In Re Exxon Valdez: Application of Due Process Constraints on Punitive Damages Awards

• Publication year: 2003

§ 20 Alaska L. Rev. 195. IN RE EXXON VALDEZ: APPLICATION OF DUE PROCESS CONSTRAINTS ON PUNITIVE DAMAGES AWARDS

Alaska Law Review
Volume 20
Cited: 20 Alaska L. Rev. 195

IN RE EXXON VALDEZ: APPLICATION OF DUE PROCESS CONSTRAINTS ON PUNITIVE DAMAGES AWARDS

JOSEPH J. CHAMBERS ^[*]

I. INTRODUCTION

II. PUNITIVE DAMAGES AWARDS and SUBSTANTIVE DUE PROCESS "FAIR NOTICE EXCESSIVENESS" CHALLENGES

A. Punitive Damages Awards

B. The Pre-BMW Decisions of the United States Supreme Court

C. BMW of North America, Inc. v. Gore: The Fair Notice Excessiveness Guideposts

D. Cooper Industries, Inc. v. Leatherman Tool Group, Inc.

E. State Farm Mutual Automobile Insurance Co. v. Campbell

III. IN RE EXXON VALDEZ: THE BACKGROUND

A. The Spill and its Aftermath

B. Exxon's Settlement with the Government Trustees

IV. IN RE EXXON VALDEZ: THE CASE

A. The Case Before the District Court

B. Exxon's Due Process Challenge to the Punitive Damages Award

C. The Plaintiffs' Arguments Regarding Exxon's Due Process Challenge to the Punitive Damages Award

D. The Ninth Circuit's Decision to Vacate the Punitive Damages Award and Remand for Consideration under the BMW Guideposts

E. The Parties' Arguments to the District Court Upon Remand

F. The District Court's Decision to Reduce the Punitive Damages Award by $1 Billion

G. Appeal and Remand: Order for Reconsideration in Light of State Farm v. Campbell

V. IN RE EXXON VALDEZ: QUESTIONS RAISED (AND NOT RAISED) REGARDING DUE PROCESS EXCESSIVENESS REVIEW OF PUNITIVE DAMAGE AWARDS

A. Questions Not Raised in In re Exxon Valdez: Extraterritoriality and Multiple Punishment

B. Questions Raised Regarding Due Process Excessiveness Review

VI. CONCLUSION

FOOTNOTES

This Article examines the application of due process restraints on punitive damages as articulated by the United States Supreme Court, in the context of the $5 billion punitive damage award stemming from the Exxon Valdez oil spill. The author asserts that the Exxon Valdez punitive damages case and its extensive appellate history demonstrate the practical application problems that have arisen under the Supreme Court's due process analysis of punitive damages awards. The author concludes that the Supreme Court's due process review of punitive damages awards has failed to produce predictability and uniformity in such awards and will likely be followed by additional guidelines to be set forth by the Court in future cases.

I. INTRODUCTION

On March 24, 1989, the supertanker Exxon Valdez ran aground on Bligh Reef and spilled approximately eleven million gallons of oil into Prince William Sound. ^[1] Wind, ocean currents, [*pg 196] and tidal action spread the oil until it eventually covered more than thirteen-hundred miles of the Alaskan coastline and caused severe environmental, social, and economic damage. ^[2] The Exxon Corporation conducted a cleanup operation aimed at removing the oil from the shore, spending over $2.1 billion in the effort. ^[3] In addition, Exxon initiated a claims settlement program, voluntarily paying out $300 million to compensate those persons who were economically harmed by the spill. ^[4] However, the spill precipitated numerous lawsuits which were filed in both state and federal court by both public and private litigants. ^[5]

In In re Exxon Valdez, commercial and subsistence fishermen, landowners, and others harmed by the oil spill filed a class action suit to recover economic damages. ^[6] Exxon admitted that its negligence had caused the oil spill; however, the jury found that Exxon had been reckless, which opened the door to liability for punitive damages. ^[7] In September 1994, the jury delivered a $5 billion puni-[*pg 197] tive damages verdict against Exxon. ^[8] At the time, the award was the largest in United States history. ^[9]

In November 2001, the United States Court of Appeals for the Ninth Circuit vacated the $5 billion punitive damages jury verdict and directed the district court to reduce the award on remand. ^[10] Specifically, the Ninth Circuit held that while punitive damages were permissible, the $5 billion award was so large that it deprived Exxon of fair notice that such a large verdict could be imposed, and was therefore excessive under the Due Process Clause. ^[11] In its holding, the court relied upon two recent decisions of the United [*pg 198] States Supreme Court -- BMW of North America, Inc. v. Gore ^[12] and Cooper Industries, Inc. v. Leatherman Tool Group, Inc., ^[13] which together established criteria for judicial review of jury awards for punitive damages. The Ninth Circuit concluded: "The $5 billion punitive damages award is too high to withstand the review we are required to give it under BMW and Cooper. It must be reduced." ^[14]

In December 2002, the district court on remand remitted $1 billion of the punitive damages award. ^[15] While the district court acknowledged that it had to reduce the award, it nonetheless rejected the Ninth Circuit's conclusion that the original award was excessive under the Due Process Clause. ^[16] Instead, the district court found that the "award was justified by the facts of the case and is not grossly excessive so as to deprive Exxon of fair notice -- its right to due process." ^[17]

Exxon appealed to the Ninth Circuit, challenging the district court's decision to set the punitive damages award at $4 billion. On August 18, 2003, before the parties even submitted appellate briefs, the Ninth Circuit vacated the district court's judgment and remanded the case so that the district court could reconsider its decision in light of State Farm Automobile Insurance Company v. Campbell, ^[18] decided by the Supreme Court in April of 2003. ^[19] Before the end of 2003, the parties will submit briefs and present oral arguments to the district court regarding whether State Farm requires a greater reduction in the punitive damages award. ^[20]

The focus of this Article is the application of the Supreme Court's recently identified due process constraints on punitive damages awards in In re Exxon Valdez. First, Part II will review the Supreme Court's emerging substantive due process "fair notice [*pg 199] excessiveness" jurisprudence regarding punitive damages awards culminating in BMW, Cooper, and State Farm.

Next, Part III will summarize the background of In re Exxon Valdez. This Part will describe the spill and its aftermath, including Exxon's $2.1 billion clean-up effort. In addition, Part III will discuss the civil and criminal penalties imposed on Exxon after the spill. Part III will also summarize the spill-related litigation relevant to In re Exxon Valdez, including the $900 million settlement Exxon paid to government trustees to compensate for the damages done to public natural resources, as well as a failed class action suit filed by outdoor recreation enthusiasts seeking to recover damages for their lost use of natural resources.

Part IV will summarize the parties' arguments on the substantive due process challenge to the punitive damages award contained in their briefs to the Ninth Circuit and the district court. Part IV will then discuss the Ninth Circuit's decision to vacate the verdict based on its analysis of BMW's "fair notice excessiveness" guideposts and remand the case to the district court with instructions to reduce the punitive damages award. Next, Part IV will examine the district court's decision to reduce the punitive damages award against Exxon by $1 billion. Finally, Part IV will discuss the Ninth Circuit's order that vacated the reduced award and remanded the case so that the district court could reconsider the punitive damages award in light of State Farm.

Part V will discuss the following questions regarding due process excessiveness review that were raised by In re Exxon Valdez: (1) Do BMW's guideposts lead to uniformity?; (2) Is de novo review appropriate?; (3) Does excessiveness review needlessly undermine the role of the jury?; (4) Should additional guideposts be considered?; and (5) Should a defendant's expenses be used to mitigate the amount of punitive damages? This Article concludes that application of due process excessiveness review does not lend itself to uniformity and that the Supreme Court's jurisprudence will require additional guidelines in order to settle the various problematic issues. In addition, Part V will discuss two important, evolving issues -- extraterritoriality and multiple punishments -- that were not raised by In re Exxon Valdez, but which have led the Supreme Court to further constrain punitive damages awards in State Farm.

[*pg 200]

II. PUNITIVE DAMAGES AWARDS and SUBSTANTIVE DUE PROCESS "FAIR NOTICE EXCESSIVENESS" CHALLENGES

A. Punitive Damages Awards

While compensatory damages are meant only to compensate the plaintiff for actual loss or injury, the aim of punitive damages is to disgorge from the defendant "any profit gained through misconduct and to inflict a financial harm . . . sufficiently severe to dissuade the defendant and others from engaging in the conduct at issue." ^[21] In other words, punitive damages are awarded "to punish reprehensible conduct and to deter its future occurrence." ^[22] They have been described as "private fines levied by civil juries." ^[23] By the nineteenth century these fines had become a "well-established principle of the common law" and were sanctioned by the Supreme Court in Day v. Woodworth...