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Wednesday, June 25, 2008
Supreme Court Reduces Exxon Oil Spill Damages
Associated Press
![Oil Barge [276]](/images/oil-barge.jpg)
The Supreme Court on Wednesday slashed the $2.5 billion punitive damages award in the 1989 Exxon Valdez disaster to $500 million.
The court ruled that victims of the worst oil spill in U.S. history may collect punitive damages from Exxon Mobil Corp.(XOM), but not as much as a federal appeals court determined.
Justice David Souter wrote for the court that punitive damages may not exceed what the company already paid to compensate victims for economic losses, about $500 million compensation.
Souter said that a penalty should be "reasonably predictable" in its severity.
Irving, Texas-based Exxon asked the high court to reject the punitive damages judgment, saying it already has spent $3.4 billion in response to the accident that fouled 1,200 miles of Alaska coastline.
A jury decided Exxon should pay $5 billion in punitive damages. A federal appeals court cut that verdict in half in 1994.
The Supreme Court divided on the decision, 5-3, with Justice Samuel Alito taking no part in the case because he owns Exxon stock.
Exxon has fought vigorously to reduce or erase the punitive damages verdict by a jury in Alaska four years ago for the accident that dumped 11 million gallons of oil into Prince William Sound. The environmental disaster led to the deaths of hundreds of thousands of seabirds and marine animals.
Nearly 33,000 Alaskans are in line to share in the award, about $15,000 a person. They would have collected $75,000 each under the $2.5 billion judgment.
In dissent, Justice John Paul Stevens supported the $2.5 billion figure for punitive damages, saying Congress has chosen not to impose restrictions in such circumstances.
Justice Ruth Bader Ginsburg also dissented, saying the court was engaging in "lawmaking" by concluding that punitive damages may not exceed what the company already paid to compensate victims for economic losses.
"The new law made by the court should have been left to Congress," wrote Ginsburg. Justice Stephen Breyer made a similar point, opposing a rigid 1 to 1 ratio of punitive damages to victim compensation.
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Some mutual funds want you to pay for the privilege of them (or your investment adviser) taking your money to invest. It's called a load, and it works like a cover charge to get into a nightclub. Luckily, there are such things as no-load funds. As the name implies, shares of these funds are sold without a fee paid to a broker or investment advisor.
The entire amount you invest in no-load funds goes to work for your returns. On the other hand, with load funds, right off the bat you're charged commission (not to mention other fees incurred over the life of the investment). Let's say, for example, you invest $25,000 into a load fund that charges a 5% commission. This costs you $1,250 off the top, bringing your actual investment down to only $23,750.
The often-cited horse race analogy argues against investing in load funds. Here's the logic behind it: Would you place a bet on a horse that had to start a race 200 yards behind the others? Well, maybe you would if you got a tip from a sketchy, trench coat-clad man in a dark alley. However, under most circumstances, it's not smart to put your money on that handicapped horse.
But some argue that at times that man in the trench coat (aka your broker) knows more about the horses than you do, and has a better shot at picking a winner. Also, sometimes these fees are unavoidable because some funds are available only through investment advisers.
Cost-benefit analysis can help determine when a load fund is worth it (in other words, when it will score you a load) and when it is better to "do it yourself" and avoid the fees. Load-fund fees range depending on share class and can cover a variety of costs, such as paper work and fund management.
