A federal appeals court ruled Wednesday that the $5 billion punitive damages award against Exxon-Mobil Corp. in the 1989 Valdez oil spill is excessive and ordered a judge to determine a lesser amount.
"The $5 billion punitive damages award is too high to withstand the review we are required to give it ... it must be reduced," the 9th Circuit Court of Appeals in San Francisco said in its ruling.
"We therefore vacate the award and remand it so that the district court can set a lower amount" in light of earlier case precedent, the court's three-judge panel said.
The Exxon Valdez tanker ran aground in Prince William Sound in the Gulf of Alaska in March 1989, spilling 11 million gallons of crude oil in the largest oil spill in U.S. history.
The resulting slick covered more than 1,000 miles of the Alaska coastline and caused an estimated $3 billion to $15 billion in environmental damages. The spill killed hundreds of thousands of fish and seabirds and thousands of otters.
Wednesday's decision overturns the award from a 1994 trial, in which a federal jury ordered Exxon to pay about $287 million in compensatory damages to commercial salmon and herring fishermen, plus $5 billion in punitive damages for behavior that led to the oil spill.
That award — the largest punitive damage award in history at the time — had been repeatedly upheld by both the district court and, last year, by the U.S. Supreme Court, which rejected Exxon's assertion that the award should be set aside because of irregularities during jury deliberations.
Dallas-based Exxon has argued it should not have to pay punitive damages. The oil giant said it learned its lesson and spent more than $3 billion dollars cleaning up the Prince William Sound area and to settle federal and state lawsuits.
Wednesday's appeals court decision, by Justice Andrew Kleinfeld, affirmed what it called "reckless" behavior both by Exxon and by Exxon Valdez Capt. Joseph Hazelwood.
But the court said that the $5 billion figure, which was awarded after the jury was explicitly instructed not to include environmental damages in its overall damage assessment, was nevertheless excessive in light of recent U.S. Supreme Court decisions governing punitive damage awards.
"The plaintiffs here were almost entirely compensated for their damages years ago," the court said in its unanimous decision. "The punitive damages at issue were awarded to punish Exxon, not to pay back the plaintiffs.
In Alaska, Sue Aspelund, executive director of Cordova District Fishermen United, the organization representing Prince William Sound commercial fishermen affected by the spill, said there was "shock and surprise" at the ruling.
"Obviously, there's disappointment around here. Peoples' lives have been on hold a long time, since 1989, trying to get this thing resolved," she said from Cordova.
Some locals had been pessimistic about the case, she said. "There's some fatalism because here we are 13 years out and we still don't have resolution."
The Associated Press contributed to this report.