Posted in , on June 25, 2008

Justice Delayed and Justice Denied

The Supreme Court issued a decision, reducing the punitive damages Exxon would have to pay as a consequence of their continued employment of a known drunkard who caused the catastrophic Exxon Valdez oil spill. Thus ends a long and storied battle over responsibility for a massive oil spill.

In 1994, a jury awarded punitive damages of $5 billion, which was then reduced to $2.5 billion. Now, the Supreme Court has further reduced the punitive award to $500 million, stating that in these situations (which are admittedly limited), the ratio of compensatory damages to punitive damages must be 1 to 1.

The Court based their decision on a perceived need for consistency, stating that punitive damages are sometimes high and sometimes low, and similar facts do not necessitate a similar award. I have a hard time arguing with that; one of the underlying theories of the Common Law is that it should be consistent and built on precedent. But I feel that the Court missed the forest for the trees, so to speak.

Punitive damages are levied with a specific goal, to punish and deter. The Court explicitly recognizes this, but at no time do they consider whether that 1:1 ratio is sufficient to accomplish that goal. Perhaps in some cases, 1:1 is enough. In this case, however, I’ll let the Pop Tort do a little explaining.

Okay, so in 1994, when a jury in Alaska awarded the victims $5 billion, the punitive damages award really might have punished the company for causing this disaster. In 1994, $5 billion represented a year’s profits for the oil company. In 2006, the award was cut down to $2.5 billion and only represented “about three weeks of Exxon’s current [2006] net profits.” So, the current $500 million damage award is what? Well, according to the New York Times, Exxon Mobile earned more than $1,287 of profit for every second of 2007.

At that rate, it only took them four and a half days to pay off this court’s punitive damages judgment.

Four days worth of profit hardly seem like a punishment, and it hardly seems like it would deter.

So why blog on a decision that has a very limited applicability, only to punitive damages awarded in maritime courts? A few reasons. First, the Court arrived at this decision based on a survey of state actions. Second, a large number of people will use this rationale when trying to argue for statutory damages caps.

Third, and most importantly, I believe that that logical leap is indemic within the argument for caps. The Court assumed that a 1:1 ratio would deter, without considering whether or not that is true. Likewise, tort reform (as I’ve blogged previously) is predicated on the belief that under no circumstances can an injury or pain and suffering require damages over a pre-set amount. Either way, you assume that a given amount or rule will be sufficient to accomplish the goal you’re pursuing. It is like saying that all bridges, no matter the length, may not use more then 10 tons of concrete. This seems to me to run contrary to the general preference this country has for individualized solutions over decisions by fiat. It also seems like a recipe for bad bridges and uncompensated people.

It would do all of us, including the Supreme Court, well to remember that although inconsistent judgments may be unjust, so are consistently low judgments. And consistently high judgments, although the Supreme Court itself noted in the decision that there is little evidence that there have been runaway awards, a growth in the number of cases where punitive damages are awarded. If most juries don’t award punitive damages, and the majority of those that do limit the damages, then the suggestion is that juries that award mass punitive damages do so because the high damage amount punishes or deters. Reduction of the awards serves to confound the award’s purpose.

Nathan T. Swanson
Summer Intern
JD Candidate, 2009
University of Denver

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