Wider impact for punitive damages ruling?

The U.S. Supreme Court’s recent decision to drastically slash from $2.5 billion to $500 million a punitive damages award against Exxon over the 1989 Valdez oil spill has lawyers assessing whether the ruling will affect punitive damage awards beyond maritime cases.
“Although it’s not binding beyond maritime law, lawyers are already beginning to mine this for persuasive language to take to state courts, federal courts and policymakers,” said Amar Sarwal, general litigation counsel with the National Chamber Litigation Center in Washington, D.C., which litigates on behalf of the U.S. Chamber of Commerce and filed an amicus brief in the case.
The court held in a 5-3 decision (Exxon Shipping Co. v. Baker, No. 07-219) that an appropriate punitive damages award should not exceed an amount equal to the compensatory damages in the case, which totaled $507.5 million.
However, the court relied heavily on an analysis of punitive damages generally.
Some attorneys say the case has widespread implications.
“The court made a lot of statements about punitive damages before applying them in the maritime context,” said Alexandra Klass, who teaches torts and environment law at the University of Minnesota Law School. “Defense lawyers will certainly try to use this case [to reduce] state punitive damage verdicts.”
But David Owen, a law professor at University of South Carolina School of Law and the author of several books on products liability and tort law, said state courts are unlikely to apply this case outside maritime law.
“There is already a long line of cases, State Farm being the last prominent case, and rich due process constitutional jurisprudence that covers 90 percent of cases,” he said.
However, he conceded the case could influence judges reviewing the very highest punitive awards.

Outlier problem

The case before the court involved the 1989 Exxon Valdez accident where a tanker, headed by a captain with a history of alcoholism, hit a reef off of Alaska, creating the largest oil spill in U.S. history.
In 1994, a jury awarded $5 billion in punitive damages against Exxon. The 9th Circuit later halved the award to $2.5 billion.
Exxon challenged the remaining punitive award under several theories.
The Supreme Court unanimously ruled the Clean Water Act’s penalty provisions do not preempt punitive damages.
A majority of five justices said the punitive damages in the case were excessive as an issue of first impression under federal judge-made maritime law.
The majority reviewed the history of punitive damage awards, finding that while there has not been a marked increase in the percentage of cases with punitive damages, the occasional outlier award led to inconsistency in punitive damages.
“The real problem is with the stark unpredictability of punitive awards,” wrote Justice David Souter for the majority.
“[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,” Souter wrote.
The justices rejected verbal formulas, such as whether a punitive award “shocks the conscience,” and instead favored a numerical ratio of compensatory to punitive damages in cases where the conduct was reckless rather than intentional.
The court cited studies showing that for a range of cases covering “the entire gamut” of blameworthy conduct, the median ratio of punitive to compensatory damages was less than 1:1.
Justice John Paul Stevens in dissent said Congress should come up with a numerical rule; Justice Ruth Bader Ginsburg questioned whether the majority was signaling a 1:1 ratio as a constitutional ceiling as well; and Justice Stephen Breyer said this was a “special case” where the employee’s known history of alcoholism justified a higher punitive award.
Justice Samuel Alito recused himself and took no part in the consideration of the case or ruling.

Predictability

The decision “is a strong indication the Supreme Court is serious about trying to make punitive damages more predictable,” said Richard Samp, chief counsel for the Washington Legal Foundation in Washington D.C., which also filed a brief in the case.
He said the ruling requires federal judges to conduct a similar type of analysis in cases such as civil rights actions where a federal statute does not control the amount of punitive damages.
On the state level, Victor Schwartz, a partner with Shook Hardy & Bacon in Washington, D.C. and general counsel to the American Tort Reform Association, said Supreme Court decisions often catch on with state courts. He pointed to the Daubert ruling, which has proven influential.
But others disagree.
“There’s very little appetite among state courts to suddenly announce a hard and fast ratio, because that is a legislative act, not a judicial one,” said Robert Peck, an attorney with the Center for Constitutional Litigation in Washington, D.C., which filed an amicus brief in the case.
However, the ruling may be influential with state legislatures looking to put limits on punitive damages.
Thirty-five states already have some form of restriction on punitive damages, whether requiring a higher burden of proof or imposing numerical caps, said Klass.
An underlying policy question is whether punitive damages should be predictable.
The court pointed to excessive “outlier” punitive awards as creating a problem of inconsistency.
But Owen questioned this premise.
“It seems to me a little unpredictability is good. Damages should not be viewed by wrongdoers as simply a license fee for wrongdoing,” he said.