New limits to punitive damages

The US Supreme Court in Exxon Shipping Co. v Baker , 00 U.S. 07-219 (2008)
quantified the “fair upper limits” for punitive damages in maritime cases to a ratio of
1:1. In other words, the punitive damages could not exceed the compensatory
damages.

On March 24, 1989 the Exxon Valdez grounded off the Alaskan coast and
spilled millions of gallons of crude oil into the sound. The captain, Joseph
Hazelwood, a known and lapsed alcoholic, had been drinking. His blood alcohol at
the time of the incident was .241. At a crucial moment, he inexplicably left the bridge
and due to this and a few other factors coming together, he recklessly caused an
environmental disaster.

The court summarized the legal aftermath as follows:
“Exxon spent some $2.1 billion in cleanup efforts, pleaded guilty to criminal
violations occasioning fines, settled a civil action by the United States and Alaska for
at least $900 million, and paid another $303 million in voluntary payments to private
parties. Other civil cases were consolidated into this one, brought against Exxon,
Hazelwood, and others to recover economic losses suffered by respondents
(hereinafter Baker), who depend on Prince William Sound for their livelihoods. At
Phase I of the trial, the jury found Exxon and Hazelwood reckless (and thus potentially
liable for punitive damages) under instructions providing that a corporation is
responsible for the reckless acts of employees acting in a managerial capacity in the
scope of their employment. In Phase II, the jury awarded $287 million in
compensatory damages to some of the plaintiffs; others had settled their
compensatory claims for $22.6 million. In Phase III, the jury awarded $5,000 in
punitive damages against Hazelwood and $5 billion against Exxon. The Ninth Circuit
upheld the Phase I jury instruction on corporate liability and ultimately remitted the
punitive damages award against Exxon to $2.5 billion.”

On appeal to the US Supreme Court the justices were equally divided on
whether, in maritime law, a corporation could be liable for punitive damages based
only on the conduct of its employees. Therefore the 9th Circuit’s opinion that the
corporation could be so liable was not overturned, although this case would not be a
precedent in the future.

It found that the Clean Water Act , 33 USC § 1321, did not preempt punitive
damages in maritime spill cases.

The significant part of the opinion, however, deals with the amount of punitive
damages, i.e. damages designed to punish the defendant and to deter future harmful
conduct. They come in to play when the behavior has gone beyond unreasonable to
deplorable. Although juries have not been overt in granting substantially greater
amounts than are necessary to punish or deter, the court found that the real problem
is the “stark unpredictability of punitive awards.” After pointing out the limited context
for their decision, maritine law, it settled on the amount being limited to 1:1 with the
compensatory damages.

In concurring and dissenting opinions, several justices wrote that this matter
should have been left to Congress and one found the egregious behavior of the
captain and the corporate knowledge that he had lapsed and its inaction was such
that an exception to the 1:1 ratio was warranted.