There was to be a Phase IV of the civil litigation. The Phase IV claims embodied all of the compensatory damage claims remaining in federal court and not included in Phase II. As to these claims, a settlement was reached in the amount of $13.4 million.
Exxon moved for a reduction or remittitur of punitive damages. That motion was denied. The court applied the Hammond factors to reach its conclusion that the $5 billion punitive damages award was not so grossly excessive as to violate Exxon's due process rights. After lengthy other proceedings not relevant now, final judgment was entered including the award of $5 billion in punitive damages.
Clerk's Docket No. 5970.
Clerk's Docket No. 6234.
The Supreme Court, in , indicated that the Hammond factors were useful in assessing the reasonableness of a punitive damages award. The Hammond factors are as follows:
(a) whether there is a reasonable relationship between the punitive damages award and the harm likely to result from the defendant's conduct as well as the harm that actually has occurred; (b) the degree of reprehensibility of the defendant's conduct, the duration of that conduct, the defendant's awareness, any concealment, and the existence and frequency of similar past conduct; (c) the profitability to the defendant of the wrongful conduct and the desirability of removing that profit and of having the defendant also sustain a loss; (d) the "financial position" of the defendant; (e) all the costs of litigation; (f) the imposition of criminal sanctions on the defendant for its conduct, these to be taken in mitigation; and (g) the existence of other civil awards against the defendant for the same conduct, these also to be taken in mitigation.
Judgment as to Phases I and III was entered September 16, 1994. Clerk's Docket No. 5891. That judgment was vacated. Clerk's Docket No. 6055. A final judgment was entered September 24, 1996, Clerk's Docket No. 6911, and an amended judgment was entered January 30, 1997, Clerk's Docket No. 6966.
Appeal and Remands
Exxon appealed as to liability for and the amount of punitive damages. Exxon sought and obtained a stay of execution on the judgment for punitive damages by posting a supersedeas bond in the amount of $6,750,000,000. On appeal, Exxon contended first that punitive damages should have been barred as a matter of law. For reasons given, the court of appeals rejected this contention, concluding that:
Clerk's Docket No. 6914.
the Clean Water Act does not preempt a private right of action for punitive as well as compensatory damages for damage to private rights.... [W]hat saves plaintiff's case from preemption is that the $5 billion award vindicates only private economic and quasi-economic interests, not the public interest in punishing harm to the environment.
Exxon's second contention was that the plaintiffs' burden of proof should be to produce clear and convincing evidence of liability for punitive damages. The court of appeals held that this court did not abuse its discretion by employing the preponderance of evidence standard. Similarly, this court was affirmed as regards its instructions to the jury concerning Exxon's vicarious liability for the conduct of its employees. Exxon did not challenge the substance of the court's instructions as to the determination of punitive damages; for, with prescient skill, counsel for plaintiffs and Exxon had proposed instructions which appropriately informed the jury as to what have become the "guideposts" for fixing punitive damages: the reprehensibility of defendant's conduct, the relationship of punitive damages to actual and potential harm, and comparison to other penalties.
Captain Hazelwood and Exxon both challenged the sufficiency of the evidence to support an award of punitive damages against them. The Ninth Circuit Court concluded that there was substantial evidence to support a jury verdict of liability for punitive damages as to both Captain Hazelwood and Exxon.
Finally, with liability concluded, the court of appeals turned to Exxon's challenge to the amount of the punitive damages award against it. In addition to passing muster under the sufficiency of the evidence test, punitive damages awards must be subjected to a due process analysis which flows from the decision of the United States Supreme Court in . In the Supreme Court held that a $2 million punitive damages award based upon $4,000 in compensatory damages for pure economic loss was unconstitutional because the defendant lacked fair notice of so severe a punitive award. The importance of the guideposts in determining the outer constitutional limits of punitive damages was reinforced in .
The jury awarded Dr. Gore $4 million in punitive damages, which the Alabama Supreme Court reduced to $2 million.
Based upon the Ninth Circuit Court of Appeals in this case reiterated the three guideposts established by the Supreme Court for use in determining whether punitive damages are so grossly excessive as to constitute a violation of due process. The guideposts are:
(1) the reprehensibility of the defendant's conduct; (2) the ratio of the award to the harm inflicted on the plaintiff; and (3) the difference between the award and the civil or criminal penalties in comparable cases.
The court of appeals recognized that this court did not have the benefit of and when it decided Exxon's original motion to reduce the punitive damages award and remanded the case "for the district court to consider the constitutionality of the amount of the award in light of the guideposts established in " However, the court of appeals also provided its analysis of the factors to aid the court in its consideration of the constitutional question. In the end, the court of appeals unequivocally told this court that "[t]he $5 billion punitive damages award is too high to withstand the review we are required to give it under and " and "[i]t must be reduced." (citations omitted).
On remand, Exxon filed a renewed motion for reduction or remittitur of the punitive damages award, which plaintiffs opposed. After consideration of the briefing and hearing oral argument on the renewed motion, the court, on December 6, 2002, issued Order No. 358, which granted Exxon's renewed motion and reduced the punitive damages award to $4 billion. In applying the guideposts, the court found Exxon's conduct highly reprehensible, a ratio of 9.85-to-1 based on actual and potential harm of over $507 million, and comparable civil and criminal penalties of which Exxon was on notice in excess of $5 billion. The court concluded that application of the guideposts supported the $5 billion punitive damages award but reduced the award to $4 billion because the Ninth Circuit had mandated that the award be reduced.
Clerk's Docket No. 7487.
Clerk's Docket No. 7501.
Clerk's Docket No. 7564.
Judgment on the $4 billion punitive damages award was entered on December 10, 2002. Plaintiffs moved for an order directing entry of a final judgment on Order No. 358 or, in the alternative, an order authorizing an interlocutory appeal. On January 27, 2003, the court granted the plaintiffs' motion. Both Exxon and plaintiffs timely noticed appeals to the Ninth Circuit Court of Appeals. Exxon sought and obtained a stay of execution on the judgment by posting a supersedeas bond in the amount of $4,806,000,000.
Clerk's Docket No. 7566.
Clerk's Docket No. 7569.
Order No. 359 (granting Motion for Rule 54(b) Determination) (Jan. 27, 2003), Clerk's Docket No. 7589.
Clerk's Docket No. 7622.
On April 7, 2003, the Supreme Court decided which addressed the question of whether a $145 million punitive damages award, compared to compensatory damages of $1 million, in an insurance bad faith case was grossly excessive and violated due process. The Court held that the $145 million punitive damages award did not comport with due process and remanded the case to the Utah Supreme Court with the suggestion that, under the circumstances of the case, a punitive damages award at or near the amount of compensatory damages would comport with due process.
On August 18, 2003, prior to briefing on either appeal, the Ninth Circuit Court of Appeals vacated the $4 billion punitive damages judgment and again remanded the case to this court, this time to reconsider the punitive damages award in light of In remanding, the court of appeals simply vacated the court's amended judgment which found plaintiffs entitled to $4 billion in punitive damages against Exxon. The court of appeals did not comment on the merits of Order No. 358, neither suggesting nor implying that the court should revise Order No. 358, although the court of appeals plainly intended that this court reconsider Order No. 358 in light of In remanding, the court of appeals also did not disturb its earlier holding that the $5 billion punitive damages award was too high to pass constitutional muster.
See Order, Clerk's Docket No. 7737.
On remand, this court called for supplemental briefing from the parties to aid in its reconsideration of the punitive damages award in light of Exxon submitted its supplemental briefing in the form of a second renewed motion for reduction or remittitur of punitive damages. This motion is opposed by plaintiffs. Oral argument on the second renewed motion for reduction or remittitur of punitive damages was heard on December 3, 2003. Having considered the parties' arguments, both written and oral, the court turns, for a third time, to the question of whether the $5 billion punitive damages award against Exxon offends the Due Process Clause of the Fourteenth Amendment of the United States Constitution.
Order re Further Proceedings on Punitive Damages Award (Aug. 26, 2003), Clerk's Docket No. 7714.
Clerk's Docket No. 7753.
Clerk's Docket No. 7767.
It has long been understood "that the Due Process Clause of the Fourteenth Amendment imposes substantive limits 'beyond which penalties may not go.' " (quoting ). It was not, however, until recent years that the Supreme Court considered applying this general principle of constitutional law to punitive damages awards.
In , the Supreme Court suggested that the Due Process Clause could place substantive limits on punitive damages awards but left the question of whether it did to another day because the parties had not raised the issue below.
That day came two terms later in involved the misappropriation of insurance premiums by Pacific Mutual's agent. After their insurance lapsed because of non-payment of premiums, Haslip and others brought a fraud claim against the agent and also sought to hold Pacific Mutual liable on a respondeat superior theory. A jury awarded Haslip $200,000 in compensatory damages and $840,000 in punitive damages. Pacific Mutual challenged Haslip's punitive damages award arguing that it violated both substantive and procedural due process.
The other three plaintiffs were awarded much smaller amounts of damages ($15,290; $12,400; and $10,288).
The Supreme Court rejected Pacific Mutual's argument that its substantive due process rights were violated by the imposition of liability based upon the respondeat superior doctrine. The Court also determined that the common-law method of determining punitive damages is not "so inherently unfair as to deny due process and be per se unconstitutional." However, the Court emphasized that a punitive damages award that was the result of unlimited jury or judicial discretion could violate the Due Process Clause.
The Court in refused to "draw a mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable...." Rather, the Court stated that punitive damages awards should be evaluated based upon "general concerns of reasonableness and adequate guidance from the court when the case is tried to a jury...." The Court then concluded that the punitive damages award against Pacific Mutual did not violate the Due Process Clause because: (1) the jury had been adequately instructed and was not given unlimited discretion in setting the amount of punitive damages; (2) the trial court was required to do a post-trial review of the punitive damage award for excessiveness; and (3) the Alabama Supreme Court also conducted a post-verdict review of punitive damages awards, using the Hammond factors.
The Court observed that Haslip's punitive damages award was more than four times her compensatory damages and much greater than any fine that could have been imposed for insurance fraud under Alabama law but found that the award, although perhaps "close to the line", did "not cross the line into the area of constitutional impropriety."
Two terms later, in the Court again took up the issue of the constitutionality of a punitive damages award, this time a $10 million punitive damages award in a slander of title case that was 526 times the compensatory damages award. The parties urged the Supreme Court to formulate a "test" for evaluating whether a punitive damages award violated due process. The Court refused to do so, instead returning to what it had said in
"We need not, and indeed we cannot, draw a mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable that would fit every case. We can say, however, that [a] general concer[n] of reasonableness ... properly enter[s] into the constitutional calculus."
In evaluating the reasonableness of the $10 million punitive damages award against TXO, the Court concluded that it was appropriate not only to consider the actual harm that a defendant's conduct caused a plaintiff but also the potential harm that may have resulted from the defendant's conduct. TXO's pattern of behavior could have resulted in damages ranging from $5 million to $8.3 million. Considering the "potential" harm, the Court found that "the dramatic disparity between the actual damages and the punitive award [was not] controlling...."
TXO also challenged the punitive damages award on the grounds that the jury had not been adequately instructed. The Court noted that the jury had been instructed that it could consider the wealth of TXO "in recognition of the fact that effective deterrence of wrongful conduct 'may require a larger fine upon one of large means than it would upon one of ordinary means under the same or similar circumstances.' " (quoting the punitive damages jury instruction). The jury was also instructed that one of the purposes of punitive damages was to provide additional compensation to the injured parties.
The Court agreed with TXO that reference to TXO's wealth may have increased the risk of the jury being influenced by prejudice against a large non-resident defendant but noted that it had found in that the wealth of the defendant could be considered when assessing punitive damages. The Court also stated that it did not understand the reference in the instructions about "additional compensation". However, because the issue of inadequate instructions had not been raised below, the Court did not consider what effect these jury instructions might have had on the punitive damages award.
The Supreme Court next considered the constitutionality of a punitive damages award in . Oberg was severely injured in an accident involving a three- wheeled all-terrain vehicle that was manufactured and sold by Honda. The jury awarded Oberg $735,512.31 in compensatory damages and $5 million in punitive damages. Honda appealed, arguing that the punitive damages award violated due process, in large part, because Oregon courts had no power to reduce a punitive damages award if they found that the amount of the award was grossly excessive. The Court held "that Oregon's denial of judicial review of the size of punitive damages awards violates the Due Process Clause of the Fourteenth Amendment."
On remand, the Oregon Supreme Court, after engaging in a due process analysis, upheld the $5 million punitive damages award. .
Then came in which the Court provided lower courts with a more definite means for analyzing the reasonableness of a punitive damages award. In Dr. Gore purchased a new BMW from a Birmingham, Alabama, dealer. Pursuant to a national BMW policy, the dealer did not disclose to Dr. Gore that the car had been repainted because the cost of this "repair" was less than three percent of the car's suggested retail value.
At trial, BMW admitted that its national policy since 1983 was to not disclose repairs to new cars if the repairs cost less than three percent of the car's suggested retail price. Dr. Gore presented evidence that since 1983 BMW had sold 983 "repaired" cars as new, including fourteen in Alabama. Dr. Gore also presented evidence that the value of a repainted car was ten percent less than a car that had not been repainted.
The jury awarded Dr. Gore $4,000 in compensatory damages and $4 million in punitive damages (apparently based on 1000 cars x $4000 in actual damages per car). BMW moved to set aside the punitive damages award, but the trial court denied the motion. On appeal to the Alabama Supreme Court, the punitive damages award was reduced to $2 million.
In reviewing the $2 million punitive damages award, the United States Supreme Court stated that "the federal excessiveness inquiry appropriately begins with an identification of the state interests that a punitive award is designed to serve." The Court observed that there could be no doubt that Alabama had a legitimate interest in protecting its citizens from deceptive trade practices. However, it was conceded that Dr. Gore was endeavoring to achieve national punishment and deterrence. For reasons explained, the Supreme Court held that Alabama's interests, not those of the entire nation, were the proper scope of deterrence and punishment.
The Court then announced the three guideposts that lower courts are to use to determine whether a punitive damages award is grossly excessive and applied them to the punitive damages award against BMW. The Court held that the $2 million punitive damages award against BMW violated due process and remanded the case to the Alabama Supreme Court.
On remand, the punitive damages award was reduced to $50,000. See .
After the Supreme Court did not consider a punitive damages/due process case until its 2001 decision in in which the issue was "whether the Court of Appeals applied the wrong standard of review in considering the constitutionality of the punitive damages award." The Ninth Circuit Court of Appeals had applied an abuse of discretion standard; the Supreme Court reversed, holding that the constitutionality of punitive damages required de novo review and remanded the case to the appellate court to apply the appropriate standard. Although the constitutional issue was not before the Court, it nonetheless applied the guideposts and found several potential problems with a punitive damages award of $4.5 million versus a compensatory damages award of $50,000 for violations of the Lanham Act based on Cooper Industries passing off its product as Leatherman's.
On remand, the Ninth Circuit Court of Appeals reduced the punitive damages award to $500,000. See .
For the next several years, lower courts grappled with applying the guideposts to punitive damages awards with no additional guidance from the Supreme Court. Then, last term, the Court handed down its decision in arose out of a serious traffic accident in 1981, in which, one person (Ospital) was killed and one (Slusher) was permanently disabled. The accident occurred when Curtis Campbell was attempting to pass six vans. Early investigation into the accident indicated that Campbell's unsafe pass was the cause of the accident. A wrongful death and tort action was brought against Campbell. Campbell insisted that he was not at fault and his insurer, State Farm, decided to contest liability and declined offers to settle the claims against Campbell for policy limits ($25,000 per person, $50,000 total).
The case went to trial and ended with a judgment against Campbell for $185,849, which was in excess of the amount offered in settlement. State Farm refused to cover the excess or to assist Campbell in an appeal. Campbell hired his own counsel to appeal and during the appeal reached a settlement with the plaintiffs in the tort case by which they agreed not to seek satisfaction of the judgment against Campbell if Campbell would pursue a bad faith action against State Farm.
In 1989, the Utah Supreme Court denied Campbell's appeal. State Farm then paid the entire judgment, including the excess. Nonetheless, Campbell and his wife filed suit against State Farm alleging bad faith, fraud, and intentional infliction of emotional distress.
The trial court granted summary judgment to State Farm but was reversed on appeal. On remand, the case was bifurcated for trial. In the first phase of the trial the jury determined that State Farm's decision to not settle was unreasonable. Phase two of the trial addressed, among other issues, compensatory and punitive damages. During phase two, the Campbells were allowed to introduce evidence of " 'a national scheme [by State Farm] to meet corporate fiscal goals by capping payouts on claims company wide.' " (quoting ). This evidence concerned State Farm's business practices for over 20 years in numerous states. Many of the practices had no connection to third-party automobile claims, which was the type of claim underlying the complaint against the Campbells. In addition, some of the out-of-state conduct was legal where it occurred. The jury awarded the Campbells $2.6 million in compensatory damages and $145 million in punitive damages. The trial court reduced the compensatory damages to $1 million and the punitive damages to $25 million.
On appeal, the Supreme Court of Utah applied the guideposts and reinstated the $145 million punitive damages award (but left compensatory damages at $1 million). State Farm successfully petitioned for certiorari.
The United States Supreme Court began its analysis, as it had in with a discussion of how the two aims of punitive damages, deterrence and retribution, fit into the concept that grossly excessive or arbitrary punitive damages awards offend due process. The Court observed that "it is well established that there are procedural and substantive constitutional limitations" on punitive damages awards. The Court further observed that although punitive damages serve the same purpose as criminal penalties, defendants in civil cases are not afforded the same protections as criminal defendants. The Court stated that "[t]his increases our concerns over the imprecise manner in which punitive damages systems are administered." The Court discussed the need to properly instruct juries concerning punitive damages. The Court continued by remarking that "[o]ur concerns are heightened when the decisionmaker is presented ... with evidence that has little bearing as to the amount of punitive damages that should be awarded."
The Court then turned its attention to the application of the guideposts, observing that "this case is neither close nor difficult." The Court held that the $145 million punitive damages award violated due process and remanded the case to the Utah Supreme Court, stating:
An application of the [ ] guideposts to the facts of this case, especially in light of the substantial compensatory damages awarded (a portion of which contained a punitive element), likely would justify a punitive damages award at or near the amount of compensatory damages.
The Question Presented
The question presented by the instant motion is the same question that was presented in and does the punitive damages award constitute "grossly excessive or arbitrary punishment[ ] on [Exxon]" in violation of the Due Process Clause of the Fourteenth Amendment? (citing and The question is not whether the jury "got it right" as to the necessary and/or appropriate level of punishment and/or deterrence per se. Discussions of whether the award sufficiently "got" Exxon's attention or whether the costs of the cleanup of the oil spill were a sufficient deterrence have little place in the constitutional analysis. We engage in a judicial (as opposed to lay judgment) review of the fundamental fairness of the punitive damages award. We consider whether Exxon was fairly on "notice not only of the conduct that will subject [it] to punishment, but also of the severity of the penalty...." That analysis is a forward-looking inquiry from Exxon's point of view prior to the grounding of the Exxon Valdez. The Supreme Court has not said this expressly, but the forward-looking nature of the inquiry is necessarily implicit in the concept of fair notice to Exxon, i.e., what Exxon should reasonably have perceived as the likely consequences of its conduct. It is because of this aspect of the inquiry that we are to look at not only actual harm but also potential harm which a defendant's reckless conduct could foreseeably have caused. .