Punitive Damages

By Big Tent Democrat

Via Turkana, Dana Milbank reports:

Chief Justice John Roberts was pained. Exxon Mobil, the giant oil corporation appearing before the Supreme Court yesterday, had earned a profit of nearly $40 billion in 2006, the largest ever reported by a U.S. company -- but that's not what bothered Roberts. What bothered the chief justice was that Exxon was being ordered to pay $2.5 billion -- roughly three weeks' worth of profits -- for destroying a long swath of the Alaska coastline in the largest oil spill in American history.

"So what can a corporation do to protect itself against punitive-damages awards such as this?" Roberts asked in court. The lawyer arguing for the Alaska fishermen affected by the spill, Jeffrey Fisher, had an idea. "Well," he said, "it can hire fit and competent people." The rare sound of laughter rippled through the august chamber. The chief justice did not look amused.

The strange thing about this is this is precisely the rationale for punitive damages. The Chief Justice's concern is a curious one for a judicial minimalist. I'll explain why on the flip.

One of the ironic things about this discussion is that it takes an activist Court to even involve itself in this issue - one of state law [perhaps not, trying to figure that out now.] A judicial minimalist or an advocate of judicial restraint might object to the Supreme Court's injection of itself into the issue, especially as it is grounded on what appear to be substantive due process grounds. And to his credit (and to the credit of Justice Thomas), Justice Scalia has repeatedly raised that exact objection in the punitive damages cases. In the 1993 case of TXO v. Alliance Resources, Justice Scalia wrote in dissent:

The jury in this case was instructed on the purposes of punitive damages under West Virginia law, and its award was reviewed for reasonableness by the trial court and the West Virginia Supreme Court of Appeals. Traditional American practice governing the imposition of punitive damages requires no more. See Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 15 (1991); id., at 26-27 (SCALIA, J., concurring in judgment). It follows, in my view, that petitioner's claims under the Due Process Clause of the Fourteenth Amendment must fail. See id., at 31. I therefore have no difficulty joining the Court's judgment.

I do not, however, join the plurality opinion, since it makes explicit what was implicit in Haslip: the existence of a so-called "substantive due process" right that punitive damages be reasonable, see ante, at 458. * I am willing to accept the proposition that the Due Process Clause of the Fourteenth Amendment, despite its textual limitation to procedure, incorporates certain substantive guarantees specified in the Bill of Rights; but I do not accept the proposition that it is [the secret repository of all sorts of other, unenumerated, substantive rights] - however fashionable that proposition may have been (even as to economic rights of the sort involved here) at the time of the Lochner-era cases the plurality [509 U.S. 443, 471] relies upon, see ante, at 453-454. It is particularly difficult to imagine that "due process" contains the substantive right not to be subjected to excessive punitive damages, since if it contains that, it would surely also contain the substantive right not to be subjected to excessive fines, which would make the Excessive Fines Clause of the Eighth Amendment superfluous in light of the Due Process Clause of the Fifth Amendment.

To say (as I do) that "procedural due process" requires judicial review of punitive damages awards for reasonableness is not to say that there is a federal constitutional right to a substantively correct "reasonableness" determination - which is, in my view, what the plurality tries to assure today. Procedural due process also requires, I am certain, judicial review of the sufficiency of the evidence to sustain a civil jury verdict, and judicial review of the reasonableness of jury-awarded compensatory damages (including damages for pain and suffering); but no one would claim (or at least no one has yet claimed) that a substantively correct determination of sufficiency of evidence and reasonableness of compensatory damages is a federal constitutional right. So too, I think, with punitive damages: Judicial assessment of their reasonableness is a federal right, but a correct assessment of their reasonableness is not.

I have an expansive view of the Due Process Clause so I do not agree with Justice Scalia. But what of Chief Justice Roberts? We await his opinion on this of course. Perhaps he has learned to have n expansive view of the Due Process Clause, and not just for "poor" corporations like Exxon.

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    I wouldn't count on your last sentence (5.00 / 1) (#1)
    by scribe on Sat Mar 01, 2008 at 08:43:54 AM EST
    being true.

    This is the culmination of over 20 years of wingnut work - in the editorial pages of the WSJ and the various right-wing journals beginning in the 80s, in law reviews and lawyering beginning then and continuing through the 90s, and in confected cases brought - with arguments designed to follow that earlier propaganda - beginning in the late 80s and continuing to the present day.

    The fact of the matter is, Roberts is an attorney for whom corporations can do no wrong, always has been, and always will be.

    A few observations (none / 0) (#2)
    by Deconstructionist on Sat Mar 01, 2008 at 09:08:03 AM EST
    TXO was a state court case. This is a federal court case. There is a difference between the U.S. Supreme Court reviewing a state court judgment and a judgment from a lower federal court.

      In reviewing the TXO verdict, it would have been a necessary prequisite to find a federal question. Given the circumstances, the only plausible federal questions necessarily had to be related to due process rights guaranteed by U.S. Constitution which must be followed by the states.

      In reviewing a federal court judgment, it need not if it so chooses  jump through any 14th Amendment hoops.

       More directly, here is the issue of whether the requirement of a reasonable relationship to actual damages should be interpreted to mean the Supreme Court can  in effect second guess a jury which was properly instructed on the factors to consider in determining punitive damages and declare an award "unreasonable."

      Then the idea of the Supreme Court substituting its judgment  either by specifically making a finding of what lesser amount would be reasonable in a would seem the epitome of judicial activism except that the true epitome of activism would be in effect legislating by promulgating a rule that sets a ceiling on punitive damages through creation of some sort of formula.

      Now, of course, "reasonable" has to mean something beyond whatever a particular jury decides and clearly the court is not going to backtrack and hold punitive awards are not subject to such review.

      Can an award that merely reduces profit and does not endanger the viability of the corporation by any conceivable estimate be unreasonable per se and thus subject to being vacated?


    Are you saying the wuestion here (none / 0) (#3)
    by Big Tent Democrat on Sat Mar 01, 2008 at 09:13:15 AM EST
    is one of federal common law? I thought the Exxon case was in federal court on diversity grounds?

    I may be wrong (none / 0) (#4)
    by Deconstructionist on Sat Mar 01, 2008 at 09:19:34 AM EST
      but I believe the case was in federal court under maritime jurisdiction.

    Really? (none / 0) (#5)
    by Big Tent Democrat on Sat Mar 01, 2008 at 09:21:08 AM EST
    Then it is a federal question.

    I have to look at that because if so, my post is inaccurate.


    I looked at it again (none / 0) (#7)
    by Big Tent Democrat on Sat Mar 01, 2008 at 09:27:25 AM EST
    And the 9th Circuit does not discuss jurisdiction but its discussion indicates it was a "toxic tort" case, and the punitive damages available as a result.

    I think it was substantively an Alaska state law case.


    This was an admiralty case (none / 0) (#10)
    by scribe on Sat Mar 01, 2008 at 09:36:09 AM EST
    so there is an issue of federal common law, but that is one of the deeper issues in the case - the extent to which some old caselaw in admiralty will affect the judgment today.

    That old admiralty issue was the liability of the shipowners (here, Exxon) for the wrongful conduct of the captain (here, the drunken Hazelwood).  As I understand the argument, in the old (early 19th century S.Ct.) admiralty cases, the liability of the shipowners was limited by the fact that a ship at sea was considered to be so remote from the control of the owners (given the old, slow, bad communications, that there was really very little exposure on the owners' part for the captain's tortious liability.  Today, of course, with modern communication there is very little of that, but this will be a matter of whether the precedent gets updated to meet the technology, or whether the dead hand of the past manages to continue protecting the wealthy, like conservatives like.


    Yeah, I think I am correct (none / 0) (#6)
    by Deconstructionist on Sat Mar 01, 2008 at 09:27:04 AM EST

    Very quickly googling I found this link.


    AND NO END IN SIGHT (1996)
    by William B. Hirsch

    Narrowing The Claims

    Plaintiffs sued Exxon and Alyeska under various legal theories, including common law negligence, nuisance, and misrepresentation. Plaintiffs also brought claims in federal court for strict liability under the Trans-Alaska Pipeline Authorization Act ("TAPAA"); in state court, the strict liability claim was brought under the Alaska Environmental Conservation Act (the "Alaska Act").
    Typically, common law claims are based on state law. However, the Constitution establishes that the federal judicial power extends to "all cases of admiralty and maritime law." Once admiralty jurisdiction is established, the substantive law of admiralty is applied.
    Early on in this litigation, both the federal and state courts were asked to decide whether maritime law applied to the case, whether it preempted state common law, and whether, under maritime law, certain types of claims were precluded. These questions were of critical importance: the answer would determine which groups of injured plaintiffs would be legally entitled to bring claims.
    In February 1991, nearly two years after the catastrophe, the federal court gave its answer. In Order No. 38, Judge Holland first ruled that the oil spill was a "maritime tort" since it satisfied the "locality" and "maritime nexus" tests, which together are used to determine whether maritime jurisdiction is invoked. Judge Holland then ruled that maritime jurisdiction applied not only to injuries suffered at sea, but also to injuries that occurred on land, so long as they were proximately caused by a vessel at sea. Thus, for example, owners of a restaurant, a boatyard, and a marine supply company, whose businesses were damaged by the spill, were swept within the jurisdiction of maritime law.
    The next step in Judge Holland's analysis was crucial. Applying what has become known as the Robins Dry Dock rule, Judge Holland concluded that, in the absence of physical injury to person or property, a party may not recover for pecuniary or economic losses suffered as a result of a maritime tort. In other words, liability is limited to those physically touched by the oil. While the justification for this rule is usually couched in terms of public policy (the need to limit claims in order to prevent an endless chain of recoverable economic harm), the reality is grounded in commercial policy: the Robins Dry Dock rule limits the liability of the shipping industry in order to enhance business. Indeed, this judicial liability limitation is inconsistent with, and contradicted by, the legal standard applied to similar incidents occurring on land.
    Finally, Judge Holland ruled that maritime law preempted all state common law. In other words, the Court held that an injured plaintiff was only permitted to seek redress under maritime law, and could not also pursue claims under state law. This was the key, for claims for negligence under state law permit an injured plaintiff to recover for all damages that are "proximately caused" by the wrongful act. Under a traditional proximate cause analysis, there is no prohibition against recovering for economic loss, even in the absence of physical injury.
    The significance of this ruling cannot be overemphasized. Order No. 38 became the law of the case, and led to a number of rulings just before trial dismissing the claims of the following groups of plaintiffs: processors, cannery workers, tenderers, area businesses, and municipalities. Judge Holland also dismissed the claims of "unoiled" property owners for devaluation of their property, and the Alaska Natives' claims for injury to their subsistence culture.
    The only group to escape under this ruling were the commercial fishermen, and only because of a 1974 ruling by the Ninth Circuit Court of Appeals creating a commercial fishermen exception to the Robins Dry Dock rule. And even as to this exception, Judge Holland took a narrow view, ruling that other groups that lived off of the sea -- such as tenderers (those who take the fish from the fishermen at sea, weigh the fish, and deliver the fish to the seafood processors) -- could not pursue claims under Robins Dry Dock, even though there was no principled distinction between them and commercial fishermen. Moreover, even as to the commercial fishermen, Judge Holland ruled that they were not permitted to recover for the devaluation of their boats or fishing permits, because such damages, unlike lost harvests, were not directly related to fishing. Judge Holland also dismissed the fishermen's claims for "hedonic" damages (damages for loss of the quality and enjoyment of life), on the grounds that the Oppen exception does not apply to fishermen's non-economic injuries.
    An ironic and important twist in this case is that Judge Shortell disagreed with Judge Holland, and ruled in plaintiffs' favor on these issues. Judge Shortell held that state law was not preempted by maritime law, and that a long line of Supreme Court cases permitted states to supplement rights of recovery provided by maritime law, especially where the state was exercising its right to provide remedies for oil pollution within its own territorial waters. Thus, it appeared for a time that claims that were disallowed in federal court were still viable in state court, providing plaintiffs with an alternate avenue for recovery.
    However, as will be discussed more fully below, after it became clear that Judge Holland was more sympathetic to Exxon's positions than Judge Shortell, Exxon concocted a number of legal theories designed to remove cases from state court to federal court, effectively diminishing the role of Judge Shortell. Ultimately, most plaintiffs were forced into federal court, where claims that were viable under the rulings of Judge Shortell were dismissed by Judge Holland.


    Now I am confused (none / 0) (#9)
    by Big Tent Democrat on Sat Mar 01, 2008 at 09:29:19 AM EST
    Does federal common law come into play? Does maritime law provide for punitive damages?

    From whence does the claim for punitive damages arise?


    Maritime law (none / 0) (#11)
    by Deconstructionist on Sat Mar 01, 2008 at 09:36:37 AM EST
      is a very specialized field about which I know zilch. I also have not followed this case closely.

      It could be federal common law; it could be federal statute-- or it could be that the although the federal district court invoked its original jurisdiction on the basis of maritime theory, it also took jurisdiction of some state law claims under supplemental ancillary jurisdiction.

      Regardless, I have a problem with the supreme court effevtively deeming "unreasonable per se"  an award by properly instructed jury where it the amount in relation to the net worht of the corporation is far from catastrophic or shocking to the conscience of any "reasonable" person.


    Sure (none / 0) (#13)
    by Big Tent Democrat on Sat Mar 01, 2008 at 09:39:59 AM EST
    The substantive due process part is still in play.

    But it will be interesting if the Court decide to make some federal common law here instead of Constitutional law.


    From reading the Post article (none / 0) (#15)
    by Deconstructionist on Sat Mar 01, 2008 at 09:42:43 AM EST
     that seems to be about the "best" possibility left, unless the Justices were engaging in some major misdirection.

    Admiralty is federal common law. (none / 0) (#12)
    by scribe on Sat Mar 01, 2008 at 09:38:10 AM EST
    So, the answer to your question is "yes".  As to punitives and whence they came, the answer is "I dunno".

    Hmmm (none / 0) (#14)
    by Big Tent Democrat on Sat Mar 01, 2008 at 09:40:56 AM EST
    Wonder where I can find out.

    I'll have to go look at the original district court decision I guess.


    Happy hunting (none / 0) (#16)
    by Deconstructionist on Sat Mar 01, 2008 at 09:51:03 AM EST
      remember this case has been dragging on for nearly 20 years now. That order will be from long before PACER has the docs online.

      The titling of the article I cited "... no end in sight..." from 12 years ago was certainly prescient.


    Don't know if this will help (none / 0) (#8)
    by kenoshaMarge on Sat Mar 01, 2008 at 09:27:47 AM EST
    but there was an explanation by Marcia Coyle on the News Hour that I found interesting. Not that I understood much of the law she was talking about though.


    Punitive Damages (none / 0) (#17)
    by Russ on Wed Mar 12, 2008 at 10:35:18 PM EST

    I teach a basic law class to high school students here in Bethel, Alaska.  As you can imagine, we are interested in the Exxon Valdez case.  While working our way through the transcript of the recent Supreme Court arguments, I was surprised to find that Exxon's attorney had categorized the shipping business as inherently dangerous as a justification for Exxon's pitch for using maritime law in the case as a determinant of the appropriate damages in the case (i.e., no punitives).

    Even my students could see immediately that such a description of the shipping industry meets the basic definition of an enterprise that would be in the strict liability arena.  

    That raised the issue in my mind of whether strict liability law provides for punitive damages or not.  I had thought that the remedy typically was actual damages and perhaps other compensatory damages, but not punitive damages.   However, I graduated from law school 31 years ago and have not practiced law, so my memory may be just slightly hazy (or a lot hazy).   I think the answer seems to lie in each state's law.  Evidently, Alaska law allowed for the punitives in the Exxon case.

    After reading this post and the responses, I'm still not sure what to think of all this.

    Regarding the Chief Justice's question of what a corporation can do to protect itself from punitive damages.  It seems that the obvious answer is that, once having set a standard of behavior (such as not operating a supertanker while drunk), the corporation needs to enforce the standard.   Or am I missing something?

    I would appreciate your thoughts on this.

    Thank you very much.