The Supreme Court has essentially brought the Exxon Valdez case to a close, more than 19 years after the supertanker ran aground, spilling millions of gallons of oil into Prince William Sound. The tanker’s captain, Joseph Hazlewood, had a history of alcohol abuse and still had a high level of blood alcohol 11 hours after the spill. He inexplicably left the bridge, leaving a tricky course correction to unlicensed subordinates. Exxon spent roughly $2.1 billion in cleanup costs, pleaded guilty to various criminal violations for which it was fined, paid the United States and Alaska $900 million to settle their civil claims, voluntarily paid $303 million to various private parties, and was assessed or agreed to pay roughly $300 million for the claims in this litigation. A jury awarded $5 billion in punitive damages against Exxon. After multiple appeals, the Ninth Circuit reduced the award to $2.5 billion. In Exxon Shipping Co. v. Baker (U.S. June 25, 2008), the Supreme Court held that the maximum permissible punitive award was equal to the amount of compensatory damages, which the district court had determined to be $507.5 million. Exxon’s liability was based on maritime law, and one issue the Court faced was whether (under that law) Exxon could be liable for punitive damages based on Captain Hazlewood’s conduct. On that issue, the Court was equally divided (Justice Alito not participating), so it left the Ninth Circuit’s decision undisturbed. The Court decided that the Clean Water Act penalty scheme did not displace common-law punitive damages.

Because the punitive damages arose under maritime law, that law also determines the limits on such damages. Accordingly, there was no need to look to any limits that might be found in the Constitution. (Nonetheless, defendants will surely argue that the Court’s reasoning under maritime law should be applied in constitutional cases, as well.) A penalty should be reasonably predictable in amount, so that those subject to the penalty can know the stakes and so that similar violators face similar punishments. Studies have shown that the median ratio of punitive damages to compensatory damages is less than 1:1. In cases like this, with no evidence of exceptional blameworthiness, a 1:1 ratio is adequate to serve the needs of punishment and deterrence and constitutes a fair upper limit on punitive damages.

Justices Stevens, Ginsburg and Breyer dissented from the damage cap.

William T. Barker
Sonnenschein Nath & Rosenthal, LLP