The Supreme Court cut punitive damages for Alaskans harmed by the Exxon Valdez oil spill by 80 percent Wednesday in a ruling that may signal new limits on damage awards for victims of corporate wrongdoing.

The 5-3 decision reduced punitive damages from $2.5 billion to about $500 million for 32,000 commercial fishers, food processors and Alaskan natives whose livelihoods were damaged by the 1989 spill, the worst in U.S. history. The court said Exxon’s conduct had not been motivated by malice or greed and noted that the jury had awarded the plaintiffs another $500 million as compensation for their losses.

Just as important, the court, which has imposed new restrictions on punitive damages for business misconduct in the last five years, suggested that the standard it used for Exxon – limiting punitive awards to an amount equal to the jury’s verdict on compensation – might apply to all class actions involving significant damages.

Class actions allow large numbers of plaintiffs to join forces for a suit far more substantial than any could muster individually. Justice David Souter said that in such cases, “the constitutional outer limit may well be 1:1” – that is, a punitive damage award no larger than the amount of compensation.

Class-action suits are pending in federal and state courts in San Francisco by crab fishers and others who claim losses from the spill of 53,000 gallons of bunker oil into San Francisco Bay after the container ship Cosco Busan struck the Bay Bridge on Nov. 7. Separate lawsuits by San Francisco and the federal government against the ship’s owner seek cleanup costs and penalties rather than punitive damages, which are not available to government agencies.

Rulings good for business

Frank Pitre, lawyer for the crabbers in the San Francisco Superior Court suit, said he didn’t think the ruling would affect his case. Pitre said his clients, suing under a state water-pollution law, want compensation for their losses, punitive damages for pilot Joseph Cota’s alleged “conscious disregard for safety” and long-term monitoring of the fisheries.

The high court ruling came on the next-to-last day of a 2007-08 term that has seen successes for businesses on several fronts.

The court barred shareholders of a publicly traded company from suing outsiders, like bankers and accountants, who allegedly helped the company defraud them. Another ruling prohibited damage suits under state law over harm caused by medical devices that had been approved by the Food and Drug Administration. Last week the court overturned a California law barring companies from spending funds they received from the state on anti-union activities.

The Exxon Valdez case dates to March 1989, when the tanker ran aground, pouring 11 million gallons of crude oil into Alaska’s Prince William Sound and fouling 1,300 miles of beaches and surface waters.

The ship’s captain, Joseph Hazelwood, was a relapsed alcoholic who had downed five double vodkas before leaving port, according to witnesses quoted by the court. In testimony disputed by Exxon, witnesses also said the company knew he had resumed drinking but allowed him to navigate its tankers.

Award reduced again

Exxon pleaded guilty to violating federal environmental laws and paid $3.4 billion in cleanup costs and settlements. A federal court jury awarded the remaining 32,000 plaintiffs just over $500 million in compensation and $5 billion in punitive damages, an amount that a federal appeals court in San Francisco reduced to $2.5 billion.

On Wednesday, the Supreme Court slashed the punitive damages further – and came close to eliminating them altogether.

Souter, in the majority opinion, said the justices split 4-4 on whether federal maritime law authorized punitive damages against a ship’s owner for the misconduct of an employee, a result that left intact the appeals court’s decision to allow some damages. Only eight justices participated because conservative Justice Samuel Alito, who owns Exxon stock, disqualified himself from the case.

In reducing the damages to $500 million, Souter said a punitive damage award equal to the amount of compensation was consistent with typical jury practices in nationwide studies and was appropriate for a case in which the company did not act maliciously or to increase its profits.

Jeffrey Fisher, a Stanford law professor who represented the plaintiffs, said the ruling was a big loss for his clients, whose average punitive damage award fell from $75,000 to $15,000.

Charges of judicial activism

Liberal critics also leveled the charge of judicial activism that conservatives typically raise against left-leaning judges.

The court’s damage limit “illustrates that the conservative majority on the Supreme Court is willing to bend the law in favor of corporate interests,” said Doug Kendall, president of the Constitutional Accountability Center.

Tom Donahue, president of the U.S. Chamber of Commerce, said the ruling was “good news for companies concerned about excessive punitive damages.”

Souter was joined in the majority by Chief Justice John Roberts and Justices Anthony Kennedy, Antonin Scalia and Clarence Thomas.

Justices John Paul Stevens, Ruth Bader Ginsburg and Stephen Breyer wrote separate dissents, arguing that limits should be set by Congress, not the courts.