Exxon, Punitive Damages, and Judicial Junkets

March 31, 2007

Community Rights Counsel Press Release - For more than a decade, Exxon Corporation (now ExxonMobil) has waged a comprehensive campaign against punitive damages awards, triggered by the decision of a jury in Alaska to impose a $5 billion penalty on the company for the misdeeds that led to the Valdez oil spill, the worst in the nation's history. This campaign paid off handsomely in December 2006, when a federal appeals court reduced Exxon's punitive damages liability for the Valdez spill by $2 billion.

For more than a decade, Exxon Corporation (now ExxonMobil) has waged a comprehensive campaign against punitive damages awards

An important part of Exxon's punitive damages campaign has been to fund organizations such as the Law and Economics Center (LEC), which hosts junkets for federal judges that focus on topics including punitive damages. Exxon donated $215,000 to LEC in recent years, and, perhaps not coincidentally, LEC trips have featured a number of prominent, Exxon-funded experts.

The judge who wrote the opinion in favor of Exxon in December, Judge Andrew Kleinfeld of the Ninth Circuit Court of Appeals, serves on LEC's Board of Judicial Advisors and reports taking at least three LEC-funded trips in recent years. In August, Judge Kleinfeld told a reporter for the Los Angeles Daily Journal that he had no idea about the connections between Exxon and LEC. But even after the Daily Journal documented these connections in great detail, Judge Kleinfeld remained on LEC's Board while ruling for Exxon.

These facts illustrate that new reporting rules implemented by the federal judiciary in September, while commendable, are not sufficient. Judge Kleinfeld told the Daily Journal that Exxon's six figure contributions to LEC were "small potatoes" to a company Exxon's size. While he should know - after all, his ruling just saved the company $2 billion - it probably won't look that way to the litigants harmed by Exxon's misconduct. As Bill Webber, a fisherman whose livelihood was damaged by the Valdez spill, told the Anchorage Daily News after Kleinfeld's ruling, Exxon is "just bullying their way through the legal system just because they can." The cornerstone of the federal judiciary is the public's faith in its ability to provide "equal justice under law." With the Exxon Valdez case likely to come back before him on a currently pending motion for "en banc" review, Judge Kleinfeld should immediately resign from the LEC Board of Advisors. Chief Justice Roberts needs to carefully monitor the implementation of the judiciary's new reporting rules to ensure that these rules change judicial behavior - that the new sunlight actually disinfects the judiciary against the stain of corporate judicial lobbying.

Exxon's Campaign Against Punitive Damages

In the past 12 years, Exxon has supported at least 19 economists, psychologists, and business and law school professors in producing a seemingly endless stream of books, articles, and studies designed to support the proposition that the punitive damages system is flawed and leads to "inefficient" results. The published articles challenge damage awards on seemingly every level, including: the validity of the economic models used, the competence of the juries, and the destructiveness of punitive damages to society. Although this research has been discounted as biased and inaccurate by many legal academics and scientists, an Exxon-side amicus brief cited the research as fact in the Exxon Valdez case.

Titles of the articles included Why there is No Defense of Punitive Damages and Shared Outrage, Erratic Awards: The Psychology of Punitive Damages. There is evidence that Exxon promptly discontinued research that yielded results even remotely detrimental to Exxon's objectives. While Exxon has refused to disclose the cost of this "research," the jury studies alone included more than 8,000 participants and have been estimated to cost upward of $1 million.

As Richard Lempert, a law professor at the University of Michigan, told the Los Angeles Times, "It is very troublesome that work published as scholarship ... is being vetted by lawyers" for Exxon. "It was designed to serve Exxon. It was not done because they wanted to know how juries behaved."

Exxon also spent hundreds of thousands of dollars in recent years funding groups such as Washington Legal Foundation, Pacific Legal Foundation, and American Tort Reform Association to file briefs using Exxon's research and arguing Exxon's position on punitive damages to courts across the country, including prominently the United States Supreme Court.

The final piece of Exxon's judicial lobbying puzzle is its funding for George Mason's Law and Economics Center (LEC). Exxon has contributed $215,000 to LEC since 1998. LEC junkets often focus on issues, including punitive damages, of intense interest to the corporation. These junkets often feature lectures on punitive damages and related topics by academics -- such as George Priest, Steven Shavell, and W. Kip Viscusi -- who have been paid by Exxon to conduct research or to serve as an expert witness for the corporation. On some occasions, judges at LEC junkets have been asked to read Exxon-funded research in preparation for lectures from an Exxon-funded academic.

Exxon, LEC, and Judge Kleinfeld

In 1994, a jury in Anchorage, Alaska ruled that Exxon had knowingly put Joseph Hazelton, a relapsed alcoholic, in control of a massive oil tanker navigating the treacherous waters of Alaska's Prince William Sound. The jury decided that Exxon bore responsibility for the oil spill that resulted and awarded a group of 33,000 fishers, property owners, and Alaska Natives harmed by the spill $287 million in compensatory damages and $5 billion in punitive damages. To date, Exxon has not paid anything to the victims of one of the biggest environmental disasters in U.S. history.

Exxon has used the research it sponsored on punitive damages, and the groups it has funded, as part of a protracted and successful pressure campaign to have these damages reduced on appeal. Exxon's research was featured both in Exxon's own brief and a brief filed by a group Exxon has funded, the American Tort Reform Association, which filed a brief in 2001.

In 2001, Judge Kleinfeld wrote an opinion on behalf of a panel of Ninth Circuit judges remanding the $5.3 billion verdict back to the district court with instructions that the damages figure be reduced.

The district court reduced the damages award to $4.5 billion and Exxon again appealed. On December 22, 2006, Judge Kleinfeld again wrote an opinion reducing Exxon's damages, this time cutting the damages nearly in half, to $2.5 billion. This opinion drew a vigorous dissent from Judge Browning, who accused Judge Kleinfeld of misreading recent Supreme Court punitive damages cases.

Between these two rulings, Judge Kleinfeld became affiliated with LEC, joining their Judicial Advisory Board, reporting a trip to the Washington, DC area for an advisory board meeting in October 2004, and taking two of their junkets for federal judges. He remains listed as a member of LEC's advisory board.

Despite his involvement with LEC, and his obligation under the long-standing Advisory Opinion 67 to investigate "sources of funding" for private travel, Judge Kleinfeld told the Daily Journal in August 2006 "I don't have the faintest idea who contributes to George Mason, nor do I want to know." When informed that Exxon had contributed more than $200,000 to LEC in recent years, he commented that this was "small potatoes" for a company Exxon's size.

In September 2006, the federal judiciary implemented a new policy that will prevent judges from using the "ignorance is bliss" defense, relied on by Judge Kleinfeld this summer. But the judiciary did nothing to address the "small potatoes" defense - the argument that a five or even a six-figure contribution from Exxon to LEC is insufficient to cause a conflict or even the appearance of impropriety for judges taking LEC trips and ruling in favor of Exxon. The reporting rules leave it up to judges to decide whether taking junkets and affiliating with groups like LEC creates an "appearance of impropriety." For the rules to work, judges like Judge Kleinfeld must do the right thing.

We are not questioning Judge Kleinfeld's integrity. We are not alleging that Exxon's contributions to LEC, or Judge Kleinfeld's participation in LEC trips, affected his judgment in the Exxon Valdes cases. But given the totality of the circumstances -- the importance of the Exxon Valdez case to the company and the country, the remarkable efforts of ExxonMobil to shape academic and legal debate on the topic of punitive damages, the links (in terms of faculty, topics and material presented) between these efforts and the LEC programs, and the ExxonMobil funding for LEC - we believe that Judge Kleinfeld should resign from LEC's Board of Advisors immediately, before ruling on pending matters in the case.