Thursday, June 26, 2008

High Court Rules In Exxon Shipping Co. v. Baker

Jun 25: In the U.S. Supreme Court, Case No. 07-219. In a complicated split decision, the U.S. Supreme Court has ruled that a punitive damage award of $2.5 billion in the tragic Exxon Valdez catastrophe was too large and should not exceed the compensatory damages determined to be $507.5 million. Legal observers are saying the case may established a new legal guideline to use in deciding what is a reasonable dollar value to "punish" a wrong-doer for damages. The new guideline is basically a 1-to-1 ratio of compensatory damages cost to punishment award.

The High Court said in summary, "There are three questions of maritime law before us: whether a shipowner may be liable for punitive damages without acquiescence in the actions causing harm, whether punitive damages have been barred implicitly by federal statutory law making no provision for them, and whether the award of $2.5 billion in this case is greater than maritime law should allow in the circumstances. We are equally divided on the owner’s derivative liability, and hold that the federal statutory law does not bar a punitive award on top of damages for economic loss, but that the award here should be limited to an amount equal to compensatory damages.

Justice Souter delivered the opinion of the Court, in which Justices Roberts, Scalia, Kennedy, and Thomas joined. Justices Stevens, Ginsburg, and Breyer joined, in Parts I, II, and III. Justice Scalia filed a concurring opinion, in which Justice Thomas, joined. Justices Stevens, Ginsburg and Breyer filed opinions concurring in part and dissenting in part. Justice Alito took no part in the consideration or decision of the case.

At issue in the case was the $2.5 billion punitive damage verdict that breaks down to $76,500 per individual plaintiff in the class action composed of 32,677 commercial fishermen, related individuals and businesses, private landowners, Native Alaskans, municipalities, and other claimants from across the country. Exxon argued that it should not be punished at all [See WIMS 2/26/08]. The jury awarded $5,000 in punitive damages against Hazelwood and $5 billion against Exxon. On appeal, the Court of Appeals for the Ninth Circuit reduced the damage award against Exxon to $2.5 billion.

In its review the High Court considered the question of whether to allow punitive damages for the conduct of any employee and imposing liability for managerial agents and concluded, "The Court is equally divided on this question. . . We therefore leave the Ninth Circuit’s opinion undisturbed in this respect, though it should go without saying that the disposition here is not precedential on the derivative liability question."

On another issue regarding whether the Clean Water Act (CWA) somehow preempts punitive damages, but not compensatory damages, for economic loss, the High Court agrees with the Ninth Circuit and says, "nothing in the statutory text points to fragmenting the recovery scheme this way, and we have rejected similar attempts to sever remedies from their causes of action."

Finally, on the issue of first impression about punitive damages in maritime law, the High Court indicates that, "by most accounts the median ratio of punitive to compensatory awards has remained less than 1:1." The Court also notes that, "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."

The Majority rules, "Applying this standard [1:1, punitive to compensatory] to the present case, we take for granted the District Court’s calculation of the total relevant compensatory damages at $507.5 million. See In re Exxon Valdez, 236 F. Supp. 2d 1043, 1063 (D. Alaska 2002). A punitive-to-compensatory ratio of 1:1 thus yields maximum punitive damages in that amount. We therefore vacate the judgment and remand the case for the Court of Appeals to remit the punitive damages award accordingly."

Access the syllabus, complete opinion, concurring opinions and dissents (
click here). Access the Supreme Court Docket 07-219 (click here). Access the Supreme Court links to all briefs (click here). Access the Whole Truth website for links to extensive information (click here). Access a graphic chronology of the litigation in this case and links to all briefs filed in the Supreme Court case (click here). [*Haz, *Water]