Predictability Grows out of Exxon Shipping Decision

By June 25, 2008Briefly Legal

The Supreme Court, working mostly through common law, continues its efforts to bring rationality and predictability to punitive damage amounts. In today’s ruling about the Exxon Valdez litigation, the court ruled that the $2.5 billion punitive damages was excessive as a matter of maritime common law. In this case, at least, the award should match the amount the District Court determined for compensatory damages, i.e., $507.5 million.

From the syllabus, Exxon Shipping v. Baker:

A penalty should be reasonably predictable in its severity, so that even Holmes’s “bad man” can lookahead with some ability to know what the stakes are in choosing one course of action or another. And a penalty scheme ought to threaten defendants with a fair probability of suffering in like degree for like damage.

After rejecting various approaches toward determining the punitive amounts, the Court looked to quantified limits:

(iii) The more promising alternative is to peg punitive awards to compensatory damages using a ratio or maximum multiple. This is the model in many States and in analogous federal statutes allowing multiple damages. The question is what ratio is most appropriate. An acceptable standard can be found in the studies showing the median ratio of punitive to compensatory awards. Those studies reflect the judgments of juries and judges in thousands of cases as to what punitive awards were appropriate in circumstances reflecting the most down to the least blameworthy conduct, from malice and avarice to recklessness to gross negligence. The data in question put the median ratio for the entire gamut at less than 1:1, meaning that the compensatory award exceeds the punitive award in most cases.

In a well-functioning system, awards at or below the median would roughly express jurors’ sense of reasonable penalties in cases like this one that have no earmarks of exceptional blameworthiness. Accordingly, the Court finds that a 1:1 ratio is a fair upper limit in such maritime cases. Pp. 39–42.

All in all, though decided under maritime law, this is a good ruling generally for the cause of predictability, which actually reinforces the deterrent effect of punitive damages.

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