Argument preview: Exxon v. Baker

Exxon Shipping Co., et al., v. Baker, et al., is known – and will always be known popularly – as a case about one of history’s most destructive oil spills. The case is also steeped in maritime lore, because the tanker ship carrying the oil hit bottom on Alaska’s Bligh Island Reef, named for Captain William Bligh, a central figure in the story of the mutiny on The Bounty. But this controversy takes its place on the Supreme Court’s docket as a test of maritime law that reaches back to an 1818 Supreme Court decision charmingly titled The Amiable Nancy. The core issue is whether maritime law allows any punitive damages again a ship owner/operator for an oil spill such as this one and, if so, how high such a damage award may legally go.

Background

At seven minutes after midnight on March 24, 1989, the supertanker Exxon Valdez, loaded with oil and steaming out of Alaska’s Prince William Sound, ran aground on Bligh Reef after missing a turn that would have allowed it to sail safely on out to sea. The ship was owned by a subsidiary of the oil company, Exxon Mobil, and its captain at the time was an Exxon employee, Joseph Hazelwood. The record of the case is filled with arguments and counter-arguments about whether Hazelwood was drunk, about what Exxon knew about that, and just how the turn was missed while Hazelwood was away from the bridge (in violation of company rules). There is no dispute about the first result of the grounding: With the reef punching a hole in the Valdez’s hull, some 11 million gallons of its cargo – equal to about 258,000 barrels – spilled into the Sound, and wind and water spread it over a 600-mile area in the midst of a productive fishery area.

Much has preceded the arrival of Exxon Shipping v. Baker, et al. (07-219) at the Supreme Court in the 13-year history of the litigation, but now it focuses on a punitive damages award that stands at $2.5 billion (half of what a jury had thought was the right amount). Exxon Shipping Co., in its appeal, contends that the amount is not only far too high, but that there should have been no punitive damage award of any size. Although it sought to test the constitutionality of this award in its appeal, the Supreme Court limited its review to the legality of the award under U.S. maritime law. But a part of Exxon Shipping’s argument is that it has already been penalized enough for the oil spill: it has paid out nearly $3.4 billion, it argues, in settlement payoffs to some of those harmed by the spill, in fines and penalties paid to the Alaska and U.S. governments, and in its own spending on cleanup efforts after the spill.

The remaining case is about the $2.5 billion awarded to a class of 32,677 commercial fishermen, private landowners and Native Americans who claim various harms to their livelihoods or their lifestyles, apart from any environmental damage to the Sound. The award, if ultimately paid, works out to an average of about $76,500 to each claimant, not quite five times the value of the economic harm each was found to have suffered. Although Exxon Shipping’s legal papers in the Court repeatedly assail the huge size of the punitive verdict, saying it far surpasses any punitive award ever upheld in a federal court, its challengers on the other side say the sum is equal to “about three weeks of Exxon’s current net profits.” Moreover, the challengers have their own grievances, shared with the Court: About 20 percent of their group has died, hundreds have gone bankrupt, and some 26,000 gallons of oil still remain in the water and in the mud bottom, “impairing fish stocks and marine habitat.”

Those in the punitive damages class had filed their own appeal to the Supreme Court (Baker, et al., v. Exxon Mobil Corp., et al., 07-276), seeking to revive the full $5 billion punitive verdict. But the Supreme Court refused to hear their appeal last Oct. 29 – the day it granted review of Exxon Shipping’s petition.

Maritime law history is as much disputed in the Supreme Court papers as is any legal point. Exxon Shipping says that the Court’s ruling in 1818, in The Amiable Nancy, established the maritime law principle that the owner of a vessel whose officers and crew had acted illegally at sea (there, robbing a neutral vessel) may be assessed the actual costs of the damage done, but may not be charged, in addition, punitive damages if the owner did not direct or “countenance” the wrongdoing. Exxon contends that federal courts faithfully applied that rule for more than 150 years. Thus, Exxon argues, the tradition is that “punitive damages may not be awarded against a shipowner based solely on the conduct of a ship’s master.” But the challengers to Exxon Shipping cite contradictory history, dismissing the Amiable Nancy declaration as mere dictum, and suggesting that no federal court has ever so ruled and that no “current maritime treatise mentions any such rule.” On the contrary, the suing class asserts, the long-standing tradition in American law is that corporations can and often are held liable for punitive damages for their employees’ misconduct – a concept dating back at least to the late 1880s.

The case has made several trips through the lower federal courts. What is at issue now is a ruling by the Ninth Circuit Court on December 22, 2006 – its third major decision in the case – upholding an award of punitive damages, but reducing it to $2.5 billion. (A District Court judge had concluded that the jury’s punitive verdict of $5 billion was justified, but nevertheless reduced it to $4.5 billion, concluding that the Ninth Circuit earlier had mandated some reduction. The Circuit Court lopped $2 billion off of that sum.)

Petition for certiorari

Exxon Shipping Co., Inc., a wholly-owned subsidiary of Exxon Mobil Corp. (and now carrying the name SealRiver Maritime Inc.), took the case on to the Supreme Court in August 2007. Relying on the Amiable Nancy precedent as it interpreted it, the company’s first question on appeal was whether punitive damages could be awarded at all under maritime law absent a finding that the shipowner “directed, countenanced, or participated” in the ship master’s misconduct and when that misconduct violated company policy. The second question tested whether punitive damages are available at all for a maritime accident, given that Congress has spelled out specific criminal and civil penalties under the federal Clean Water Act. The petition contended that the lower courts were split on both of those issues. The third question challenged the size of the $2.5 billion damages verdict, arguing that it was excessive under both federal maritime law and constitutional due process. On Oct. 29, the Court granted review of all issues raised, except the challenge to the size of the verdict based on due process principles. The body of the petition contended that the Ninth Circuit has been following a deviant path on shipowner liability since 1985, and needed to be curbed now.

The core of the argument on the first issue is keyed to a jury finding in the case. The jury found that the ship’s captain, Joseph Hazelwood, was reckless for his role in the grounding and the resulting oil spill. Then, told in an instruction by the judge that, if it found Hazelwood to be reckless, maritime law required that it also hold Exxon to have been reckless, the jury also returned a recklessness verdict against the company. The jury awarded punitive damages of $5,000 against Hazelwood and $5 billion against Exxon. Exxon’s view of the punitive verdict is that, in fact, the jury had not found it to have countenanced or directed Hazelwood’s misconduct, but only did what maritime law required it to do.

The punitive damages class tried unsuccessfully to persuade the Supreme Court not to hear the Exxon Shipping appeal. It argued that Exxon’s actual misconduct regarding Captain Hazelwood’s drinking problems justified the award, and that Exxon’s appeal was mainly keyed to specific facts, raised issues that it had waived, and sought to contest issues that rarely arise. It disputed the company’s central point about the jury finding. There were jury instructions, the response argued, that any award against Exxon had to be based on its own corporate conduct, “and Exxon never seriously pressed the proposition that Captain Hazelwood’s actions violated company policies that it enforced.”

In reply, Exxon Shipping stressed the fact that 13 amicus briefs had come in, supporting its appeal. Those briefs illustrate, it said, that the Ninth Circuit decision “has unsettled the entire international and domestic maritime community, wholly apart from its effect on Exxon or on oil spills.”

The Court granted the case, and briefing proceeded. Oral argument, now scheduled for Wednesday, Feb. 27 at 10 a.m., has been expanded to 90 minutes from the usual 60. It is the only case set for argument that day. Washington attorney Walter Dellinger will argue for Exxon, and Jeffrey L. Fisher, now a Stanford law professor but who has taken part in the case as a member of a Seattle-based law firm, will represent the punitive damages class. The state of Alaska asked to participate in oral argument, but the Court denied that request Feb. 15.

Merits Briefs

Exxon Shipping (SeaRiver Maritime) in its merits brief challenges the Ninth Circuit’s decision upholding the jury finding that Exxon was reckless, but focuses most of its argument on the limits it contends need to be imposed on federal judges in fashioning remedies under maritime law. That power, when used to impose punitive damages, it argues, should not even exist in the face of the entirely adequate scheme of statutory punishment that Congress has devised under the Clean Water Act. Aware that the current Court has issued a series of decisions that show a growing lack of sympathy for large punitive damage awards, Exxon Shipping says that the use of unchecked judicial power to fashion such remedies in the maritime context clearly illustrates how arbitrary this award is. The company repeats with emphasis its argument that it has paid enough, in the variety of penalties and settlements already completed, that there is no justification for piling on. What it has already paid, it insists, “has fully achieved both punishment and deterrence.”

Should the Court be prepared, however, to “allow punitive damages for this unintentional oil spill,” the Exxon brief suggests that the Justices should at least reduce the $2.5 billion award. It explicitly suggests these limits: jury-imposed punitive damages in the maritime context should be no higher than civil punishment authorized by Congress, punitive damages should not be greater than compensatory damages when the latter are “substantial,” punitive damages should not be allowed at all “when there is no possibility that the underlying conduct will escape detection,” and juries should be barred from awarding any punitive damages based on corporate net worth. The latter three points appear to have been advocated as principles reaching beyond the maritime context, as well as within it.

The punitive damages class’ merits brief, aside from a variety of complaints about Exxon Shipping misstating or exaggerating the record in the case and making “overreaching” arguments, strenuously defends the jury instruction and suggests that the company was punished not solely for Captain Hazelwood’s recklessness, but for its own allegedly negligent indifference to his drinking problem and to the hazards of having an alcoholic in charge of such a massive vessel in tricky waters. It contends that this case has nothing to do with the Clean Water Act; that is a statute, it argues, that deals with enforcement of federal policy interests; this case involves tort claims by private parties, based upon harm to them, not to the environment or to federal policy interests. Moreover, the brief suggests that Exxon waived the Clean Water Act along the way as the case proceeded in lower courts.

No matter what guidepost the Court may devise or apply to this punitive award, the class’ merits brief contends, the award would satisfy it. Moreover, the ratio of punitive to compensatory damages is only in the single digits – 5 to 1, the merits brief says, well within any limits the Supreme Court has mandated in punitives cases. On the punishment and deterrence question, the class’ brief suggests that what Exxon has paid out so far is only $25 million higher than “an innocent spiller would have paid,” so it hardly has satisfied any rationale that punitives might seek to serve.

At the merits stage of the case, the tide has shifted in the amici filings. While Exxon continues to have the support of shipping organizations and oil industry groups, and picks up significant support from prominent business organizations such as the U.S. Chamber of Commerce, groups favoring limits on punitive damages and other kinds of ”tort reform,” the punitive damages class draws more than twice as much support, at least in numbers of briefs. The state of Alaska is on its side, as are the states’ members of Congress, state legislators and former governors of Alaska, ecologists and environmentalists, community activists, fishery interests, Indian organizations, ship captains, and even a group named “Experts on Alcohol in the Workplace.”

Analysis

A critical fact of this case – and it might well be decisive – is that the case will be heard and decided by only eight members of the Court. Justice Samuel A. Alito, Jr., known to be the owner of a block of Exxon Mobil stock, has disqualified himself from taking part in the case. This will raise the prospect of a 4-4 split – an outcome that, if it occurs, would lead to a simple order with no analysis upholding the Ninth Circuit and thus upholding the $2.5 billion verdict.

Anyone seeking to challenge a punitive damages award in the current Court almost immediately confronts the prospect that there may be only seven votes, not nine, from which five must be won – significantly reduced odds. That is because two Justices, Antonin Scalia and Clarence Thomas, do not believe that the Constitution imposes any limits on the award of punitive damages. Moreover, two other Justices – Ruth Bader Ginsburg and John Paul Stevens – have tended to support giving states’ fairly wide leeway to give impose high punitive awards.

That, of course, still leaves five votes. And, indeed, in the Court’s most recent decision putting limits on a punitive damages award (Philip Morris USA v. Williams, in February 2007), the Court was divided 5-4 in rejecting the award. The five in the majority were Justice Stephen G. Breyer (the author) and Chief Justice John G. Roberts, Jr., and Justices Alito, Anthony M. Kennedy and David H. Souter.

Justice Alito is out of the Exxon Shipping case, of course. Would that be likely, then, to leave the Court split 4-4? Perhaps not: this is not a constitutional case, so the 5-4 lineup on due process considerations in recent punitive damages cases may not apply. The Court has no record on punitive damages in the maritime context; it has never ruled on the validity of any such award. It is possible that Justice Scalia, for example, may be suspicious of leaving federal judges, exercising maritime law power, with a free hand to fashion awards (even if he does favor a free hand for states to impose such damages). Scalia is not fond of giving federal judges roving authority to do much of anything. And perhaps Justice Thomas might well be available to support Scalia in that regard.

The oral argument in this case, then, will be watched closely to gauge a potential lineup outside the due process realm.

A final decision is expected by late spring.