A punitive damage award in the Exxon Valdez oil spill case that once amounted to $5 billion was knocked down to $507.5 million by the Supreme Court on Wednesday.
The 5-3 majority said that in the maritime law context, there should be a 1:1 ratio between compensatory and punitive damages. A trial judge had awarded $507.5 million in compensatory damages to a class of fishermen who suffered losses from the 1989 oil spill, so Justice David Souter, who wrote the majority opinion, said the punitive award should match that figure. The award had already been reduced to $2.5 billion on appeal, so Wednesday's decision saved Exxon Mobil nearly $2 billion.
Even though the ruling was based on maritime law, a unique branch of federal common law, the Souter opinion was full of concern about unpredictable "outlier" verdicts against corporations.
"The real problem, it appears, is the stark unpredictability of punitive awards," Souter wrote after a lengthy survey of the history of punitive damages.
As a result of such comments, business advocates applauded the Court for providing fresh aid in their long-running battle to limit punitive damages in a broad range of tort law cases.
"Lawyers are going to mine this for its good language, and they are going to start doing it today," says Amar Sarwal, a lawyer with the National Chamber Litigation Center.
"It's not binding" outside maritime law, says Andrew Frey of Mayer Brown, an early architect of the campaign against punitives. "But it is an extensive, thoughtful discussion that could be very influential" in other common law areas, including federal Section 1981 civil rights actions and in state court review of the excessiveness of damage verdicts.
The Court also reaffirmed its support of a line of cases, including State Farm v. Campbell, that expressed constitutional concerns about high punitive damages. Joining Souter were Chief Justice John Roberts Jr. and Justices Antonin Scalia, Anthony Kennedy and Clarence Thomas. Scalia and Thomas have not supported limits on punitive damages in the past.
But the ruling Wednesday was not a total win for Exxon and the business community. The Court split 4-4 on the issue of whether the company could be held liable at all for the misdeeds of its errant captain Joseph Hazelwood, who had been drinking and was away from his post when the Exxon Valdez ran aground. The tie vote left in place a ruling by the 9th U.S. Circuit Court of Appeals that said the company could be held liable.
The tie vote was made possible by the recusal of the ninth justice, Samuel Alito Jr., who bowed out because he owns Exxon Mobil stock.
The Court also rejected Exxon Mobil's assertion that the federal Clean Water Act pre-empted state tort action in the case. Souter said it would be a stretch to conclude that a law protecting water and natural resources was intended to eliminate "oil companies' duties to refrain from injuring the bodies and livelihoods of private individuals."
In a footnote, Souter also expressed skepticism about Exxon-funded academic research on the predictability of punitive damage awards. "Because this research was funded in part by Exxon, we decline to rely on it."
Justices John Paul Stevens, Ruth Bader Ginsburg, and Stephen Breyer wrote dissents in the case, taking the majority to task for deciding an issue that they said should have been left to Congress. Breyer said that a jury could have reasonably believed that the $5 billion verdict was justified, given Exxon's negligent behavior. Given that the appeals court reduced that amount already, Breyer said, "I would uphold it."
Stanford Law School professor Jeffrey Fisher, who argued before the Court on behalf of the Alaska plaintiffs, said in a statement, "We're thankful that the Court at least rejected Exxon's two arguments for absolving it entirely from punitive liability here. But we're deeply disappointed that the Court, at this late stage and effectively by a single vote, decided to set aside the considered views of the jury that heard the trial, the district judge who presided over the litigation for over a decade, and the court of appeals that carefully reviewed the record for several years, all of which concluded that Exxon's conduct was so reprehensible that a multibillion-dollar punitive award was appropriate."
Environmental and liberal groups also attacked the Court's decision as a gift to Exxon Mobil that ignored the damage done by the 1989 oil spill.
"For the Court to require a company that recorded a 2007 profit of $40.6 billion and that posted the highest quarterly results in U.S. corporate history in February to pay a mere $500 million in punitive damages to the affected Alaskans makes a mockery of justice," John Passacantando of Greenpeace USA said in a press release.
Nan Aron of the liberal Alliance for Justice picked up on the dissenters' point when she said in a statement, "It is remarkable that the most conservative justices on the Court -- Chief Justice Roberts and Justices Scalia and Thomas -- have endorsed this instance of judge-made law that saves a huge corporation two billion dollars when they generally claim to want to avoid having judges make the law."
The decision in Exxon Shipping v. Baker represents the culmination of years of litigation seeking compensation for the lingering effects of the 11 million-gallon oil spill on the lives and economy of Prince William Sound. In addition to the compensatory damages a jury awarded $5 billion in punitives, but the 9th U.S. Court of Appeals cut the award in half.
But Exxon wanted the award diminished even further. At oral argument, former acting solicitor general Walter Dellinger III, who heads the appellate practice at O’Melveny & Myers, said the company had been penalized and deterred enough, pointing to $400 million already paid for losses to commercial fishing plus other fines and restitutions amounting to $3.4 billion.