Patterico's Pontifications

10/29/2007

Supreme Court will Hear Exxon Valdez Punitive Damages Award

Filed under: Law — DRJ @ 4:20 pm

[Guest post by DRJ]

The U.S. Supreme Court will hear ExxonMobil’s appeal of a $2.5B punitive damages award in the 18-year-old Exxon Valdez case:

“ExxonMobil on Monday won the chance to persuade the US Supreme Court that it should not have to pay $2.5bn in punitive damages to victims of the 1989 Exxon Valdez oil spill, the largest such award in US history. The US business community had urged the Supreme Court to intervene in the 18-year old legal fight over the Valdez crash, which released 11m gallons of oil into Alaska’s Prince William Sound.

The Supreme Court will consider the punitive damages issue in the context of a maritime case and not as it relates to general tort law:

“Business groups wanted the court to use the case to issue a broad ruling that large punitive damage awards are unconstitutional. The justices on Monday refused to go that far, agreeing to a narrower review which would determine whether the Exxon award violated maritime law. However, the case could still have a big impact beyond the world of shipping, legal experts said.

“This is a big deal. Anytime the court takes a punitive damages case, that’s an important thing,” said Robin Conrad, executive vice-president of the National Chamber Litigation Center, the legal arm of the US Chamber of Commerce. “This will affect a lot of companies and not just in the maritime arena.”

Legal experts view this case as important to businesses that face environmental issues even if they aren’t subject to maritime laws:

“The Supreme Court must decide whether federal maritime law permits punitive damages and whether it allows a shipowner to be held liable for the conduct of the ship’s master when the company did not countenance or participate in that conduct.

In their brief, Exxon’s lawyers quote Judge Alex Kozinski, a judge of the appeals court that heard the case: “Shippers everywhere will be put on notice: if your vessels sail into the vast waters of the ninth circuit, a jury can shipwreck your operations through punitive damages and the fact that you did nothing wrong won’t save you.”

The Supreme Court has thrown out high punitive damage awards in several recent cases. A ruling to reduce the Exxon award would be seen as good news for businesses that face environmental suits beyond the shipping industry.”

The Valdez case primarily raises three maritime law issues:

“At the Supreme Court, Exxon’s lawyer Dellinger asks three questions: whether maritime law permits a shipowner to be punished vicariously for the conduct of the ship’s master when the owner did not countenance or participate in that conduct; whether maritime law can expand the remedies that Congress provided in the controlling statute — here the Clean Water Act — by adding a punitive damages remedy, and whether this $2.5 billion award is within the limits allowed by maritime law or, if it is, does it comport with constitutional due process. Baker v. Exxon Shipping Co., No. 07-219. His answer to all three, not surprisingly, is no.

“As big an issue as the Exxon Valdez judgment is, this case is about far more than that in terms of the reach of maritime law,” said Dellinger. The case, he said, has caused a “huge stir” within the maritime and shipping communities, particularly the issue of vicarious liability and punitive damages.

“It is also a fundamentally important question of the relationship between the Clean Water Act to judge-made remedies in maritime law that applies across-the-board and not just in oil spills,” he added. “

Of course, the Valdez case is especially important to the shipping industry:

“In the past 17 years, the Supreme Court has decided eight cases on punitive damages, reviewing awards made under state law. Exxon, however, is asking the high court to examine the $2.5 billion award — reduced from $5 billion by the 9th U.S. Circuit Court of Appeals — through the lens of general maritime law.

For some maritime experts, the Exxon Valdez is, in a sense, legal history. After the ship’s massive oil spill, Congress enacted the Oil Pollution Act of 1990, governing oil spills and establishing private remedies. The act is silent on the availability of punitive damages.

But for others, the Exxon Valdez remains a very practical issue in the international world of maritime commerce. “It’s a case that in maritime law circles has world renown and is referred to all the time,” said admiralty litigator John Kimball, partner in the New York office of Blank Rome in Philadelphia. “The punitive damages issue has been looked at very closely by marine insurance markets as a sign of what’s going on in the U.S. and what is the magnitude of risk in a major environmental damage case.”

A legal analyst at the National Law Journal stated that Justices Roberts and Alito have yet to rule in a punitive damages case. There is added uncertainty because the case involves maritime law and the Clean Water Act but one thing is for sure: By the end of this Supreme Court term, we should know more about these issues.

— DRJ

18 Responses to “Supreme Court will Hear Exxon Valdez Punitive Damages Award”

  1. This is way beyond my field of expertise, but I do wonder how this might affect car prices.
    If the SC affirms that the shipowner can be punished monetarily for the counter-to-policy conduct of the ship’s master, shipowners’ll take out extra insurance, etc. to cover themselves in such an event. So J-car makers shipping to the US would in turn cover their proverbial backsides, thus raising per-unit costs, i.e. increasing car prices.
    They could simply ramp up production in the States, but the labor costs are also much higher.

    Just a thought…

    Socrates Abroad (14b001)

  2. Socrates Abroad,

    Good thought and I don’t know the answer. One of the articles mentioned that insurance doesn’t cover punitive damages (which makes sense) but the consumer always ends up paying when there is a judgment like this. Even if the company goes out of business as a result, we pay because of less competition or if the industry becomes less efficient.

    I think the bottom line is that companies that ship environmentally unsafe products will charge more for those shipments/products to cover this kind of problem. In other words, the market will become the insurer. That might be a good solution if this type of event were commonplace but it’s not, so that’s an inefficient solution.

    DRJ (5c60fb)

  3. The industry arguments here sound terribly strained. This ought to be pretty standard agency law – the captain was doing his job within the scope of his employment. He just did a very crappy job, and if maritime law allows for punitive damages where reckless disregard for public safety is demonstrated, this sounds like a lousy case for Exxon.

    I fail to see how this is different from a dairy hiring a drunk to drive a milk truck, and then failing to supervise him, with the result that the truck drives over some children. Sure, it was outside of the scope of the truck driver’s employment to kill children, but that is not an effective defense.

    Lastly, DRJ’s market analysis seems poorly thought out. Increased prices will not be shifted to consumers if Exxon’s competitors, unburdoned by large fines, can deliver the oil more cheaply than Exxon. If the market and regulatory system is working, that increased cost will be paid by the shareholders. If the market and regulatory system can not deliver that result, it needs to be fixed.

    Xenos (0dfa15)

  4. Xenos,

    That might be true if the shippers were separate from the producers, but there isn’t an unlimited supply of oil in the world and most of the big producing fields are nationalized or leased/owned by the major oil companies. On the other hand, it might make domestic/off-shore oil a better value.

    DRJ (5c60fb)

  5. Also, your truck driver analogy makes sense to me but I have a feeling (which isn’t a good way to practice law!) that the maritime laws may not operate that way.

    DRJ (5c60fb)

  6. Anyone have a thoughtful analysis of the law and thus an insight into a likely ruling?

    TCO (79dafb)

  7. Maritime law? Obviously there are maritime lawyers but the only maritime lawyer I’ve known was my professor 30 years ago in law school and he didn’t do it, he just taught it. The closest I came was writing my senior thesis on the Law of the Sea Treaty and, strangely enough, that area of the law hasn’t changed in 30 years.

    DRJ (5c60fb)

  8. “No”?

    TCO (79dafb)

  9. The “Law of the Sea Treaty” has never been ratified by the Senate (maybe this year, I hope, NOT).

    If Exxon is found liable, would that not increase costs for all carriers as they would have to factor into future budgets the probablity factor of punitive damages from an unforseen incident that insurance will not pay for? And, that would raise the costs for all maritime shipping, and thusly, the costs to consumers.

    Another Drew (8018ee)

  10. yes.

    TCO (79dafb)

  11. DRJ:
    Were you struck by the fact that the quoted maritime law expert in the article was named “John Paul Jones”?

    Another Drew (8018ee)

  12. Another Drew,

    I was against LOST then and I’m more against it now.

    I agree that shipping concerns will factor in these costs but I suspect that’s already happened to a degree. I think it also caused more use of double-hulled oil tankers, which is probably better although it’s not clear if they really are safer overall. It may also cause shippers to avoid shipping to the US and opt for deliveries to other locales with less onerous laws, thus driving up the price for oil deliveries to the US.

    DRJ (5c60fb)

  13. AD #11:

    Were you struck by the fact that the quoted maritime law expert in the article was named “John Paul Jones”?

    I didn’t even notice that! I guess it was preordained that he would be a sea captain or a maritime lawyer.

    DRJ (5c60fb)

  14. John Robinson is the sort of man whose views on matters scientific and environmental must be taken seriously. His conclusions on oil spills, based on long experience, do not comport with environmentalist orthodoxy, to say the least.
    […]
    ”For a while after the Exxon Valdez spill, there were more take-offs and landings at Valdez airport than there were (on a daily basis) at Chicago’s O’Hare airport, [at the time] – the nation’s busiest.”

    The resulting environmental degradation of such intense activity in a pristine area like Prince William Sound, he suggests, need not have occurred if they had simply allowed nature, rather than man, to heal the ocean.

    Perhaps the environmentalist movement needs to start heeding the advice Hippocrates gave to physicians in Classical Greece.

    First, do no harm. – Timothy Lennon Buckley
    Oil Is Not the Problem
    http://www.americanthinker.com/articles.php?article_id=5551

    the whole truth, please (b60639)

  15. “whether it allows a shipowner to be held liable for the conduct of the ship’s master when the company did not countenance or participate in that conduct.”

    Seems like an open and shut issue of traditional vicarious liability, no?

    whitd (10527e)

  16. #13

    Or a rock drummer.

    Techie (c003f1)

  17. Has anyone noticed that one of the maritime cases that Exxon is using the Amicable Nancy is called, by the USSC a suit for marine trespass. What I would like to know, is what the Exxon Valdez has to do with marine trespass? In fact, this case of the Amicable Nancy seems to have been a thinly veiled cover up for privateers and their business partners,which, at the time tended to be rich merchants and governement authorities.

    http://supreme.justia.com/us/16/546/case.html

    I believe that Exxon should be punished because they actually did countenance the behavior of Hazelwood. They abetted it by not firing him after his first drunk driving event.

    I am not an attorney, but would really appreciate someone to shed a little bit of light on the maritime law in this case.

    Thank you.

    GAC (fdb2f0)

  18. Am I liable as owner and operator of my fishing vessel? Or can I blame it on my crew?

    Jose (bee32a)


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