Cap on Punitive Damage Under Fire

In 2008, nineteen years after Exxon’s supertanker Exxon Valdez grounded on Bligh Reef fracturing its hull and spilling millions of gallons of crude oil into Prince William Sound, the U.S. Supreme Court considered the question of whether the award of $2.5 billion in punitive damages was greater than maritime law should allow in the circumstances.  Exxon Shipping Company v. Baker, 128 S.Ct. 2605 (2008).

In the lower court trial, Phase I, the jury found Exxon and Hazelwood reckless (and thus potentially liable for punitive damages) under instructions providing that a corporation is responsible for the reckless acts of employees acting in a managerial capacity in the scope of their employment.  In Phase II, the jury awarded $287 million in compensatory damages to some of the plaintiffs.  Others had settled their compensatory claims for $22.6 million.  In Phase III the jury awarded $5,000 in punitive damages against Hazelwood and $5 billion against Exxon.  The Ninth Circuit upheld the Phase I jury instruction on corporate liability and ultimately remitted the punitive damages award against Exxon to $2.5 billion.  Exxon then appealed to the Supreme Court.

The Court found the punitive damage award against Exxon was excessive as a matter of maritime common law, and that “in the circumstances of this case the award should be limited to an amount equal to compensatory damages.”  In doing so, the Court noted that although some state studies showed the dollar amount of awards growing over time, most accounts showed that the median ratio of punitive to compensatory awards remained less than 1:1.  Continuing, the Court stated that the data did not show a marked increase in the percent of cases with punitive damage awards.  The real problem was the stark, unpredictability of punitive damages.  Stating that courts are concerned with fairness as well as consistency, the available data suggested that the spread between high and low individual awards was not acceptable.  In coming to this conclusion, the Court found that a penalty should be reasonably predictable in its severity so that even the “bad person” can look ahead with some ability to know what the stakes are in choosing one course of action or another.  The Court considered the option of setting a hard dollar punitive cap, but rejected this because there is no “standard” tort or contract injury, thus making it difficult to settle upon a particular dollar figure as appropriate across the board.  The Court found the more promising alternative was to peg punitive awards to compensatory awards, using a ratio or maximum multiple.  The Court found that this is a model used in many states, and an analogous of federal statutes allowing multiple damages.  The question was what ratio would be most appropriate.  To arrive at its answer, the Court analyzed studies reflecting the judgment of juries and judges in thousands of cases as to what punitive awards were appropriate in circumstances reflecting the range from the least blame -worthy conduct, to malice and avarice, to recklessness, to gross negligence.  The Court found that the data in question put the median ratio for the entire gamut a less than 1:1, meaning that the compensatory award, in most cases, exceeds the punitive award.  Accordingly, the Court found that a 1:1 ratio was a fair upper limit in maritime cases.

In recent years the issue of punitive damages has been the subject of several noteworthy cases, all of which trend toward expansion of its use.  In Atlantic Sounding Co v. Townsend, 129 S.Ct. 2561 (2009), the Supreme Court overruled longstanding case law and found that as a matter of general maritime law, a seaman is entitled to seek punitive damages for his employer’s alleged willful and wanton disregard of its maintenance and cure obligation.  This ruling has opened the door for plaintiffs to try to expand the claims and causes of action for which punitive damages may be recoverable.  In Wagner v. Kona Blue Water Farms, LLC, 2010 WL 3566731, the United States District Court in Hawaii ruled that punitive damages are available under the general maritime law claims of unseaworthiness, citing the Ninth Court of Appeals’ decision in Evich v. Morris, 819 F.2d, 256 (9th Cir. 1987).  In Rogers v. Resolve Marine, 2009 WL 2984199, a case decided here in the Eastern District of Louisiana, plaintiff, a Jones Act seaman, moved to amend his Complaint to claim punitive damages for the alleged gross, willful and wanton  negligence of his employer in causing his injuries.   Judge Barbier did not specifically rule that he would recognize this cause of action, but did allow the amendment “in light of the movement of the law in this area, to avoid re-trial in the event the law changes.”

On March 16, 2011, U.S. Senator Sheldon Whitehouse (D-RI) introduced Senate Bill 592 entitled The (Maritime Liability Fairness Act.)  Here Senator Whitehouse, quoting directly the Supreme Court’s reasoning in Baker, introduced legislation stating “Except as otherwise provided in its title, in a civil action for damages arising out of a maritime tort, punitive damages may be assessed without regard to the amount of compensatory damages assessed in this action.”

This is evidence of a continuing trend towards the expansion of rights of recovery and punitive damages in the maritime law.  Following the Deep Water Horizon event, Senate Bill 3755 entitled “A Bill to Ensure Fairness in Admiralty and Maritime Law” was filed.  It would have eliminated the right to seek limitation of liability by vessel owners in all but a few scenarios, eliminate the cap on punitive damages, allow the award of non-pecuniary damages (loss of care, comfort and companionship) in claims for death on the high seas and allowed non-pecuniary damages in Jones Act claims.  This bill stalled during the legislative process.

Nevertheless, the mood of Congress and the judiciary appears to be moving for a more liberal philosophy when it comes to the type and amount of damages available to maritime workers.  We can expect to see continued attempts by counsel for injured maritime workers to expand the circumstances when punitive damages can be awarded.