Printer Friendly

A narrow ruling on punitive damages.

The most important thing to know about the Supreme Court's recent decision in Exxon Shipping Co. v. Baker is that the decision is about punitive damages only in maritime cases. (1) In the ruling, the Court was clear and emphatic that it was not relying on the Constitution in its analysis of punitive damages, and, in fact, it denied certiorari on Exxon's constitutional challenge to the punitive damages awarded against it.

Justice David Souter, writing for the 5-3 majority, concluded that under maritime common law, punitive damages should be in a 1-to-1 ratio with compensatory damages. Souter stressed the need for predictability and consistency in punitive damages and said that a 1-to-1 ratio would accomplish these goals.

The case arose from the catastrophic oil spill that occurred on March 24, 1989, when the supertanker Exxon Valdez grounded on Bligh Reef off the Alaskan coast, fracturing its hull. An estimated 11 million gallons of crude oil spilled into Prince William Sound.

The accident was the result of the drunkenness and errors of the tanker's captain, Joseph Hazelwood. Before the Exxon Valdez left port on the night of the disaster, Hazelwood downed at least five double vodkas in the waterfront bars of Valdez, enough alcohol "that a nonalcoholic would have passed out." (2) Although Exxon knew that Hazelwood had a serious drinking problem and that he had been through treatment for it, the company made no attempt to monitor him or ensure his sobriety on the job.

Commercial fishermen, native Alaskans, and other people who were dependent on Prince William Sound for their livelihoods brought thousands of civil suits seeking to recover for the devastating economic losses they suffered. The suits were consolidated and tried together. A jury awarded the plaintiffs $287 million in compensatory damages and $5 billion in punitive damages against Exxon.

The Ninth Circuit twice remanded the case to the district court in light of Supreme Court decisions concerning constitutional limits on punitive damages, and it ultimately approved a $2.5 billion punitive damages award. (3) Exxon sought review, presenting the Court with three questions.

The Supreme Court first addressed the question of whether, in a maritime case, a jury may award punitive damages against a corporation based on respondeat superior liability. Exxon argued that punitive damages are not available against a shipowner for a shipmaster's recklessness.

The Court split 4-4 on this question (Justice Samuel Alito did not participate in the case). This meant that the Ninth Circuit's decision, allowing punitive damages based on respondeat superior liability, was affirmed by an evenly divided Court. But, as Souter noted, this ruling has no precedential value and the issue remains open for the Court to decide in another case. (4)

The second question was whether the Clean Water Act's water pollution penalties preempt punitive damages in oil spill cases. (5) The Court found that there was no preemption. Souter--and the Court was unanimous on this issue--concluded: "All in all, we see no clear indication of congressional intent to occupy the entire field of pollution remedies; nor for that matter do we perceive that punitive damages for private harms will have any frustrating effect on the [Clean Water Act's] remedial scheme, which would point to preemption." (6)

Limited focus

The final question before the Court was whether the punitive damages award was excessive under maritime common law. On this issue, the Court was clear that it was focusing exclusively on common law principles and not considering whether the award violated due process. Sourer wrote,
   Today's enquiry differs from due process review
   because the case arises under federal
   maritime jurisdiction, and we are reviewing
   a jury award for conformity with maritime
   law, rather than the outer limit allowed by
   due process; we are examining the verdict
   in the exercise of federal maritime common
   law authority, which precedes and
   should obviate any application of the constitutional
   standard. (7)

Thus, this case is quite different in its scope and application from other recent Supreme Court decisions concerning punitive damages--BMW of North America, Inc. v. Gore, (8) State Farm Mutual Automobile Insurance Co. v. Campbell, (9) and Philip Morris v. Williams (10)--all of which involved constitutional limits on punitive damages awards and affect all types of litigation.

Although the holding in Exxon Shipping applies only in the narrow context of punitive damages in maritime cases, Souter's reasoning was less about maritime law and more about the need for predictable and consistent rules for punitive damages awards. It's possible, then, that the ruling could apply in suits against federal officers for money damages when the cause of action is inferred directly from the Constitution, but it should be emphasized that this is a limited category of cases. The decision has no application in state punitive damages litigation or in cases in federal court via diversity jurisdiction or under specific federal statutes.

Souter began his discussion with a review of the history of punitive damages awards, pointing out that "the claim goes to our understanding of the place of punishment in modern civil law and reasonable standards of process in administering punitive law, subjects that call for starting with a brief account of the history behind today's punitive damages." (11)

He noted that studies of punitive damages do not demonstrate a significant problem of frequent large awards or even a significant growth in the size of awards. In language that likely will be important in future discussions of tort "reform," Souter commented,
   American punitive damages have been the
   target of audible criticism in recent
   decades, but the most recent studies tend to
   undercut much of it. A survey of the literature
   reveals that discretion to award punitive
   damages has not mass-produced runaway
   awards, and although some studies
   show the dollar amounts of punitive-damages
   awards growing over time, even in real
   terms, by most accounts the median ratio of
   punitive to compensatory awards has remained
   less than 1:1. Nor do the data substantiate
   a marked increase in the percentage
   of cases with punitive awards over the
   past several decades. The figures thus show
   an overall restraint and suggest that in many
   instances a high ratio of punitive to compensatory
   damages is substantially greater
   than necessary to punish or deter. (12)

But Souter went on to identify another problem with punitive damages: inconsistency in the size of the awards.
   The real problem, it seems, is the stark unpredictability
   of punitive awards. Courts of
   law are concerned with fairness as consistency,
   and evidence that the median ratio of
   punitive to compensatory awards falls within
   a reasonable zone, or that punitive awards
   are infrequent, fails to tell us whether the
   spread between high and low individual
   awards is acceptable. (13)

Souter said that the discretion of judges and juries leads to widely divergent punitive damages awards, which he compared to the great disparity in sentences in federal courts before the federal sentencing guidelines. The Supreme Court's proposed solution is to limit punitive damages to a 1-to-1 ratio with compensatory damages. Souter concluded,
   Accordingly, given the need to
   protect against the possibility
   (and the disruptive cost to the legal
   system) of awards that are unpredictable
   and unnecessary, either
   for deterrence or for
   measured retribution, we consider
   that a 1:1 ratio, which is above
   the median award, is a fair upper
   limit in such maritime cases. (14)

As Souter noted, since the imposition of the 1-to-1 ratio is based entirely on the Court's power to fashion federal common law, Congress could overturn it. Applying the 1-to-1 ratio, the Court lowered the punitive damages the Ninth Circuit had approved from $2.5 billion to $507 million.

Justices John Paul Stevens, Ruth Bader Ginsburg, and Stephen Breyer each wrote opinions dissenting as to this part of the majority opinion. Stevens stressed that it should be up to Congress to limit punitive damages in maritime cases; otherwise, punitive damages awards should be upheld unless the awards are an abuse of discretion. (15) Ginsburg likewise declared, "While recognizing that the question is close, I share Justice Stevens' view that Congress is the better equipped decision-maker." (16)

Breyer expressed agreement with the majority's view that predictability and consistency in punitive damages are needed, but he also said that the large punitive award was justified in this case because of the defendant's recklessness and the magnitude of harm caused. (17)

More to come

Businesses, and those seeking to limit punitive damages, will attempt to read the Court's holding broadly and apply it in many different contexts. But the Court was clear that it was dealing only with punitive damages in maritime cases. At most, its reasoning can be applied to other areas of federal common law where punitive damages are allowed.

Yet there's no doubt that the case reflects a Court that generally is hostile to punitive damages and wants to impose limits, whether based on due process or common law principles. There's also no doubt that Exxon Shipping is not the Court's last word on punitive damages. (18) Shortly before adjourning for the summer, the Court granted review for next term in Philip Morris v. Williams. (19) After the Supreme Court issued its decision in Philip Morris in 2007, the Oregon Supreme Court reinstated the punitive damages award against the tobacco company, and once more the Supreme Court will consider its constitutionality.


(1.) 128 S. Ct. 2605 (2008); see Erwin Chemerinsky, Will Exxon Punitive Damages Ruling Spill Over into Due Process Questions?, TRIAL 62 (Jan. 2008).

(2.) 270 F.3d 1215, 1236 (9th Cir. 2001).

(3.) See 270 F.3d 1215 (9th Cir. 2001); 472 F.3d 600 (9th Cir. 2006) (per curiam); 490 F.3d 1066 (9th Cir. 2007).

(4.) Exxon Shipping, 128 S. Ct. at 2616.

(5.) 33 U.S.C. [section]1321 (2008).

(6.) Exxon Shipping, 128 S. Ct. at 2619 (citation and footnote omitted).

(7.) Id. at 2626.

(8.) 517 U.S. 559 (1996).

(9.) 538 U.S. 408 (2003).

(10.) 127 S. Ct. 1057 (2007).

(11.) Exxon Shipping, 128 S. Ct. at 2620.

(12.) Id. at 2624 (citations omitted).

(13.) Id. at 2625.

(14.) Id. at 2633.

(15.) Id. at 2634 (Stevens, J., dissenting).

(16.) Id. at 2639 (Ginsburg, J., dissenting).

(17.) Id. at 2640 (Breyer, J., dissenting).

(18.) Even Exxon Shipping litigation is not over, as the plaintiffs are now seeking clarification from the Court on the issue of interest on the damages award. See Respondents' Submission with Respect to Rule 42.1 (filed July 8, 2008).

(19.) 128 S. Ct. 2904 (2008).

ERWIN CHEMERINSKY is the dean of and a distinguished professor of law at, the University of California, Irvine, School of Law.
COPYRIGHT 2008 American Association for Justice
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2008 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:Supreme Court Review
Author:Chemerinsky, Erwin
Date:Sep 1, 2008
Previous Article:Seeking accountability, improving safety.
Next Article:Comfortably Numb.

Related Articles
Supreme Court asks states to reform punitive damages laws.
New rules for personal injury awards.
Punitive damages dispute may reach California high court.
Constitutional requirements for punitive damages.
Punitive damages after Campbell, Smith, and Romo: though not plaintiffs' victories, these three cases are hardly cataclysmic defeats. You can avoid...
Supreme Court to revisit punitive damages.
Stand-alone punitive award in Title VII case cleared by Fifth Circuit.

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters