Exxon Shipping Company v. Baker: A New Measure of Punitives in the Non-Maritime Context?

We recognize Exxon Shipping Company v. Baker is not exactly new news in the legal realm. It was decided last June. However, this blog is relatively new and we’re here to educate and inform our clients and friends and we believe Exxon is potentially a very important case. The following is a reprint of a client advisory from last summer:

On June 25, 2008, the United States Supreme Court in Exxon Shipping Company v. Baker, 2008 WL 2511219 ruled punitive damages in this maritime dispute should be determined using a 1:1 ratio calculation. As a result of this holding, the Court held the maximum award of punitive damages allowed to the plaintiffs was limited to the jury’s award of $507.5 million in compensatory damages. The plaintiffs had previously secured a $5 billion punitives award in the district court, which had been reduced on appeal at the Ninth Circuit to $2.5 billion.

Citing punitive damages as an “inherent uncertainty in the trial process,” the Court studied judgments of judges and juries in cases ranging from malice and avarice to recklessness and gross negligence and concluded that the median ratio of punitive to compensatory awards has remained less than 1:1. This discovery following its quantitative analysis became the basis for the Court’s ultimate holding.

In addition, the Court noted a 1:1 ratio was consistent with State Farm Mutual Automobile Insurance Company v. Campbell, 538 U.S. 408 (2003), finding “few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process .…” Id. at *24.

Prior to reaching its disposition, the Court examined two other solutions to the punitive damages dilemma: (1) jury instructions; and (2) quantified limits. The Court provided a rationale for dismissing both of these approaches.

The Court opined jury instructions can only go so far. Specifically, the Court stated it was “skeptical” jury instructions are the best insurance against unpredictable outlier punitive awards in light of its experience with attempts to produce consistency in the analogous business of criminal sentencing.

With regard to quantified limits, the Court rejected the option of setting hard-dollar punitive caps 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 further determined a judicially-selected dollar cap would carry the serious drawback that the issue might not return to the docket before there was a need to revisit the figure selected.

While Exxon is a maritime case, the legal principles employed by the Court to arrive at its ultimate holding are arguably applicable to non-maritime cases. In an order issued just 5 days after the Supreme Court’s decision, the United States District Court for the District of Western Pennsylvania recognized in a § 1983 case that “[a]lthough Exxon is a maritime law case, it is clear that the Supreme Court intends that its holding have a much broader application.” Hayduk v. City of Johnstown, 2008 WL 2669477, 41 n. 46 (June 30, 2008) (citing Exxon at *21). Accordingly, it is anticipated that Exxon will enter the decision-making analysis of jurists facing disputes pertaining to punitive damages awards nationwide within short order.

We note the Supreme Court does expressly limit the aegis of its Exxon holding in cases where the defendant’s alleged offensive conduct was neither intentional nor malicious. Exxon at *21-22. Further, the fact a plaintiff may have suffered modest economic harm does not rescue a defendant in such circumstances. Specifically, the Court observed “[l]ow awards of compensatory damages may properly support a higher ratio [of punitive to compensatory damages] if, for example, a particularly egregious act has resulted in only a small amount of economic damages,” and endorsed the proposition that “an award of nominal damages … is enough to support a further award of punitive damages, when a tort, … is committed for an outrageous purpose, but no significant harm has resulted.” Id. at *13 (citations omitted). Accordingly, where there is “modest economic harm,” but “outrageous” or “egregious” conduct by the defendant, a trial court and subsequent reviewing appellate tribunal may likely be loathe to apply Exxon.

In a term with many notable cases, the Supreme Court’s decision in Exxon may yet be the most important in the realm of civil litigation. Accordingly, where it can be demonstrated that the defendant’s conduct was not intentional, malicious, outrageous, or egregious, a defendant in a non-maritime claim arguably can look to Exxon as a mechanism for relief from a punitive damages award, which exceeds a 1:1 ratio with the actual damages award.