A jury in Federal District Court in Alaska had awarded $5 billion, which the United States Court of Appeals for the Ninth Circuit cut in half in a decision issued last December. It was the biggest punitive damages award ever ordered by a federal appeals court, and was five times the economic damage of $500 million suffered by the class of 32,000 plaintiffs.
Exxon argued in its appeal to the Supreme Court that given the nearly $3.5 billion the company had already paid in environmental cleanup costs, fines and settlements of private claims, the $2.5 billion was outside the boundary of constitutional due process that the court has drawn in recent decisions overturning other punitive damage awards.
In accepting the appeal, however, the justices granted review only on three statutory questions focused on maritime law.
As a result, while the case will be of interest to the shipping industry, the decision will shed little light on the constitutional framework that the Supreme Court intends to apply to the question of punitive damages. The case is scheduled to be argued in February and decided by early summer.
One reason for the court’s self-imposed limitation may be the absence of Justice Samuel A. Alito Jr., whose ownership of Exxon stock led him to recuse himself from the case, Exxon Shipping Company v. Baker, No. 07-219. Beyond raising the prospect of a 4-4 tie in the specific case, Justice Alito’s recusal may have enhanced a sense of uncertainty at the court over how to approach the punitive damages question.
The court’s close division on punitive damages has never followed typical ideological lines. In the most recent ruling, a decision last February that overturned a $79.5 million award against Philip Morris, the vote was 5 to 4, with two more liberal members, Ruth Bader Ginsburg and John Paul Stevens, joining two conservatives, Antonin Scalia and Clarence Thomas, in dissent.
While Chief Justice John G. Roberts Jr. and Justice Alito were in the majority in that case, their view of the fundamental constitutional issue remains uncertain because the Philip Morris decision avoided the question of whether the award was unconstitutionally excessive. Rather, the court found only that the jury might have improperly calculated the award on the basis of harm to smokers other than the man whose widow brought the case.
To conclude that a damage award is so excessive as to violate due process, the court must first conclude that the Constitution’s due process guarantee includes a substantive as well as a merely procedural component. Justices Scalia and Thomas reject that theory of constitutional interpretation. It is plausible that Chief Justice Roberts and Justice Alito may reject it as well. In any event, this is not the case that will resolve that mystery.
Exxon is arguing in its appeal that the $2.5 billion award violated various principles of maritime law, including the principle that a ship’s owner should not be subject to punitive damages for the conduct of the ship’s captain unless the offending conduct was directed by the owner. Exxon’s appeal asserts that the lower courts improperly subjected the company to “vicarious liability” for the negligence of the captain, Joseph J. Hazelwood, who set the Exxon Valdez on a course to strike the Bligh Reef.
Lawyers for the plaintiffs told the justices that the verdict reflected the jury’s finding that Exxon had acted recklessly in giving Mr. Hazelwood responsibility despite knowing that he was a relapsed alcoholic.
The plaintiffs’ lawyers said the damages judgment was “unexceptional,” and that the $2.5 billion punitive award “represents barely more than three weeks of Exxon’s current net profits.”