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In re the Exxon Valdez



In the latest chapter of the fallout resulting from the Exxon Valdez’s infamous spill, Exxon Corporation and Exxon Shipping Company (Exxon) appealed a jury award of $5 billion in punitive damages to plaintiff fishermen, landowners, and others adversely affected by the spill. Exxon and the Captain of the Exxon Valdez, Joseph Hazelwood (Hazelwood) brought additional appeals. The plaintiffs also cross-appealed a number of issues including the district court’s grant of summary judgment to the defendants regarding the viability of a claim brought by entities that had suffered purely economic injury.

The Ninth Circuit held that imposing punitive damages against Exxon was appropriate. However, it determined that in light of recent Supreme Court decisions,[1] $5 billion was excessive and remanded. Summary judgment against those plaintiffs who suffered only economic injuries was improper, and the circuit court remanded the claims to determine whether those plaintiffs could establish damages allowed under state law. All other appeals were denied.

On March 24, 1989, the oil tanker Exxon Valdez, laden with crude oil, ran aground on Bligh Reef in Prince William Sound and disgorged eleven million gallons of oil into the waters of the sound. The third mate was in charge of navigating the vessel at the time. Acting against established law and protocol, a very intoxicated Captain Hazelwood[2] had ordered the third mate to guide the ship out of the sound. As the extensive harm from the resulting spill became apparent, the state of Alaska, the United States, and various private parties filed lawsuits. A previous consent decree between Alaska and the United States accounted for reparations for environmental damage. Private parties suing for economic injuries were awarded $287 million for compensatory damages, $5 billion punitive damages against Exxon, and $5000 punitive damages against Hazelwood.

The Ninth Circuit began by examining whether punitive damages were permissible against defendants Exxon and Hazelwood. Exxon claimed that, owing to its considerable expenditures to date, punitive damages served no purpose.[3] The court disagreed, finding no precedent for this assertion. The Ninth Circuit also dismissed the argument that punitive damages are not allowable in admiralty law.

The court subsequently dismissed the argument that the consent decree between Alaska and the United States created res judicata and thus barred punitive damages. Pointing to a saving clause and language in the decree characterizing the $900 million as compensatory and remedial, the rights of the plaintiffs to bring private actions were retained and res judicata was inapplicable. However, the consent decree did settle damages attributable to environmental degradation and the general public. Therefore, res judicata barred any punitive damages pertaining to those wrongs.

Exxon, citing Middlesex County Sewerage Authority v. National Sea Clammers Ass’n,[4] argued that common law punitive damages were impermissible, as they were preempted by the Clean Water Act (CWA).[5] The Ninth Circuit pointed out that the Supreme Court’s limitation on common law claims under color of the citizen suit provision of the CWA[6] applied only to situations in which those claims were for violations of the CWA itself, as opposed to other acts or another statute.[7] Such was not the case here because the action was grounded entirely in common law. The court also stated that because the CWA does not expressly limit private causes of action it is reasonable to believe that common law actions are still available. Finally, whereas certain common law remedies for effluent violations were preempted by the CWA if they conflicted with an administrative remedy addressing the same violation,[8] no administrative decisions addressed plaintiffs’ claims; therefore no conflict existed.

The circuit court then addressed the standard of proof necessary to demonstrate whether an action is malicious or reckless. Because a preponderance of the evidence is generally the standard of proof in a federal civil action, and because the Supreme Court held permissible those standards when part of state law,[9] jury instructions to apply the preponderance of the evidence standard did not constitute an abuse of discretion. Exxon’s argument that vicarious liability was an impermissible means of assigning punitive damages under the Supreme Court’s ruling in The Amiable Nancy[10] also failed. While that decision rested on a finding that the corporation did not have notice of or ratify the behavior of its agent, Exxon had notice that Hazelwood had resumed drinking after treatment for alcoholism but nonetheless gave him command of a supertanker.

Exxon next argued that insufficient evidence existed for a jury to award punitive damages. The Ninth Circuit denied any deficiency of proof in reference to Hazelwood, noting a jury could have reasonably concluded that, among other things, Hazelwood was extremely careless. Again noting Exxon’s knowledge of Hazelwood’s alcoholism, the court held that a jury could award punitive damages.

The Ninth Circuit then turned to the amount of the punitive damage award. Noting that it is compelled to examine jury awards of punitive damages,[11] the court identified two recent Supreme Court decisions setting out the criteria for determining appropriate punitive damages awards. BMW of North America, Inc. v. Gore[12] established three guideposts: the degree of reprehensibility of the person’s conduct, the ratio of the award to the harm inflicted on the plaintiff, and the difference between the award and the civil or criminal penalties in comparable cases.[13] An appellate court must review de novo the district court’s determinations.[14] If applying these guideposts reveals a gross disproportion between the compensatory and punitive damages, the punitive damages violate due process and are considered excessive because the defendant lacked notice of the severity of penalties.

Examining the reprehensibility of Exxon’s actions, the circuit court noted an absence of intent to cause the spill, violence, trickery, or deceit on the part of the Exxon executives. Furthermore, punitive damages are less appropriate for economic injuries (the basis of this claim) than for injuries involving human health or safety.[15] The Ninth Circuit also noted that Exxon responded immediately to mitigate the damage of the spill, which should discount the reprehensibility. Those factors, combined with the disparity between the punitive damages awarded against Hazelwood, who directly caused the spill, and those awarded against Exxon, indicate a miscalculation of reprehensibility.

The court also found disproportionate the ratio of awarded punitive damages to compensatory damages. The court noted that a ratio of between twelve to one and seventeen to one greatly exceeded the four to one ratio the Supreme Court considered appropriate[16] and would deter enterprise in oil shipping, an activity having significant social value. For comparable penalties, the court cited 18 U.S.C. § 3571, the Trans-Alaska Pipeline Act,[17] and the Oil Pollution Act[18] to arrive at a set of parameters that, on remand, the district court could use to set an appropriate level of punitive damages.[19]

The court then examined allegations that the jury had considered evidence derived outside of the proceedings. The court found no basis for overturning the district court’s finding that such misconduct had not occurred. Exxon argued that compensatory awards for chum salmon and setnetter fishermen were indefensible but cited no applicable law. Because of the degree of uncertainty permeating any jury calculation of those damages, the court refused to overturn the district court’s decision.

Hazelwood separately appealed the admissibility of the results of a blood test taken eleven hours after the spill and the individual disability report. While noting the remarkable mishandlings of the blood specimen, the district court nonetheless believed that doubt as to the origin of the specimens would be detected by the laboratory technicians; thus, the court allowed the specimen to be admitted. The district court had found nothing to prevent admission of the disability report, and the Ninth Circuit agreed.

On cross-appeal of the district court’s grant of summary judgment, the plaintiffs argued that economic injury alone entitled them to economic recovery. The circuit court first noted that no act of Congress controlled the case at bar, and therefore maritime law could be pre-empted only if state law allowed recovery for purely economic damage. The court remanded for a determination of the appropriateness of such damages based on a balancing test of strong state interest in providing remedies for harm caused by oil spills against federal legislation that seemed also to also contemplate such remedies.[20] The court denied the plaintiffs’ conditional cross-appeals to admit further evidence of Hazelwood’s alcoholism.

[1] BMW of North America v. Gore, 517 U.S. 559 (1996); Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424 (2001).

[2] Testimony revealed that Hazelwood had consumed at least 10 ounces of alcohol before boarding the Exxon Valdez.

[3] Exxon spent $125 million in fines and restitution awards and another $2.1 billion in clean-up costs.

[4] 453 U.S. 1 (1981).

[5] Federal Water Pollution Control Act, 33 U.S.C. §§ 1251-1387 (2000).

[6] Id. § 1365(e). “Nothing in this section shall restrict any right which any person (or class of persons) may have under any statute or common law to seek enforcement of any effluent standard or limitation or to seek any other relief . . .” Id.

[7] On this issue, the Supreme Court stated, “[i]t is doubtful that the phrase ‘any statute’ includes the very statute in which this statement was contained.” National Sea Clammers, 453 U.S. at 15-16.

[8] See Milwaukee v. Illinois, 451 U.S. 304 (1981) (holding that a federal district court could not impose and enforce more stringent effluent limitations than those established by the agency charged with enforcing the CWA; thus, the Act preempted the common law remedy).

[9] Honda Motor Co. v. Oberg, 512 U.S. 415, 433 (1994).

[10] 16 U.S. (3 Wheat.) 546 (1818).

[11] Honda Motor Co., 512 U.S. at 432.

[12] 517 U.S. 559 (1996).

[13] Id. at 575-85.

[14] Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424 (2001).

[15] While the spill endangered human health and safety, those issues were resolved in the consent decree with Alaska and the United States.

[16] Pacific Mutual Life Ins. Co. v. Haslip, 499 U.S. 1, 23 (1991).

[17] Trans-Alaska Pipeline Authorization Act, 43 U.S.C. §§ 1651-1656 (2000).

[18] Oil Pollution Act of 1990, 33 U.S.C. §§ 2701-2761 (2000).

[19] Those parameters ranged between $150 million and $1.03 billion.

[20] Oil Pollution Act of 1990, 33 U.S.C. §§ 2701-2718 (2000); Trans-Alaska Pipeline Authorization Act, 43 U.S.C. §§ 1651-1656 (2000).

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