Exxon Shipping Co. v. Baker
128 S. Ct. 2605 (2008)
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Rule of Law:
Under federal maritime common law, punitive damages in cases involving reckless, but not malicious or intentional, conduct should be limited to an amount equal to the compensatory damages, establishing a 1:1 ratio as a fair upper limit.
Facts:
- Exxon Shipping Co. (Exxon) knew that Joseph Hazelwood, the captain of its supertanker Exxon Valdez, had a history of alcoholism and had relapsed after treatment.
- Exxon allowed Hazelwood to remain in command of the tanker without monitoring his behavior or assigning him to a shore-based position.
- On the night of the incident, Hazelwood consumed at least five double vodkas before sailing the Exxon Valdez, which was carrying 53 million gallons of crude oil.
- During a critical maneuver to avoid ice in Prince William Sound, Hazelwood left the bridge, putting the ship on autopilot and leaving an unlicensed third mate in command.
- The third mate failed to make a necessary turn, and the Exxon Valdez ran aground on Bligh Reef, spilling 11 million gallons of crude oil.
- The resulting oil spill caused extensive environmental and economic damage, particularly to commercial fishermen and native Alaskans represented by Baker.
Procedural Posture:
- Baker and a class of over 32,000 plaintiffs sued Exxon Shipping Co. in the U.S. District Court for the District of Alaska for economic losses.
- In a phased trial, a jury found Exxon and Captain Hazelwood reckless, making them potentially liable for punitive damages.
- The jury awarded $287 million in compensatory damages to some plaintiff classes and $5 billion in punitive damages against Exxon.
- Exxon appealed to the U.S. Court of Appeals for the Ninth Circuit.
- The Ninth Circuit upheld the finding of liability but remanded the punitive damages award for reconsideration in light of Supreme Court due process precedents.
- After a second remand, the Ninth Circuit ultimately reduced (remitted) the punitive damages award to $2.5 billion.
- The Supreme Court granted certiorari to review the Ninth Circuit's judgment.
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Issue:
In a maritime case involving reckless conduct that results in substantial compensatory damages, is a punitive damages award that significantly exceeds the compensatory award excessive under federal common law?
Opinions:
Majority - Justice Souter
Yes. In maritime cases, a punitive damages award should be limited to an amount equal to compensatory damages. The Court declined to decide the issue of corporate derivative liability due to an even split. It rejected Exxon's argument that the Clean Water Act preempts punitive damages, finding no congressional intent to displace common law remedies for private economic harm. The primary issue is the excessiveness of the $2.5 billion punitive award under maritime common law. Citing the stark unpredictability and outlier nature of some punitive awards, the Court concluded that judicially-created standards are necessary to ensure fairness and predictability. After reviewing state legislative caps, statutory multipliers, and empirical data showing a median punitive-to-compensatory ratio of less than 1:1, the Court determined that a 1:1 ratio is a fair upper limit for maritime cases involving recklessness, as opposed to more culpable conduct like malice or actions for financial gain. This approach provides a clear, predictable standard that avoids the arbitrariness of purely verbal formulations for juries and reviewing courts.
Concurring - Justice Scalia
This opinion joins the Court's opinion in full but reiterates the author's continuing belief that the Court's prior holdings imposing constitutional due process limits on punitive damages were wrongly decided.
Concurring in part and dissenting in part - Justice Stevens
This opinion concurs with the majority's handling of the derivative liability and statutory preemption issues but dissents from the creation of a 1:1 ratio for punitive damages. The task of setting such empirical, quantified limits on damages is better suited for Congress, which has legislated extensively in maritime law but has chosen not to impose such a cap. The Court should have applied the traditional abuse-of-discretion standard for reviewing the reasonableness of the award, under which the Ninth Circuit's $2.5 billion award should have been affirmed. Furthermore, maritime law often provides more limited compensatory damages than land-based tort law, suggesting punitive damages may play a more important role and should not be so rigidly capped.
Concurring in part and dissenting in part - Justice Ginsburg
This opinion concurs with Parts I-III but dissents from the judicial imposition of a 1:1 ratio, arguing that this is a legislative function. The opinion questions the urgent need for this rule, as the Court acknowledges that the traditional review process has not 'mass-produced runaway awards.' It also raises practical questions about how the Court will apply different ratios to cases involving more blameworthy conduct (e.g., malice or pursuit of financial gain) and whether this 1:1 maritime rule signals a new constitutional ceiling for all punitive damages cases.
Concurring in part and dissenting in part - Justice Breyer
This opinion concurs with Parts I-III but dissents from the imposition of a rigid 1:1 ratio. While agreeing that legal standards are needed to prevent arbitrary awards, this case's egregious facts—Exxon knowingly allowing a relapsed alcoholic to command a supertanker—warrant an exception. The district and appellate courts both found the conduct highly reprehensible and justified a higher award. The $2.5 billion award, already a 50% reduction from the jury's verdict, was a reasonable conclusion by the Court of Appeals and should have been upheld.
Analysis:
This decision is significant for establishing a clear, quantified limit on punitive damages within federal maritime common law, a domain where the Court acts with broad authority. By imposing a 1:1 ratio, the Court moved away from relying solely on procedural review or vague verbal standards to control unpredictable jury awards. This case signals a preference for bright-line rules over case-by-case analysis to promote fairness and predictability in punitive damages. The ruling provides a strong precedent for using ratios in federal common law and may influence future constitutional due process analyses, particularly in cases with substantial compensatory awards where the Court has suggested a 1:1 ratio might be the 'outermost limit' of constitutionality.
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