The True Price of Oil


Shortly after the catastrophic 1989 Valdez oil spill in Prince William Sound, Exxon sent Don Cornett, the company's top official in Alaska at the time, to the fishing port of Cordova to reassure the fishers that the company would make things right.

"You have my word," Cornett told them then. "I said it, Don Cornett. We will do whatever it takes to keep you whole. We do business straight."

No one in Cordova's Masonic Lodge tonight, where attorney Brian O'Neill has called a town meeting, has forgotten that promise, and no one has failed to notice that things haven't exactly worked out that way. O'Neill, a lawyer with the Minneapolis firm Faegre & Benson and the head of the legal team on this case, has, for ten years, returned to Cordova regularly to update his clients on the progress of the civil case against Exxon.

At this meeting, a man walks in late. He pours himself a cup of coffee and stands back near the kitchen, listening to his neighbors talk about how they now consider their wives' health insurance plans dowries and how the new definition of a high-liner is a fisherman whose wife has a good job. He listens to as much as he seems able, then turns to O'Neill and says, "Where in the hell is my money? That's what I want to focus on. If any of us knew we'd be having this meeting fourteen years later, we'd have liquidated and moved out. Maybe we should have." The man's name is Phil Lian, and in 1988 he was one of the most successful fishers and businessmen in Cordova, fishing the Sound and selling supplies to Cordova's fleet. His business was growing at 80 percent a year, and grossing two million dollars a year. But after the spill, no one needed supplies because no one was going fishing. Today, his empty fishing supply superstore, across the road from the Cordova Fisherman's Memorial, is a Dickensian symbol of loss and matters left unresolved.

"We're going to get the award," O'Neill says. "In regards to your anger --"

"I don't like to call it anger," Lian says sharply. "I like to call it frustration."

"Well hell, I'm angry!" O'Neill shouts.

The story of Cordova is not just a sad tale of a few bad fishing seasons. It is the story of how corporations that are, in the words of Brian O'Neill, "nation-states unto themselves", can use the legal system and the seeming apathy of the federal government to bring an entire town to its knees through endless litigation funded by bottomless resources. Cordova, a beautiful but gritty fishing port of 2600, was once a town of high-liners, a term reserved for the most successful commercial fishers, men and women who might have brought in a couple hundred thousand dollars a year, if not more. Today, people in Cordova will tell you there isn't a single fisher in town who would be considered a high-liner by pre-spill standards. Once an exuberant, successful port town filled with old families and big money, Cordova is now a depressed small town where former high-liners mend nets in cannery warehouses and bartenders fill and re-fill beer glasses. If the herring fishery had been closed one, maybe even two seasons, fishers say, they might have been able to bounce back; but there hasn't been a herring season for more than ten years. It has also been ten years since a federal jury awarded the fishers and Natives on the Sound $5.2 billion in punitive damages from Exxon. And it has been ten years that not a single check from that award has been cut. Yet the story of Cordova is not important simply because of the details of the Exxon case; what is at stake in this unprecedented litigation are the concept of corporate responsibility and the way the U.S. legal system can be used by large companies to avoid it.

“The system has failed them”

On March 24th, 1989, Captain Joseph Hazelwood, who had been treated for alcoholism, stepped onto the oil tanker Exxon Valdez having consumed, according to him, three vodkas on the rocks at various bars in the port city of Valdez. O'Neill, however, filed affidavits from bartenders claiming the captain drank the equivalent of five doubles, or, in the words of the Court of Appeals, enough to make most people unconscious. The spill eventually spread down 1200 miles of coastline.

The environmental damage was catastrophic. Cleanup crews watched in horror as otters scratched out their own eyes to rid them of oil. U.S. Department of Justice teams recovered the carcasses of more than 36,000 migratory birds and a thousand sea otters, and believe these numbers represent only a fraction of the actual numbers.

For a few months after the Exxon Valdez leaked eleven million gallons of oil into the Sound, the disaster was imprinted on the national consciousness. But as time passed, it was reduced to a few stubborn media images: an oiled otter, a tar-covered seagull, men in haz-mat suits spraying boulders with boiling water. An out-of-work commercial fisherman was never among the emblems. And now, fifteen years have passed since the disaster, fifteen years during which the fishers of Cordova have been trying -- and failing -- to survive the spill.

"They are very different and very wonderful," O'Neill says of his clients, nearly all of them Sound fishers or Alaska native Indians. "They're good people, people who are comfortable moving off the grid." But fifteen years off the grid has taken its toll in Cordova-and on O'Neill. "They see me as part of a system that's failed them."

Brian O'Neill pulls up to an old warehouse on Cordova's Cannery Row. Upstairs, two redheaded brothers are mending nets: Robbie and Mike Maxwell. As local kids, fishing was the only thing they'd ever wanted to do; when they got older, they raised families on the good money they made during the season. Nowadays they still fish, but don't make a living of it, so repair nets during the off-season.

"Let me ask you a question," Mike says to O'Neill. "'Punitive' means to punish, right?"

"You're right."

"So how does five billion hurt Exxon?"

"Five billion is more punitive than nothing," O'Neill says.

It can even be reward. The Alaska Daily News reported that Exxon's delays are paying off handsomely. While awaiting a final judicial decision, Exxon has earned enough in interest alone to pay the initial five billion award.

"Each year Exxon delays payment of its obligation," the National Association of Attorneys General wrote in a 1999 letter to Exxon CEO Lee Raymond, "it earns an estimated $400 million from the difference between the statutory interest rate on judgments of 6 percent and the company's internal rate of return of about 14 percent."

When Exxon and Mobil presented its merger proposal to the Federal Trade Commission in 1999, many saw an opportunity for the federal government to put pressure on Exxon to pay the punitive fine. Yet few in Washington -- and no one from Alaska's Congressional delegation -- publicly pressured Exxon to settle while the FTC reviewed the proposed merger. Senator Slade Gordon, a Republican from Washington, was one of the few in the Capitol to oppose approval. "We have an opportunity to make an indelible impression on what would be the largest corporation on Earth," Gordon said in 1999, "that an oil spill like this must never happen again. The FTC approved the Exxon/Mobil merger in November of 1999.

From Dick Thornburgh's retreat from his early censures of Exxon immediately after the spill to the interminable delays in federal courts -- specifically the Ninth Circuit, which has vacated the original award of five billion -- to the FTC's approval of the Exxon/Mobil merger, fishers in Cordova have felt betrayed by Washington.

"Who's being punished here?" Mike Maxwell asks O'Neill. "We are. Looking into the future, is my son going into fishing? Absolutely not."

"The best I can do," O'Neill says, "is to get the five billion. I can't put the Sound back together."

"I would just love to collect the Exxon oil that is on our beaches," Mike says, "and dump those gallons of oil on the front yard of its corporate headquarters. It's been in my front yard for fourteen years."

One of the grimmest aspects of the spill's effect on Cordova has been the state of commercial fishing permits, once highly coveted. On the Sound, a permit is like a home -- it is fisher's greatest investment, something that stays in the family, an asset that accrues value. In 1988, there were fishers in Cordova whose permits were worth nearly a million dollars. Today, their permits -- fishers often call them their "nest eggs" -- have depreciated in value by a staggering 90%. Dr. Steven Picou, a professor of sociology from the University of South Alabama, has spent the last fifteen years studying the effect the Exxon spill has had on the towns of the Sound, specifically Cordova. Over the years, his focus has slowly shifted from the effects of the environmental devastation on the fishermen to the sociological and psychological damage inflicted by the unmitigated legal battle.

Dr. Picou's findings in Cordova were damning: a third of fishers were clinically depressed; approximately 37 percent exhibited symptoms of Post Traumatic Stress Disorder. Sixty percent of Cordova commercial fishers have had to take second jobs to make ends meet. Toxins, Picou was finding, had contaminated more than just the water; they had contaminated the town of Cordova, and this time, Exxon didn't share the blame alone -- it was working in collusion with the U.S. government.

"I think the vast majority of people in Cordova believed the reps from Exxon," Picou said. "But once the issue transformed from how-to-get-out-of-the-media-limelight to how-to-get-in-a-position-to- protect-our-profit-margin-and-stock-value, then it changed overnight. They zipped up their purse strings, got out of town, and said: you'll find us in the courtroom."

In a keynote address presented at the Earth Charter Summit in 2002, Picou outlined what he considered Exxon's legal strategy for avoiding payment of the punitive damage decision.

"Hire the best attorneys money can buy, and aggressively attack plaintiffs in every manner possible, while also delaying court proceedings by any legal means necessary for as long as possible, no matter how frivolous the challenge. Hire your own scientists to evaluate ecological damages and pervert the process of science by hiding behind any degree of uncertainty that may and will always characterize independent scientific damage assessments." In other words, Picou believes that litigation in the cases of big business versus communities devastated by "collateral damage" provide those corporations a kind of insurance policy against future disasters, a policy underwritten by the U.S. court system.

Spills as a cost of business

The Exxon civil case began in 1990, when hundreds of fishers and natives filed lawsuits against Exxon. That same year, attorneys for Exxon filed motions to dismiss the charges in the federal government's five-count criminal indictment resulting from the spill. Perhaps the most memorable brief from this first round was the one in which Exxon claimed that crude oil was not a pollutant under the federal Clean Water Act, which it had violated.

"The crude oil on board the Exxon Valdez was not a waste," Exxon Shipping attorney Edward Bruce said. "It was a commodity." The next year, discovery in the Valdez case began, and O'Neill and his firm, Minneapolis-based Faegre & Benson, consolidated the individual lawsuits. By the time the discovery phase was over, the case file would contain fourteen million documents, more than a thousand depositions, and 618 separate written opinions.

In March of 1991, the State of Alaska, the U.S. Justice Department, and Exxon brokered a deal that would allow Exxon to plead guilty to four misdemeanor environmental crimes, put $100 million on the table for criminal penalties, and pay $900 million in civil damages. By this time, Exxon had already spent nearly two billion dollars in its cleanup efforts. However, environmentalists and legislative critics condemned the deal, complaining that the Department of Justice had backpedaled from its earlier censures of Exxon; the criminal case had been initiated by then U.S. Attorney General Dick Thornburgh, who indicted Exxon and promised the federal government was "throwing the environmental book" at the oil company. Thornburgh had initially promised to seek more than six times the amount he settled for from Exxon. On April 24th, 1991, Federal Judge Russel Holland rejected the deal.

"These fines send the wrong message, and suggest that spills are a cost of business that can be absorbed," he said.

Ten years of waiting

The Ninth Circuit Court of Appeals in San Francisco has been a source of great frustration for Brian O'Neill, who considers it one of the most sluggish federal courts in the country. In 1993, the Valdez parties had appealed to the Ninth to settle the question of whether the case ought to be tried in federal or state court. More than a year passed with no word from the Ninth as to how the parties should proceed. Finally, on May 3, 1994, the parties to the Valdez case decided to start trial in the federal courthouse in Anchorage without the requested Ninth Circuit guidance. The case was conducted in three exhausting phases. Phases one and two dealt with questions of recklessness (a finding of recklessness against Exxon was necessary for O'Neill to have any hope of recovering punitive damages) and actual damages caused by the spill. Phase Three determined if punitive damages would be awarded, and if so, how much.

At trial, Exxon's lawyers pointed to the cleanup of Sound beaches, which pumped huge amounts of money into the local economy. Did the jury want to punish a corporation that accepted responsibility for its mistakes? Would that not set a dangerous precedent?

"Accept responsibility?" O'Neill asked in his closing arguments. "They didn't have any choice but to accept responsibility. It's on a reef, the state authorities are coming out; what are you going to do, paint the smokestack and put Sea River on it? Exxon has no place to hide." On September 16th, 1994, more than five years after the spill, a federal jury in Anchorage ordered Exxon to pay $5.2 billion in punitive damages to Alaska natives, property owners, and commercial fishermen on the Sound. Immediately, Exxon filed more than two dozen post-trial motions, which would take more than a year to resolve. In the meantime, the pollution of a world-class salmon fishery had affected the market, diminishing demand for the Sound's catch at a crucial time when there was already a glut of pink salmon. Salmon farms in Chile and Norway had begun taking up a larger share of the market, squeezing Sound fishers out of the game. As O'Neill tells it, "these guys just lost shelf space permanently."

In 1998, the fully briefed Exxon appeals went to the Ninth Circuit court -- and sat there. The next year, 1999, 60 Minutes broadcast a segment on the ten-year anniversary of the spill; it focused, in part, on the Ninth's inaction. The day after the segment aired, the court scheduled argument. But the briefed case sat in the Court of Appeals through 2000. Then, in November 2001, the Ninth Circuit overturned the $5.2 billion award against Exxon, calling it excessive, and sent it back to Judge Holland's district court so it could set a lower amount. By this time, nearly three thousand claimants in the case had died. The mayor of Cordova had committed suicide -- his ashes were scattered over Bligh Reef. The debt load in Cordova was, according to some people in town, about to exceed the award. In December of 2002, Judge Holland reduced the award by nearly a billion dollars. Exxon appealed. As O'Neill has found out through his battles with Exxon, it is sometimes a challenge to discover -- to recover, rather -- human morality in the sterile, unforgiving worlds of law and corporate America.

As healthy today as in 1989?

After fifteen years of bad press, it's not surprising that Exxon's chief spokesman, Tom Cirigliano, doesn't want to talk about Cordova anymore. Since 1989, Exxon has spent more than $2 billion attempting to clean up the Sound and settling state and federal claims. The company also paid about $300 million to more than 32,000 fishers on the Sound for losses suffered in 1989 when the entire fishing season had to be canceled. Divided equally (and the payments were not equal), that is roughly $9,500 a person. Fishers in Cordova could usually bring home $100,000 a season.

"I don't want to waste any more time talking about it with you," Cirigliano said when I asked him to react to O'Neill's claims of the company's foot-dragging. "When they say we're dragging our feet, they've appealed a number of issues with regard to this and dragged their feet when it was to their advantage considerably. And as far as Brian O'Neill, we don't want to give an opinion on him. He's talking out of both sides of his mouth."

Much of Exxon's PR energies are directed towards refuting claims made by government scientists like Jeff Short. Short, a federal chemist from Auke Bay Labs in Juneau, has been studying the environmental effects of the spill for years, and in January of 2002, he reported that there was still Exxon oil in the Sound. Short's research found more than 200 times more oil than Exxon had claimed; on the beaches hardest hit by the spill in 1989, he reported that the chances of finding oil on those same beaches twelve years later was better than 1 in 3. Exxon, for its part, blames the pollution of the Sound on other sources, such as oil leftover from the 1964 earthquake.

Yet the National Marine Fisheries Service Lab in Juneau found that weathered oil was affecting young salmon and herring; among the results of one investigation were eggs that died before hatching, grossly deformed spines and jaws in those that managed to hatch and a considerable decrease in returns of salmon from the sea . However, Short was careful to be fair. He has always maintained that Exxon's claims that natural variability is the reason for the fluctuating salmon and herring catch levels, could turn out to be true. But Exxon struck back with David Page. A professor of chemistry and biochemistry at Bowdoin College in Maine, Page called Short's study bad science even before reviewing all of Short's research.

"Prince William Sound today is as healthy as it would have been if the spill hadn't happened," he wrote in the Alaska Daily News. If this claim sounds unusual, it helps to know that Page is on ExxonMobil's payroll. Page and his team of researchers began shadowing Short and his team in August of 2001, when the study was nearly 75% complete. (Although Tom Cirigliano encouraged me to contact David Page regarding the state of the Sound, Page did not respond to my requests for an interview.)

As a result of David Page's charges, the sponsor of Short's research, the Exxon Valdez Oil Spill Trustee Council, commissioned a review of Short's methods by a National Marine Fisheries Service panel that was independent of Auke Bay Labs. The panel found that if there was any bias in Short's sampling, it was that he left out sites that were more likely to show oil. Short's estimate of the amount of oil remaining in the Sound was likely conservative.

On a beach on Eleanor Island in Northwest Bay, Short turns over a few barnacle-covered rocks with the edge of a garden spade. Once he reaches sand, he plunges the spade in and removes a handful of sand. He removes one more shovelful, and viscous oil slowly begins to fill the new pit. The fishy smell of the bay is instantly replaced by the toxic smell of petroleum. Short, unsurprised but not complacent, shakes his head.

"It's really an insidious poison. The fact that we can find this much oil fourteen years later -- and oil in this toxic condition -- means the oil did a lot more damage than we think."

In fact, the journal Science published a study in late December 2003 that found residual oil harmed pink salmon eggs for at least four years following the spill, that significant amounts of crude remains on the sea bed, where it poisons mussels and clams -- and by extension the animals that feed on these creatures, like otters and ducks. And, like Short, the study's researchers easily found pockets of oil on the beaches.

Trudging on through the courts

At the end of January 2004, Judge Russel Holland increased the punitive damage award against Exxon from $4.2 billion to $4.5 billion, plus the two billion of interest that has accrued on the award since 1994. Exxon appealed. The initial briefings were heard in the Ninth Circuit Court of Appeals through 2004, with the last brief filed in November. As of June 2005, the Ninth Circuit has not scheduled oral arguments.

"The cost of oil is the cost of what happened to these people," Brian O'Neill says. "Most Americans have a very short memory, especially when it comes to things that are unpleasant."

Some people, fair-minded pragmatists, perhaps, might say Exxon is simply using its right to take full advantage of the legal system. "They do have the right to take hundreds of millions of dollars and grind these people into the ground," O'Neill says. "But that doesn't mean it's morally right. The only guiding light Exxon has is profit. It is a dangerous institution in the modern world. We've learned in the last few years that these companies are laws unto themselves."

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