Exxon Valdez: Permissive Standards for Corporations

August 26, 2008

The U.S. Supreme Court is coming under fire for favoring business at the expense of both precedent and principle. The linked article discusses decisions where the interest of business has predominated over the interests of consumers and citizens. This of course was the expected result of Bush’s appointments.

What is more interesting to me is the Court’s willingness to abandon supposedly “conservative” judicial tenets to achieve these results. Members of the Senate Judiciary Committee, for example, have criticized the Court for usurping the role of Congress in the Exxon Valdez decision.

What surprises me is the abandonment of the “law and order” principals that are invoked to incarcerate people when corporate malfeasance is at issue. Mandatory sentencing and long sentences are deemed appropriate for individuals because criminal behavior is reprehensible. For reprehensible corporate behavior, however, the Exxon Valdez decision says that limits are appropriate and the same juries that convict people should not be trusted to penalize corporations.

For this reason the Court declared in the Exxon Valdez decision that henceforth there will be a limit on the discretion of juries in awarding punitive damages for reprehensible behavior by corporations. Exxon received a 4.5 billion dollar reprieve by the Court in reducing the jury award to $500,000,000. This of course is just a small fraction of its continuously record setting profits last quarter.  Certainly a minor inconvenience compared to spending one’s life, or a significant portion of it, in prison.

There are now two standards for “reprehensible conduct” in America. There is the harsh standard levied upon individuals in criminal settings and the lax standard imposed upon corporations in the civil penalty context.

If the Court, and its allies, meant what they said in “law and order” discussions you would expect that reprehensible conduct would be viewed equally hostilely whether it was associated with an individual or a corporation.   Similarly, you would expect juries to be viewed in the same light whether the defendant was an individual accused of a crime or a corporation found to have committed anti-social behavior.

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The Exxon Valdez Decision and Punitive Damages

July 9, 2008

Exxon Shipping Co. v. Baker (the Exxon Valdez decision) provides an interesting look at our Supreme Court, particularly since so many of the members were selected by our country’s first administration composed of former oil executives.

The decision derives from the worst environmental disaster in our country’s history, when millions of gallons of oil were leaked into Prince William Sound in Alaska. The oil came from a supertanker (over 900 feet long) whose drunken captain had left the vessel in the hands of an unlicensed third mate who could not negotiate the passage. The ship ran aground on a reef. Wildlife was destroyed, a habitat rendered toxic and all the people who depended on Prince William Sound for their livelihood, including fishermen in Alaska, Washington, as well as elsewhere, were ruined. The devastation was overwhelming. Even now nineteen years later, oil stained gravel and sand lies just below the surface on the shore.

The captain had a history of alcohol abuse and was still intoxicated eleven hours after the incident. Exxon was found by a jury to have acted recklessly, and the jury awarded $5 billion in punitive damages. Exxon appealed, questioning on a number of grounds the punitive damage award.

Before arriving at the Supreme Court, the case was considered by the Ninth Circuit Court of Appeals. That court upheld the jury’s right to award punitive damages, but cut the amount of the punitive damages award in half.

Exxon petitioned the Supreme Court for review hoping to convince it that punitive damages were in appropriate and failing that that even half of the jury’s award was excessive.

Washington’s Attorney General, an ardent tort reform proponent, who campaigned against large jury awards, saw an opportunity for publicity. While actually claiming to his constituents that large jury awards and excessive litigation costs prevented the State of Washington from correcting to the conduct that gave rise to the litigation against the State, he undertook to champion the cause for punitive damages to the Supreme Court. He argued for the right to punitive damages and asked that the $5 billion award be restored.

In a very unusual decision, the Court announced that it was evenly divided on the question of whether punitive damages could be awarded against a corporation under maritime law. The Court said that it would not render a decision on that point, leaving the decision of the Ninth Circuit in place. (With nine members you might wonder how the Court could be evenly divided. Justice Alito recused himself, presumably because of some association with Exxon, creating an even number of justices deciding this case.) In the next few years from two to four of the members of the Court will be replaced and a reconstituted Court could then decide this issue.

The Court, without examining the right to punitive damages under maritime, law chose to consider whether such damages were prohibited by the Clean Water Act and, if not, whether the award was excessive. What is odd about this is that the Court left open the opportunity for it to later decide that there were no punitive damages available under the maritime law, undercutting the entire decision.

This very narrow ruling is becoming a trademark of the new Roberts Court. The new Chief Justice attempts to avoid sweeping decisions and tries to limit them to the facts of the case while seeking to avoid fractious split decisions. In this decision he selected issues that were less divisive than the question of whether punitive damages were available under maritime law.

The Court, after finding the the Clean Water Act did not preempt maritime common law, discussed the roots of punitive damages, tracing it back to English common law, codes from the Middle Ages and even the Code of Hammurabi. The decision quotes from an 18th century American decision where punitive damages were awarded against the Secretary of State for an unlawful search of someone’s papers. (They apparently had different sensibilities then, although maybe not in the case of the Attorney General.)

The Court said that punitive damages were “wildly” accepted by American courts by the middle of the 19th century. At that time they were called “exemplary damages” a more favorable term, and were invoked in cases involving extraordinary wrongdoing. Their purpose was said to be to set an example for the sake of deterence. They were also said to compensate for intangible injuries that were not a part of the legal definition of compensatory damages. The court noted that the concept of compensatory damages has broadened so that this justification no longer applies. Today the Court said that punitive damages serve the purposes of retribution and deterrence and are reserved for outrageous conduct that is recklessly indifferent to the rights of others or otherwise deplorable.

In Nebraska punitive damages are barred entirely. In Washington, Louisiana, New Hampshire and Massachusetts they are permitted only when authorized by statute. (In Washington this nearly amounts to a bar on them as the legislature disfavors this aspect of the common law.) Two states have limited the type of rewards which may be recovered as exemplary damages and several have limited the amounts.

In an interesting and uncharacteristic detour the Court examined the laws of several other countries on the question of punitive damages and found that they were generally subject to tighter control than in American Courts.

The Court rejected the contentions of the tort reformers who claim that punitive damages are becoming extravagant. It stated that neither the amount of the awards nor the percentage of cases with punitive damages awards has increased over time. The Court said that the figures show restraint with respect to this type of award.

The Court though found fault in the lack of predictability of the amount of the awards and the lack of consistency in determining an appropriate amount. It announced that it would create criteria so that this element of damages would be rendered more predictable.

The Court noted that the criminal justice system’s sentencing function has the same purposes as a jury assessing punitive damages: retribution and deterrence. It found it noteworthy that the “indeterminate” sentencing system had been rejected and suggested that it would do the same thing for punitive damages awards, avoiding the “deserts of uncharted discretion.”

The court cited studies showing that the ratio of punitive damage awards to compensatory awards was less than 1:1, meaning that actual damage awards were on average more than the accompanying punitive damage award. Without much more discussion the Court decided that in maritime cases the limit on punitive damages would be the amount of the compensatory award.

Justice Scalia and Thomas separately concurred. Justice Thomas often seems to follow Justice Scalia’s views almost like a shadow. Scalia said that the reasoning here was correct but he disputes cases cited in the opinion that put a constitutional limit on punitive damages.

Justice Stevens dissented from the part of the opinion that imposed a limit on maritime punitive damages. His dissent shows the shallow, if not outright ignorant use of the term “activist judges,” Tort reformers often rant against judges usurping the role of the legislature and attribute that to “liberal judges.” Justice Stevens, sometimes called a liberal justice, opined that it is not the role of the Court to devise a formula to impose on juries. He said that this is a legislative function that ought to be reserved for Congress.

Justice Ginsburg, generally regarded as particularly thoughtful, shared Stevens’ aversion to the Court legislating damage limits. She pointed out that the majority acknowledged that there was no perceived urgency requiring the court to break from the common law tradition. She pointed out that the data that informed the decision showed that the traditional “abuse of discretion” standard by which punitive damages are traditionally reviewed functioned perfectly well. She also pointed out a number of unanswered questions about the decision.

Justice Breyer also filed a dissent, saying that he had no particular problem with the imposition of a ration like the one adopted but that it should not apply in extraordinary cases. He went on to point out the high degree of scrutiny that this award had received at the trial court level and what the Ninth Circuit Court called the “egregious” nature of Exxon’s conduct. As a special case exception he would have sustained the Ninth Circuit Court’s decision.

There are a number of interesting features to this case which I’ll discuss on another occasion. One quick observation. Broadly speaking punitive damages and criminal law address the same sort of conduct, as suggested by the Court in this decision. That is conduct that is deplorable or which recklessly endangers others or their rights. Punitive damages and sentencing have exactly the same purposes, to punish the guilty and to deter such conduct. You would think that people supportive of strong or harsh sentencing standards would support strong or harsh punitive damages standards. It turns out of course that generally speaking the people who support incarceration over rehabilitative purposes in sentencing favor the abolishment of punitive damages. There are racial and class distinctions between the two groups of defendants. Hopefully there is some other explanation for this apparent inconsistency.


Rob McKenna; I think I figured it out (Part 2)

June 26, 2008

I puzzled overnight how Rob McKenna could within a very short period of time issue apparently wildly contradictory statements. He says the courts are out of control with damages and the legislature needs to step in and impose limits. He also argues that courts should be able to disregard legislative limits on damages and he supports enormous punitive damages.

My problem in trying to figure this out was that I presumed that there was an over arching doctrine that somehow melded these two opposing positions.

No, the answer lies in the reason for espousing them. Tort reform, however unsupported by actual evidence, is a Republican campaign cornerstone. As a Republican candidate for Attorney General, Rob McKenna embraced the issue. The issue still has currency and Mr. McKenna uses the issue to gain publicity.

The Exxon Valdez case is internationally known and public sentiment lies almost entirely on the side of the victims of this environmental disaster. Mr. McKenna claims to have inserted himself into this case to rally other states into participating as advocates of the victims.

He took the politically popular position of advocating for exactly the opposite result from the one he had campaigned on. Governor Gregoire’s signature, high profile case was the suit against the tobacco companies. The tide of approval for this effort washed her up on the shores of the governor’s office. The Exxon Valdez case has the same sort of <i>cache</i> as the tobacco cases and could perhaps advance McKenna’s career in the same way.

McKenna, trying to have it both ways, publicly continued to speak out for tort reform while while using his office to seek the opposite result in the Exxon Valdez case.

He is trying to appear to be a big business tort reformer (the only real benefactors of this position are insurance companies and big businesses) and at the same time appear to be a hero to tort victims. The the notoriety of the Exxon Valdez case promised enough political advantage to compensate for whatever losses their might be from his big business base.

That’s the only coherent answer I could find. The principle that one derives from this is that Rob McKenna will say and do anything to advance his career.


Washington’s Attorney General Takes Both Sides of Tort Reform Issues (Part 1)

June 26, 2008

Washington State’s Attorney General Rob McKenna recently campaigned for tort reform, claiming that the legislature needed to step in and reduce the awards that were being entered against the state. He indicated that the courts were out of control and the legislaure needed to do something about it:

“But the courts have moved so far away from what the Legislature intended back in the early 1960s that the law removing sovereign immunity is no longer recognizable, and at the same time the Legislature has failed to act at a policy level where the limits ought to be.”

Mr. McKenna got into office advocating tort reform for everyone, saying that judgments were getting too big.

That sounds to me like just expedient court bashing. He says lawsuits are preventing the state from taking corrective action? That sounds like baloney.

Well, what did he do when the Exxon Valdez case got to the Supreme Court and the Court was asked to review the biggest punitive damages award in American history, $5 billion? This award was being attacked on two grounds. First, Exxon said that it was excessive. The plaintiffs were awarded all their proven damages, plus $5 billion. Second the spill was a violation of the federal Clean Water Act which does not award punitive damages at all. This omission from the law was fought for by Republicans, who generally are beyond cautious with respect to environmental laws. The $5 billion punitive damages award was granted under court created doctrine that the trial judge held applied in spite of the Clean Water Act.

The arguments of Exxon are exactly the same positions that Mr. McKenna campaigned on and which he has been advocating recently.

Mr. McKenna participated in this case by helping prepare a brief on behalf of Washington and 33 other states which argued that the punitive damages award should not be reduced and that the court created doctrine that allows punitive damages ought to be respected in spite of contrary language in the Clean Water Act. This is exactly the opposite of what he is saying in public.

Lawyers are sometimes required to advance positions they do not believe in but this does not appear to be the case in this instance. Mr. McKenna is crowing about the result and how he helped preserve punitive damages under court created doctrine!

The statement he issued on June 25 says this:

“We are pleased the court upheld an award of punitive damages, since Exxon had argued that no punitive damages can be awarded in a maritime case under federal law, no matter how egregious the circumstances,” McKenna said. “We are disappointed, however, that the Court did not award the full punitive damages authorized by the Court of Appeals. The reduced award is brutally disappointing for the Washington and Alaska fishermen and their families who were counting on this money to help make them whole.”

Don’t get me wrong; I don’t disagree with this sentiment. It is just that because I agree with him, I cannot in good conscience claim to support tort reform, particularly the two points championed by Exxon and Mr. McKenna in public statements.

I have puzzled over this for some time trying to render Mr. McKenna’s divergent positions rational. The only thing I can come up with is that Mr. McKenna thinks that punitive damages are fine for injured people in other states but not for people in Washington, except for fishermen. That still does not make sense to me.