At Sea Over Punitives
Since the early 1990s, the U.S. Supreme Court has been reining in what it sees as excessive punitive damages awards. Now the justices are set to tackle the issue once again, this time in a high-profile case involving the crash of the Exxon Valdez supertanker more than 18 years ago.
The high court hears arguments Feb. 27 in Exxon Shipping Co. v. Baker, No. 07-219, over a whopping $2.5 billion smack at ExxonMobil.
For the first time, eight of the nine justices will review whether maritime law and the federal Clean Water Act allow for punitive damages, and if so, how much. Justice Samuel A. Alito Jr. has recused himself from the case.
Admiralty lawyers say the ruling could affect how they advise their clients. But the business community and environmentalists also will be watching. After all, the case involves not only the largest damages award ever affirmed by a federal appeals court but also the most infamous oil spill in U.S. history.
“The public is still interested in the Exxon Valdez case because the grounding and oil spill got a lot of attention, and because of the size of the punitive damages award,” says maritime lawyer Jessica McClellan, chair of the Admiralty and Maritime Law Committee of the ABA Tort Trial & Insurance Practice Section.
“But at the crux of this case is maritime law and the future of maritime law,” adds McClellan of the Savannah, Ga., office of Hunter MacLean. “And that’s what we want the Supreme Court to resolve.”
Specifically, admiralty lawyers want the high court to address a circuit split on the availability of punitive damages in maritime cases. They are looking for the court to clarify ship owners’ liability for the actions of their captains. The case affects the owners’ hiring, training and monitoring of their captains.
“Certainty in this area of the law would be very valuable,” says Lizabeth L. Burrell, an admiralty lawyer in the New York City office of Curtis, Mallet-Prevost, Colt & Mosle. “It’s helpful when advising clients to know what conduct must be encouraged or deterred. Certainty in the law enables parties to manage the financial risks of negligence by employees through insurance.”
Burrell, president of the Maritime Law Association of the United States, which filed an amicus brief, adds that a Supreme Court ruling on this topic could deter litigation. “Whenever there’s uncertainty in the law,” she says, “there’s over-litigation.”
The Exxon Valdez, an oil tanker approximately 980 feet in length, ran aground in Alaska’s Prince William Sound in 1989, disgorging an estimated 10.4 million gallons of crude oil and polluting at least 1,200 miles of Alaskan coastline. Joseph Hazelwood, the tanker’s captain, had left the helm when it crashed.
After the spill, Congress enacted the Oil Pollution Act of 1990, which establishes private remedies in cases of oil spills. However, the act is silent on the issue of punitive damages.
After Exxon shelled out $3.4 billion in compensation, cleanup costs, restitution, and state and federal fines, the company got hit with a lawsuit filed by 33,000 fishermen, cannery workers, landowners and others affected by the spill. At trial, the plaintiffs’ counsel presented evidence that Hazelwood was drunk at the time of the crash and that Exxon knew he was a relapsed alcoholic.
In 1994, a federal jury in Alaska awarded $5 billion in punitive damages. Over Exxon’s objections, the judge instructed the jury that an employee’s reckless acts in performance of his duties could extend liability to the employer. The parties are still disputing whether the jury found Exxon liable for its own misconduct or vicariously liable for Hazelwood’s actions.
The San Francisco-based 9th U.S. Circuit Court of Appeals cut the award in half, claiming that the size violated the 14th Amendment’s due process clause. 472 F.3d 600 (2006). The court based its ruling on a line of cases since 1991, including BMW of North America Inc. v. Gore, 517 U.S. 559 (1996), in which the Supreme Court knocked down punitive damages awards that were so excessive that the defendant lacked fair notice that they would be imposed.
But in the Exxon Valdez case the Supreme Court declined to address the due process issue, limiting the case to damages under maritime law. Indeed, maritime or admiralty law harbors its own jurisprudence, allowing federal courts wide berth in creating common law.
The admiralty bar argues that the 9th Circuit created a split when it said it was bound by its precedent allowing punitive damages against a ship owner for the actions of a captain. Protectus Alpha Navigation Co. v. North Pacific Grain Growers Inc., 767 F.2d 1379 (1985).
That case is at odds with other circuits and with a line of case law going back to an 1818 Supreme Court ruling that protects ship owners from liability for punitive damages based solely on the fault of the captain and crew. The Amiable Nancy, 16 U.S. 546.
“While the due process clause is not an issue before the court per se, the question of fundamental fairness is front and center,” says Robin Conrad, executive vice president of the National Chamber Litigation Center, the legal arm of the U.S. Chamber of Commerce, which filed an amicus brief on behalf of the petitioners. At least 12 other groups also had filed amicus briefs as of December, most of them business-oriented.
“The issues that the business community looks at are how long has this been dragging on and how much has this company already paid in damages,” says Conrad.
Walter Dellinger, Exxon’s lawyer, says that the punitive damage award is excessive under any interpretation of maritime law. “The state of Alaska and the federal government agreed upon the largest fine that had ever been imposed in an oil spill, and that amount was determined to be the appropriate amount for punishment and deterrence,” says Dellinger, a lawyer in the D.C. office of O’Melveny & Myers. “The idea that you would need additional deterrence on top of the civil and criminal fines is unpersuasive to me.”
But Dellinger says the justices need not even address that point, as they could simply decide that punitive damages should never have been allowed because the Clean Water Act does not specifically provide for them.
“It is not for federal judges to add judge-made remedies to those that Congress has decided are appropriate and sufficient,” says Dellinger.
Plaintiffs lawyer david oesting of the anchorage office of Davis Wright Tremaine describes Exxon’s argument as “based on a tortured construction of maritime law, state law and the Clean Water Act.”
“The Clean Water Act expressly preserves the claims of the plaintiffs in the Exxon Valdez case that are at issue, and the Supreme Court will so find,” Oesting says.
Oesting also argues that Exxon acted recklessly by allowing Hazelwood to pilot the Valdez.
“Exxon ought to be punished for that reckless disregard of others,” says Oesting. “The Supreme Court should send a message that you have to be very, very attendant to safety.”
For their part, maritime law professors dispute that. “Maritime law has always afforded greater protection to ship owners because historically they had less opportunity to control their employees,” says John Paul Jones, an admiralty law professor at the University of Richmond School of Law who filed an amicus brief on behalf of a group of maritime law professors. “So the question is, under what circumstances should there be vicarious liability for ship owners?”
But Oesting argues that ship owners don’t need special protection these days.
“Those vessels are monitored on a real-time basis by satellite operations,” Oesting says. “They are in radio communication with shore-based supervisors. They are connected to the Internet. The idea that the captain is off at sea and you can’t supervise him is a myth in this day and age.”
Dellinger responds that the tradition that ship owners are not liable in punitive damages for the reckless acts of pilots “is not based upon the state of communications, but the need to preclude excessive damages in the high-risk world of shipping.”
Meanwhile, admiralty lawyers applaud the Supreme Court’s decision to pick up the case. Perhaps the time is ripe, they say, for the high court to weigh in on even more cases involving circuit splits over maritime law.
“By taking this case, the Supreme Court is recognizing the need for uniformity in maritime law,” Burrell says. “This is very good news for maritime lawyers.”