Shifting course in admiralty: Exxon Shipping Co. v. Baker.

• Author: Vu, Jessica

The Admiralty Clause grants maritime jurisdiction to federal courts without establishing a particular substantive standard of rulemaking for those courts to follow. (1) Since Erie Railroad Co. v. Tompkins, (2) however, courts have required common-law rules--including admiralty rules--to be grounded in an identifiable sovereign authority. (3) Last Term, in Exxon Shipping Co. v. Baker, the Supreme Court disregarded Erie's mandate when it held that the ratio of punitive to compensatory damages in maritime cases could not exceed 1:1. (4) The Court's 5-3 decision found compelling reason to limit recovery for maritime punitive damages where Congress had not yet legislated, (5) but its ruling adhered to no set standard of rulemaking in admiralty. Rather than ground its judgment in a sovereign authority, the Court neglected to conform to federal statute or state law and thereby engaged in the type of federal common-lawmaking that is no longer constitutionally permitted.

As early as 1985, Exxon Shipping's upper-level management was aware of Captain Joseph Hazelwood's drinking problem. (6) Yet despite a series of alcoholic relapses, on the night of March 23, 1989, several miles from the Alaskan coastline, Captain Hazelwood was navigating the Exxon Valdez, a 900-foot oil tanker, after downing five double vodkas prior to departure from port. (7) Shortly before midnight, an intoxicated Hazelwood steered the Valdez off course to avoid hitting an iceberg. (8) He then abruptly abandoned his position and left at the mast a third mate who was unlicensed to navigate. (9) The Valdez continued to stray from its course, and shortly after midnight it collided with Bligh Reef. (10) The hull of the ship broke, spilling an estimated eleven million gallons of crude oil into the waters of Prince William Sound. (11) The marine life and its surrounding environment never completely recovered from the widespread resulting devastation, and the area's fishing industry suffered extensive damage in the aftermath of the accident. (12) A group of affected local residents, commercial fishermen, and native Alaskans subsequently filed a class action suit against Exxon, seeking reparations for their economic losses. (13)

The U.S. District Court for the District of Alaska separated the trial into three phases and ruled in favor of the plaintiffs in each phase. (14) In Phase I, the jury determined that Captain Hazelwood had acted recklessly and that Exxon was liable for his conduct occurring within the scope of his managerial duties. (15) In Phase II, the jury awarded $287 million in compensatory damages and an additional $2.6 million for claimants who had opted for the out-of-court settlement. (16) In Phase III, the jury awarded plaintiffs punitive damages of $5 billion against Exxon and $5,000 against Hazelwood. (17) Exxon appealed the judgment.

The Ninth Circuit remanded the punitive damages award twice on due process grounds. (18) On the third appeal, a panel of the Ninth Circuit upheld the Alaska jury's determination that Exxon was liable for the reckless conduct of its employees acting within the scope of their managerial duties. (19) After conducting a review of punitive damages for conformity with due process standards, the Ninth Circuit concluded that an award of $4.5 billion remained excessive and reduced it to $2.5 billion. (20) Exxon appealed, arguing that even the reduced punitive damages award was excessive and disputing its liability for an employee's recklessness. (21)

The Supreme Court affirmed in part and reversed in part. (22) The Court divided equally on the first issue concerning Exxon's liability, leaving undisturbed the Ninth Circuit's opinion that a ship owner could be liable in punitive damages for the reckless conduct of managerial employees occurring within the scope of their employment. (23) Moving to the second issue, federal preemption, Justice Souter affirmed that federal civil penalties for the company's environmental violations did not preempt punitive damages awarded in admiralty. (24) For the final issue, regarding the appropriate level of punitive damages, the Court held that a punitive damages award of $2.5 billion was excessive, and more generally, that punitive damage awards in maritime cases may not exceed compensatory damages. (25) The judgment against Exxon was capped at $507.5 million and vacated and remanded to the Ninth Circuit. (26)

In arriving at this determination, the Court described its inquiry as occurring "in the exercise of federal maritime common law authority." (27) Modern admiralty practices, the majority asserted, "support[ed] judicial action to modify a common law landscape" of the courts' own formation. (28) In the majority's view, number-based rules such as a "maximum multiple" produce predictable punitive damages awards. (29) Several states had adopted a 3:1 or 2:1 ratio, but the Court reasoned that those approaches generally covered conduct such as malice and negligence and did not properly apply to the present case. (30) Basing its reasoning upon an empirical study of punitive damages from a random selection of county jurisdictions, the Court embraced a "median ratio of punitive to compensatory verdicts" of 0.65:1, which it rounded to an even 1:1 ratio. (31) To justify its new rule, the majority pointed to past judicially created maritime rules as compelling precedent. (32) The majority declared the cap on maritime punitive damages as "no less judicial" than selecting "an outer limit of constitutionality for punitive damages" in non-maritime cases. (33)

Justice Scalia wrote a brief concurrence, joined by Justice Thomas. (34) Although Justice Scalia supported the Court's references to State Farm Mutual Automobile Insurance Co. v. Campbell (35) and BMW of North America v. Gore, (36) both of which imposed constitutional limits on punitive damages, he continued to distance himself from those decisions. (37) Despite his support for the majority's overall reasoning and judgment, he still maintained that State Farm's and Gore's due process holdings were in error. (38)

Justice Stevens dissented in part, (39) contending that the Court should have affirmed the Ninth Circuit's punitive damages ruling. (40) Justice Stevens insisted that the preferred authority for making "empirical judgments" to limit punitive damages was Congress and not the Court, (41) and that "a policy of judicial restraint" should be followed in the absence of federal legislative enactments. (42) In his view, the majority failed to justify its refusal to defer to Congress or adequately to consider the unique features of maritime law that make comparison to non-maritime punitive damages caps ill-advised. (43)

Justice Ginsburg dissented in part, criticizing the majority's decision to reduce the punitive damages award. (44) She also agreed with Justice Stevens's position that Congress was the better decision maker on the matter and argued that the shift from the "traditional common law" review of jury awards to a mandatory cap upon punitive damages responded to an illusory problem. (45) Even if the problem were real...