue on appeal that the stipulation read to the jury
regarding Phase IV damages was grossly overstated, thus calling into question
the amount of punitive damages awarded by the jury.
The settlement, however, does not stand alone. In order to induce the Phase
IV plaintiffs to agree, and to protect their right to claim a fair portion
of the punitive damage award (as members of the punitive damage class) the
settlement was conditioned on court approval of a "Plan of Allocation." The
Plan of Allocation sets forth, on a percentage share formula, the amount
each category of plaintiffs will recover on all claims, regardless of the
source of recovery (e.g., compensatory damages in state and federal trials,
Alyeska settlement, punitive damages).
Under the Plan of Allocation, the Phase IV plaintiffs in effect trade off
the risk and delay inherent in a Phase IV trial, for the right to participate
in all recoveries, including the punitive damage award if it is sustained
on appeal. All other plaintiffs also benefit, as settlement of Phase IV
permits entry of final judgment, which will in turn expedite appellate resolution
of the punitive damage award, with interest running as of the date the judgment
is entered.
The genesis of the Plan of Allocation was the Joint Prosecution Agreement,
which formalized the agreement amongst plaintiffs' counsel to proceed against
Exxon on a collective basis and share any recovery in accordance with an
allocation matrix. After trial, that allocation matrix was further refined,
and adjustments were made as more information was gathered and further negotiations
were conducted between representatives of each category of plaintiffs. The
Plan of Allocation is thus based on extensive analysis of the damages incurred
by each group, with discounts applied to those whose claims have been dismissed
by Judge Holland pursuant to Robins Dry Dock. It is the culmination of years
of efforts by plaintiffs and their counsel to find a just, fair and equitable
basis to distribute any recovery against Exxon amongst the victims of the
spill.
Very few plaintiffs objected to the Plan of Allocation. After notice was
sent to approximately 30,000 potential class members, the only objectors
were a handful of individuals, a few Native Corporations, and a group of
large corporate seafood processors known as the Seattle Seven. The Native
Corporations objected to the Plan on the grounds that the share allocated
to them (3%) was too small. The Seattle Seven objected to the Plan on the
grounds that they had not been included in the Plan at all, and were entitled
to approximately 14.9% ($745 million) of the punitive damage award, based
on their pre-trial settlement of their claims against Exxon.
The saga of the Seattle Seven is perhaps the most remarkable part of this
entire case. In January 1991, the Seattle Seven settled their claims against
Exxon for $63 million and withdrew from the case. Thus, plaintiffs did not
include them in the Plan of Allocation. However, the terms of the settlement
were kept secret until the Seattle Seven filed their objections to the Plan
of Allocation in March 1996. Then, for the first time, the Seattle Seven
disclosed that they had in fact agreed entered into a joint venture with
Exxon to seek to reduce any punitive damage award granted against Exxon.
Such a joint venture appears to be unprecedented. In a typical settlement,
a party will release all of its claims, including any claim it has for punitive
damages. Here, in addition to releasing their claims, including "all
claims whatsoever for punitive damages," the Seattle Seven agreed to "assist
Exxon recapture or obtain a credit or offset for any punitive damage award," to
participate, at Exxon's request and at Exxon's expense, in any action against
Exxon for punitive damages, and to ensure that, if they ever obtained a
right or interest in any punitive damage award against Exxon, it "inured" to
Exxon's benefit. Thus, while the Seattle Seven settled and dismissed their
claims against Exxon, they were secretly aligned with Exxon and obligated
to help Exxon reduce any punitive damage award obtained by other plaintiffs
who had not settled with Exxon.
In January 1996, sixteen months after the $5 billion punitive damage award
was announced and just days before the Court granted preliminary approval
to the Plan of Allocation (pending notice to the class and final approval),
Exxon and the Seattle Seven "amended" the January 1991 agreement.
Under the amended agreement, Exxon paid the Seattle Seven $6 million to
object to the Plan of Allocation, with a promised bonus payment of another
$12 million if the objection successfully reduces the amount of punitive
damages Exxon is required to pay. Exxon also agreed to pay the Seattle Seven's
attorneys for filing the objection, and to indemnify the Seattle Seven for
any liability they may incur as a result of their participation in these
efforts.
Plaintiffs did not hesitate to condemn these actions as a fraud on the
Court and a legal sham, and contrary to the public policy of punishing and
deterring wrongful conduct. If such a scheme was countenanced by the Court,
it would permit and encourage manipulation of the judicial system to reduce
liability for punitive damages. Indeed, it would invite defendants like
Exxon to pay off plaintiffs with weak claims and little chance of recovery,
in order to reduce their exposure to a punitive damage award for egregious
conduct. And it could be done without disclosing the deal to the court,
the plaintiffs or the jury.
On June 11, 1996, Judge Holland granted final approval to the Phase IV
Settlement and the Plan of Allocation, and rejected the Seattle Seven's
objection to the Plan. Judge Holland held that Exxon had misled the court
and the jury at trial, and that Exxon's secret agreements with the Seattle
Seven were "such pernicious and flagrant violations of public policy
as to render unenforceable their requirements that the Seattle Seven seek
punitive damages on behalf of Exxon." Judge Holland further stated
that he was "shocked and disappointed that Exxon had entered into such
a repugnant agreement with the Seattle Seven" and held that "public
policy will not allow Exxon to use a secret deal to undercut the jury system,
the court's numerous orders upholding the punitive verdict, and society's
goal in punishing Exxon's recklessness."
Still, final judgment has not been entered, because Exxon filed a motion
asking Judge Holland to reconsider his order. In its motion, Exxon argues
that the agreements with the Seattle Seven did not violate public policy
and that Exxon and its attorneys acted in an ethical and appropriate manner.
Whatever the outcome, the entry of final judgment was once again delayed.
Exxon will undoubtedly appeal the final judgment, as soon as it is entered.
The grounds for the appeal will be in large part based on the post-trial
motions Exxon filed and lost, and will include the jury instructions that
it opposed, the motions in limine that it lost, and the argument that the
Phase II jury verdicts were not supported by the evidence. The most important
grounds of appeal, however, will be that the evidence did not support the
Phase III punitive damage award, and that the punitive damage award was
excessive as a matter of law.
Exxon's strategy of delay may pay off. On May 20, 1996, in a case entitled
BMW v. Gore, the Supreme Court issued an opinion on punitive damages that
went beyond its previous opinions and reversed a punitive damage award as "grossly
excessive." The Supreme Court did not change its earlier position that
there must be a reasonable relationship between the compensatory damages
and the punitive damages awarded, but it more clearly articulated the grounds
upon which a punitive damage award may be considered "grossly excessive" and
thus violative of the Due Process Clause of the Fourteenth Amendment. In
essence, the Supreme Court held that a punitive damage award must be measured
by the "degree of reprehensibility" of the conduct, the ratio
between the actual harm and the punitive damage award, and the civil and
criminal sanctions that could be imposed for comparable conduct. The Supreme
Court did not draw "a mathematical bright line" determining the
ratio for constitutionally acceptable awards, but in holding that the award
was "too big," it substituted its version of fairness for that
of the jury and the state court.
It is impossible to predict whether the Ninth Circuit, or ultimately the
Supreme Court, will determine that the punitive damages award in this case
is "grossly excessive," but Exxon will certainly highlight the
BMW case in any appeal it pursues. Even if plaintiffs win, however, the
outcome will not be final for years. After final judgment is entered, Exxon
will have 60 days to appeal. A briefing schedule will then be established,
briefs and the court record will be submitted, and oral argument will be
scheduled. Typically, the Ninth Circuit decides cases within two to three
years, but there is no guarantee. And if plaintiffs lose, everything will
begin anew, with a new trial and appeal looming.
CONCLUSION
Mass torts are part of the modern litigation landscape. The Exxon Valdez litigation and trial provides a case study of the perils of such litigation,
and the myriad issues that can complicate and prolong such litigation. Courts
continue to struggle to manage these massive cases, seeking to use the legal
tools at hand. Powerful and well-funded defendants do not lack imagination
or incentive to pose innumerable legal barriers, and aggressively assert
their legal rights and otherwise use the law, the courts and the judicial
system to serve their interests. Plaintiffs who sustain injuries must be
prepared for years of litigation, during which time the laws may change,
their resources may be exhausted, and their lives must continue.
Here, the battle has lasted for seven years. Procedural and substantive
victories have faded in importance, as new legal and factual issues suddenly
appear. Exxon has the time and resources to fight every battle, and its
grand strategy may yet turn defeat into victory. But even now, only one
thing is certain: more than seven years after the spill, and more than two
years after the trial began, there is still no end in sight.
About Lieff Cabraser
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