Appealed from: United States Court of Appeals, 9th Circuit (May 23, 2007)
Oral argument: Feb. 27, 2008
PUNITIVE DAMAGES, MARITIME LAW, VICARIOUS LIABILITY
In 1989 the oil tanker Exxon Valdez ran aground on Bligh Reef, off the Alaska coast, spilling millions of gallons of oil into Prince William Sound. In the years following the spill, Exxon would pay millions of dollars in private claims and over a billion dollars to settle government suits under environmental laws such as the Clean Water Act ("CWA"). An additional class action suit by private parties sought compensatory damages for economic harm, as well as punitive damages (a civil penalty for particularly egregious conduct). In the final suit, an Alaska district court awarded roughly $20 million in compensatory damages against Exxon-and $5 billion in punitive damages. The Ninth Circuit eventually reduced the punitive damages award to $2.5 billion but upheld the decision to award such damages. Exxon now asks the United States Supreme Court to strike down the award of punitive damages or reduce its amount. In addressing Exxon's petition, the Court must set maritime law standards for punitive damage awards against a ship's owner for acts of the ship's master. The Court will also consider whether Congress meant penalties under the CWA to be the full punishment for a spill, excluding punitive damages under maritime law.
1. May punitive damages be imposed under maritime law against a shipowner (as the Ninth Circuit held, contrary to decisions of the First, Fifth, Sixth, and Seventh Circuits) for the conduct of a ship's master at sea, absent a finding that the owner directed, countenanced, or participated in that conduct, and even when the conduct was contrary to policies established and enforced by the owner?
2. When Congress has specified the criminal and civil penalties for maritime conduct in a controlling statute, here the Clean Water Act, but has not provided for punitive damages, may judge-made federal maritime law (as the Ninth Circuit held, contrary to decisions of the First, Second, Fifth, and Sixth Circuits) expand the penalties Congress provided by adding a punitive damages remedy?
3. Is this $2.5 billion punitive damages award, which is larger than the total of all punitive damages awards affirmed by all federal appellate courts in our history, within the limits allowed by federal maritime law?
Is a ship's owner subject to punitive damages for the acts of the ship's master if the court hasn't found that the owner directed, countenanced, or participated in those acts and the acts went against the owner's established policies?
If Congress has enacted a controlling statute that provides civil and criminal penalties for certain maritime conduct but does not provide for punitive damages, can a court impose punitive damages for the conduct under federal maritime common law?
Does federal maritime law allow punitive damages as high as those in this case?
The following facts are taken from Exxon v. Baker, 490 F.3d 1066 (9th Cir. 2007); Baker v. Exxon, 270 F.3d.1215 (9th Cir. 2001); In re Exxon Valdez, 236 F.Supp.2d 1043 (D.Alaska 2002); and the Encyclopedia of the Earth:
On March 24, 1989, the oil tanker Exxon Valdez ran aground on Bligh Reef in Prince William Sound, Alaska, splitting the tanker's hull and spilling eleven million gallons of oil-20 percent of its cargo-into the waters off Alaska's coast. Thousands of animals and hundreds of thousands of birds died in the days immediately after the spill. The fishing and tourism industries suffered losses estimated in the millions of dollars.
Most of the events leading to the crash are not in dispute: Icebergs were visible on the ship's radar, so, in accordance with industry custom, the ship informed the Coast Guard that they were going to navigate outside of normal shipping lanes. This course took the ship toward Bligh Reef. The ship's captain, Joseph Hazelwood, instructed Third Mate Gregory Cousins when to turn the ship to avoid the reef. But then, in violation of Exxon's written policies, Hazelwood left the bridge. Cousins did make the turn, but he made it too late.
One point that remains in dispute is whether Captain Hazelwood was under the influence of alcohol when he left the bridge. The captain had a history of alcohol abuse, which was known to Exxon, but he maintained his position because Exxon's alcohol policy guaranteed that employees seeking treatment would not lose their jobs. The policy was based on the premise that without job security those needing treatment would simply hide their affliction. At the time of the accident, such policies were common within the shipping industry.
In the wake of the spill, thousands of people, including government employees, private citizens, and Exxon employees, worked to contain and clean up the oil. The cleanup continued until 1992, when the State of Alaska and the U.S. Coast Guard declared it complete. However, eighteen years after the spill, it continues to negatively affect the ecosystem of Prince William Sound.
Immediately after the spill, Exxon voluntarily paid $2.2 billion toward the cleanup. The State of Alaska sued Exxon for compensatory and punitive damages, and the United States indicted Exxon for violating the Clean Water Act ("CWA"), 33 U.S.C. § 1311(a), and other statutes. As a result of this litigation, Exxon paid $1 billion in settlements to the Alaska and United States governments. That money is being used for environmental studies and conservation programs for Prince William Sound. Exxon also paid approximately $300 million in voluntary settlements with private parties.
In addition, a large group of private parties-including Alaska landowners, Native American groups, and commercial fishermen-filed a suit against Exxon for economic harm beyond what Exxon had paid through its voluntary claims program. In 1994 a jury in an Alaska district court awarded the plaintiffs $287 million in compensatory damages (which reimburse plaintiffs for actual injury). The court later reduced this amount to roughly $20 million to reflect released claims and settlements Exxon had reached during trial. The jury also found that both Captain Hazelwood and Exxon had been reckless, and awarded the plaintiffs punitive damages (a civil penalty to punish the defendant and deter similar reprehensible behavior). The jury awarded $5,000 in punitive damages against Hazelwood and an unprecedented $5 billion against Exxon. Exxon appealed to the Ninth Circuit Court of Appeals, contesting both the award of punitive damages against the company and their amount. The Ninth Circuit upheld the award of punitive damages but, in light of recent Supreme Court due process decisions, told the district court to reduce the amount. After the district court cut the damages award to $4 billion, Exxon appealed again. The Ninth Circuit again sent the case back to the trial court to reconsider the amount in light of an additional Supreme Court ruling in a similar case. This time, the district court judge increased the punitive damages to $4.5 billion with interest. Exxon appealed a third time to the Ninth Circuit, which itself reduced the amount of punitive damages to $2.5 billion. After unsuccessfully petitioning the Ninth Circuit for a rehearing, and later for a hearing en banc (a hearing by all the judges of the circuit), Exxon petitioned the United States Supreme Court for a writ of certiorari, which the Court granted on October 29, 2007.
In the days following the Exxon Valdez oil spill, pictures of slick, oil-covered birds and otters filled newspapers, and television news programs led off with footage of black oil lapping the rocky shore. The public was outraged, and in 1994, a diverse group of Alaska landowners, Native American groups, and commercial fishermen were granted an award of $5 billion in punitive damages. At the time, it is unlikely that the court fully considered the far-reaching ramifications of granting such a large award. However, the outcome of this case will have a large effect on the shipping and fishing industries, shipping insurers, consumers, and the environment.
Exxon's case is supported by amicus briefs from a large number of constituencies, including various forces within and related to the shipping industry, such as shipping insurers and shipping associations, which have raised concerns regarding the effect this case will have on the industry. These briefs rest on the idea that the trial court held Exxon "vicariously liable" for punitive damages for the reckless conduct of Captain Hazelwood based solely on the fact that the company was Hazelwood's employer. Vicarious liability makes an employer monetarily responsible for actions of employees during the course of their employment. It is considered the norm for compensatory damages, but is not generally accepted with respect to punitive damages. According to a brief by the American Institute of Marine Underwriters ("AIMU"), if the decision did create such responsibility on the part of ship owners and the standard were to be applied uniformly, it would drastically change the landscape of maritime law and possibly have a chilling effect on the shipping industry. AIMU's brief also asserts that if these kinds of damages were allowed, they could result in the dissolution of the company if insurance faied to cover them. Alternatively, if insurance did cover such damages, the cost of insurance for shipping companies would skyrocket, resulting in increased shipping costs and higher prices for consumers. The looming risk of punitive damage awards would also create instability in the shipping industry.
In its amicus brief, American Commercial Lines, Inc., one of the largest marine transportation and service companies in the United States, asserted that vicarious liability for punitive damages would not have any benefit, would result in financial ruin of the alleged wrongdoer, and would negatively impact the vital security role assigned to the industry by the Maritime Transportation Security Act of 2002 ("MTSA") and the regulations implementing that statute. The MTSA is intended to protect U.S. ports and waterways from a terrorist attack. It mandates that certain foreign-flagged vessels, such as liquefied natural gas and oil tankers, entering U.S. waterways meet specific security requirements and comply with the International Ship and Port Security code.
If, as Exxon claims, the company already contributed beyond its legal responsibility to the cleanup effort, then a decision awarding large punitive damages would undercut the public policy that led earlier courts to reduce damages against Exxon as a result of to its cleanup efforts. If environmental protection is of primary concern, Exxon argues, courts should create incentives for fast and efficient cleanup in the form of reduced punitive damages.
The respondents, in turn, are supported by a variety of amicus briefs from state legislators, fisheries, environmental groups, and Native American groups. As asserted by thirty-two states in a joint amicus brief in support of the respondents, a decision to limit punitive damages could also be problematic. The punitive damages in this case were calculated based on Exxon's yearly corporate income. If the punitive damages are too low, they may not achieve the goal of deterrence when the actor is a big corporation with a large profit margin and deep monetary reserves. If there is not enough deterrence, then oil spills may become more likely to occur. Because of the drastic economic and environmental effects of such spills, state legislators feel that they must have the ability to protect their citizens by punishing corporations with substantial punitive damages.
Exxon urges the United States Supreme Court to find that under maritime law a court may not award punitive damages against a ship owner for a ship master's acts, unless the owner authorized, ratified, or participated in those acts. Brief for Petitioners at 15, 18. Exxon further contends that the Alaska district court jury's sole basis for awarding punitive damages against Exxon in this case was just such vicarious liability. Id. at 14. The company bases the latter contention on the district court's jury instructions, which said a company was reckless, as a matter of law, if managerial agents, acting in the course and scope of employment, were reckless. Id. at 10, 11. Exxon argues that Captain Hazelwood fit the definition of a managerial agent under the court's jury instructions. Id. at 10. Moreover, the instructions allowed the jury to find Exxon vicariously liable for Hazelwood's conduct even if Exxon had established policies prohibiting that conduct. Id. at 10.
Exxon contends that the Supreme Court and most circuits ruling on the issue have held or stated that courts may not impose punitive damages on a shipowner based only on a ship master's independent acts. Id. at 18, 20. The Supreme Court considered this issue in an 1818 opinion concerning the plundering of the schooner The Amiable Nancy by the crew of the U.S. privateer Scourge. The Amiable Nancy, 16 U.S. 546, 546-48 (1818). In that case, the Court refused to award punitive, or "vindictive," damages against the owner, who had not "countenanced," "directed," or "participated in" the conduct of the crew. Id. Exxon also cites a second, non-maritime Supreme Court case in support of this view. Brief for the Petitioners at 19; see also Lake Shore & M. S. Ry. v. Prentice, 147 U.S. 101, 114, 115 (1893). In addition, Exxon claims that all federal circuits that have considered this issue have adopted the same view, with the notable exception of the United States Court of Appeals for the Ninth Circuit. Brief for Petitioners at 16, 20.
Respondents reject Exxon's claim that there is relevant, binding Supreme Court precedent on this question. They argue that the holding of The Amiable Nancy addressed only the situation of armed privateers. Brief for Respondents at 21; see also The Amiable Nancy, 16 U.S. at 558. Lake Shore concerned the conduct of a lower level employee. Id. at 22; see also Lake Shore, 147 U.S. at 106. Opinions at the circuit level vary. See Brief for Respondents at 22-23.
Respondents argue that the proper standard for corporate punitive liability is that of Restatement (Second) of Torts, which says, in part, that the torts of a managerial agent acting within the scope of employment can be imputed to the agent's employer. Id. at 24; Restatement (Second) of Torts § 909(c). This rule properly extended to Captain Hazelwood and Exxon because Exxon had given its ship masters management authority. Brief for Respondents at 27.
Respondents' interpretation of the scope of the Restatement term "managerial agent," like that of the district court, follows the interpretation of the Ninth Circuit case Protectus Alpha v. North Pacific Grain Growers. Protectus Alpha v. North Pacific Grain Growers, 767 F.2d 1379, 1386 (9th Cir. 1985); see also In re the Exxon Valdez, 1995 WL 527990 (D. Alaska). In Protectus Alpha, the Ninth Circuit held a company liable for punitive damages for the tort of its dock foreman. Protectus Alpha, 767 F.2d at 1387. Four years later, the Fifth Circuit rejected this approach, in Matter of P & E Boat Rentals, refusing to impose punitive damages on a company for conduct of a similarly situated employee saying the employee did not have "policymaking authority." Matter of P & E Boat Rentals, 872 F.2d 642, 652 (5th Cir. 1989).
Respondents finally claim that Exxon was independently reckless because it knowingly put an alcoholic in charge of a supertanker carrying dangerous cargo and had no policy to safeguard against a captain's drinking on duty. Brief for Respondents at 35, 36, 38. This issue figured heavily in the district court trial and in respondents' brief in opposition to the grant of certiorari. See Baker v. Exxon, 270 F.3d 1215, 1237, 1238 (9th Cir. 2001); Brief in Opposition at 3-5. Moreover, Supreme Court dicta (in the non-maritime-law case Lake Shore) and circuit court statements have acknowledged this ground for employer liability.See Lake Shore & M. S. Ry., 147 U.S. at 116 (1893); U.S. Steel Corporation v. Fuhrman, 407 F.2d 1143, 1148 (6th Cir. 1969); Matter of P & E Boat Rentals, 872 F.2d at 651-52 (quoting Fuhrman). But respondents devote little space to this argument in their brief for Supreme Court oral argument, although they reject Exxon's contention that the court's jury instructions allowed the jury to sidestep this question in issuing its verdict. Brief for Respondents at 36.
Displacement of General Maritime Remedies by the Clean Water Act
Exxon also argues that it should not have been subjected to punitive damages for the oil spill under maritime law because congressionally established penalties under the Clean Water Act were meant to be the exclusive punishment for such spills. Brief for Petitioners at 30.
Exxon says that where Congress has established a coherent legal regime-such as the CWA-over an area, this may displace, or preempt, courts' authority to make law in that area. Id. Exxon also claims that while federalism concerns raise a presumption against displacing state law with federal statutory law, separation of powers concerns create a presumption in favor of preemption where a congressional statute contends with federal common law, such as federal maritime law. Id. at 29. Exxon argues that in the CWA, Congress established a comprehensive penalty regime that balances the need to punish polluters against the need to sustain economic interests such as maritime commerce. Id. at 30. Allowing additional damages would upset this balance. Id. at 33. Exxon acknowledges that the CWA contains a "savings" clause, which says the Act does not affect shipowner obligations for damage to any public or private property. Id. at 37. But it says this was meant only to ensure that private parties could recoup actual losses, and does not concern punitive damages. Id. at 37. Exxon argues that punitive damages, in contrast, serve the public purpose of punishment and deterrence. Id. They argue that such a public purpose is fully served by the CWA penalties. Id. at 40.
Respondents first contend that Exxon waived its CWA argument by failing to raise it in a timely manner before the district court. Brief for Respondents at 41. Therefore, the Ninth Circuit should not have reached the merits of that question, and the Supreme Court should not consider it. Id. at 41-42.
Respondents also argue that Exxon's CWA claim is wrong on the merits. Id. at 44. First, they say the Trans-Alaska Pipeline Authorization Act ("TAPAA"), not CWA, is the controlling statute in the case. Id. at 45. In fact, Exxon had raised the same preemption issue concerning TAPAA that it now raises concerning the CWA. Id. When the district court rejected the former claim, however, Exxon did not appeal that decision. Id.; see also Brief of the Alaska Legislative Council as Amici Curiae in Support of Respondents at 2-4. Second, respondents claim the cases Exxon cites in support of statutory displacement really concern legal remedies that would conflict or interfere with the statute in question. Id. at 46. Respondents say their suit for economic harm in no way interferes with the CWA's environmental standards. Id. at 47. Finally, they argue that the CWA does not purport to be and has not functioned as an exclusive legal remedy for oil spills. Id. at 48. Instead, it preserves preexisting obligations for private harm in a savings clause and has shared its field of operation, not only with private tort claims, but also with other criminal statutes. Id. at 48, 50. Several of the latter were used to prosecute Exxon for the Valdez spill. Id. at 48. Respondents say Exxon's sole remaining argument is that the CWA displaces only the punitive damages portion of respondents' claim. Id. at 47. Respondents say this argument is meritless because CWA's silence on the availability of punitive damages is not sufficient to eliminate a remedy that maritime law has traditionally provided. Id. at 49.
Respondents also note that, regardless of the situation at the time of the Valdez spill, the controlling statute in oil spill cases is now the Oil Pollution Act of 1990, not the CWA. Id. at 43. Therefore, a ruling on CWA preemption would have little significance beyond this case. Id. Exxon mentions the OPA only cursorily in its brief. Brief for Petitioners at 31, n 10.
Size of Punitive Damages Award and Policy Concerns
Exxon says that if the Court allows punitive damages under general maritime law, it should at least use its position at the top of the federal court hierarchy to set standards for the size of such awards. Brief for Petitioners at 43-44. These standards should reflect the goals of maritime law: protecting maritime commerce, limiting liability, and providing fair, predictable remedies. Id. at 46-47. To adequately address these policies, the Court should gauge the appropriateness of the award against a series of benchmarks, such as available statutory penalties and the incentives the award is likely to provide. See Id. at 50-55. Exxon says that by any standard, the $2.5 billion award is far too high and should be struck down. Id. at 51.
Respondents counter that the size of the award was not excessive, because it reflected the scope of the harm caused by the spill. Brief for Respondents at 52. They dispute that maritime law requires any special standards, beyond standards for land-based torts, to control award size. Id. at 55. Instead, they argue that any guidance should reflect the Court's established due process standards, Id. at 57, and that by these and other existing standards, the award was appropriate. Id. at 52.
The parties' arguments concerning possible consequences of an adverse verdict are explored and amplified in nearly thirty amicus briefs.
This case has been in the courts for nearly fifteen years. Thus, the Ninth Circuit may have voiced a common sentiment when it wrote in the opinion below, "It is time for this protracted litigation to end." The United States Supreme Court may now make good on the circuit's promise. In the process, the Court will address sensitive issues of risk and financial liability in the maritime transport of essential but potentially hazardous cargo. Shipping and oil interests, on one side, environmental groups and fishing interests on the other, have submitted amicus briefs. The first question for the Court is when a shipowner can be held liable for punitive damages for a ship master's tort. In answering this, the Court will resolve disagreement among the circuits. However, the question has a case-specific complication: Exxon's possible independent liability. The second question-whether CWA displaces punitive damages under maritime law-may have little significance beyond this case. The Oil Pollution Act of 1990, not the CWA, is now the controlling statute in oil spill cases. Nevertheless, resolving the second question in Exxon's favor may enable the court to avoid sending the case back for further factfinding if Exxon's independent liability proves pivotal to judgment on Question 1.
Edited by: Molly Curren Rowles
- Legal Information Institute, Wex: Admiralty
- Exxon Valdez Oil Spill Trustee Council home page
- GAO Report: Maritime Transportation: Major Oil Spills Occur Infrequently, but Risks to the Federal Oil Spill Fund Remain