Exxon Shipping v. Baker; Exxon Valdez Punitive Damages Award Case

This case is the latest, and perhaps one of the last, cases in the generation-long saga of the Exxon Valdez oil spill in Prince William Sound Alaska in March 1989. That spill caused 10.8 million gallons of crude oil to dump into the Sound and wash ashore. Over the next several years there were efforts by Exxon to compensate 32,000 people whose economic livelihood was affected by the spill as well as requirements that Exxon pay for the environmental damage caused by the spill. But the element of the case that still survives is the punitive damage award against the company for several billion dollars (more specificity below) arising from the damages caused to the economic interests of fishermen and others who depended on the ecology of the Sound for livelihood. Punitive damages are meant to punish, and the central issue in this case is what, if any, punitive damages should be heaped on Exxon for their conduct in permitting a drunk captain to pilot an oil tanker through difficult and dangerous shoals in the late night and early morning hours.

What makes this case so fascinating is the way that its torturous history has paralleled the US Supreme Court's evolving jurisprudence on punitive damages. When the spill happened the idea or notion of punitive damages in America was that juries were fairly free to impose whatever damages they thought would punish and deter an offender from the conduct for which it was held responsible. Therefore, ratios between compensatory damages (actual damage suffered) and punitive damages could run from 1:5 to 1:500. No "ratio" was deemed to be a violation of the Due Process clause of the 14th Amendment. Yet, as the 1990s progressed, so did the US Supreme Court's look at punitive damages. So as not to review the cases and history in detail (you can read the Ninth Circuit opinion at 490 F3d 1066 (2007) for a thorough analysis), I will only mention two issues.

First, the Court began to isolate and identify the factors that would allow an award of punitive damages. Known as the three BMW v. Gore factors (case at 517 US 559 (1996), they inclued the "reprehensibility" of the conduct of the defendant, the disparity between the actual or potential harm to the plaintiffs and the difference between the punitives and the civil and criminal penalties authorized by the state for that conduct. In BMW, the Court stated that reprehensibility is "perhaps the most important indicium of the reasonableness of a punitive damages award."

The Court also began to develop an approach to the amount of damages in a number of cases, culminating in the State Farm case from 2003 (State Farm Mut. Auto. Ins. Co. v. Campbell, 538 US 408 (2003)). In that car accident case, the Court reiterated its approach that the "most important indicium" of a punitive damages award's reasonableness was the relative reprehensibility of the defendant's conduct. Then, however, it entered into a discussion of "multiples" or "ratios" between a compensatory damages award and a punitive damages award that would not offend the Due Process clause of the 14th Amendment. Its core holding was that ratios in excess of single-digits would raise serious constitutional questions, and that single-digit ratios were "more likely to comport with due process."

Moving to Our Case

The oil spill by the Exxon Valdez and its aftermath occasioned significant and long-term problems to the economic, natural history and psychological health of the residents of Alaska. So, when courts were asked to make decisions on how reprehensible Exxon's conduct was, it had to look at the facts on the ground since 1989 as well as the action of the captain of the ship (technically the "master") and Exxon in putting a known drunk into the captain's chair on that fateful night. Here is a snapshot of what has happened. In 1994 a jury found Exxon liable and awarded punitive damages of $4 billion. A second award, after reconsidering the Supreme Court precedents, resulted in a $5 billion punitive award. However, the 9th Circuit, early in 2007, in a 2-1 decision of the panel, decided to lower the punitive award to $2.5 billion against Exxon. Their reasoning was that there was approximately $500 million of economic damage caused by the spill, and that a multiple of 10:1, which $5 billion represented, was too close to the limit required by State Farm to be supportable. Therefore, a remittitur of more than $2 billion would bring the award to a 5:1 ratio, which the panel decided comported with due process. However, the dissenting judge would have left the award at $5 billion.

Division in the House and the Questions on Review

But because the 9th Circuit is the 9th Circuit, there were tons of opinions about the case in general. especially when the entire court decided what to do with the case. Exxon sought a rehearing en banc (with the whole court) of the decision, but a majority of nonrecused (because some judges probably owned Exxon stock) active judges declined to review the case. Yet, there was a stinging dissent from the refusal to hear the case en banc by one of the most conservative members of the court--whose opinion will probably be read closely by the right-leaning US Supreme Court. The dissent, by Judge Alex Kozinski, from the decision not to consider the case en banc, argued that no punitive damages at all should be assessed Exxon. He based his argument on traditional maritime principles which wouldn't permit punitives against a ship owner solely on the fault of captain and crew. The precedents he cited went back to 1818, but the 9th Circuit had apparently overruled these precedents in more recent days.

Yet, Exxon, on appeal, raised three questions for the Court to consider, and the first one squarely presents the "Judge Kozinski" question:

"1. May punitive damages be imposed under maritime law against a shipowner (as the Ninth Circuit held, contrary to decisions of the First, Fifth, Sixth, and Seventh Circuits) for the conduct of a ship's master at sea, absent a finding that the owner directed, countenanced, or participated in that conduct, and even when the conduct was contrary to policies established and enforced by the owner?"

The Supreme Court expressly said it will deal with that question. The other two questions they will answer are these:

2. When Congress has specified the criminal and civil penalties for maritime conduct in a controlling statute, here the Clean Water Act, but has not provided for punitive damages, may judge-made federal maritime law (as the Ninth Circuit held, contrary to decisions of the First, Second, Fifth, and Sixth Circuits) expand the penalties Congress provided by adding a punitive damages remedy?

3. Is this $2.5 billion punitive damages award, which is larger than the total of all punitive damages awards affirmed by all federal appellate courts in our history, within the limits allowed by federal maritime law?

What will the Court do? I think there will be at least three Justices who will agree with Judge Kozinski and decline to find any punitive damages against Exxon. But, I believe the Court will probably affirm the 9th Circuit on this one. It certainly won't go for $5 billion. The "middle figure" of $2.5 billion seems much more reasonable to them, especially since the "swing vote Justice," Justice Anthony Kennedy, is a strong proponent of the "middle" range of the single digit multiplier.

And, oh, one other point. Justice Samuel Alito, who would probably have given a fourth vote not to allow punitives at all, can't participate. Why? He owns between $100,000 and $250,000 of Exxon stock....

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