Vicarious Liability for Punitive Damages

• Author: Michael F. Sturley
• Position: Stanley D. and Sandra J. Rosenberg Centennial Professor of Law, University of Texas at Austin
• Pages: 501-527

Stanley D. and Sandra J. Rosenberg Centennial Professor of Law, University of Texas at Austin; B.A., J.D., Yale University; M.A. (Jurisprudence), Oxford University. I was a member of the legal team representing the Exxon interests in Exxon Shipping Co. v. Baker (Exxon), 128 S. Ct. 2605 (2008), which is discussed in this Article. But I write here solely in my academic capacity, and the views I express are my own. They do not necessarily represent the views of, and they have not been endorsed or approved by, my former clients or my former co-counsel.

An earlier version of this Article was delivered at a symposium on punitive damages held at the LSU Paul M. Hebert Law Center in Baton Rouge, Louisiana, on April 17, 2009, which was jointly sponsored by the Louisiana Law Review and the LSU Center for Continuing Professional Development.

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It was a personal pleasure for me to participate in this impressive symposium on punitive damages. Not only did I appreciate the opportunity to share views with new friends and old during my visit to Baton Rouge, but the student members of the Louisiana Law Review did a superb job organizing the symposium, and I thank them for their hospitality.

I Disclosures

To put my comments into perspective, I should begin with three disclosures. Most importantly, I am not a fan of punitive damages law as currently administered in the United States. Although this position puts me in the company of many of my conservative friends, I nevertheless consider it one of my liberal views. Accepting the current premise that punitive damages are intended to punish those who are guilty of particularly egregious misconduct (and thus to deter others from similar misconduct),¹ I believe that punishment should be imposed only when suitable safeguards are in place to protect the accused wrongdoer. We do Page 502 not permit the state to fine a criminal defendant under a preponderance-of-the-evidence standard,² or for misconduct that has not been clearly defined in advance.³ Criminal fines are subject to a host of constitutional, statutory, and procedural safeguards. In my view, the policy concerns that support these important safeguards do not disappear simply because we categorize punitive damages as part of the "civil" law rather than the "criminal" law.⁴ To the extent that you believe that the views I express here on the state of the law of vicarious liability for punitive damages may Page 503 have been influenced by my wider views on punitive damages generally (as I believe that judges' views on the subject are likely to be influenced by their wider views about punitive damages), you may wish to discount my conclusions accordingly.

Secondly, I must also note what might be seen as a personal financial interest in the subject. I was retained by Exxon Mobil Corporation to assist in its presentation of Exxon Shipping Co. v. Baker (Exxon) before the United States Supreme Court.⁵ One issue in that case was vicarious liability for punitive damages. You may believe that this representation colored my current conclusions. My own belief is that my current views were already well-formed before Exxon retained me, but you can decide for yourself. I hasten to add that the views I express here are entirely my own. I do not speak here for any of my former clients or co-counsel, and they may or may not agree with what I say.

Finally, I should explicitly mention what is already clear from my resume: my relevant expertise lies in the field of maritime law rather than general tort law. I will discuss tort law as it has been applied in the states, but I will focus much more on maritime law than one who specializes primarily in torts might do. Although it may seem odd for the organizers of this symposium to invite a maritime specialist to address an issue that is so central to general tort law, particularly when punitive damages are so rarely awarded in maritime cases,⁶ I see the logic in their choice. Not only is maritime law the field in which the most interesting recent developments on vicarious liability have occurred,⁷ it is also the field in which future developments are most likely to be broadly influential.⁸ Page 504

II Introduction And Definition Of The Issue

The extent to which an employer, principal, or master⁹ is liable for punitive damages based on the egregious misconduct of an employee, agent, or servant¹⁰ has been a contentious issue for most of the nation's history. The Supreme Court first addressed the question almost two centuries ago in The Amiable Nancy.¹¹ Less than two years ago, the Court agreed to revisit the issue when it granted certiorari in Exxon.¹² The Exxon Court divided equally on the vicarious liability question, however, and was thus unable to render any decision (and no Justice addressed the issue in an opinion).¹³ In the 190 years between The Amiable Nancy and Exxon, a number of different approaches developed and endured, with the result that no single solution to the problem is accepted today.

It may be helpful to focus on exactly what is at stake here, and a simplified hypothetical based on the Exxon facts may serve as a useful illustration. Suppose that a corporate shipowner employs a captain to operate a supertanker on voyages between Alaska and California. The company complies with industry standards in the hiring and training of the entire crew, including the captain, and also establishes and enforces appropriate policies for the operation of its vessels. The captain nevertheless violates the company policy and leaves the bridge while the ship is sailing through the environmentally sensitive waters of Prince William Sound. That action leaves only one officer on the bridge (a violation of the company's explicit two-officer policy), and that remaining officer lacks the Coast Guard license necessary to navigate the vessel in Page 505 those waters.¹⁴ After a disaster ensues, the jury concludes that the captain acted recklessly in leaving the bridge and holds him personally liable for a modest punitive damages award. The five billion dollar question-the issue on which I focus here-is whether the company may also be held liable for punitive damages based solely on the captain's misconduct.¹⁵

To some extent, this is simply a problem in line-drawing. Like most employers today (or at least like most employers against whom plaintiffs seek substantial punitive damages awards), our hypothetical shipowner is a corporation that can act only through its agents. If the board of directors passed a resolution directing the company's captains to abandon the bridge at key times, that resolution would be an act of the corporation for which otherwise appropriate sanctions could be imposed without considering vicarious liability. Most would agree that the misconduct does not need to rise to the level of a board resolution; at least some employees' actions should be imputed to the corporation. If the president of the company happened to be on board the vessel at the fateful time, and in the course of her employment she had ordered the captain to leave the bridge (perhaps to meet with her to discuss company business), the president's decision would presumably be imputed to the corporation.¹⁶ But how far down the corporate structure should we go? Suppose that the captain had radioed the Page 506 vice president responsible for overseeing the operations of the company's fleet and had asked for permission to leave the bridge. If that permission had been recklessly granted, would it have been enough? Or is the captain's decision by itself enough to impose liability on his employer? If the captain had been blameless but the third mate had acted recklessly, would that have been enough? If all of the officers had acted properly but the helmsman had recklessly failed to execute their orders, would that have been enough? If everyone on the bridge had acted properly but the lookout had recklessly failed to perform her duties, would that have been enough to impose liability on the corporate owner for punitive damages?

As a theoretical matter, the law could establish a rule selecting just about any point along the spectrum. As a practical matter, the three most likely results are (1) the employee in question must be one who is responsible for setting company policy,¹⁷ (2) the employee must be one who acts in a "managerial" capacity,¹⁸ or (3) the employee must be acting within the scope of his or her employment.¹⁹

III Vicarious Liability For Punitive Damages In The Supreme Court

The Supreme Court has addressed an employer's liability for punitive damages for the wrongful conduct of an employee several times in somewhat different contexts. In the admiralty context, which (in the absence of a statute) gives the Court broad discretion to formulate the appropriate legal standard,²⁰ The Amiable Nancy involved an armed privateer's plundering of a neutral vessel during the War of 1812.²¹ The Court affirmed the shipowner-employer's responsibility to pay compensatory damages to the owners of the neutral vessel but expressly recognized the unfairness of holding the employer vicariously liable in punitive damages for the Page 507 wrongful conduct of the employees aboard the ship.²² It concluded that the employer was not liable for punitive damages when the employer...