June 25 (Bloomberg) -- A divided U.S. Supreme Court cut the $2.5 billion punitive damage award against Exxon Mobil Corp. for the 1989 Valdez disaster to $507.5 million, ending a 19-year legal saga over the worst oil spill in U.S. history.

The justices, voting 5-3, said the original award, which would have been increased by more than $2 billion with accrued interest, was excessive under federal maritime law.

Writing for the court, Justice David Souter said the spill was caused by recklessness, rather than intentional wrongdoing, and wasn't part of a company effort to ``augment profit.'' The spill dumped 11 million gallons of oil into Alaska's Prince William Sound, devastating wildlife and local businesses.

Souter said the maximum punitive damage award in that type of case should be about equal to compensatory damages -- actual economic harm suffered by the victims. That level ``is a fair upper limit in such maritime cases,'' he wrote.

The award will go to a group that originally consisted of 33,000 commercial fishermen, seafood processors, landowners, native Alaskans and small businesses. The ruling slashes their recovery of punitive damages from about $75,000 apiece to $15,000.

Today's ruling adds to a body of Supreme Court decisions that have tightened the limits on punitive damages. Unlike previous cases, the Valdez case didn't concern the constitutional restrictions on awards, and Souter said those limits were less stringent than those governing maritime law.

Business Victory

Still, business advocates hailed the ruling as one that may have broader implications. Souter's opinion criticized what he called the ``stark unpredictability of punitive awards'' and said courts should intervene at times to limit jury awards.

Souter's reasoning ``is going to be very useful in other contexts,'' said Amar Sarwal, a lawyer for the U.S. Chamber of Commerce.

Alaska Governor Sarah Palin, a Republican, denounced the decision, saying the court ``gutted the jury's decision on punitive damages.'' The environmental group Greenpeace USA said the ruling ``makes a mockery of justice.''

The $507.5 million award represents about 12 hours of sales for Exxon Mobil. The world's largest oil company last year broke its own record for annual profit by a U.S. corporation with $40.6 billion. Exxon, which is based in Irving, Texas, has obtained a letter of credit and set aside $5.4 billion to cover its payments in the case.

No Financial Burden

The award doesn't represent a financial burden for Exxon Mobil, which had $40.9 billion in cash and cash equivalents at the end of the first quarter, said William Andrews, a portfolio manager who helps oversee $8 billion at Pittsburgh-based C.S. McKee & Co.

``For Exxon, that's not a big number,'' said Andrews, who doesn't own any Exxon Mobil stock. Exxon Mobil rose 68 cents to $87.60 at 4:15 p.m. in trading on the New York Stock Exchange.

The company issued a statement that didn't directly address the ruling, calling the Valdez spill a ``tragic accident'' that the company ``deeply regrets.''

Justice Samuel Alito, an Exxon stockholder, didn't take part in the case. His absence left the court divided 4-4 on a separate question in the case: the company's argument that it can't be punished for the misconduct of the vessel's captain, Joseph Hazelwood.

The 83-day trial in the case included evidence that Hazelwood was drunk on the night the vessel crashed into a reef. Exxon argued that federal maritime law doesn't permit ``vicarious'' punitive damages -- those that punish a company for the misconduct of its employees.

A Divided Court

The case divided the high court largely along ideological lines. Chief Justice John Roberts and Justices Antonin Scalia, Clarence Thomas and Anthony Kennedy joined Souter in the majority. Justices John Paul Stevens, Ruth Bader Ginsburg and Stephen Breyer dissented from the part of the ruling that reduced the award.

``The jury could reasonably have believed that Exxon knowingly allowed a relapsed alcoholic repeatedly to pilot a vessel filled with millions of gallons of oil through waters that provided the livelihood for the many plaintiffs in this case,'' Breyer wrote. ``Given that conduct, it was only a matter of time before a crash and spill like this occurred.''

Maritime law is a largely judge-made set of principles governing the rights and duties of commercial vessels.

The victims sued in 1989, won a $5 billion punitive damage award in 1994, then saw the case spend the next 14 years bouncing up and down the court system.

Exxon Mobil argued that it has paid enough -- $3.4 billion in cleanup costs, fines and other spill-related expenses.

The $507.5 million figure is equal to the damages that a trial judge determined were suffered by thousands of Alaskan commercial fishermen involved in the case.

The case is Exxon Shipping Co. v. Baker, 07-219.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net.

Last Updated: June 25, 2008 18:06 EDT