Only Half a Billion

Today the U.S. Supreme Court cut a punitive damage award against Exxon for the 1989 Prince William Sound oil spill from $2.5 billion to $500 million. The original award, which had already been reduced by the appeals court, was $5 billion, 10 times the corresponding compensatory damages. In the majority opinion, Justice David Souter (joined by Roberts, Scalia, Kennedy, and Thomas) concludes that a 1-to-1 ratio of punitive to compensatory damages is an appropriate limit in cases like this one, involving the application of maritime law.

That question is different from the constitutional issue addressed by the Court in other cases dealing with punitive damages. In those cases, the Court has ruled that excessively high punitive damages violate the Due Process Clause, and it has indicated that multiples in the double digits are inherently suspect. In this case, by contrast, the Court sought to further the goals of maritime law by reining in "outlier punitive damages awards," thereby making judgments more consistent. The unpredictability of high punitive awards "is in tension with the function of the awards as punitive," says Souter, "because of the implication of unfairness that an eccentrically high punitive verdict carries." Since "most accounts show that the median ratio of punitive to compensatory awards remains less than 1:1," he says, that's a sensible upper limit.

Picking a ratio is inherently arbitrary, but less so than the highly variable judgments rendered by unconstrained judges and juries. "The real problem," Souter says, "is the stark unpredictability of punitive awards." He cites data indicating wide variability and "anecdotal evidence" suggesting that it is not justified by differences in the underlying facts. Maybe so, Justice John Paul Stevens says in his dissent, but this is a problem for Congress to fix. "While maritime law 'is judge-made law to a great extent,'" he writes, "it is also statutory law to a great extent; indeed, '[m]aritime tort law is now dominated by federal statute.'"

I tend to agree that legislation is a more appropriate response to the problems raised by arbitrary, unpredictable punitive awards, and many state legislatures already have imposed limits on punitive damages in the form of ratios or monetary caps. I'd prefer to see states and the federal government abolish punitive damages altogether, keeping civil lawsuits focused on compensation and imposing punishment for especially egregious conduct under criminal law. (Many of the people who said Exxon should pay billions in punitive damages conflated these two goals, arguing that victims of the Exxon Valdez spill were never adequately compensated, which is a separate issue.) But if we must have a parallel system of punishment, it's better to have one with statutory standards like those that govern criminal penalties.

I discussed the Exxon Valdez case in a column last fall.