Uncertain seas for maritime punitive damages: once assured of smooth sailing, plaintiffs find that U.S. Supreme Court cases have muddied the waters.

On March 23, 1989, minutes before the oil tanker Exxon Valdez was to make a critical turn away from a well-known and dangerous reef, an intoxicated Captain Joseph Hazelwood put his vessel on autopilot, gave the wheel to a fatigued third mate whose shift had ended and whose replacement had not shown up, and left the bridge.

The third mate tried to turn the giant tanker away from the danger, but was unsuccessful. The reef ripped into the hull, allowing 11 million gallons of oil to escape and pollute the environmentally pristine Prince Edward Sound. (1)

Although Exxon knew Hazelwood was an alcoholic who had fallen off the wagon, the company placed him in charge of a large tanker in an environmentally sensitive area. Given this, could a jury assess punitive damages against Exxon? Would such an award make this kind of tragedy less likely to happen again? How should a jury determine the appropriate amount of punitive damages?

These questions are being asked not only by the courts considering In re Exxon Valdez (2) but by maritime courts across the country. Unfortunately, the answers are far from clear.

Punitive damages have long been a part of American maritime law. In 1818, the Supreme Court recognized the recoverability of punitive damages in admiralty. (3) One early decision described in colorful language the unique potential for widespread harm posed by maritime disasters and the concomitant role of punitive damages in helping prevent the repetition of such disasters:

   [I]t is not legally correct to say that a court
   cannot give exemplary damages, in a case
   like the present, against the owners of a vessel....
   There is no subject upon which more
   repeated and solemn complaints have been
   made [by] the public, and few of deeper
   interest to the community, than the accidents,
   always attended with frightful alarms,
   and sometimes by the most fatal and melancholy
   consequences, from the collision of
   steamboats.... The Delaware River has
   been particularly exempt from these disasters,
   and it should be the determination, as
   it is the duty, not only of the courts when
   appealed to, but of every good citizen, to
   keep it so. (4)

In recent years, punitive damages have come under attack. Nonmaritime Supreme Court decisions have placed constitutional restrictions on how all such awards must be measured and apportioned. Maritime punitive damages have also come under fire, so much so that one scholar has suggested that they are "swiftly being eliminated" from the maritime law. (5)

While one hopes this prediction is overstated, punitive damages awards in maritime cases clearly have suffered significant setbacks in recent years, and courts differ on whether and when they may be allowed. How have we come to this uncertainty and confusion in the law?

'The curse of Miles'

Before the 1990 U.S. Supreme Court decision in Miles v. Apex Marine Corp., punitive damages were recoverable in many areas of maritime law. (6) Generally, a seaman was entitled to punitive damages for an employer's wanton, willful, or intentional disregard of the seaman's right to maintenance and cure. Punitive damages could also be recovered in connection with a seaman's personal injury claim based on unseaworthiness. On the other hand, courts differed on whether punitive damages could properly be awarded under the Jones Act.

Punitive damages were generally available to nonseamen for a variety of personal injury claims, including physical injury and the "blacklisting" of fishermen by an insurance company. (7) They were also allowed in property damage cases. (8) While there was much less certainty in the area of wrongful death, a significant body of jurisprudence allowed punitive damages in various maritime death actions. (9)

Although Miles did not address punitive damages specifically, it became the launching pad for much of the case law eliminating them from maritime law. At issue was whether the mother of a deceased seaman could recover his lost future income as well as her own loss-of-society damages by bringing a death action under the general maritime law.

For guidance, the Court looked to maritime death actions created by the Death on the High Seas Act and the Jones Act. Because neither statute allowed for the recovery of the disputed damages claimed, the Court held that nonstatutory general maritime death actions should be similarly limited. The Court also noted that this would help serve the goal of uniformity. (10)]

Miles has been the subject of harsh scholarly criticism. One professor labeled the "mischief' created by this decision "the curse of Miles." (11) Nonetheless, lower courts have used the Court's rationale widely to disallow punitive damages where once they were allowed.

For example, some courts have used Miles to support the expansive view that punitive damages are no longer available in any kind of maritime case. (12) Two influential appellate courts used Miles to justify holding that punitive damages are no longer available in cases of willful nonpayment of maintenance and cure. (13) Miles also has been used as the foundation to refuse punitive damages in seaman cases alleging unseaworthiness and negligence under the Jones Act. (14) Expansive interpretation has been used to hold punitive damages unavailable in a variety of other cases, including suits by seamen against nonemployer entities, marine products liability suits, and collision/ allision cases. (15)

Friendlier seas

Some lower courts have taken a more restrictive view of Miles. Some have limited Miles to cases involving seamen and allowed punitive damages in other kinds of maritime cases. Examples include claims for property damage and marine pollution damage. (16) Other courts have allowed punitive damages claims by nonseaman plaintiffs, including cruise ship passengers, ferry boat passengers, recreational boaters, and automobile accident victims pursuing dram shop actions against a riverboat casino. (17) Certain maritime courts have allowed longshoremen injured in state territorial waters to pursue punitive damages claims under the general maritime law. (18) Even seamen, the target of Miles, have been allowed to pursue punitive damages where the defendant is a nonemployer. (19)

In re Denet Towing Service, Inc., is an excellent illustration of courts' reasoning in recognizing punitive and other nonpecuniary damages after Miles. (20) The plaintiffs were the survivors of a seaman crushed to death in Louisiana territorial waters by a barge owned and operated by a nonemployer third party. The plaintiffs sought pecuniary and nonpecuniary damages, as well as punitive damages, from the employer under the Jones Act and from the nonemployer under the general maritime law.

The district court noted that Miles did not involve a claim for punitive damages and quoted a noted admiralty scholar, holding that "there is no indication in Miles of disapproval of the long line of cases allowing punitive damages under the general maritime law." (21)

The district court also pointed out that Milesdid not involve an action by a seaman against a nonemployer and that the "conceptual and theoretical basis of the Miles decision does not mandate or support its extension further than necessary to comport with the Jones Act." (22)

   [A] seaman's stares is relevant only in
   actions under the Jones Act or, after Miles,
   under the general maritime law against his
   employer. The Jones Act has no bearing on
   [the] plaintiff's claim against Denet, a third-party
   tortfeasor. As far as Denet is concerned,
   in the determination of which elements
   of damages [the] decedent's estate is
   entitled to recover, it should make no difference
   whether the decedent was a seaman,
   a longshoreman, or a passenger. (23)

Rejecting the argument that the goal of uniformity dictated a different result, the court noted: "Uniformity is not the sole or uhimate goal of the general maritime law. The concept of solicitude for seamen must also be given recognition." (24)

The court stated that, given the Supreme Court's application of state wrongful death law remedies to a nonseaman in territorial waters, (25) "any 'uniformity' derived from applying Miles beyond the seaman-employer relationship would be illusory." (26) The court conceded that the lower courts are divided on this question but decided to join "other courts that have studied the issue and found no basis to extend Miles beyond the seaman-employer relationship." (27)

But does Miles necessarily preclude an award of punitive damages brought by a seaman against an employer? Most courts have held that it does. Yet a sound argument can be made that, even after Miles, exemplary damages are available to a seaman against an employer. Finding that loss-of-society damages were not recoverable, the Supreme Court in Miles relied on its earlier decision in Michigan Central Railroad Co. v. Vreeland, which had held that damages under the Federal Employers' Liability Act (FELA) are limited to compensation for pecuniary loss or damage. (28) Reasoning that loss-of-society damages are nonpecuniary, the Miles Court held that they were not allowed under the Jones Act.

The courts that have used Miles to preclude punitive damages in Jones Act cases have done so by assuming that these damages are nonpecuniary and thus, under Vreeland and Miles, not allowed. But that assumption is simply incorrect. In traditional legal thought, exemplary damages are neither pecuniary nor nonpecuniary in nature but sui generis and therefore not precluded under Vreeland. (29)

Before the Jones Act, courts had recognized the fight of a seaman to sue an employer for exemplary damages. (30) Nothing in the Jones Act language or history suggests that its passage was intended to change this rule. Indeed, the Supreme Court has indicated at least three times that the Jones Act was intended only to add to the fights of seamen and certainly was not intended to take away any of their preexisting rights. (31) Given the historical status of seamen as wards of the admiralty court, there is no policy or other principle that justifies withholding punitive damages from seamen when other maritime plaintiffs enjoy the fight to recover them.

Constitutional restraints

The U.S. Supreme Court has not decided what effect, if any, the ruling in Miles has on maritime punitive damages awards. It has, however, rendered a series of important decisions placing constitutional limitations on punitive damages awards in general, expressing its concern over awards it has found to be arbitrary and unconstrained. (32)

In the Exxon Valdez case, the jury awarded punitive damages of $5 billion against Exxon and $5,000 against Hazelwood. On appeal, Exxon challenged the recoverability of punitive damages under maritime law, relying on the Ninth Circuit's decision in Glynn v. Roy Al Boat Management Corp. In that case, the court found that Miles mandated a holding that punitive damages were not permissible in a seaman's maintenance-and-cure claim. (33) But in Exxon Valdez the Ninth Circuit distinguished Glynn, noting that the case before the court did not involve maintenance and cure and that it was not a seaman's case.

Exxon next argued that the punitive damages award was unconstitutionally excessive in that it failed to pass the tests set out in BMW of North America, Inc. v. Gore. (34) In that case, the plaintiff had paid $40,000 for what had been represented to be a "brand new" luxury BMW sedan. However, after purchasing the vehicle, he discovered that it had been repainted because of damage caused by acid rain during shipping.

The jury awarded $2 million in punitive damages against BMW for the practice of repainting new but damaged cars without disclosing that fact to its customers. The Supreme Court reversed, finding that the punitive damages award was "grossly excessive" and therefore worked as a constitutionally impermissible denial of substantive due process.

While the Court declined to fix a mathematically precise rule regarding whether an award was excessive, it set out three "guideposts" for courts to use in deciding this question:

* the degree of reprehensibility of the defendant's misconduct

* the disparity between the harm suffered by the plaintiff and the punitive damages award (for example, the ratio of punitive damages to the actual and potential harm that the plaintiff and other conceivable victims suffered)

* the difference between the punitive damages awarded and the civil or criminal penalties authorized and/or imposed in comparable cases.

The court of appeals agreed that the punitive damages award violated the BMW standards and found the award excessive. The Ninth Circuit cited the lack of intentional misconduct on Exxon's part; its redress of environmental damage resulting from the crude oil spill by a separate settlement with the federal government and the state of Alaska; and the fact that the punitive damages award greatly exceeded the penalties imposed by the government's settlement of $25 million in civil lines and $100 million in restitution.

In addition, the court held that the ratio between the harm caused and the punitive damages award (somewhere between 12 to 1 and 17 to 1) "greatly exceeds the 4 to 1 ratio that the Supreme Court called 'close to the line.'" (35) It thus remanded the case to the district court for recalculation and reduction of the award in accordance with these criteria.

On remand, the district court meticulously considered the award in light of the criteria mandated by BMW. The court first considered Exxon's conduct, noting that "the reprehensibility of a party's conduct, like truth and beauty; is subjective." The court conceded that Exxon's conduct was not intentional and did not involve trickery or deceit. However, it found undisputed that Exxon knew the risk of transporting crude oil in the area; knew that Hazelwood was an alcoholic; knew that he had resumed drinking; and knew that he was drinking while piloting the tanker and yet did nothing about it.

"[T]his is an employer deliberately permitting a relapsed alcoholic to continue operating a vessel carrying over 53 million gallons of volatile, toxic, crude oil. In the view of this court, the decision to leave Captain Hazelwood in command of the Exxon Valdez was highly reprehensible." (36)

Considering the ratio between punitive damages and the harm inflicted on the plaintiff, the court wrestled with the wide difference in the compensatory damages that the plaintiffs claimed ($517.2 million) and the amount of damage Exxon claimed the spill caused ($20.3 million). The court concluded that about $507 million was the actual figure representing the total harm Exxon's egregious conduct caused and found that the ratio between the $5 billion in punitive damages and the $507 million in compensatory damages "does not exceed the '10 to 1 ratio which was upheld by the U.S. Supreme Court in TXO [Production Corp). v. Alliance Resources Corp.].'" (37)

Considering the third and final criterion, comparable civil and criminal penalties, the court concluded that it was "well satisfied that Exxon was quite fairly on notice that its officers could face imprisonment and the company could face in excess of $5 billion in criminal and civil penalties for recklessly spilling crude oil into Prince William Sound." (38) 1bus, considering all three BMW criteria, the district court concluded that the award should not he reduced. However; because he had been ordered by the Ninth Circuit to reduce it, a frustrated Judge H. Russel Holland stated:

   Because the court's independent evaluation
   of the BMW factors as applied to the facts of
   this case have led it to the conclusion that the
   $5 billion award was not grossly excessive,
   the court does not perceive any principled
   means by which it can reduce that award....
   [However] since the $5 billion award must
   be reduced ... the sum of $1 billion of the
   $5 billion jury award is remitted, and therefore
   the punitive damages award in this case
   is reduced to $4 billion. (39)

Exxon appealed again. In a two-line per curiam decision, the Ninth Circuit vacated the district court's judgment and remanded so the district court could "reconsider in light of [the recently decided Supreme Court case,] State Farm Mutual Autmobile Insurance Co. v. Campbell." (40)

Campbell involved a claim against State Farm for bad faith, fraud, and intentional infliction of emotional distress arising out of its failure to settle a personal injury claim against the Campbells within the State Farm policy limits of $50,000. The jury found that State Farm was guilty of bad faith, fraud, and intentional infliction of emotional distress. It awarded $2.6 million in compensatory damages and $145 million in punitive damages.

On post-trial motions, the trial court reduced the awards to $1 million in compensatory damages and $25 million in punitive damages. The Utah Supreme Court, however, reinstated the $145 million punitive damages award based on the evidence that State Farm's "fraudulent conduct has been a consistent way of doing business for the last 20 years, directed specifically at some of society's most vulnerable groups." (41)

The U.S. Supreme Court found that it was improper for the trial court to have considered State Farm's practices, which "bore no relation to third-party automobile insurance claims, the type of claim underlying the Campbells' complaint against the company." (42) The Court determined that to be constitutionally relevant, the defendant's conduct toward individuals other than the plaintiffs must be sufficiently similar to the conduct that specifically harmed or threatened the plaintiff in the case before it. Reaffirming and elaborating on BMW's three-part test, the Court found the $145 million punitive damages award to be grossly excessive and remanded the case.

The district court in the Exxon Valdez case now faces the daunting task of closely analyzing what additional nuances the Supreme Court has added to the BMW test. While the fate of the plaintiffs' original $5 billion punitive damages award against Exxon is uncertain, it is clear that, to the extent maritime law allows punitive damages, they will be subject to the complex and rigorous tests most recently set out in Campbell.

Exemplary damages have a long history in maritime law. These awards play a unique role in the law and are especially appropriate in maritime cases.

Many, but not all, lower courts have succumbed to the "curse of Miles" and withheld exemplary damages altogether or limited the circumstances under which they can be awarded. However, a respectable number of courts have found that, despite Miles, punitive damages exist in the maritime law, even in personal injury cases.

Notes

(1.) In re Exxon Valdez, 270 F.3d 1215, 1221-23 (9th Cir. 2001).

(2.) Id.; see also the decision of the district court on remand: In re Exxon Valdez, 236 F. Supp. 2d 1043 (D. Alaska 2002), vacated and remanded, No. 03-35166 (9th Cir. Aug. 18, 2003).

(3.) The Amiable Nancy, 16 U.S. (3 Wheat.) 546 (1818).

(4.) Ralston v. The State Rights, 20 F. Cas. 201, 210 (E.D. Pa. 1836).

(5.) David W. Robertson, Punitive Damages in American Maritime Law, 28 J. MAR. L. & COM. 73, 77 (1997).

(6.) 498 U.S. 19 (1990).

(7.) See, e.g. In re Complaint of Cameron Boat Rentals, Inc., 683 F. Supp. 577, 585 (W.D. La. 1988); Pino v. Protection Maritime Ins. Co., 490 F. Supp. 277, 281 (D. Mass. 1980).

(8.) See Robertson, supra note 5, at 137-38 nn.360-67.

(9.) Id. at 134-37.

(10.) Miles, 489 U.S. 19, 33.

(11.) Robert Force, The Curse 0fMiles v. Apex Marine Corp.: The Mischief of Seeking "Uniformity " and "Legislative Intent" in Maritime Personal Injury Cases, 55 LA. L. REV. 745 (1995); see also John R. Brown, Admiralty Judges: Flotsam on the Sea of Maritime Law?, 24J. MAR. L. & COM. 249 (1993).

(12.) See, e.g., Wahlstrom v. Kawasaki Heavy Indus., 4 F.3d 1084, 1094 (2d Cir. 1993), cert. denied, 510 U.S. 1114 (1994); Bridgett v. Odeco, Inc., 646 So. 2d 1249,1252-54 (La. Ct. App. 1994), writ denied, 651 So. 2d840 (La. 1995).

(13.) Guevara v. Maritime Overseas Corp., 59 E3d 1496, 1512 (5th Cir. 1995) (en banc), cert. denied, 516 U.S. 1046 (1996); Glynn v. Roy AI Boat Mgmt. Corp., 57 F.3d 1495,1502 (9th Cir. 1995), cert. denied, 516 U.S. 1046 (1996).

(14.) See, e.g., Miller v. Am. President Lines, Ltd., 989 F.2d 1450,1457-58 (6th Cir.), cert. denied, 510 U.S. 915 (1993).

(15.) See, e.g., Wahlstrom, 4 F.3d 1084, 1094; Boykin v. Bergesen D.Y. A/S, 822 F. Supp. 324,326 (E.D. Va. 1993); Earhart v. Chevron U.S.A., Inc., 852 F. Supp. 515,516 (E.D. La. 1993).

(16.) See, e.g., In re Exxon Valdez, 270 F.3d 1215, 1229-30; Doxey v. Lake Charles Pilots, Inc., 781 So. 2d589 (La. Ct. App. 2001).

(17.) See, e.g., In re Plaquemine Towing Corp., 190 F. Supp. 2d 889, 892-93 (M.D. La. 2002); Stires v. Carnival Corp., 243 F. Supp. 2d 1313, 1322-23 (M.D. Fla. 2002) (ultimately denying the punitive damages claim but acknowledging the right to bring such a claim); Silivanch v. Celebrity Cruises, Inc., 171 F. Supp. 2d 241,262 (S.D.N.Y. 2001); Hester v. Cottrell Contracting Corp., No. 7:00-CV-70-BR(1), 2001 WL 1764200, at * 3 (E.D.N.C. Apr. 27, 2001); In reHorizon Cruises Litig., 101 F. Supp. 2d 204 (S.D.N.Y. 2000); In re Liner v. Dravo Basic Materials Co., No. Civ. A.001908, 2000 WL 1693678 (E.D. La. Nov. 7, 2000); Edwards v. Jones, No. Civ. L-98-1634, 1999 WL 641776 (D. Md. Feb. 9,1999); Quinn v. St. Charles Gaming Co., 815 So. 2d 968,972 (La. Ct. App.), writ denied, 813 So. 2d 412 (La. 2002).

(18.) See, e.g., Lucas v. Terral Riverservice, Inc., No. Civ. A. 01-0704, 2002 WL 1822934 (E.D. La. Aug. 8, 2002); Rutherford v. Mallard Bay Drilling, L.L.C., No. Civ. A99-3689, 2000 WL 805230 (E.D. La. June 21, 2000); see also Bergeron v. Atl. Pac. Marine, 899 F. Supp. 1544, 1549 (W.D. La. 1993).

(19.) See, e.g., In re Consol. Coal Co., 228 F. Supp. 2d 764, 772 (N.D.W. Va. 2001); In re Denet Towing Serv., Inc., Nos. Civ. A. 98-1523, Civ. A. 981583, 1999 WL 329698 (E.D. La. May 21, 1999).

(20.) In re Denet Towing Serv., Inc., Nos. Civ. A. 981523, Civ. A. 98-1583, 1999 WL 329698.

(21.) Id. at * 7 (quoting 1 THOMAS J. SCHOENBAUM, ADMIRALTY & MARITIME LAW [section] 5-17, at 214 (2d ed. 1994 & Supp. 1997)).

(22.) Id. at * 3.

(23.) Id. at * 2.

(24.) Id. at * 7.

(25.) Yamaha Motor Corp., U.S.A. v. Calhoun, 516 U.S. 199 (1996).

(26.) In re Denet Towing Serv., Inc., Nos. Civ. A. 981523, Civ. A. 98-1583, 1999 WL 329698, at * 7.

(27.) Id. at * 2.

(28.) 227 U.S. 59 (1913).

(29.) Robertson, supra note 5, at 80-83; see also Abogado v. Int'l Marine Carriers, 890 F. Supp. 626, 632-33 (S.D. Tex. 1995).

(30.) Robertson, supra note 5, at 91-97,103-14.

(31.) McDermott Int'l, Inc. v. Wilander, 498 U.S. 337, 342 (1991); Miles, 498 U.S. 19, 29; Pac. S.S. Co. v. Peterson, 278 U.S. 130,138-39 (1928).

(32.) See Ned Miltenberg & Erwin Chemerinsky, Punitive Damages After Campbell, Smith, and Romo, TRIAL, Aug. 2003, at 18.

(33.) Glynn, 57 F.3d 1495.

(34.) 517 U.S. 559 (1996).

(35.) In re Exxon Valdez, 270 F.3d 1215, 1243.

(36.) In re Exxon Valdez, 236 F. Supp. 2d 1043, 1055.

(37.) Id. at 1059-61, 1063 (citing TXO Prod. Corp v. Alliance Res. Corp., 509 U.S. 443 (1993)).

(38.) Id. at 1067.

(39.) Id. at 1068.

(40.) In re Exxon Valdez, No. 03-35166 (9th Cir. Aug. 18, 2003). This decision is on appeal; see State Farm Mut. Auto. Ins. Co. v. Campbell, 123 S. Ct. 1513 (2003).

(41.) Campbell v. State Farm Mut. Auto. Ins. Co., 65 P.3d 1134, 1154 (Utah 2001), rev'd, 123 S. Ct. 1513 (2003).

(42.) Campbell, 123 S. Ct. 1513, 1519.

JOHN W. DEGRAVELLES practices law with deGravelles, Palmintier, Holthaus & Fruge, in Baton Rouge, Louisiana.