Maritime Alert
June 2008
Authors:
John Longstreth
john.longstreth@klgates.com
202.661.6271
Susan B. Geiger
susan.geiger@klgates.com
202.661.3818
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Supreme Court Allows But Limits Punitive
Damages in Maritime Cases; Suggests
Limitations May Apply To Other Cases As Well
In a widely watched case arising out of the Exxon Valdez spill in 1989, the Supreme
Court held on June 25 in Exxon Shipping Co. v. Baker that the Clean Water Act (CWA)
does not preempt punitive damages awards in maritime cases. The Court did, however,
as a matter of federal common law limit punitive damages to no more than the amount
of compensatory damages awarded, at least in cases with “no earmarks of exceptional
blameworthiness.” This 1:1 ratio is thus set as a fair upper limit in all “such maritime
cases,” with the suggestion that in more aggravated cases the ratio could be higher. The
Court’s reasoning would also seem to apply to all cases decided under federal common
law, not just maritime cases, and the Court suggests at the end of its opinion that the 1:1
rule would be appropriate for many other actions as well.
The Court did not decide the third question before it – whether a shipowner may be liable
derivatively for actions of a vessel captain in which the owner did not acquiesce. That
left standing the Ninth Circuit’s decision allowing such derivative liability, which will
continue to be the law within that Circuit, but is not established as a nationwide precedent.
The First, Fifth and Sixth Circuits have rejected corporate liability for punitive damages
for acts of managerial agents in the maritime context.
The Lawsuit
The spill occurred after the vessel’s captain inexplicably left the bridge just before a
dangerous maneuver, leaving in charge an officer not qualified to navigate in those
waters. The officer failed to make the proper turn, thus grounding the vessel and spilling
11 million gallons of oil along the coastline. The captain had completed an alcohol
treatment program while employed by Exxon, as his superiors knew, but had relapsed and
drank frequently, including onboard ship. Exxon had a clear policy prohibiting employees
from serving onboard within four hours of consuming alcohol, but presented no evidence
that it monitored the captain after his return to duty or considered giving him a shoreside
assignment.
After Exxon settled with a number of private and governmental entities, and paid numerous
fines, claims were left by three classes: commercial fishermen, Native Alaskans, and
landowners. At Exxon’s request the district court also certified a mandatory class of all
plaintiffs seeking punitive damages. Exxon stipulated to its negligence and consequent
liability for compensatory damages. The district court held that the total amount of
compensatory damages paid out by Exxon was $507 million. The jury awarded $5 billion
in punitive damages against Exxon, which after two appeals was reduced by the Ninth
Circuit to $2.5 billion.
Maritime Alert
The Clean Water Act Did Not Preempt
Punitive Damages
The Court dealt very briefly with Exxon’s claim that
the detailed provisions of the CWA preempt punitive
damages claims arising out of oil spills subject to
the Act. The Court found no evidence that Congress
intended to eliminate punitive damages or that allowing
punitive damages would interfere with the CWA’s
remedial scheme. The Court also could not reconcile
Exxon’s admission that compensatory damages
were not preempted with its claim that punitive
damages were.
Punitive Damages Are Limited in Most
Maritime Cases to No More than the
Amount of Compensatory Damages.
The bulk of the Court’s opinion dealt with the propriety
of the $2.5 billion damage award. The Court noted
that “punitives are aimed not at compensation but
principally at retribution and deterring harmful
conduct.” Many states have limited punitive damages,
either at a dollar cap or, more frequently, as a maximum
ratio to compensatory damages. Although punitive
damages are imposed more frequently in the United
States than in other countries, the Court found that they
were not imposed particularly frequently, nor were
they on average unduly high. The real problem was
their unpredictability; for example, in one case before
the Court the punitive award was $4 billion, while a
virtually identical case yielded a negligible award.
Unlike its previous cases, which involved review of
state court awards under due process, the Court here
was free to fashion a rule for maritime cases directly
under judge-made federal common law. The Court
held that this gave it considerable flexibility to adopt
what it considered to be a superior rule based on the
ratio of punitive damages to compensatory damages.
Following what it considered to be authoritative
studies of the median ratio of punitive to compensatory
damages actually awarded by juries, the Court held that
a 1:1 ratio was appropriate “in cases with no earmarks
of exceptional blameworthiness within the punishable
spectrum (cases like this one, without intentional
or malicious conduct, and without behavior driven
primarily by desire for gain, for example) and cases
(again like this one) without the modest economic
harm or odds of detection that have opened the door
to higher awards.” The Court thus remanded the case
with instructions to reduce the punitive damages award
to $507 million, the amount the district court had
found Exxon had paid in compensatory damages.
Implications of the Court’s Decision
Other than to note that courts have “traditionally taken
the lead in formulating flexible and fair remedies in
the law maritime, and Congress has largely left to
this Court
the responsibility for fashioning the controlling rules
of admiralty law,” little in the Court’s decision appears
to be particular to maritime law. Rather, the decision
implicates any cause of action based on federal
common law.
Moreover, the Court seems poised, at least in cases
that do not involve exceptional or egregious conduct,
to move forward on a suggestion made in its earlier
State Farm decision (which applies to all state court
judgments reviewed under due process) that a 1:1
ratio might be appropriate in a broader array of cases.
The opinion’s final footnote states that a higher
punitive award may be needed in cases in which “pure
compensation may not be enough to encourage suit,”
but goes on to assert that this concern is “addressed by
the opportunity for a class action when large numbers
of potential plaintiffs are involved: in such cases,
individual awards are not the touchstone, for it is the
class option that facilitates suit, and a class recovery
of $500 million is substantial. In this case, then, the
constitutional outer limit may well be 1:1.” The 1:1
ratio adopted by the Court thus may go well beyond
maritime cases and could portend a further restriction
of the punitive damage remedy as a matter of federal
constitutional law in a wide variety of cases arising
under both state and federal law.
Here is a link to the decision in Exxon Shipping Co.
v. Baker, No. 07-219 (June 25, 2008): http://www.
supremecourtus.gov/opinions/07pdf/07-219.pdf.
June 2008 | 2
Maritime Alert
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