The NAM joined other groups in an amicus brief 9/20/07 supporting an appeal of the largest punitive damages award ever affirmed on appeal, $2.5 billion, and larger than the total of all punitive damages awards affirmed by all federal appellate courts in U.S. history. At issue is whether the absolute size of the punitive award against Exxon is excessive in relation to the State’s legitimate interests in retribution and deterrence for the Exxon Valdez oil spill in 1989.
On Oct. 29, the Court agreed to review the case, but limited the issues to whether punitive damages may be awarded at all under maritime law, and if so, whether the damages awarded in this case were constitutionally legitimate. The NAM and others filed another brief on Dec. 26, this time trying to outline for the Court the factors that should be considered when deciding on punitive damages.
The Supreme Court has identified three guideposts for courts to use in determining when a punitive award is unconstitutionally excessive: (1) the degree of reprehensibility of the misconduct; (2) the ratio of the punitive to the compensatory damages; and (3) the difference between the punitive damages and the legislative and/or administrative penalties for comparable misconduct.
Under the first guidepost, our first brief argued that not only was Exxon’s conduct unintentional and not profit-motivated, but it promptly took steps to ameliorate the harm its oil spill caused. This is hardly reprehensible conduct.
Under the second guidepost, the $3.6 billion in compensatory damages, fines, and remediation expenses incurred by Exxon as a result of its conduct already serves to punish and deter; thus, record-breaking punitive damages of $2.5 billion would only add insult to injury. Our brief likened this case to the “ink on the rug” example: if a person ruins a $10,000 rug by spilling a $5 bottle of ink, he would be exceedingly careful never to spill ink on the rug again, even if it cost him “only” $10,005 and he was not otherwise punished.
Under the third guidepost, our brief pointed out that the punitive award in this case is twenty times the amount of the combined federal and state criminal fines imposed against Exxon and over thirty times the maximum amount of civil penalties that could have been imposed, with such a disparity suggesting that Exxon could not have had fair notice of the punishment’s magnitude.
The Ninth Circuit’s treatment of punitive damages is symptomatic of a growing misperception among reviewing courts that the Constitution never requires a punitive award to be less than the compensatory damages, no matter how high the compensatory damages may be. Our brief outlined the continual failure by courts to recognize that large compensatory damages (and other costs borne by the defendant as a result of its tort) can and often do punish and deter in their own right and that the ultimate question in any constitutional inquiry must be whether the absolute amount of the penalty is excessive.
In our merits brief, we outlined 8 considerations that lead to the conclusion that the award in this case was constitutionally excessive. The factors are:
· What is the conduct that is being punished?
· How wrongful was the conduct?
· Who committed the conduct?
· To what extent do compensatory damages, fines and other costs borne by the defendant as a result of its conduct already serve the goals of deterrence and retribution?
· What amount of fines have the expert regulatory agencies determined to be appropriate to punish and deter the same or similar conduct?
· How does the punitive award compare to prior punitive awards for comparable or more egregious conduct?
· Is the punitive award disproportionate to the harm to the plaintiff(s)?
· If the tortfeasor is an individual, what is his or her financial condition?
On 6/25/2008, the Court failed to reach agreement on whether maritime law imposes liability on a corporation for the acts of managerial agents, and the Ninth Circuit approval of such liability was upheld. The Court also ruled that the Clean Water Act does not preempt suits under maritime law for damages from oil spills under maritime jurisdiction.
Finally, the Court ruled 5-3 to declare that federal maritime law imposes certain common law limits on excessive punitive damages, and that a ratio of more than 1 to 1 between punitive damages and compensatory damages is excessive, at least in cases where the defendant company did not act in a way that exhibited "earmarks of exceptional blameworthiness." Reckless conduct, for example, is less blameworthy than intentional or malicious conduct, nor is it "necessarily callous toward the risk of harming others." Action taken or omitted to augment profit is more blameworthy as well. In cases like this, without intentional or malicious conduct, without behavior driven primarily by desire for gain, and without modest economic harm or low odds of detection, a ratio of 0.65 to 1 is a reasonable median ratio, and a 1 to 1 ratio is a "fair upper limit."
The decision is a determination under federal common law applicable in maritime cases, but some of the language will be used to support further arguments raising constitutional limits in future cases of all kinds.