Admiralty - Colin A. Mcrae and Christopher Lempesis

• Jurisdiction: United States,Federal
• Publication year: 2009
• Citation: Vol. 60 No. 4

Admiraltyby Colin A. McRae^* and Christopher Lempesis^**

The United States Supreme Court and the United States Court of Appeals for the Eleventh Circuit were busy in 2008 with admiralty cases and other matters of importance to maritime practitioners. The Supreme Court considered a maritime punitive damages case and the Eleventh Circuit continued its trend of tackling important maritime questions in areas such as marine insurance, arbitration, and the Suits in Admiralty Act.¹ A large portion of the cases surveyed in this Article were marked "unpublished" by the Eleventh Circuit, but recent changes in federal law concerning unpublished opinions have rendered these opinions generally more useful to practitioners.²

I. United States Supreme Court

The United States Supreme Court recently addressed limits to punitive damages in maritime tort cases in Exxon Shipping Co. v. Baker.³ As many readers may remember, on March 24, 1989, the M/V EXXON VALDEZ grounded on Bligh Reef in Alaska, fracturing its hull and spilling millions of gallons of crude oil into the Prince William Sound. Then owner, Exxon Shipping Co., and parent company, Exxon Mobile Corp., settled state and federal claims for environmental damage, paying out over $1 billion.⁴ Ultimately, Exxon spent approximately $2.1 billion in clean-up efforts; pleaded guilty to violations ofthe Clean Water Act (CWA),⁵ the Refuse Act,⁶ and the Migratory Bird Treaty Act;⁷ agreed to pay a reduced fine of $25 million plus restitution of $100 million; agreed to a consent decree that provided that Exxon would pay at least $900 million towards restoring natural resources; and expended another $303 million in voluntary settlements with private parties.⁸ The present suit was brought by respondent Baker and others for "economic losses to individuals depend[ing] on Prince William Sound for their livelihoods."⁹

At Exxon's behest, the United States District Court for the District of Alaska certified a class of thirty-two thousand largely commercial fisherman plaintiffs seeking punitive damages. The trial for punitive damages was divided into three phases: phase one, in which the jury found Exxon and the master of the vessel, Captain Hazelwood, reckless and potentially liable for punitive damages; phase two, in which the jury awarded $287 million in compensatory damages to commercial fishermen; and phase three, in which the jury awarded $5000 in punitive damages against Captain Hazelwood and $5 billion against Exxon. With respect to the size of the punitive damages award against Exxon, the United States Court of Appeals for the Ninth Circuit twice remanded the case for the lower court to adjust the award on the basis of the Supreme

Court's due process jurisprudence. Ultimately, the Ninth Circuit remitted the award to $2.5 billion.¹⁰

The Supreme Court granted certiorari to consider the following issues: (1) "whether maritime law allows corporate liability for punitive damages onthe basis of the acts of managerial agents," (2)"whetherthe Clean Water Act . . . forecloses the award of punitive damages in maritime spill cases," and (3) "whether the punitive damages awarded against Exxon in this case were excessive as a matter of maritime common law."¹¹ The Court only decided the latter two issues.¹² The Court denied Exxon's argument that the CWA preempted the punitive damages remedy under federal common law, reasoning that while the CWA is expressly geared to protecting water, shorelines, and natural resources, it is not intended to eliminate common law duties to refrain from injuring private individuals.¹³ Further, the Court stated that there was no clear indication of congressional intent in the CWA to occupy the entire field of pollution remedies.¹⁴ The Court also stated that the CWA did not preempt the respondents' claims for economic injury because those claims do not threaten to interfere with the regulatory aims of the CWA regarding water, shorelines, or natural resources.¹⁵

The most significant portion of the decision involves the question of whether there should be a limit on punitive damages available in causes of action over which a court exercises maritime jurisdiction.¹⁶ While recognizing its power to develop maritime law, the Court interestingly couched this issue as one that "goes to our understanding of the place of punishment in modern civil law and reasonable standards of process in administering punitive law."¹⁷ The Court noted historical justifications for punitive damages, including punishment for extraordinary wrongdoing, deterrence,¹⁸ and compensation for intangible injuries.¹⁹ The

Court concluded that today's awards of punitive damages are assessed as a means of retribution and for deterring harmful conduct when a defendant's conduct is outrageous,²⁰ grossly negligent, willful, wanton, and recklessly indifferent to the rights of others, or worse.²¹

Having established the basis for punitive damages in modern jurisprudence, the Court proceeded to justify a system premised on degrees of relative blameworthiness.²² As to regulation and procedure of a punitive damages schema, the Court considered the practices of state courts nationwide as well as international punitive damages regimes.²³ Ignoring the distinct nature of available damages and remedies in the general maritime law, the Court turned to an analysis of prevailing trends in the ratio of compensatory damages to punitive damages, concluding that the ratio has generally remained below one-to-one, with the exception of outliers.²⁴

After concluding that the norm for the ratio of compensatory damages to punitive damages is less than one-to-one, the Court suggested that due process standards provide a check by preventing unreasonably high punitive awards.²⁵ Despite this discussion, the Court declined the opportunity to set a standard for punitive damages based on a one-to-one ratio in which the ratio is derived from awards subject to state law.²⁶ The Court acknowledged that the present case arose under federal maritime jurisdiction and that the purpose of the Court's review of the award was to assure conformity with maritime law rather than to determine the outer limit of awards of punitive damages allowed by due process.²⁷ Thus, the measure of excessive awards of punitive damages in maritime cases is not the standard of due process "but the desirability of regulating [those awards] as a common law remedy."²⁸ The Court emphasized that it was choosing predictability over due process as the basis for standardizing punitive awards in the general maritime law, and as such, the award must be reasonably predictable in its severity so that all may know the stakes when making decisions.²⁹

Recalling that the damages at issue are punitive, the need to eliminate unjustified disparities in criminal sentencing, and that common sense bars excessive penalties, the Court settled on the notion that more rigorous standards are required in the general maritime law to eliminate the unpredictable punitive awards that are possible in a common law scenario.³⁰ The Court settled on tacking punitive damages to compensatory damages using a ratio or maximum multiple of one-to-one in order to eliminate unpredictable or outlying punitive awards.³¹ The Court defended the use of this maximum multiple by looking to the CWA, wherein daily fines for violation of pollution restrictions are double in the criminal setting for violations that occur knowingly as opposed to those that occur negligently.³² The Court further justified the one-to-one ratio in maritime spill cases on the basis that the median ratio of punitive damages to compensatory damages in most of the case studies cited in its decision was 0.65:1.³³

In his concurrence and dissent, Justice Stevens took issue with the concept of imposing a limitation on assessments of damages based on empirical data and favored instead application of an abuse-of-discretion standard when reviewing awards of punitive damages.³⁴ Justice Stevens pointed to the path of maritime tort remedies,³⁵ one well-trodden by acts of Congress.³⁶ Justice Stevens pointed out that the issue of limiting Exxon's liability was already addressed in maritime law under the Limitation of Liability Act,³⁷ which was unavailable to Exxon because of its knowledge of Captain Hazelwood's condition, and thus, the Court should not limit punitive damages.³⁸ Justice Stevens also pointed to the fact that intangible injuries are not fully compensated in maritime law; thus, Justice Stevens concluded that punitive damages should not be limited because they may serve as gap fillers, complimenting recovery for plaintiffs that are otherwise limited in the general maritime law.³⁹ Justice Stevens concluded his critique with the observation that Congress is in a much better position to assess empirical data.⁴⁰ Unfortunately, Justice Stevens reached his conclusion evaluating the empirical data the majority used to reach its conclu-sion,⁴¹ leaving the reader to question whether his justifications are any better than those of the majority.

In a separate concurrence and dissent, Justice Ginsburg specifically detailed why Congress is the better decision maker to set a cap for punitive damages.⁴² Namely, data reveals that cases using the present system of assessment for punitive damages have not mass-produced runaway punitive damage awards.⁴³ While a one-to-one ratio is appropriate for the present case in which Exxon did not act maliciously or in pursuit of financial gain by continuing to employ Mr. Hazelwood, that ratio may not be appropriate for future cases in which the defendant's behavior is malicious or sacrifices the rights of others in pursuit of financial gain.⁴⁴

Finally, Justice Breyer wrote separately, concluding that the punitive damages in this case should not be reduced.⁴⁵ Justice Breyer argued for meaningful standards that provide notice but are not assessed on a rigid or absolute standard such as a fixed numerical ratio.⁴⁶ Under the...