Exxon Discussion Board: Court Draws Clear Lines for Punitive Damages

Below, Amy J. Wildermuth writes what is to be the first of a series of Discussion Board posts on today’s Exxon v. Baker decision. She is an associate professor at the University of Utah S.J. Quinney College of Law, and she filed an amicus brief on behalf of the Pacific Coast Federation of Fishermen’s Associations and Institute for Fisheries Resources in support of the respondents.

Although the equal division of the Court on the question of Exxon’s liability for its ship captain’s actions meant that an award of punitive damages against Exxon would be permitted, the Court’s adoption of a strict 1:1 ratio for punitive damages to compensatories nevertheless comes as a huge blow to the over 32,000 plaintiffs, many of whom are either dead or bankrupt, in this case. After nineteen years of litigation, the Court’s reduced award means that each class member will now receive about $15,500 in compensatory damages and an equal amount in punitive damages, for a total award of roughly $31,000 per class member.

The Exxon case itself could serve as a study in the Court’s increasing concern over punitive damages in the last several years. The jury in Exxon originally awarded $5 billion in punitive at the end of the trial in 1994. In 2001, however, the Ninth Circuit returned the case to the district court after evaluating the constitutional guideposts for damages established in the 1996 case of BMW v. Gore, the first step in its more limited approach to punitive damages cases under the Due Process Clause. The district court, on the basis of BMW, reduced the award to $4 billion. On appeal from that ruling, the Ninth Circuit sua sponte remanded the case in light of State Farm, a case that further clarified and restricted punitive damage awards under the Due Process Clause. After considering State Farm’s impact, the district court increased the award to $4.5 billion, concluding that the circumstances of the case warranted punitive damages consistent with the upper end of the single digit (9:1) ratio blessed by the Supreme Court in State Farm. In 2006, the Ninth Circuit disagreed with the district court’s evaluation and reduced the punitive damages based on State Farm to $2.5 billion.

With today’s decision, we not only have the final chapter in Exxon but a confirmation that the attitude of the Court toward punitive damages is firmly one of increased scrutiny. Indeed, the message of Exxon for all future punitive damages cases ought to be clear: The Court sees in punitive damages a train that is running off the rails—a train that legislatures, both state and federal, have failed to control adequately despite the Court’s many warnings to do so.

Given the recent cases of limiting punitive damages under the Due Process Clause, it is unsurprising that when the Court had its first opportunity to consider a limit in the common law context, it did not leave the line drawing to Congress as the dissenters would have. Less expected, however, was that the Court did not adopt a ratio similar to what Congress has adopted in the past, like a treble limit (2:1), or a ratio that, in those states where limits have been adopted, is the predominant choice, 3:1. Nor did the Court consider, as many legislatures have, whether any such limit should kick in only when the punitive damages award is over $100,000 per plaintiff. Instead, it adopted a ratio of 1:1, a number as arbitrary as the 21-year period of the rule against perpetuities, which the Court remarkably relied on to justify its action. It then proceeded to further explain its choice by noting that 1:1 is above the median ratio overall for punitive damages awards, as if picking a choice slightly to the right, like picking “C” on a standardized exam, made the choice more sensible. In short, it is now clear that the Court has grown weary of the nuanced evaluation and review of punitive damages awards of the past.

Because the Court believes that “[t]he real problem . . . is the stark unpredictability of punitive awards,” one imagines that in this case, it felt that its response needed to be as clear as possible. To that end, the Court provided a solution that, undoubtedly, is as neat and tidy as they come. It is easy to predict that other courts, after this signal from the Supreme Court, may soon follow suit. One wonders, however, whether this move to clean up a perceived mess, this need to draw clear lines, is not misplaced where these cases each tell their own unique and individual story. These unique stories are no better illustrated than by this particular case, a devastating oil spill in one of our most sensitive ecological enclaves that remains to this day part of our collective national memory. The Court may eventually regret that it has sacrificed the albeit messier approach of evaluating each case on its own terms using good sound judgment for the sake of a round number.