Oil and water: how the polluted wake of the Exxon Valdez has endangered the essence of punitive damages.

• Author: Foley, Patrick H.

"The value of money itself changes from a thousand causes; and at all events, what is of ruin to one man's fortune, may be a matter of indifference to another's." (1)

1. INTRODUCTION

   In the late hours of March 23, 1989, the Exxon Valdez supertanker moved through the waters of Prince William Sound off the coast of Alaska, en route to deliver fifty-three million gallons of crude oil to the lower forty-eight states. (2) Steering the vessel was Captain Joseph Hazelwood, still intoxicated from the five double vodkas he drank in the waterfront bars of Valdez just prior to leaving port. (3) As the clock approached midnight, just minutes before the ship was scheduled to make a required turn, Captain Hazelwood abruptly and inexplicably abandoned the bridge to return to his cabin. (4) With no one to properly navigate the scheduled turn, the supertanker grounded on the reef below, causing the hull to fracture, spilling eleven million gallons of crude oil into the waters of Prince William Sound. (5) These events amounted to the worst oil spill in American history and ignited an eruption of litigation, which now seems, after twenty years, to have reached its final act. (6)

   The denouement of this legal epic came in the Supreme Court's recent decision in Exxon Shipping Co. v. Baker, (7) a class action lawsuit brought by the more than 32,000 commercial fishermen, native Alaskans, and landowners affected by damage from the spill. (8) Upon granting certiorari, the Court sought to determine whether the $2.5 billion punitive damages award was greater than maritime law should allow under the circumstances. (9) Ultimately, the Court held that, in cases of maritime law involving reckless conduct, the amount of punitive damages awarded should not exceed the compensatory damages by a ratio greater than 1:1. (10) As a result, the Court reduced the original punitive award of $5 billion to $507.5 million, the equivalent of the compensatory damages awarded. (11)

   Though this holding is presently confined to maritime law, the 1:1 ratio represents the first occasion of the Court's willingness to draw a "mathematical bright-line" to cap a punitive verdict in the name of substantive due process, after explicitly refusing to do so at every past opportunity. (12) Nevertheless, the Exxon decision represents the next natural step down the path the Court has been traveling for many years, where the punitive-to-compensatory ratio has emerged as the critical measurement when determining whether punitive damage awards are constitutionally excessive under substantive due process. (13) Albeit, the Court has perpetually struggled to provide meaningful guidance in this area, insisting that punitive awards must fall within a constitutionally acceptable range despite being unable to adequately define any boundaries. (14)

   Beyond the perpetual ineffectiveness of the Court's chosen path, however, there exist deeper flaws that have caused the Court to effectively disregard the fundamental objectives of punitive damages: punishment and deterrence. (15) Nonetheless, if the Court continues to treat the punitive-to-compensatory ratio as the barometer of constitutional due process, then fixed ratios and mathematical bright lines to cap punitive damage awards could soon become the norm. (16) Accordingly, the flaws of this paradigm must be realized and a new standard must emerge so that the hull confining the Exxon holding to maritime law does not fracture, allowing it to seep into other areas of law and further pollute a doctrine that is already overdue for a cleanup effort. (17)

   This Note explores the flaws underlying the Court's reliance on the punitive-to-compensatory ratio as a barometer of due process and argues that the Court should realign its approach to evaluating constitutional excessiveness in order to preserve the punishment and deterrence objectives of punitive damages. (18) Part II offers insight into the original design of punitive damages and tracks the Court's increasing reliance on the punitive-to-compensatory ratio, beginning in the late 1980s. (19) Part III will explain the flaws of the Court's paradigm. (20) In addition, Part III will outline an alternative approach to reviewing punitive damage awards that will both alleviate the Court's constitutional concerns and remain true to the fundamental purposes underlying their imposition. (21)

2. HISTORY

   1. Still Water: The Origins and Purposes of Punitive Damages

      The awarding of punitive damages by civil juries first occurred in England prior to the American Revolution. (22) One of the first cases to reference the concept was Huckle v. Money, (23) where the English Court upheld an award of "exemplary damages." (24) Declining to disturb the jury verdict, the court observed that such awards depended upon a variety of circumstances and noted that the law does not specify what the measure of damages should be in tort actions. (25) Furthermore, the Lord Chief Justice noted that "it must be a glaring case indeed of outrageous damages in tort, and which all mankind at first blush must think so, to induce a Court to grant a new trial for excessive damages." (26) In a subsequent case, Wilkes v. Wood, (27) Lord Chief Justice Pratt of the King's Bench offered a clearer statement of the fledgling legal concept. (28) Determining that it was within the power of the jury to give greater damages than what was necessary to compensate for the injury, he explained "[d]amages are designed not only as a satisfaction to the injured person, but likewise as a punishment to the guilty, to deter from any such proceeding for the future, and as a proof of the detestation of the jury to the action itself." (29)

      The doctrine of punitive damages eventually crossed the Atlantic to be adopted by American common law. (30) Moreover, as in England, American courts explicitly designed the doctrine of punitive damages to carry out two objectives: punish the wrongdoer and deter future similar conduct. (31) Thus,

      American courts instructed juries not to look to the actual damages a defendant's conduct caused, but rather to look at the facts and circumstances of each case and determine an amount that would adequately accomplish these objectives. (32) Furthermore, courts fully recognized that this exercise was a function unique to juries and that only in the rarest of circumstances should a court encroach upon the jury's expression of moral outrage. (33) Over time, however, these standards softened to the point where judicial review of punitive awards became an accepted safeguard against extreme and unwarranted verdicts. (34) And so it was that these basic principles formed the common-law understanding of punitive damages, and though criticized, the doctrine remained an accepted feature of the American legal system, relatively undisturbed in this design until the late twentieth century. (35)

   2. A Gathering Storm on the Horizon: Constitutional Challenges to Punitive Damages, 1988-1993

      Beginning in the late 1980s, larger punitive damage awards began to fuel growing concerns regarding the unfettered discretion of juries to impose "quasi-criminal" penalties. (36) This prompted an emergence of new constitutional challenges to substantial punitive damage awards, proffering that such awards violated the Eighth Amendment's Excessive Fines Clause and the Fourteenth Amendment's Due Process Clause. (37) While the Court ultimately held that the Excessive Fines Clause did not apply to punitive damage awards, it acknowledged, but did not rule upon, the potential validity of due process challenges to large awards. (38) Inevitably, the Court was required to examine the constitutional validity of the common-law punitive damages doctrine under the Due Process Clause of the Fourteenth Amendment. (39)

      The first occasion to review a punitive award under constitutional due process came in Pacific Mutual Life Insurance Co. v. Haslip, (40) where the Court held that although the punitive award was greater than four times the amount of the compensatory award, the decision did not violate the defendant's right to procedural due process because the trial court afforded the defendant a number of procedural protections from jury caprice. (41) The Court observed, however, that although the punitive award "does not cross the line into the area of constitutional impropriety," a punitive award greater than four times the compensatory award "may be close to the line." (42)

      The Court next confronted this issue in TXO v. Alliance Resources Corp., (43) where the Court upheld a punitive award that was 526 times greater than the compensatory award. (44) In doing so, the Court concluded that a jury deliberating a punitive award must weigh many factors based on a variety of facts and circumstances that are unique to the case. (45) For that reason, the Court doubted the utility of an objective test to determine the validity of a punitive award as a matter of constitutional due process and refused to draw a mathematical bright line separating the constitutionally acceptable from the constitutionally unacceptable. (46) The Court further clarified that it could not endorse an approach that concentrates entirely on the relationship between actual and punitive damages. (47)

   3. Against the Current: The O'Connor Dissents, 1989-1993

      During the same period of time, in her dissenting opinions, Justice Sandra Day O'Connor championed the belief that the Court should take affirmative steps to strictly limit the discretion of juries when determining punitive awards. (48) Justice O'Connor based her argument on the belief that punitive damage award amounts should bear a reasonable relationship to the actual damages caused so that juries were not given unfettered leeway to impose excessive punishments derived from their own passions and prejudices. (49) Moreover, she expressed particular concern over the vulnerability of large corporations, given the likelihood that jurors might feel...