Exxon continues to report record-breaking quarterly profits. The most recent was $11.7 billion. However, Exxon on Wednesday asked the U.S. Supreme Court to strike down the $2.5 billion punitive damage award for the 1989 Exxon Valdez oil spill. Originally, a trial court jury awarded $5 billion in punitive damages and $287 million in compensatory damages. Damages are important in tort law because they make the injured party whole again or seek to put the party in the position had they never met the defendant. Additionally, tort damages act as a mechanism to punish and deter.

A tort action results from a civil wrong committed against another person or when a breach of duty to another person occurs. As a result, the law allows for recovery in the form of damages for the civil wrong or injury. Assault, battery, trespass to land, or chattels, in addition to negligence are examples of tort actions. Several types of damages are available to the plaintiff.

An introduction to tort damages

The plaintiff must prove some type of harm to be awarded damages. Economic, environmental, and psychological damages resulted from the Exxon Valdez oil spill. Commercial and native fishing communities suffered loss profits including future economic losses. Additionally, their social institutions were disrupted. It could be argued that recreational fishers suffered too.

The psychological impact from the sheer magnitude of the spill is a complex issue. Environmental damage can be hard to quantify and understand. Exxon claimed the area affected by the oil spill recovered quickly. However, the negative affects of the Exxon Valdez oil spill still linger.

Prince William Sound provides an ecosystem service in the form of food. Loss profits from reduced fishing effort and damaged fisheries are quantifiable. Therefore, it is easily argued that the plaintiffs suffered massive damages from the Exxon Valdez oil spill and are still suffering. Federal permits to fish are worthless if there are no fish to catch. Boats must be maintained and banks need to be repaid. As a result, the plaintiffs must be made whole again or put back in the position they were before the spill.

There are three types of damages in torts: nominal, compensatory, and punitive. Nominal damages are awarded to affirm the fact that someone did something wrong although no damage resulted. Trespass to land cases may award nominal damages. However, most damages in tort claims relate to compensatory damages, which are used to make the plaintiff whole again. Compensatory damages compensate the plaintiff for a wrongful act or anything that can be traced to the wrongful conduct. Punitive damages do not compensate but are used to punish and deter. The plaintiff is not always allowed to recover punitive damages.

A jury determines damages; therefore, damages are a question of fact, which means that damages are a question for the jury because the law would rather have members of the community or a collective to determine a question of fact rather than one person. As a result, damages are arbitrary.

Punitive Damages

For Exxon to be punished with punitive damages, it must be proven that the defendant acted with (1) common law malice or in bad faith; (2) with the intent to injure or (3) with a reckless disregard as whether injury would have occurred. Common law malice is a dual standard: Intent or reckless disregard to whether an injury would occur. Therefore, the goal of punitive damages is to deter, punish, or enact retribution because of what happened.

Jurisdictions are split to whether the plaintiff may recover punitive damages if they have suffered no compensable harm. Some jurisdictions require compensatory damages before one may recover punitive damages, and some jurisdictions have allowed recovery of punitive damages on showing of nominal damages. What is more, some states do not allow the recovery of punitive damages.

Exxon Valdez

In 1994, a trial court jury in the Exxon Valdez case returned a verdict of $5 billion in punitive damages and $287 million in compensatory damages. The Ninth Circuit Court of Appeals final ruling reduced the punitive award to $2.5 billion. The punitive award was reduced because the court considered Exxon’s actions after the spill in mitigating economic and environmental damage. However, some argue that Exxon’s actions were not enough. In further lowering the punitive award, the Ninth Circuit considered the reasonableness of the punitive award by examining the ratio of punitive to compensatory damages. State Farm Mutual Automobile Insurance co. v. Campbell determined that single digit multipliers are reasonable and anything over a 9-to-1 ratio is probably unreasonable. However, some argue that punitive damages should be based on net worth and not necessarily a ratio between compensatory and punitive damages.

Exxon acted in bad faith when it knowingly placed a captain with a drinking problem at the helm of an oil tanker traveling through dangerous waters. In fact, Exxon admitted to knowing of Captain Joseph Hazelwood’s drinking problem. These facts were important in arguing for damages. Therefore, putting an alcoholic at the helm of an oil tanker traveling through dangerous waters reflected bad judgment. Exxon acted in reckless disregard as to whether injury would have occurred. Furthermore, Exxon should be responsible for its employee because it has a special employer/employee relationship. However, Exxon argued before the Supreme Court on Wednesday that it is not responsible for its employee nor should be responsible for punitive damages because the accident happened at sea. Federal courts have jurisdiction over maritime law but punitive damages are a matter of state law. However, some argue that punitive damages have been available in maritime law.

From NPR:

Stanford law professor Jeffrey Fisher, representing the Alaskan plaintiffs, counters that punitive damages have been available for hundreds of years in maritime law, “basically under the same circumstances they are available in tort law, when a defendant acts egregiously or in callous disregard for the rights of others.”

State Farm and the establishment of the single-digit ratio between punitive and compensatory damages

It has been constitutional to challenge the reasonableness of a punitive award but not a compensatory award. Therefore, the issue according to the Supreme Court of the United States is that the “Due Process Clause prohibits the imposition of grossly excessive or arbitrary punishments on a tortfeaser.” Furthermore, the Court also noted “it should be presumed that a plaintiff has been made whole by compensatory damages, so punitive damages should be awarded only if the defendant’s culpability is so reprehensible to warrant the imposition of further sanctions to achieve punishment or deterrence.” The Supreme Court’s main point in State Farm is to be prepared to have a punitive award decision overturned if it is more than nine times greater than the compensatory damages awarded. Single digit multipliers will both reflect the State’s goals to punish and deter but also correspond with due process. However, the more reprehensibility the conduct and the more malicious the conduct the greater the award can be and on rare instances more than nine times has been awarded. The relationship of punitive damages to compensatory damages acts as a guidepost only.

Dissenting opinions in State Farm

In State Farm Ginsburg, Scalia, and Thomas did not believe there was a constitutional basis to take on punitive damages. The theme of the dissenting opinions was that if a state wants to punish they should be able to punish to whatever extent they want and that the Due Process Clause does not protect against excessive or unreasonable punitive awards. In addition, the decision in State Farm impedes on states’ rights to regulate and enforce punitive damages.

Why such a large punitive award?

Evidence of a defendant’s wealth is admissible in tort cases when punitive damages are involved. The evidence is relevant, because the award should be based on the harm done to the plaintiff and not on the defendant’s ability to pay. When it comes to punishment the jury needs to know what constitutes punishment. Therefore, wealth is an indicator of what will constitute punishment. The courts wants Exxon’s attention so at the next boardroom meeting the discussion is how Exxon can avoid liability or improve safety and not how Exxon can elevate profits. A million dollar award to a huge company like Exxon means nothing. The original $5 billion punitive award was used to get Exxon’s attention. Punitive damages must be absorbed with discomfort to the defendant. Troutman notes “the Court considered as a deliberate act that Exxon knowingly put a relapsed alcoholic at the helm.” As a result, but for Exxon knowingly putting a relapsed alcoholic at the helm of a major commercial tanker full of crude oil traveling through some of the most dangerous waters the accident would have never happened. In my opinion, Exxon should pay more than $2.5 billion and it can easily afford to do so. Exxon should have paid the $5 billion in 1994. Adjusted for inflation, $5 billion today is over $7 billion.

On the Net: Fishers argue that lawyer’s fees in the Exxon case were not excessive and worth it – scroll down and see comments
On the Net: Environmental Punitive Damages Awards and Due Process: Lessons Learned from the Exxon Valdez Oil Spill
On the Net: A letter to the California Court of Appeal regarding damages
On the Net: Exxon Valdez oil spill lingers in Alaska

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