Exxon Shipping Co. v. Baker: the Perils of Judicial Punitive Damages Reform
| Citation | Vol. 59 No. 3 |
| Publication year | 2010 |
Exxon Shipping Co. v. Baker: The Perils of Judicial Punitive Damages Reform
Jeff Kerr
The Supreme Court's recent decision in Exxon Shipping Co. v. Baker established a conservative one-to-one cap on the ratio of punitive to compensatory damages in maritime law. This decision raises the question whether the Court will apply a similar constitutional limit in future punitive damages cases. In the meantime, lower courts have already begun to rely on Exxon Shipping as persuasive authority for limiting punitive damages further than the Supreme Court's previous cases require. This Comment argues that Exxon Shipping's one-to-one cap in maritime cases is inconsistent with key principles of punitive damages law, advises against the application of Exxon Shipping's one-to-one cap in non-maritime cases, and explains why the Supreme Court should not enact a similar cap on punitive damages in future constitutional cases.
Punitive damages are too important to be capped at a one-to-one ratio with compensatory damages. This Comment explains that such a cap has the potential to create significant economic inefficiencies. Moreover, a one-to-one cap undermines the retributive role of punitive damages since reprehensible conduct often may not result in substantial compensatory damages. The rule of Exxon Shipping will likely remain the law in admiralty, but, as this Comment argues, courts should not to expand the rule of Exxon Shipping beyond maritime cases.
In Exxon Shipping Co. v. Baker, the U.S. Supreme Court held that punitive damages for reckless conduct should be limited to a one-to-one ratio with compensatory damages as a matter of maritime common law.1 Exxon Shipping represents a departure from the Court's prior punitive damages cases such as
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State Farm Mutual Automobile Insurance Co. v. Campbell2 and BMW of North America, Inc. v. Gore,3 where the Court evaluated punitive damages awards under the Due Process Clause.4 In some respects, Exxon Shipping is an extension of these earlier cases because while the Court ostensibly based its holding on maritime law, it did not rely on maritime law precedent.5 Rather, the Court based its decision upon fairness considerations, policy analysis, and statistical studies of punitive damages. This Comment argues that the Court's reasoning fails to justify its strict limitation of maritime punitive damages. Building upon and revising some of the conclusions of earlier scholarship, this Comment demonstrates that punitive damages often need to exceed a one-to-one ratio with compensatory damages to deter future harms and provide retributive justice.6 Finally, just as the Court criticizes "outlier" punitive damages awards,7 this Comment argues that Exxon Shipping itself should be viewed as an "outlier" case and should not be treated as persuasive authority for placing further limits on non-maritime punitive damages.
This Comment focuses on the potentially far-reaching implications of Exxon Shipping's one-to-one cap on punitive damages for reckless conduct. Although punitive damages are a controversial feature of American law,8 this Comment shows that punitive damages are too important to be rendered ineffectual by overly stringent caps. By increasing liability to an amount in excess of what is required to compensate the plaintiff, a punitive award goes beyond the traditional goal of making the plaintiff whole.9 Important deterrence and retributive rationales justify this extra-compensatory penalty.10
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Although these rationales occasionally conflict,11 this Comment argues that they frequently overlap—especially when the defendant's conduct is reckless. This analysis reveals that the Court's adoption of a one-to-one cap in cases of reckless conduct lacks support. To be useful, punitive damages often must be awarded at a higher ratio.12
Part I of this Comment examines facts of the Exxon Valdez oil spill that were glossed over in the mainstream media and demonstrates why, from a retributivist perspective, the Exxon corporation may have deserved punishment. Part II demonstrates that punitive damages are a vital part of the common law, many states have already limited punitive damages, and the Supreme Court's constitutional jurisprudence on punitive damages adequately protects defendants from egregious punitive awards. The heart of this Comment, Part III, presents an economic analysis of various situations in which punitive damages should be awarded at a greater than one-to-one ratio, explains the retributivist approach to punitive damages, and illustrates how the two can be reconciled. Part IV critiques the Court's reasoning in Exxon Shipping, emphasizing its failure to take account of the role of punitive damages in providing deterrence and retribution. Finally, Part V argues that Exxon Shipping should not be viewed as persuasive authority for limiting punitive damages in non-maritime cases.
Although the Valdez oil spill was one of the most publicized anthropogenic environmental disasters in history,13 many of the facts surrounding the incident were deliberately obscured by Exxon's public relations experts and are not well-known.14 These facts reveal that the spill was the result of Exxon's foolish decision to allow a captain who was a "relapsed alcoholic" to pilot the
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Valdez.15 In addition to the circumstances of the spill itself, Exxon's promises before the spill and its behavior after the spill underscore the justification for retributivist damages.16
In January 1968, America's largest oil field17 was discovered 250 miles north of the Arctic Circle in Prudhoe Bay, Alaska.18 Because the surrounding ocean is frozen much of the year at this latitude, several oil companies proposed to build the 800-mile Trans-Alaska Pipeline System (TAPS) to transport oil from Prudhoe Bay to Valdez, Alaska, where it would be pumped into tankers for marine transport.19 It was clear at an early stage that the environmental risks of the project included the possibility of massive oil spills that could jeopardize the ecology and economy of Prince William Sound and disrupt the subsistence lifestyles of Alaskans and Native Americans living in the area.20
To alleviate fears of an environmental catastrophe, the oil companies involved, including Exxon, promised both the public and Congress (whose approval was required)21 that they would adhere to high standards of care to curtail or even eliminate the risk of major oil spills.22 These promises convinced Congress, and in the summer of 1977, the first tanker carrying oil from Prudhoe Bay cast off from the Port of Valdez into the waters of Prince William Sound.23
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Within two years, the oil companies were beginning to disregard their earlier promises to Congress, including the pledge to use double-bottomed tankers, which would have limited the impact of a spill by as much as fifty percent.24 The companies also fell behind in contingency planning and preparedness. After the Valdez spill, an investigative team found that Exxon's "emergency plan" contained no contingency planning specifically tailored to conditions at Prince William Sound.25 Apparently, Exxon's only on-shore response equipment consisted of a van and some sampling gear.26 This lack of preparedness ensured that effective cleanup would be nearly impossible in the event of a spill.27
The Valdez spill occurred several minutes after midnight on March 24, 1989, when the Valdez struck a reef in Prince William Sound, tearing open eleven of the ship's cargo tanks with gashes that extended along its full length.28 Shortly afterwards, Coast Guard investigators discovered that the ship's captain, a known alcoholic, had taken command that night after consuming five double vodkas.29 Within several weeks of the spill, oil had spread to cover one thousand square miles of pristine ocean.30
Prince William Sound is a highly sensitive marine environment,31 and it is especially vulnerable to the long-term effects of an oil spill because cold water temperatures in the Sound result in slower-than-usual weathering and biodegradation of oil.32 The spilled oil killed marine birds, mammals,33 and fish.34 In addition, the spill affected the livelihoods of roughly one-third of Alaska's twelve thousand commercial fishermen,35 and fishery closings caused
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by the spill affected an estimated three to four thousand workers in the area's fish processing industry.36 The spill resulted in serious financial losses and psychological stresses for the inhabitants of the area, as well as severe and long-term damage to the environment.37
Turning from the facts of the spill, this Part describes the adequacy and reasonableness of punitive damages law and its reforms prior to the Court's decision in Exxon Shipping. Section A reveals that punitive damages, far from being a modern invention, have long been part of the common law38 and have served important functions. Section B shows that state statutes frequently limit punitive damages—proving that legislatures are capable of reforming punitive damages without intervention by courts. Although some of these statutes have harmful effects,39 they nonetheless provide valuable data on the costs and benefits of tort reform.40 Finally, Section C argues that the punitive damages cases where the Supreme Court relied on the Due Process Clause place reasonable constitutional limits on punitive damages. Taken together, common law principles, statutory limits, and constitutional interpretations show that Exxon Shipping's one-to-one rule is overly restrictive in any context—but should certainly not be construed as applying beyond maritime law.
A. Common Law Punitive Damages
The first English case to provide an explicit articulation of punitive damages was Wilkes v. Wood, decided in 1763.41 In Wilkes...
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