This morning the United States Supreme Court issued its opinion in the long-running Exxon-Valdez case, Exxon Shipping Company v. Baker, No. 07-219, slip op. (U.S. June 25, 2008). Here’s a link. Bottom line: The huge ($2.5 billion) award is vacated with instructions to reduce the award to a 1:1 ratio with compensatory damages (some $500 million). The reduction is taken under maritime law, not on a constitutional basis.

The Court split 4-4 on (Alito not participating) on whether there could be punitives under maritime law for acts of managerial agents.

Of more interest to us, the Court found no preemption of punitive damages by the Clean Water Act. First, there was waiver. Second (which may well be dicta in light of the first ruling), there was no express preemption of the punitive damages remedy (which the defendant claimed was preempted) where there was no preemption of compensatory damages (a position the defendant disclaimed), and no implied preemption either – although the latter received less than one sentence of treatment:

This concession, however, leaves Exxon with the equally untenable claim that the CWA somehow preempts punitive damages, but not compensatory damages, for economic loss. But nothing in the statutory text points to fragmenting the recovery scheme this way, and we have rejected similar attempts to sever remedies from their causes of action. All in all, we see no clear indication of congressional intent to occupy the entire field of pollution remedies; nor for that matter do we perceive that punitive damages for private harms will have any frustrating effect on the CWA remedial scheme, which would point to preemption.

Slip op. at 15 (citations and footnote omitted). There is no mention of any presumption against preemption.

There’s an interesting general discussion of punitive damages, their history and purpose that anyone litigating this subject should become familiar with. The Court states that most “recent” research “undercuts” much of the criticism of runaway punitive damages. Slip op. at 24. Our opponents will like that, of course – but the Court doesn’t stop there.

The real problem the Court sees with punitive damages was not usually their gross amount, but their unpredictability:

The real problem, it seems, is the stark unpredictability of punitive awards. Courts of law are concerned with fairness as consistency, and evidence that the median ratio of punitive to compensatory awards falls within a reasonable zone, or that punitive awards are infrequent, fails to tell us whether the spread between high and low individual awards is acceptable. The available data suggest it is not.

Slip op. at 26.

For those who thought that the Supreme Court might have backed away from excessiveness Due Process review in the recent Phillip Morris v. Williams decision – it’s baaack:

The Court’s response to outlier punitive damages awards has thus far been confined by claims at the constitutional level, and our cases have announced due process standards that every award must pass. Although “we have consistently rejected the notion that the constitutional line is marked by a simple mathematical formula,” we have determined that “few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process”; “[w]hen compensatory damages are substantial, then a lesser ratio, perhaps onlyequal to compensatory damages, can reach the outermost limit of the due process guarantee.”

Slip op. at 28 (citations to Gore and Campbell omitted). But this time, as indicated, the Court decides excessiveness under federal maritime, rather than constitutional, analysis. Id. Instead, the Court takes its first stab ever at common-law excessiveness review of a punitive award:

Whatever maybe the constitutional significance of the unpredictability of high punitive awards, this feature of happenstance is in tension with the function of the awards as punitive, just because of the implication of unfairness that an eccentrically high punitive verdict carries in a system whose commonly held notion of law rests on a sense of fairness in dealing with one another. Thus, a penalty should be reasonably predictable in its severity, so that even Justice Holmes’s “bad man” can look ahead with some ability to know what the stakes are in choosing one course of action or another.

Slip op. at 29.

The court adopts a ratio-based standard for federal common law excessiveness review. “The more promising alternative is to … peg[] punitive to compensatory damages using a ratio or maximum multiple.” Slip op. at 33. This is a “more rigorous standard[] than the constitutional limit.” Id. The Court, after extensive discussion, elects to apply a 1:1 ratio:

[G]iven the need to protect against the possibility (and the disruptive cost to the legal system) of awards that are unpredictable and unnecessary, either for deterrence or for measured retribution, we consider that a 1:1 ratio, which is above the median award, is a fair upper limit in such maritime cases.

Slip op. at 40. “Such” cases are those

with no earmarks of exceptional blameworthiness within the punishable spectrum (cases like this one, without intentional or malicious conduct, and without behavior driven primarily by desire for gain, for example) and cases (again like this one) without the modest economic harm or odds of detection that have opened the door to higher awards.

Id.

Now this is a maritime case, so it’s not binding on any state court. However, another maritime case that the Court cited – Robbins Dry Dock – was extremely influential in bringing about the “economic loss rule” that almost every state has adopted. So was East Coast Steamship v. Deleval. Likewise the Court’s MetroNorth decision, a FELA case, was influential in leading many jurisdictions to reject damages for mere risk of future injury in the absence of any present physical injury. Thus it is possible that the Court’s decision here will influence the manner in which states view non-constitutional excessiveness challenges to punitive damage awards.