One Deal That Was Too Good For Exxon

It may be the world's biggest oil company, but Exxon could learn a trick or two from a common street criminal: if there's one thing a judge wants to see when a miscreant takes a plea, it's remorse. Yet in March, right after Exxon agreed to pay a fine of $100 million to settle criminal misdemeanor charges arising out of the gigantic oil spill in Alaska's Prince William Sound, chairman Lawrence Rawl showed anything but. He told a news conference that the agreement, along with a deal to pay an additional $1 billion over 10-plus years to settle civil charges filed by the state and federal governments, "looks pretty good to us ... It will not have a significant effect on our earnings." The corporate braggadocio did, however, have a significant effect on the federal district judge in Anchorage. Last week Judge H. Russel Holland rejected the settlement, writing that the fines-the largest ever proposed for environmental crime-"do not adequately achieve deterrence [and suggest] ... that spills are a cost of business that can be absorbed."

Officials at the Justice Department, who spent two months hammering out the criminal plea in the hope of avoiding a long and costly trial, cite Rawl's comments for helping to scuttle the deal. But other arguments swayed the judge, too. Tax laws would have cut Exxon's out-of-pocket costs on the $1.1 billion settlement to $440 million, according to the Congressional Research Service. Since the plea included an unusual provision for the public to offer its views on the proposed settlement, critics deluged Holland, a politically conservative Reagan appointee, with letters charging that Exxon was getting off too easy.

Much of their dissatisfaction turned on how dirty Prince William Sound remained. Exxon claimed in March that the "plant, animal and sea life are healthy and abundant, the water is clean and the area is well on its way to a robust recovery." It also noted that the hydrocarbon concentration is below the maximum allowed in drinking water and that last summer's pink-salmon catch of 44.2 million fish shattered the previous record of 29.2 million. Environmentalists didn't buy that. "The beaches may look better, but if you dig a hole you can find smelly pockets of black ooze," says Eric Jorgensen, an attorney with the Sierra Club Legal Defense Fund in Alaska. Other facts were hard to come by. On lawyers' orders, data from most of the studies assessing the condition of Prince William Sound remain sealed. But in early April the National Oceanic and Atmospheric Administration released a synopsis of some findings. They concluded that environmental damage was more lethal and pervasive than Exxon claimed: between 3,500 and 5,500 sea otters, and as many as 580,000 birds, were killed. Some species of kelp in coves were decimated, imperiling the food chain. Economists put the damage at $3 billion to $5 billion.

Judge Holland gave Exxon 30 days to decide whether to renegotiate a deal, to stand by its guilty plea (which would leave it liable to up to $700 million in fines) or to take its chance with a trial. Last year, in the only trial growing out of the accident, an Alaska jury acquitted tanker captain Joseph Hazelwood of all serious charges and convicted him only of negligence, a misdemeanor. Holland's decision also threw into doubt the $1 billion civil settlement: it made some state legislators think they can cut a better deal. They'd like to open the secret scientific studies and wring more money out of the company. Exxon itself has until next week to pull out of its agreement and go to trial in the government's civil case. But that option will worry both its corporate counsel and treasurer, for there is virtually no limit on the amount a jury might award when the target has deep pockets. Last week at its annual meeting, Exxon reported first-quarter profits of $2.24 billion, the largest for the company since John D.

One Deal That Was Too Good For Exxon | News