California Punitives by Horvitz & Levy

  • Article analyzes punitive damages decisions after Exxon Shipping v. Baker

    When the Supreme Court decided Exxon Shipping v. Baker in 2008, observers wondered whether about the impact of the opinion beyond the maritime context.  This article attempts to answer that question.  The authors (Barbara A. Lukeman and Raymond Mariani at Nixon Peabody) conclude that “Exxon did not drive the lower courts to impose a 1:1 ratio more than had been occurring beforehand.” 

    As far as California punitive damages litigation is concerned, that statement is accurate.  The Exxon Shipping opinion itself did not launch a wave of cases imposing 1-to-1 ratios; that wave actually began a few years before Exxon Shipping. 

    A few years ago, the idea of a court reducing an award to a 1-to-1 ratio was unheard of in California.  But in 2006 our courts, taking their cue from State Farm v. Campbell, began reducing awards to a 1-to-1 ratio, even when those awards were already in the single digits.  (See, e.g., Jet Source Charter, Inc. v. Doherty (2007) 148 Cal.App.4th 1 [ratio reduced from 4-to-1 down to 1-to-1]; Walker v. Farmers Ins. Group (2007) 153 Cal.App.4th 965 [ratio reduced from 5.6-to-1 down to 1-to-1]; Grassilli v. Barr (2006) 142 Cal.App.4th 1260 [ratios reduced from 8.4-to-1 and 7.5-to-1 down well below 1-to-1]; see also Roby v. McKesson HBOC (2006) 146 Cal.App.4th 63, review granted [ratio reduced from 10.7-to-1 down to 1.4-to-1].)

    That trend continued after Exxon, with courts citing Exxon in support of reduced 1-to-1 ratios.  (See Stevens v. Vons (2009) [unpublished] [ratio reduced from 10-to-1 down to 1-to-1]; Essex Ins. v. Prof. Building Contractors [unpublished] [ratio reduced from 3.7-to-1 down to 1-to-1]; see also Roby v. McKesson (2009) 47 Cal.4th 686 [ratio reduced from 10.7-to-1 down to 1.4-to-1, further reduced to 1-to-1 by California Supreme Court].)

    This wave of cases isn’t exactly a flood, but compared to the state of the law a few years ago, the number of 1-to-1 ratio cases in recent years is remarkable.

  • The “Big Oil Polluter Pays Act”: Probably Unconstitutional

    Senator Sheldon Whitehouse (D-RI) has introduced a proposed bill called the “Big Oil Polluter Pays Act” (S.3345), which is intended to overrule the U.S. Supreme Court’s decision in Exxon Shipping v. Baker. In light of the Gulf of Mexico oil spill disaster, the proposal is likely to be popular. But the Act’s constitutionality is questionable at best.

    The Act would amend the U.S. Code to provide:

    In a civil action for damages arising out of a maritime tort, punitive damages may be assessed without regard to the amount of compensatory damages assessed in the action.

    There’s nothing unconstitutional about the basic premise of passing legislation to override the Exxon Shipping decision. The majority in that case adopted a 1-to-1 ratio of punitive damages to compensatory damages for maritime cases as a matter of federal common law, and not as a matter of constitutional law. Congress clearly has the authority to change a common law rule.

    The actual text of the act, however, goes much further than just changing the common law rule adopted in Exxon Shipping. The act says that punitive damages would be assessed “without regard to the amount of compensatory damages” in maritime actions. That language is directly contrary to the Supreme Court’s decisions in BMW v. Gore and State Farm v. Campbell, which held that the constitution requires proportionality between punitive damages and actual damages.

    Thus, if the Act passed, the lower courts would be required to strike it down under BMW and Campbell. The more interesting question is: what would happen if the Act passed and the question of its constitutionality made its way up to the Supreme Court? There is no guarantee that the court as presently constituted would adhere to the BMW and Campbell analysis. Justices Souter and O’Connor, who joined the majority in both cases, are gone. Justices Thomas, Scalia, and Ginsburg dissented in both cases. If the dissenters could pick up two more votes from the new members of the court, they might be willing to jettison the BMW/Campbell analysis.

  • Another Law Review Note Criticizes the Supreme Court’s Opinion in Exxon Shipping

    We previously blogged about a student note suggesting that pro-business bias may have played a role in the majority opinion in Exxon Shipping. Here’s another note criticizing that opinion: “Oil and Water: How the Polluted Wake of the Exxon Valdez has Endangered the Essence of Punitive Damages” (2010) 43 Suffolk U. L. Rev. 475.

    The note uses some colorful language; it compares the Supreme Court’s opinion to the Exxon Valdez itself, threatening to further pollute the already tainted waters of punitive damages law:

    Beyond the perpetual ineffectiveness of the Court’s chosen path, however, there exist deeper flaws that have caused the Court to effectively disregard the fundamental objectives of punitive damages: punishment and deterrence. Nonetheless, if the Court continues to treat the punitive-to-compensatory ratio
    as the barometer of constitutional due process, then fixed ratios and mathematical bright lines to cap punitive damage awards could soon become the norm. Accordingly, the flaws of this paradigm must be realized and a new standard must emerge so that the hull confining the Exxon holding to maritime law does not fracture, allowing it to seep into other areas of law and further pollute a doctrine that is already overdue for a cleanup effort.

  • “Exxon Shipping Co. v. Baker: Why the Supreme Court Missed the Boat on Punitive Damages”

    Not many law students would feel comfortable publishing an article accusing the Supreme Court of biased, results-oriented judging. But University of Akron School of Law student Maria C. Klutinoty has no such qualms. She has written an article blasting the Supreme Court for its decision last year two years ago in Exxon Shipping, which adopted a maximum 1-to1 ratio for punitive damages to compensatory damages in federal maritime cases. The article suggests that the Justice Souter’s majority opinion resulted from a bias in favor of major corporations:

    In light of the fact that the defendant here was Exxon Shipping, a major corporation, some have concluded that this decision was the product of a conservative Court that placed the interests of business above the need to punish and deter wrongful conduct. This possible bias certainly may have played a role in the Court’s decision, which appears to be much more concerned with protecting Exxon than with deterring other corporations from acting similarly.

    The article concludes that lower courts should not apply Exxon Shipping outside the maritime context because the standard adopted in that opinion “eviscerated and rendered completely meaningless and void” the deterrence objective of punitive damages. The article, entitled “Exxon Shipping Co. v. Baker: Why the Supreme Court Missed the Boat on Punitive Damages,” is available on Westlaw: at 43 AKRONLR 203.

  • Exxon Will Not Ask Supreme Court to Review Valdez Interest Ruling

    The Associated Press is reporting that Exxon Mobil Corp. has decided not to seek certiorari from the portion of the Ninth Circuit’s recent opinion ordering Exxon to pay an additional $470 million in interest on the punitive damages award in the Exxon Valdez case. The story indicates, however, that Exxon may yet want to file a cert. petition challenging the part of the opinion that orders Exxon to bear its own costs on appeal ($70 million, consisting mostly of bond premiums). This 20 year litigation saga isn’t over quite yet.

  • Exxon Owes $500 $470 Million in Interest on Valdez Punitive Damages, Says Ninth Circuit

    The Ninth Circuit issued an opinion today ordering Exxon Mobil to pay interest on the Exxon Valdez punitive damages award, dating back to September 1996, when the original judgment was entered. As a result, Exxon will owe about $500 $470 million in interest on top of the $500 million in punitive damages and $500 million in compensatory damages it has already paid.

    As we mentioned in a prior post, Exxon was arguing that the interest didn’t start running until the Supreme Court fixed the final amount of punitive damages. Exxon tried to get the Supreme Court to decide the interest issue, but the court sent the case back to the Ninth Circuit without ruling on the interest issue.

    On remand, the Ninth Circuit ruled that the plaintiffs were entitled to interest running from the date of the original judgment because that’s when the plaintiffs’ right to recover punitive damages was “meaningfully ascertained,” even though the actual amount wasn’t decided until 13 years later. The Ninth Circuit also ruled, by a 2-1 vote, that the parties should bear their own costs. Exxon argued that it was entitled to $70 million in costs because it was largely successful in reducing the jury’s $5 billion punitive damages award to $500 million. That argument persuaded Judge Kleinfeld, but not Judge Schroeder or Judge Thomas, who ruled that neither side was the clear winner, so they should bear their own costs.

    This is probably the last stop for this 20-year litigation saga, unless Exxon Mobil can persuade the U.S. Supreme Court to step in again.

    Hat tip: SCOTUSblog.

  • Law Profs Contend Their Statistical Studies Were Misused By the U.S. Supreme Court in Exxon Valdez Case

    Cornell law professors Theodore Eisenberg, Michael Heise, and Martin T. Wells, who have written a number of articles applying statistical analysis to empirical data about civil litigation, have posted a paper on SSRN entitled “Variability in Punitive Damages: An Empirical Assessment of the U.S. Supreme Court’S Decision in Exxon Shipping Co. v. Baker.” The professors contend that Justice Souter improperly used their prior statistical studies to support his majority opinion holding that punitive damages cannot exceed the amount of compensatory damages in cases arising under federal maritime law. Here’s the abstract:

    Abstract:

    Exxon Shipping Co. v. Baker acknowledged what virtually all methodologically
    sound punitive damages research shows. The Supreme Court relied in part on an
    article by the present authors and others to state that empirical studies undercut the most audible criticism of punitive damages and that no mass of runaway punitive awards existed. Paradoxically, the Court simultaneously expressed concern about jury predictability based on a high mean and standard deviation in the punitive-compensatory ratio published in our article. The Court therefore reduced a $2.5 billion punitive award relating to the Exxon Valdez oil spill to $500 million to implement a 1:1 punitive-compensatory ratio and stated that “the constitutional outer limit may well be 1:1.” This article shows that our empirical findings relied on by the Court do not support the unpredictability concern or widely applying the limiting ratio. The high mean and standard deviation are artifacts of not accounting for the key variable that explains punitive awards – the compensatory award. Stratifying the mean and standard deviation of the punitive-compensatory ratio by the level of the compensatory award shows that the ratio is reasonably stable in high award cases and significantly and explicably more variable in low award cases. Basing doctrine on summary statistics that combine these heterogenous [sic] distributions is not statistically supportable. The award reduction in Exxon Shipping may have promoted consistency with other high compensatory award cases but the 1:1 principle the case hints at is not statistically supportable across the broad range of compensatory awards, and could contribute to an inability to tailor punitive awards to the facts and circumstances of particular cases.

  • Stevens v. Vons: $16.7M in Punitive Damages Reduced to $1.2M, Ratio of 1-to-1

    The California Court of Appeal (Second District, Division Six) issued this unpublished opinion yesterday, affirming a trial court’s decision to reduce a large punitive damages award.

    The plaintiff, a grocery store employee, sued for sexual harassment and retaliation. A jury ruled for the plaintiff and awarded $1,672,988 in compensatory damages and ten times that amount in punitive damages ($16,729,880). The trial court ordered a conditional new trial on excessive damages grounds, but offered the plaintiff a choice of accepting a remittutur, reducing the damages to $1.2 million in compensatory damages and an equal amount in punitive damages. The plaintiff accepted the remittitur. The defendant appealed from the judgment and the plaintiff cross-appealed from the reduction of the punitive damages.

    The defendant argued on appeal that the plaintiff failed to prove that a managing agent of the store had ratified the conduct of the employee who harassed the plaintiff. The Court of Appeal rejected that argument, finding that there was sufficient evidence to support the award of punitive damages.

    On the plaintiff’s cross-appeal, however, the Court of Appeal affirmed the trial court’s determination that the the 10-to-1 ratio of punitive damages to compensatory damages awarded by the jury was excessive, and that the proper ratio is 1-to-1. In affirming the reduced the award, the Court of Appeal noted that the reprehensibility of the defendant’s conduct was “low to moderate,” that the maximum statutory penalty for the defendant’s conduct is only $150,000, and that the compensatory damages were “substantial.” As we noted recently in another post, a small but growing number of appellate courts have finally begun to implement the Supreme Court’s statement in State Farm v. Campbell that the ratio of punitive damages should be low, perhaps only 1-to-1, when compensatory damages are substantial.

    This opinion also draws on the U.S. Supreme Court’s recent decision in Exxon Shipping as support for the 1-to-1 ratio:

    The reasonableness of the trial court’s selection of a 1:1 ratio is supported by Exxon Shipping Co. v. Baker (2008) __U.S. __ [128 S.Ct. 2605, 171 L.Ed.2d 570]. In that case the United States Supreme Court observed that there are “several studies . . . showing the median ratio of punitive to compensatory verdicts, reflecting what juries and judges have considered reasonable across many hundreds of punitive awards.” (Id., 128 S.Ct. at p. 2632.) The “studies cover cases of the most as well as the least blameworthy conduct triggering punitive liability, from malice and avarice, down to recklessness, and even gross negligence in some jurisdictions. The data put the median ratio for the entire gamut of circumstances at less than 1:1, . . . meaning that the compensatory award exceeds the punitive award in most cases. In a well functioning system, we would expect that awards at the median or lower would roughly express jurors’ sense of reasonable penalties in cases with no earmarks of exceptional blameworthiness within the punishable spectrum . . . .” (Id., at p. 2633.)

    The Supreme Court noted that it “has long held that ‘[p]unitive damages by definition are not intended to compensate the injured party, but rather to punish the tortfeasor . . . and to deter him and others from similar extreme conduct.’ [Citation.]” (Exxon Shipping Co. v. Baker, supra, 128 S.Ct. at p. 2633.) The trial court here could have reasonably concluded that punitive damages of $1.2 million, together with compensatory damages in the same amount, were sufficient to punish appellant and “‘deter [it] and others from similar extreme conduct.’ ” (Ibid.)

    This is exactly the sort of thing we had in mind when we predicted that the Exxon Shipping case, although not binding on state courts, will nonetheless be persuasive to some lower courts because the reasoning of Exxon Shipping applies to all types of punitive damages cases, not just maritime cases.
    The plaintiff in this case was represented on appeal by appellate specialist and blogger Donna Bader, who operates An Appeal to Reason.

    Hat tip: California Attorney’s Fees.

  • Exxon Shipping: Potential Impacts are Well Beyond Maritime Law

    William E. Thomson and Kahn A. Scolnick recently published an article entitled “The Supreme Court Sets New Damage Limits Under Federal Common Law” in the October 2008 issue of the Federalist Society’s publication, Class Action Watch. The authors make the claim that while the case arose under federal martime law, “the decision is important in several respects that may have application far beyond that narrow context.” In particular, the authors contend “there is little principled basis for refusing to extend Baker’s1:1 ratio to other areas of federal common law.” As one example, the authors point to federal civil rights cases where the 1:1 ratio might be applied. The authors also speculate that the rationale for the 1:1 ratio would also apply equally in due process challenges to punitive damage awards in light of State Farm’s statement that in cases with “substantial” compensatory damages, a 1:1 ratio “can reach the outermost limit of the due process guarantee.”

  • Exxon Valdez Victims Receive First Payments of Punitive Damages Award

    From today’s LA Times: Exxon Valdez victims receive first payments. The theme of the article, like many other similar articles recently, is that the checks being mailed out are inadequate to compensate for the plaintiffs for the economic hardships they suffered as a result of the Valdez spill. Most reporters in the nonlegal press seem to overlook the fact that these are payments of punitive damages, which by their nature are not designed to compensate the plaintiffs. The compensatory damages were paid years ago. If those payments were inadequate to prevent the plaintiffs from suffering financial ruin as a result of the spill, then the flaw in the justice system occurred during the compensatory damages phase, not during the subsequent years of litigation over the punitive damages. To the credit of LA Times reporter Kim Murphy, she at least mentions the compensatory damages award, which is more than can be said of most recent press accounts.