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Exxon Shipping Co. v. Baker - 554 U.S. 471, 128 S. Ct. 2605 (2008)

Rule:

Punitives are aimed not at compensation but principally at retribution and deterring harmful conduct.

Facts:

In 1989, a supertanker owned by petitioner Exxon Shipping Company and others grounded on a reef off Alaska, spilling millions of gallons of crude oil into Prince William Sound. The accident occurred after the tanker's captain, Joseph Hazelwood—who had a history of alcohol abuse and whose blood still had a high alcohol level 11 hours after the spill—inexplicably exited the bridge, leaving a tricky course correction to unlicensed subordinates. Exxon spent some $2.1 billion in cleanup efforts, pleaded guilty to criminal violations occasioning fines, settled a civil action by the United States and Alaska for at least $900 million, and paid another $303 million in voluntary payments to private parties. Several other civil cases, including one filed by respondent Grant Baker in federal district court, were consolidated; the suits named Exxon, Hazelwood, and others as defendants and sought to recover economic losses suffered by Baker and others (collectively, "Baker"), who depended on Prince William Sound for their livelihoods. At Phase I of the trial, the jury found Exxon and Hazelwood reckless (and thus potentially liable for punitive damages) under instructions providing that a corporation was responsible for the reckless acts of employees acting in a managerial capacity in the scope of their employment. In Phase II, the jury awarded $87 million in compensatory damages to some respondents; others settled their compensatory claims for $22.6 million. In Phase III, the jury awarded $5,000 in punitive damages against Hazelwood and $5 billion against Exxon. The United States Court of Appeals for the Ninth Circuit upheld the Phase I jury instruction on corporate liability and ultimately remitted the punitive-damages award against Exxon to $2.5 billion. Exxon was granted a writ of certiorari. It contended that punitive damages were not available based solely upon the recklessness of Hazelwood, that the express pollution penalties of the Clean Water Act (CWA), 33 U.S.C.S. § 1251 et seq., precluded an additional penalty of punitive damages, and that the punitive award of approximately five times the amount of the compensatory award was excessive.

Issue:

Was the award of punitive damages against Exxon proper?

Answer:

Yes, to some extent.

Conclusion:

The Supreme Court of the United States vacated the judgment upholding the punitive damages award against Exxon and remanded the case for remission of the punitive damages award. While equally divided concerning whether Exxon could be held vicariously liable for punitive damages, the Court held that the CWA did not preclude the award, but a reduction of the amount of the award was warranted. The penalties for pollution under the CWA did not displace compensatory and punitive remedies for the consequences of such pollution, including the economic harm suffered by Baker and others. However, punitive damages in a maritime tort case such as Baker's were not warranted in an amount greater than the amount of the compensatory damages award, and thus the punitive damages were excessive.

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