Bloomberg News

Exxon Says Jury’s Gas-Leak Punitive Damages Award Was Excessive

October 04, 2011

Oct. 4 (Bloomberg) -- Exxon Mobil Corp. said it shouldn’t be forced to pay more than $1 billion in punitive damages over a 2006 gasoline leak in Maryland that allegedly fouled residents’ drinking water.

The punishment damages, handed down in June to 160 homeowners and businesses as part of a $1.5 billion jury award, are excessive and weren’t justified based on the facts of the case, John E. Griffith Jr., one of Exxon Mobil’s attorneys, told Baltimore County Circuit Judge Robert Dugan yesterday.

“The evidence is totally insufficient to justify” the awards, Griffin argued in state court in Towson, Maryland. Dugan, who already has rejected Exxon’s request for a new trial, said he’d issue a written decision on the punitive-damage awards later.

The $1.5 billion verdict in the environmental case was the second-largest in the U.S. this year and the 21st largest of all time, according to data compiled by Bloomberg. Officials of Irving, Texas-based Exxon Mobil have asked Maryland’s appellate courts to overturn the verdict.

Rural Community

Jurors handed down the verdict on behalf of residents of the Baltimore County community of Jacksonville for losses tied to a 37-day gasoline leak from a local station’s tank farm. The incident sent more than 26,000 gallons of fuel into the area’s groundwater, according to court filings. The rural community doesn’t have a public water system and relies on wells for drinking water.

Residents contend Exxon Mobil officials misled them about the extent of the leak, the oil company’s efforts to contain and clean up the gas and the long-term effects on the area’s water supply.

Jurors, who awarded $495 million in compensatory damages along with the more than $1 billion in punitive damages, found the company liable for fraud as part of their verdicts.

Exxon Mobil’s lawyers told Dugan yesterday residents couldn’t show they relied on the company’s statements about the progress of leak cleanup efforts when deciding whether to drink the local water or sell their properties.

Since property owners “didn’t do anything different” in the wake of the company’s statements about the leak, they can’t prove they were defrauded, Thomas H. Dundon, another of the company’s lawyers added.

‘Sustained Pattern’

Homeowners’ lawyers argued in court filings that jurors’ decision to award hefty punitive damages reflected evidence showing Exxon Mobil executives engaged in “a sustained pattern of fraudulent conduct over more than 20 years” that led to the gas leak.

Exxon Mobil “is seeking to relitigate the case,” Paul Raschke, a Baltimore-based lawyer for the plaintiffs, told Dugan at yesterday’s hearing.

Still, Raschke and other attorneys for homeowners acknowledge in court filings some of the punitive awards exceed guidelines handed down by the U.S. Supreme Court.

The U.S. Supreme Court has ruled in the past that punitive damages should be proportional to compensatory damages. The high court has said punishment awards that are more than 10 times actual damages may be excessive.

Ratio ‘Guideposts’

In a 2003 case involving State Farm Mutual Automobile Insurance Co., the Supreme Court said the Constitution’s due process clause generally caps punitive damages at 10 times compensatory damages and often imposes even tighter limits. That ratio was one of three “guideposts” the justices said lower courts should consult, along with a comparison to potential civil fines and the level of reprehensibility involved.

In one of the Maryland leak cases, jurors awarded punitive damages without a correlating award of compensatory damages, Rasche and other plaintiffs attorneys said in an Aug. 8 filing. In two other cases, the punitive awards were as much as 17 times the compensatory figures, they added.

“Plaintiffs acknowledge that the jury’s awards in these three cases should be modified by the court to comply with the Supreme Court’s holdings,” homeowners’ lawyers said.

In April, a Los Angeles jury awarded Pacesetter Inc., a unit of St. Jude Medical Center Inc., $2.3 billion in damages over allegations Nevivcon Co., a firm owned by a former St. Jude employee, engaged in the theft of some of Pacesetter’s trade secrets. That’s the largest U.S. jury award so far this year, according to data compiled by Bloomberg.

The case is Michael Allison v. Exxon Mobil Corp, 03-C-07- 003809, Circuit Court for Baltimore County (Towson).

--With assistance from Margaret Cronin Fisk in Southfield, Michigan and Greg Stohr in Washington. Editors: Mary Romano, Michael Hytha

To contact the reporter on this story: Jef Feeley in Towson, Maryland, at jfeeley@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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