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Maritime law (punitive damages).


On or about March 29, 1989, Petitioner Exxon's supertanker Valdez grounded on a reef off Alaska, spilling crude oil into Prince William Sound. The tanker was over 900 feet long and Exxon used it to carry crude oil from the end of the Trans-Alaska Pipeline in Valdez, Alaska, to the lower 48 States. On the night of the spill it was carrying 53,000,000 gallons of crude oil, or over 1,000,000 barrels.

The accident came about soon after Captain Joseph Hazelwood--for some unknown reason--walked off the bridge. This action placed a tricky course correction in the inexperienced hands of unlicensed subordinates. Moreover, Hazelwood had a history of alcohol abuse and his blood still had a high alcohol level eleven hours after the spill. Witnesses testified that, before the Valdezleft port on the night of the disaster, Hazelwood had consumed at least five double vodkas in the waterfront bars of Valdez, an intake of about 15 ounces of 80-proof alcohol, enough that a non-alcoholic would have passed out. There also was evidence that Exxon officials knew that Hazelwood's various sessions with AA etc. had failed to succeed in curing his alcohol addiction. Nevertheless, Exxon kept him in command of this super tanker.

After the disaster, Exxon spent some $2.1 billion in cleanup activities. It also (1) pled guilty to criminal violations for which it paid fines, (2) settled a civil action brought by the United States and the state of Alaska for at least $900 million, and (3) voluntarily paid another $303 million to various private parties adversely affected by the spill.

In the resulting civil actions, the Alaska federal court consolidated related actions against Exxon into this one. Plaintiffs brought it against Exxon, Hazelwood, and others to recover economic losses suffered by Respondents (collectively Baker), who depend on the health of Prince William Sound to earn a living. Plaintiffs also demanded punitive damages.

At Phase I of the trial, the jury decided that Exxon and Hazelwood had acted recklessly, thus opening the door for punitive damages claims. The trial court charged the jury that a corporation is responsible for the reckless acts of employees acting in a managerial capacity within the scope of their employment.

In Phase II, the jury came in with $287 million in compensatory damages to some of the Plaintiffs--other Plaintiffs had settled their compensatory claims for $22.6 million. In Phase III, the jury awarded $5,000 in punitives against Captain Hazelwood and $5 billion against Exxon. The Ninth Circuit upheld the Phase I jury instruction on corporate liability and ended up remitting the punitive damages award against Exxon to $2.5 billion.

The U.S. Supreme Court granted certiorari to decide three questions of maritime common law: (1) whether a shipowner may be liable for punitive damages even though it did not acquiesce in the harm-causing actions; (2) whether federal statutory law has implicitly precluded an award of punitive damages by making no express provision for them; and (3) whether the award of $2.5 billion in this case is greater than maritime law should allow in the circumstances of this case. A majority of the Court vacates the punitive damage judgment and remands for further proceedings. On the statutory point, the Court majority concludes that water pollution penalties under the Clean Water Act (CWA) 33 U.S.C. [section] 1321, do not-preempt punitive-damages awards in maritime spill cases. Section 1321(b) protects navigable waters ..., adjoining shorelines, ... [and] natural resources, subject to a saving clause reserving obligations ... under any ... law for damages to any ... privately owned property resulting from [an oil] discharge, [section] 1321(o).

Exxon admits that the CWA does not displace compensatory remedies for the effects of water pollution, even those for economic harms. This, however, puts the company in the untenable posture of claiming that, for economic losses, the CWA somehow preempts punitive damages, but not compensatory damages. Nothing in the statute requires that result, and the Court has spurned similar attempts to sever remedies from their causes of action, see Silkwood u Kerr-McGee Corp., 464 U.S. 238, 255-256. Nowhere in the CWA did Congress clearly express or imply an intent to take over the entire range of water pollution remedies. Moreover, it seems unlikely that awarding punitive damages for private harms would to any degree frustrate the CWNs specific remedial goals. The Court, however, does conclude that the punitive damages award against Exxon was exorbitant as a matter of maritime common law. Under the circumstances of this case, this Court's bottom line is that the federal courts should limit such awards to an amount that duplicates the compensatory damages. The Court then explains its rationale.

It is true that legal codes from ancient times through the Middle Ages did allow multiple damages for certain particularly harmful acts. On the other hand, modern Anglo-American punitive damages principles are rooted in 18th-century English law as widely accepted by American courts by the mid-19th century. See, e.g., Day v. Woodworth, 13 How. 363, 371.

The majority American rule limits punitive damages to cases involving enormity. Day v. Woodworth, ibid. These are situations where the courts describe a defendant's conduct in terms such as outrageous, owing to gross negligence, willful, wanton, and reckless indifference for others' rights, or even more deplorable behavior. The modern consensus is that our law designs punitive damages not only to punish the wrongdoer but also to deter future harmful conduct by a particular defendant or by anybody else so tempted.

State regulation of punitive damages is far from uniform. A few States award them rarely, or not at all, and others approve them only when authorized by statute. Many States have set statutory limits on punitive awards. These may take the form of absolute monetary caps, a maximum ratio of punitive to compensatory damages, or, often, some combination of the two.

"Despite these limitations, punitive damages overall are higher and more frequent in the United States than they are anywhere else. See, e.g., Gotanda, Punitive Damages: A Comparative Analysis, 42 Colum. J. Transnat'1 L. 391, 421 (2004); 2 L. Schlueter, Punitive Damages [section] 22.0 (5th ed. 2005).

"In England and Wales, punitive, or exemplary, damages are available only for oppressive, arbitrary, or unconstitutional action by government servants; injuries designed by the defendant to yield a larger profit than the likely cost of compensatory damages, and conduct for which punitive damages are expressly authorized by statute. Rookes v. Barnard, [1964] 1 All E. R. 367,410-411 (H. L.). Even in the circumstances where punitive damages are allowed, they are subject to strict, judicially imposed guidelines."

"American punitive damages have been the target of audible criticism in recent decades, see, e.g., Note, Developments, The Paths of Civil Litigation, 113 Harv. L. Rev. 1783, 1784-1788 (2000) (surveying criticism), but the most recent studies tend to undercut much of it, see id., at 1787-1788. 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." [2624].

"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. The available data suggest it is not. A recent comprehensive study of punitive damages awarded by juries in state civil trials found a median ratio of punitive to compensatory awards of just 0.62:1, but a mean ratio of 2.90:1 and a standard deviation of 13.81. juries, judges, and Punitive Damages 269."

"Even to those of us unsophisticated in statistics, the thrust of these figures is clear: the spread is great, and the outlier cases subject defendants to punitive damages that dwarf the corresponding compensatories. The distribution of awards is narrower, but still remarkable, among punitive damages assessed by judges: the median ratio is 0.66:1, the mean ratio is 1.60:1, and the standard deviation is 4.54. Ibid."

"Other studies of some of the same data show that fully 14% of punitive awards in 2001 were greater than four times the compensatory damages, ... with 18% of punitives in the 1990s more than trebling the compensatory damages, see Ostrom, Rottman, & Goerdt, A Step Above Anecdote: A Profile of the Civil jury in the 1990s, 79 judicature 233, 240 (1996). And a study of 'financial injury' cases using a different data set found that 34% of the punitive awards were greater than three times the corresponding compensatory damages. Financial Injury: jury Verdicts 333.

"Starting with the premise of a punitive-damages regime, these ranges of variation might be acceptable or even desirable if they resulted from judges' and juries' refining their judgments to reach a generally accepted optimal level of penalty and deterrence in cases involving a wide range of circumstances, while producing fairly consistent results in cases with similar facts. CE TXO Production Corp. u Alliance Resources Corp., 509 U.S. 443, 457-458 (1993) (plurality opinion). But anecdotal evidence suggests that nothing of that sort is going on." [2625].

"One of our own leading cases on punitive damages, with a $4 million verdict by an Alabama jury, noted that a second Alabama case with strikingly similar facts produced 'a comparable amount of compensatory damages' but 'no punitive damages at all.' See BMW of North America, Inc. u Gore, 517 U.S. 559, 565, n. 8 (1996). As the Supreme Court of Alabama candidly explained, 'the disparity between the two jury verdicts ... [w] as a reflection of the inherent uncertainty of the trial process.' BMW of North America, Inc. u Gore, 646 So. 2d 619, 626 (1994) (per curiam)." We are aware of no scholarly work pointing to consistency across punitive awards in cases involving similar claims and circumstances."

"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. Our due process cases, on the contrary, have all involved awards subject in the first instance to state law. ... These, as state-law cases, could provide no occasion to consider a 'common-law standard of excessiveness,' [Cite] and the only matter of federal law within our appellate authority was the constitutional due process issue." [2626].

"Our review of punitive damages today, then, considers not their intersection with the Constitution, but the desirability of regulating them as a common law remedy for which responsibility lies with this Court as a source of judge-made law in the absence of statute. Whatever may be the constitutional significance of the unpredictability of high punitive awards, this feature of happenstance is in tension with the function of the awards as punitive, just because of the implication of unfairness that an eccentrically high punitive verdict carries in a system whose commonly held notion of law rests on a sense of fairness in dealing with one another."

"Thus, a penalty should be reasonably predictable in its severity, so that even justice Holmes's 'bad man' can look ahead with some ability to know what the stakes are in choosing one course of action or another. See The Path of the Law, 10 Harv. L. Rev. 457, 459 (1897). And when the bad man's counterparts turn up from time to time, the penalty scheme they face ought to threaten them with a fair probability of suffering in like degree when they wreak like damage. Cf. Koon v. United States, 518 U.S. 81, 113 (1996) (noting the need 'to reduce unjustified disparities' in criminal sentencing 'and so reach toward the evenhandedness and neutrality that are the distinguishing marks of any principled system of justice'). The common sense of justice would surely bar penalties that reasonable people would think excessive for the harm caused in the circumstances. ..." [2627].

"The provision of the CWA respecting daily fines confirms our judgment that anything greater [than compensatory damages] would be excessive here and in cases of this type. Congress set criminal penalties of up to $25,000 per day for negligent violations of pollution restrictions, and up to $50,000 per day for knowing ones. 33 U.S.C. [section][section] 1319(c)(1), (2). Discretion to double the penalty for knowing action compares to discretion to double the civil liability on conduct going beyond negligence and meriting punitive treatment."

"And our explanation of the constitutional upper limit confirms that the 1:1 ratio is not too low. In State Farm Mut. Automobile Ins. Co. v. Campbell, 538 U.S. 408, 425, we said that a single-digit maximum is appropriate in all but the most exceptional of cases, and '[w]hen compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee. State Farm, supra at 425." [2634]. The Court, therefore, vacates and remands the case to the lower courts.

CITATION: Exxon Shipping Co. v. Baker, 128 S. Ct. 2605, 171 L.Ed.2d 570, 2008 A.M. C. 1521 (U.S.S.C. 2008).
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Publication:International Law Update
Date:Feb 1, 2009
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