Exxon Shipping--Punitive Damages--Case Decision

This decision, which finally lays to rest the saga of the Exxon Valdez and its noxious oil spill in Prince William Sound, Alaska in 1989, is difficult to understand unless you realize that the Court was trying to answer three questions in its opinion. This summary will list those questions, with the Court's 'answer' after each question. In short, the Court left the Ninth Circuit's decision undisturbed, by an evenly divided number (4-4; Alito recused himself), on the question of whether maritime law allows corporate liability for punitive damages. The Ninth Circuit had said "yes." It also concluded that the Clean Water Act didn't preempt punitive damages, and that a ratio of 1:1 with compensatory damages was appropriate in maritime law cases. Now, the details:

Question One

"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 answer is given above, repeated here:

"Because the Court is equally divided on whether maritime law allows corporate liability for punitive damages based on the acts of managerial agents, it leaves the Ninth Circuit's opinion undisturbed in this respect. Of course, this disposition is not precedential on the derivative liability question. See, e.g., Neil v. Biggers, 409 U.S. 188, 192, 93 S.Ct. 375, 34 L.Ed.2d 401."

Question Two

"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?"

Here is how the Court answered, this time by unanimity:

"The Clean Water Act's water pollution penalties, 33 U.S.C. § 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,” § 1321 (o) . Exxon's admission that the CWA does not displace compensatory remedies for the consequences of water pollution, even those for economic harms, leaves the company with the untenable claim that the CWA somehow preempts punitive damages, but not compensatory damages, for economic loss. Nothing in the statute points to that result, and the Court has rejected similar attempts to sever remedies from their causes of action, see Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 255-256, 104 S.Ct. 615, 78 L.Ed.2d 443. There is no clear indication of congressional intent to occupy the entire field of pollution remedies, nor is it likely that punitive damages for private harms will have any frustrating effect on the CWA's remedial scheme."

Question Three

Most problematic, and controversial, however, was the complex answer to the third question:

"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?"

In a word, the Court divided 5-3 (opinion by Souter) to hold that in a maritime case the average ratio of compensatory to punitive damages would be 1:1. In the Court's language:

"The punitive damages award against Exxon was excessive as a matter of maritime common law. In the circumstances of this case, the award should be limited to an amount equal to compensatory damages."

Though the Court spent quite a bit of time in historical review and analysis of State approaches to punitive damages, its crucial paragraph was this:

"American punitive damages have come under criticism in recent decades, but the most recent studies tend to undercut much of it. Although some studies show the dollar amounts of awards growing over time, even in real terms, most accounts show that the median ratio of punitive to compensatory awards remains less than 1:1. Nor do the data show a marked increase in the percentage of cases with punitive awards. The real problem is the stark unpredictability of punitive awards. Courts are concerned with fairness as consistency, and the available data suggest that the spread between high and low individual awards is unacceptable. The spread in state civil trials is great, and the outlier cases subject defendants to punitive damages that dwarf the corresponding compensatories. The distribution of judge-assessed awards is narrower, but still remarkable. These ranges might be acceptable if they resulted from efforts to reach a generally accepted optimal level of penalty and deterrence in cases involving a wide range of circumstances, but anecdotal evidence suggests that is not the case, see, e.g., Gore, supra, at 565, n. 8."

So, there you have it--and the reason for reversing the Ninth Circuit in this case (which had awarded $2.5 billion in punitive damages, when compensatory damages were approximately 1/2 billion). Punitive damages have diminshing for about two decades in cases before the Court; this is their lowest level ever...

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