Exxon Shipping Co. v. Baker
Supreme Court reduces jury award of punitive damages against Exxon for its role in the Exxon Valdez oil spill—and also hints that such outcomes “may well” be required as a matter of constitutional due process in future cases
Status: On remand to Ninth Circuit (No. 04-35183) for recalculation of punitive damages award and consideration of Exxon’s claim that it owes no interest
Discussion and Analysis: In March 1989, the supertanker Exxon Valdez ran aground on a reef off the Alaskan coast, dumping 11 million gallons of crude oil into Prince William Sound. The oil spill devastated wildlife populations, shoreline ecosystems, and the fortunes of many people who depend on the Sound for their livelihoods. Two decades later, environmental and economic aftereffects of the disaster persist.
The Exxon Valdez spill spawned extensive litigation, including this consolidated lawsuit for economic losses suffered by commercial fishermen, native Alaskans, and other property owners. At the center of the litigation is the now-infamous Captain Joseph Hazelwood, whom the evidence showed was a lapsed alcoholic who drank openly—including aboard Exxon tankers. On the night the Exxon Valdez sailed, he drank five double vodkas—“enough ‘that a non-alcoholic would have passed out.’” As the tanker left port, Hazelwood made multiple errors, including quitting the bridge just as the ship was required to perform a difficult maneuver in icy conditions—in a part of the Sound that no one else aboard was licensed to navigate.
A jury awarded plaintiffs approximately $500 million in compensation for their losses, plus $5 billion in punitive damages. Following multiple appeals, the Ninth Circuit ultimately determined that the jury’s punitive damages award violated Exxon’s right to constitutional due process and reduced the figure to $2.5 billion.
In 2008, the Supreme Court took up the question of whether the punitive damages award was excessive under federal maritime law, which governed the accident. The Court found in favor of Exxon, ruling by a 5-3 vote (Justice Alito did not participate) that maritime law provides for a maximum 1:1 ratio between punitive damages and compensatory damages in such a case. This resulted in a further reduction of the punitive damages award to $0.5 billion. While disavowing any intent to render a constitutional ruling, the Court nonetheless added in a footnote that the “constitutional outer limit” in this case “may well be 1:1.” In dissent, Justice Ginsburg asked whether the Court was “signaling” its intent in a future case to set this ratio as the ceiling allowed by due process.
Although the Supreme Court decided Baker under maritime law, there is little doubt that courts (and defense attorneys) will seize on the Court’s suggestion that the Constitution may cap punitive damages at a 1:1 ratio to compensatory damages in cases like this one, where the defendant’s conduct has been construed as “reckless,” rather than “intentional.” A constitutional ceiling would have real significance for environmental plaintiffs: environmental law has its roots in tort law, and the possibility of incurring a punitive damages award has long stood as a powerful deterrent against polluters. The holding in Baker, together with its strong implication that the Constitution establishes a numerical ratio capping awards of punitive damages in similar cases, may well alter the decision-making calculus for companies whose regular business operations present environmental risks that must be carefully managed.
Key Opinion:Exxon Shipping Co. v. Baker, __ U.S. __, 128 S.Ct. 2605 (2008), reversing and remanding In re Exxon Valdez, 490 F.3d 1066 (9th Cir. 2007) (per curiam).
See Also: Jurinko v. Medical Protective Co., __ F.3d __, 2008 WL 5378011 (3d Cir. Dec. 24, 2008) (reducing punitive damages to a 1:1 ratio with compensatory damages in an insurance case, citing Exxon that this ratio may be the “constitutional outer limit” in cases where there are “substantial” compensatory damages); Hayduck v. City of Johnstown, __ F. Supp. 2d. __, 2008 WL 2669477 (W.D. Pa. June 30, 2008) (order on cross motions for summary judgment) (commenting in case involving claims under Family Medical Leave Act and 42 U.S.C. § 1983 that “[a]lthough Exxon is a maritime law case, it is clear that the Supreme Court intends that its holding have a much broader application.”)
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