The fair notice inquiry requires that the court first look at the quality of Exxon's conduct. Any reasonable person will understand that the more heinous his conduct, the more severe the punishment will be. Next, we look at the harm which a reasonable person would anticipate likely to flow from his conduct. This includes potential harm because a reasonable person analyzing the consequences of his conduct would naturally look to not only what is sure to happen but also to what could possibly happen. Finally, we look at other sanctions that can be imposed because the maxima in these regards are the very kind of thing that a reasonable person would think about if he were evaluating the possible consequences of his conduct.
In sum, the question before us is whether, under the circumstances of this case, an award of $5 billion in punitive damages is grossly excessive and therefore violates due process. To answer that question, the court's inquiry is two-fold: (1) the court must identify the state interests that the $5 billion punitive damages award was designed to serve, and (2) the court must apply the guideposts in light of
In the Court instructed that "the federal excessiveness inquiry appropriately begins with an identification of the state interests that a punitive award is designed to serve." Without saying so expressly, suggests that this is still the first step in the due process evaluation of a punitive damages award. In both and the plaintiffs were endeavoring to achieve national punishment and deterrence. In 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. In the Court reiterated that punitive damages are not to be used to punish and deter a defendant for conduct that happened in another jurisdiction, particularly if the conduct is legal in the jurisdiction in which it occurred. Most of the courts considering the constitutionality of punitive damages awards have ignored this first step in the analysis. In the Ninth Circuit Court did not expressly discuss the scope of interests which plaintiffs seek to vindicate. That it would not have done so probably flows directly from the circumstances of this case. The plaintiffs' claims for punitive damages expressly excluded consideration of harm to the environment. These claims were pursued and vindicated by consent decrees in favor of the State of Alaska and the United States Government in other proceedings. Here, the plaintiffs' focus has always been upon what happened in Prince William Sound, Lower Cook Inlet, and the environs of Kodiak Island. While brought under both state and federal law, the focus of plaintiffs' complaints have always had to do with harm to Alaska fisheries, Alaska businesses, Alaska property (both real and personal), and, to the extent that potential claims have been involved, they too have Alaskan roots. No one has contended that Exxon should be deterred or that it should be punished for conduct not having a direct nexus with the grounding of the Exxon Valdez on Bligh Reef in Prince William Sound.
Both the Tenth and Eleventh Circuits have expressly stated that requires a two-step analysis: (1) define the scope of the legitimate state interests the punitive award is intended to further and (2) apply the three guideposts. ; . The Ninth Circuit did the same in a case that was decided after See .
Before moving on, and as a part of the first phase of the constitutional analysis, further comment about the court's instructions on punitive damages may be in order. The Supreme Court's punitive damages jurisprudence has consistently emphasized the role of adequate jury instructions in ensuring punitive damage awards that comport with due process. As discussed above, in the Supreme Court reiterated its concern about quasi-criminal awards being made without the protections applicable to criminal cases and without adequate instructions that properly limit the jury's discretion. .
Here, given the jurisprudential changes which took place between the time this court first evaluated the $5 billion punitive damages award and the Ninth Circuit Court's review of the same, there could have been an absence of appropriate instructions to the jury or inadequate instructions as to how punitive damages should be determined by the jury. As discussed above, Exxon had its opportunity for input to those instructions, its opportunity to challenge those instructions, and we all have the results of that inquiry before us at the present time. The court's substantive jury instructions as to the determination of punitive damages were unchallenged. Nevertheless, given the nature of the present inquiry, it strikes the court as important to know and be mindful in understanding the second phase of the constitutional analysis (the guideposts) that the trial jury in this case was working with the very same concepts embodied within the guideposts as set out above. The jury was instructed on the purpose of punitive damages: punishment and deterrence. The jury was admonished not to be arbitrary: punitive damages must have a rational basis in the record and bear a reasonable relationship to harm done or likely to result from the defendant's conduct. The jury was also instructed on the subjects of reprehensible conduct and consideration of mitigation (as by voluntary payments) and some comparison to other available sanctions.
Both now and when this case was tried, Ninth Circuit pattern jury instructions on punitive damages are not adequate to meet the concern expressed in
Without proper instructions, jury verdicts are patently suspect. Here, we know that the trial jury, in making an award of $5 billion for punitive damages, was seeking to vindicate--through punishment and deterrence--the appropriate, Alaska-oriented plaintiff interests, and not other interests such as environmental concerns which had been separately dealt with and which the jury was expressly told not to consider. In short, this is not a situation where the jury awarded $5 billion in punitive damages based upon one script, with this court second-guessing the jury's work using a different script.
Finally, this court was concerned before trial about the risk of multiple punitive damages awards based upon the same incident. Even when punitive damages awards are limited to matters in which there is a proper Alaska interest, they could be arbitrarily cumulative and in sum grossly excessive. Here, Exxon was exposed to a multiplicity of claims, most but not all of which were pending in this court. But for the creation of a mandatory punitive damages class, Exxon was exposed to the risk of multiple punitive damages awards flowing from the same incident. Where multiple suits for punitive damages have been brought in a single jurisdiction, it strikes this court that there is a very real risk that two punitive damages awards in different courts, but based upon the same incident, could result in a doubling up on deterrence and punishment. How this concern should be managed under and is not clear. What is clear is that the risk does not exist in this case. Because of the mandatory punitive damages class, the court can say with confidence that Exxon has not been exposed to grossly excessive deterrence or punishment because of multiple suits for punitive damages based upon the same harm or course of conduct. It follows that the whole of what is constitutionally foreseeable for purposes of due process is fairly put to the test of whether $5 billion in punitive damages was or was not grossly excessive.
Indeed, claims against Exxon were being tried at virtually the same time in both the United States District Court for the District of Alaska and the Superior Court for the State of Alaska.
In consideration of the foregoing, this court concludes that the plaintiffs in making their claims, this court in instructing the jury, and the jury in awarding punitive damages, were all focused upon the appropriate, relevant Alaska interests for which deterrence and punishment through punitive damages is permissible.
Application of BMW Guideposts
Reprehensibility. In the Court stated that "[p]erhaps the most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant's conduct." (emphasis added). In the Court unequivocally stated that the reprehensibility of the defendant's conduct is " '[t]he most important indicium of the reasonableness of a punitive damages award....' " (quoting In determining whether a defendant's conduct is reprehensible, the court considers whether:
the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident.
"The existence of any one of these factors weighing in favor of a plaintiff may not be sufficient to sustain a punitive damages award; and the absence of all of them renders any award suspect."
In BMW's conduct was found to be not very reprehensible. Dr. Gore suffered only economic harm; BMW did not show indifference to the health and safety of others; BMW's conduct was not criminal; and although BMW suppressed a material fact, there were no deliberate false statements made. Dr. Gore argued that BMW's conduct was highly reprehensible because it was part of a nationwide pattern of conduct, thereby making BMW a recidivist. The Court recognized that a recidivist is usually punished more severely than a first offender, but noted that in some states, BMW's conduct would not have violated state disclosure laws and that BMW had a good faith belief that its conduct would not be considered fraudulent.
In the Court again found the defendant's conduct not very reprehensible, once extra-territorial (non-Utah) factors were set aside. State Farm had altered company records to make Campbell look less culpable, disregarded the overwhelming evidence of liability and almost certainty of an excess judgment at trial, and first assured the Campbells that their personal assets were safe but after judgment told them to put a for-sale sign on their house. The Campbells, like Dr. Gore, argued that State Farm's conduct was reprehensible based on its nation-wide business practices. The Supreme Court reiterated that "[a] State cannot punish a defendant for conduct that may have been lawful where it occurred." The Court also emphasized that a defendant should not be punished for out-of-state conduct that is unrelated to the harm suffered by the plaintiffs. In short, the Court concluded that "[t]he reprehensibility guidepost does not permit courts to expand the scope of the case so that a defendant may be punished for any malfeasance, which in this case extended for a 20-year period."
The reprehensibility of a party's conduct, like truth and beauty, is subjective. One's view of the quality of an actor's conduct is the result of complex value judgments. The evaluation of a victim will vary considerably from that of a person not affected by an incident. Courts employ disinterested, unaffected lay jurors in the first instance to appraise the reprehensibility of a defendant's conduct. Here, the jury heard about what Exxon knew, and what its officers did and what they failed to do. Knowing what Exxon knew and did through its officers, the jury concluded that Exxon's conduct was highly reprehensible.
As part of the constitutional analysis, the court must also determine the reprehensibility of Exxon's conduct, and it does so by applying the factors set forth in These factors are objective criteria which the court employs to evaluate the jury's subjective appraisal of the quality of a defendant's conduct. With due deference to the jury process, verdicts should not be upset unless the jury result is "grossly excessive" in light of the objective evaluation of a defendant's conduct and therefore, constitutionally impermissible. .
In evaluating the reprehensibility of a defendant's conduct, the court may not consider extra-territorial conduct that has no nexus to the harm suffered by plaintiffs. However, the Supreme Court stated in that even "[l]awful out-of-state conduct may be probative when it demonstrates the deliberateness and culpability of the defendant's action in the State where it is tortious, but that conduct must have a nexus to the specific harm suffered by the plaintiff." Here, the court views not only the actual grounding of the Exxon Valdez as relevant conduct but also Exxon's conduct in the years prior to the grounding that resulted in Exxon giving the keys to a supertanker to a relapsed alcoholic on the evening of March 23, 1989. Exxon's pre-grounding conduct by and large took place outside Alaska. Exxon could have removed Captain Hazelwood from his command on the Exxon Valdez based upon knowledge of his relapse into alcoholism. It chose not to do so with tragic consequences. The nexus between the out-of-state conduct of Exxon and the grounding and harm to plaintiffs is clear and convincing.
The court turns now to the reprehensibility factors.
Type of Harm. In determining reprehensibility, the court considers whether the defendant's conduct caused physical harm or only economic harm to the plaintiffs. In both and the defendants' conduct caused only economic harm. Conduct that results in physical harm is considered more reprehensible than conduct that results in only economic harm. .
Exxon's conduct did not cause only economic harm. The court of appeals has aptly observed on Exxon's earlier appeal that "The huge oil spill obviously caused harm beyond the 'purely economic' ". The social fabric of Prince William Sound and Lower Cook Inlet was torn apart. "[R]esearch on the community impacts of the Exxon Valdez Oil Spill clearly delineate a chronic pattern of economic loss, social conflict, cultural disruption and psychological stress." Communities affected by the spill "reported increased incidences of alcohol and drug abuse, domestic violence, mental health problems, and occupation related problems." Also, several studies found that a high percentage of affected fishermen suffered from severe depression, post-traumatic stress disorder, generalized anxiety disorder, or a combination of all three. The spilling of 11 million gallons of crude oil into Prince William Sound and Lower Cook Inlet disrupted the lives (and livelihood) of thousands of claimants and their families for years.
J. Steven Picou, et al., Community Recovery From the Exxon Valdez Oil Spill: Mitigating Chronic Social Impacts at 6-7, attached as Exhibit 4 to Oesting Declaration, which is appended to Plaintiffs' Opposition, Clerk's Docket No. 7501.
Duane A. Gill, Environmental Disaster and Fishery Co-Management in a Natural Resource Community: Impact of the Exxon Valdez Oil Spill, in Folk Management in the World's Fisheries 227 (Dyer & McGoodwin, eds., 1994), pertinent part attached as Exhibit 5 to Oesting Declaration, which is appended to Plaintiffs' Opposition, Clerk's Docket No. 7501.
See Plaintiffs' Opposition at 24, n. 20, for a complete list of the relevant studies, Clerk's Docket No. 7501. Pertinent portions of the studies are attached as Exhibits 4 and 6 through 9 to Oesting Declaration, which is appended to Plaintiffs' Opposition, Clerk's Docket No. 7501.
The foregoing shows that the harm that the plaintiffs suffered as a result of Exxon's conduct was much more egregious than the pure economic harm suffered by Dr. Gore whose only harm was that his new car was worth slightly less, or the economic risk and attendant emotional distress to which the Campbells were subject for eighteen months. Moreover, Dr. Gore and the Campbells each chose to deal with their defendant. Here, Exxon unilaterally intruded into the lives of the plaintiffs with no transactional foundation.
Reckless disregard to the health and safety of others. Exxon's and Captain Hazelwood's conduct was determined by the jury to have been reckless and its verdict as to liability for punitive damages has already been affirmed. In evaluating the reprehensibility guidepost, the court of appeals observes that the spill "did not kill anyone." That statement is true based upon the record of this case; but we are engaged in a due process inquiry evaluating what Exxon was fairly on notice of prior to the plaintiffs' losses. It is a well-known fact that drunk drivers kill people with alarming frequency. Exxon's decision to leave Captain Hazelwood in command of the Exxon Valdez not only showed a reckless disregard for the health and safety of those who lived and worked on the Sound, but also recklessly put the captain himself, his crew, and all of his rescuers in harm's way. After its grounding, the Exxon Valdez was sitting in a pool of oil. Rescuers had to enter that pool of oil. Careless cigarette smoking, or an electrical failure on the grounded vessel, or so simple and predictable an occurrence as an electro-static discharge when hoses are being connected or disconnected to a vessel might have ignited the crude oil and incinerated everyone in the vicinity.
In 1988, an estimated 23,626 deaths were caused by alcohol- related motor vehicle crashes. See Traffic Safety Facts 1999 at 32 available at http://www-nrd.nhtsa.dot.gov/pfd/nrd- 30/NCSA/TSFAnn/TSF1999/pdf. In 1989, 22,404 alcohol-related fatalities were reported. Id.
As an example, Captain William J. Deppe, who took over command of the Exxon Valdez after Captain Hazelwood was relieved of his duty, explained that:
when we were pumping oil from the top like that, oxygen could come in through the openings ... and we would create an explosive atmosphere between the void space, the deck and the oil. By putting the tools and lines and equipment down there, we could get a spark, and if we had an explosive atmosphere, you could blow up the ship.
Transcript of Trial Testimony of William J. Deppe at 7206, lns. 15-20, Excerpts of Record, Vol. I--Trial Transcript, attached to Plaintiffs' Opposition, Clerk's Docket No. 7501.
Finally, Captain Hazelwood, for whom Exxon is responsible, did not just ground the Exxon Valdez. Perhaps because of judgment impaired by alcohol, but in the face of knowledge that the vessel had been holed and was rapidly losing crude oil into Prince William Sound, he endeavored to maneuver the vessel. The record reflects that this was a dangerous undertaking, one which might have taken a vessel from a point of more or less stability into a posture where a great deal more oil might have been spilled. Indeed, the vessel might have foundered.
Exxon's conduct showed great disregard for the health and safety of others (including Exxon employees) and appreciably aggravates Exxon's conduct.
Financially vulnerable targets. The plaintiffs, plus anyone else who lived and worked on Prince William Sound, were the foreseeable "victims" of Exxon's decision to leave a relapsed alcoholic at the helm of a supertanker carrying a toxic cargo. While the commercial fishermen may not have been financially vulnerable targets, the subsistence fishermen certainly were. Although Exxon's claims program mitigated the impact that its conduct had on financially vulnerable targets, Exxon cannot escape the fact that it knew that it was allowing a relapsed alcoholic to operate a fully-loaded, crude oil tanker in and out of Prince William Sound, a body of water which Exxon knew to be highly valuable for its fishery resources, resources which Exxon knew, or should have known, were relied on by subsistence fishermen.
A compensatory damages class of Alaska Natives was certified in March of 1994. See Order Certifying Commercial Fishing Class, Native Class, and Landowner Class (March 14, 1994), Clerk's Docket No. 4653. The Native class included Alaska Native subsistence fishermen who suffered losses because of the oil spill. An exact number of class members is not available. However, 717 Native subsistence fishermen opted out of the Alaska Natives class. See Order No. 307 (granting final approval of settlement between Native opt-out settlement class and Exxon) (Jan. 19, 1996), Clerk's Docket No. 6600.
Repeated actions or an isolated incident. and recognized that a recidivist may be punished more severely than a first-time offender. In the instant case, Exxon's conduct involved repeated actions, not an isolated incident. Granted, Captain Hazelwood only grounded one vessel in Alaska between the spring of 1986 and March of 1989 and there was only one spill of oil from the Exxon Valdez into Prince William Sound. But, as the court noted at the outset of its discussion of the reprehensibility guidepost, the relevant conduct here involves more than just the actual grounding. It involves the conduct that led up to the grounding of the Exxon Valdez. March 24, 1989, was not the first time that Exxon had permitted Captain Hazelwood to command a supertanker even though Exxon knew that he had "fallen off the wagon." For approximately three years, Exxon's management knew that Captain Hazelwood had resumed drinking, knew that he was drinking on board their ships, and knew that he was drinking and driving. Over and over again, Exxon did nothing to prevent Captain Hazelwood to sail into and out of Prince William Sound with a full load of crude oil.
Intentional malice, trickery, or deceit, or mere accident. The grounding of the Exxon Valdez and the consequential spilling of crude oil was not intentional. Captain Hazelwood's purpose just prior to the grounding was to avoid Bligh Reef, not park on it. The defendants' conduct did not involve trickery or deceit. There was no effort on the part of Exxon to hide or minimize what happened. But the grounding was no mere accident.
Hiding a 900-foot vessel capable of carrying more than 53 million gallons of crude oil--even in so large a body of water as Prince William Sound--would not have been possible. More to the point, however, Exxon not only made no effort to hide what happened but, rather, Captain Hazelwood reported the incident to the Coast Guard immediately. See also supra note 13 and accompanying text.
It is undisputed that Exxon understood and well knew the risks attendant to transporting crude oil out of Valdez, Alaska, and through Prince William Sound. Moreover, Exxon knew that Captain Hazelwood was an alcoholic, it knew that he had resumed drinking, and it knew that Captain Hazelwood was drinking while on duty. Driving under the influence of alcohol is a crime anywhere in the country and in Alaska. Exxon knew from the spring of 1986 that Captain Hazelwood was drinking and driving the crude oil tanker Exxon Valdez and did nothing about it until after the Exxon Valdez was grounded.
as regards operating watercraft.
The court of appeals observed in this regard that Exxon's knowledge "goes more to justify punitive damages than to justify punitive damages at so high a level." Certainly Exxon's knowledge that Captain Hazelwood was drinking and driving the Exxon Valdez is an important, perhaps the most important, reason why the jury found and the court of appeals affirmed Exxon's liability for punitive damages. But, Exxon's knowledge is also a fundamental component of fair notice. Fair notice is the foundation of due process under the Fourteenth Amendment. Respectfully, the extent of Exxon's knowledge should also be a consideration in the characterization of the quality of Exxon's conduct.
Here we are concerned about due process and what Exxon should reasonably have anticipated as punishment for wrongful conduct. There is a direct nexus between what Exxon should reasonably have expected as punishment and the extent of its knowledge of Captain Hazelwood's situation. It is one thing to knowingly employ a sober recovering alcoholic. It is quite another--a far more serious matter--to have knowingly and intentionally allowed Captain Hazelwood to continue as master of the Exxon Valdez despite his relapse. Some Exxon representatives contended that Captain Hazelwood was the most watched person in the fleet, and he may have been. Exxon officials nevertheless ignored the information that was at their disposal, leaving Captain Hazelwood to operate a huge tank vessel through Prince William Sound, a body of water known for its valuable fishing resources. This is not someone hauling dry cargo, the spilling of which would have minimal impact on the fisheries and other uses of Prince William Sound. Rather, this is an employer deliberately permitting a relapsed alcoholic to continue operating a vessel carrying over 53 million gallons of volatile, toxic, crude oil. In the view of this court, the decision by Exxon to leave Captain Hazelwood in command of the Exxon Valdez is the critical factor in evaluating the quality of Exxon's conduct and therefore the amount of punitive damages.
Exxon willfully allowed Captain Hazelwood to continue to operate a supertanker filled with crude oil despite Exxon's knowledge that he was drinking again. It was this intentional decision by Exxon that led to the plaintiffs being harmed. Willfulness--ignoring reason--is a principal component of malice. Exxon's management of Captain Hazelwood amounted to intentional malice toward the plaintiffs.
Willful is defined as: "governed by will without yielding to reason or without regard to reason" or "done deliberately." Webster's Third New International Dictionary 2617 (1981).
Malice is defined as: "intention or desire to harm another usu [ally] seriously through doing something unlawful or otherwise unjustified," "willfulness in commission of a wrong," or "evil intention." Id. at 1367 (emphasis supplied).
Conclusion as to Reprehensibility. Punitive damages " 'should reflect the enormity of [the defendant's] offense....' " (quoting Exxon's conduct did not simply cause economic harm to the plaintiffs. Exxon's decision to leave Captain Hazelwood in command of the Exxon Valdez demonstrated reckless disregard for a broad range of legitimate Alaska concerns: the livelihood, health, and safety of the residents of Prince William Sound, the crew of the Exxon Valdez, and others. Exxon's conduct targeted some financially vulnerable individuals, namely subsistence fishermen. Plaintiffs' harm was not the result of an isolated incident but was the result of Exxon's repeated decisions, over a period of approximately three years, to allow Captain Hazelwood to remain in command despite Exxon's knowledge that he was drinking and driving again. Exxon's bad conduct as to Captain Hazelwood and his operation of the Exxon Valdez was intentionally malicious.
Comparing Exxon's conduct with what happened in and Exxon's conduct was many degrees of magnitude more egregious. For approximately three years, Exxon management, with knowledge that Captain Hazelwood had fallen off the wagon, willfully permitted him to operate a fully- loaded, crude oil tanker in and out of Prince William Sound--a body of water which Exxon knew to be highly valuable for its fisheries resources. Exxon's argument that its conduct in permitting a relapsed alcoholic to operate an oil tanker should be characterized as less reprehensible than what State Farm did to the Campbells suggests that Exxon, even today, has not come to grips with the opprobrium which society rightly attaches to drunk driving. While there are surely other situations that would be more reprehensible--such as knowingly allowing a relapsed alcoholic to operate a 747 aircraft loaded with passengers--this case is in an entirely different galaxy than selling repainted cars as new, passing off a product as that of a competitor's, or refusing for eighteen months to pay an excess judgment of $185, 849. Based on the foregoing, the court finds Exxon's conduct highly reprehensible.
Ratio. The ratio guidepost requires the court to compare "the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award[.]" The harm side of the ratio is made up of two components: actual harm to the victim and the harm that was likely to occur. The trial jury in this case was expressly instructed to consider the magnitude of "actual" and "likely" harm. Under this guidepost, the court may also consider whether the compensatory damages award contained a punitive component, whether the economic injuries were minor, and whether the plaintiffs suffered physical harm or trauma. .
Jury Instruction No. 27, Clerk's Docket No. 5890.
The Supreme Court has repeatedly declined "to impose a bright-line ratio which a punitive damages award cannot exceed." However, the Court has also repeatedly noted that "traditional" multipliers for wrongful conduct have been in the range of double, treble, or quadruple damages and that a ratio of more than 4-to-1 might be "close to the line of constitutional impropriety." (citing "Nonetheless, because there are no rigid benchmarks that a punitive damages award may not surpass, ratios greater than those we have previously upheld may comport with due process where 'a particularly egregious act has resulted in only a small amount of economic damages.' " (quoting "A higher ratio may also be justified in cases in which the injury is hard to detect or the monetary value of noneconomic harm might have been difficult to determine." But, "[w]hen compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee." "The precise award in any case, of course, must be based upon facts and circumstances of the defendant's conduct and the harm to plaintiff."
In the actual and potential harm to Dr. Gore was limited to $4,000. Thus, the Court stated that the 500-to-1 ratio between punitive damages and the harm suffered by Dr. Gore "must surely 'raise a suspicious judicial eyebrow.' " (quoting (O'Connor, J., dissenting)). In the Court began its application of the ratio guidepost with the presumption that a triple-digit ratio would not comport with due process, but plainly, the appropriate ratio is still "somewhat indeterminate." .
Not only is the ratio somewhat indeterminate, but "potential harm" is often not subject to precise calculation. In the United States Supreme Court observed that "[i]t is appropriate to consider the magnitude of the potential harm that the defendant's conduct would have caused to its intended victim if the wrongful plan had succeeded, as well as the possible harm to other victims that might have resulted if similar future behavior were not deterred." (emphasis in original). While neither or involved potential harm, both cases acknowledged that potential harm is part of the ratio analysis. Clearly this court is not restricted to the jury's compensatory award in evaluating the ratio guidepost. Moreover, in another case flowing from the grounding of the Exxon Valdez ), the Ninth Circuit Court held that Western Alaska Fisheries, Inc., a seafood processor that did not file an independent lawsuit against Exxon, could nevertheless share in the class action punitive damages award on the same basis as other, eligible, seafood processors. The court of appeals stated that "[u]nder federal law, including federal maritime law, punitive damages are available to any person or entity that suffered actual injury arising from a defendant's violation of a federally protected right, independent of whether legal injury is established at trial." If this be true, then it may also follow that claimants who were dismissed from this case and were not awarded any compensatory damages could also share in the punitive damages award if they suffered some actual injury that involved a federally protected right. In addition, there are plaintiffs whose claims, dismissed by this court, have been reinstated by the court of appeals and have not yet been settled. See These claimants have "potential" for adding to the harm side of the ratio.
Specifically, the claims of tender boat operators and crews, cannery workers, and 34 seafood processors were reinstated. Some of these reinstated claims have been settled; some are still pending.
As to actual harm--the compensatory damages associated with the grounding of the Exxon Valdez--the parties differ sharply. Exxon first contends that the actual harm number for purposes of ratio calculation can be no higher than $20.3 million, which is the amount of the two compensatory judgments ultimately entered against Exxon. Exxon contends that all other payments it made were pre-judgment payments or settlements, which the court of appeals has said do not count for purposes of calculating actual harm. If pre-judgment payments or settlements do not reduce actual harm, Exxon contends that the actual harm number is $383 million. The plaintiffs contend that the actual harm component of total compensatory damages is $513.1 million. This number is based on actual judgments and recoveries obtained by distinct categories of plaintiffs from Exxon and the TAPL Fund.
Exxon also argues that most of its pre-judgment payments could not reasonably be treated as compensation for actual harm caused by the oil spill because Exxon's prompt payment of claims protected the plaintiffs from economic loss that might have otherwise occurred. Whether Exxon's pre-judgment payments represent "actual" harm or harm that might otherwise have occurred is ultimately irrelevant since the court must consider both harms for purposes of calculating a ratio. .
Exxon's Second Renewed Motion for Reduction or Remittitur of Punitive Damages Award at 24, Clerk's Docket No. 7753.
Plaintiffs' Memorandum in Opposition to Exxon's Second Renewed Motion for Reduction or Remittitur of Punitive Damages Award at 21, Clerk's Docket No 7767.
See chart summarizing judgments and recoveries at page 39 of Plaintiffs' Opposition, Clerk's Docket No. 7501.
The court finds that the best indicators of actual, compensatory damages in this case are the following items:
(1) $287,000,000 Phase II jury verdict
The precise amount the jury awarded was $286, 787, 739.22. See Minutes from the United States District Court (Aug. 11, 1994), Clerk's Docket No. 5716.
(2) $9,515,000 paid by Exxon to Native corporation owned seafood processing operations
Amended Stipulation Regarding Impacts for Phase III at 5, Part III, ¶ 5, Clerk's Docket No. 5634.
(3) $113,500,000 paid to other commercial fish processors
Id. at ¶ 6.
(4) $6,000,000 paid to the Seattle Seven fish processors
1996 Settlement Agreement at 4, Part II, ¶ A, Exhibit 16 to Oesting Declaration which is appended to Plaintiffs' Opposition, Clerk's Docket No. 7501.
(5) $4,000,000 paid to fish processors by TAPL Fund
See Exhibit C to Declaration of John F. Daum, which is appended to Defendants' Reply, Clerk's Docket No. 7535.
(6) $20,000,000 paid by Exxon to members of the Native class
Amended Stipulation Regarding Impacts for Phase III at 2, Part I, ¶ 1, Clerk's Docket No. 5634.
(7) $2,600,000 paid by Exxon to Native class members who opted out
See Order No. 307 (Jan. 19, 1996), Clerk's Docket No. 6600.
(8) $17,790,510 net paid to Native corporations by TAPL Fund (after reimbursement by corporations to the Fund; Native corporations reimbursed the Fund $7.4 million)
See Daum Declaration at 3, ¶ 6, which is appended to Notice of Filing Original Declaration, Clerk's Docket No. 7540, and Exhibit C to his declaration, which is attached to Defendants' Reply, Clerk's Docket No. 7535. See also, Oesting Declaration at 7, ¶ 13, and 10, ¶ 15, which is appended to Plaintiffs' Opposition, Clerk's Docket No. 7501.
(9) $3,254,576 paid by Exxon to Native corporations
See Memorandum from W. Monte Taylor at 53 (Mar. 20, 1992), attached as Exhibit 19 to Oesting Declaration, which is appended to Plaintiffs' Opposition, Clerk's Docket No. 7501.
(10) $152,275 Tatitlek state court jury verdict
Oesting Declaration at 9, ¶ 14, which is appended to Plaintiffs' Opposition, Clerk's Docket No. 7501.
(11) $592,500 in other settlements to Native corporations
See Exhibits 21 and 22 to Oesting Declaration, which is appended to Plaintiffs' Opposition, Clerk's Docket No. 7501.
(12) $8,521,667 paid by Exxon to municipalities and villages
See Taylor Memorandum at 53, attached as Exhibit 19 to Oesting Declaration, and Exhibit 24 to Oesting Declaration, which is appended to Plaintiffs' Opposition, Clerk's Docket No. 7501.
(13) $974,000 in additional settlements to municipalities and villages
See Exhibits 25, 26, and 27 attached to Oesting Declaration, which is appended to Plaintiffs' Opposition, Clerk's Docket No. 7501.
(14) $724,000 state jury verdict for Kodiak Island Borough
See Exhibit 28 to Oesting Declaration, which is appended to Plaintiffs' Opposition, Clerk's Docket No. 7501.
(15) $1,340,178 paid by TAPL Fund to municipalities and villages
See Oesting Declaration at 8, ¶ 13, which is appended to Plaintiffs' Opposition, Clerk's Docket No. 7501. This number should probably be slightly lower as it likely includes interest.
(16) $1,500,000 received by municipalities and villages as part of the State of Alaska's recovery against Alyeska
See id. at 11, ¶ 16.
(17) $13,400,000 Phase IV settlement
See id. at 12, ¶ 17.
(18) $4,071,694 paid by TAPL Fund to cannery workers, tenders, and seafood brokers
See id. at 13, ¶ 18. This number probably includes interest and so should be slightly lower.
(19) $11,964,793 paid by Exxon to cannery workers, tenders, and seafood brokers
(20) $388,596 paid by Exxon to area businesses
See Exhibit 30 to Oesting Declaration, which is appended to Plaintiffs' Opposition, Clerk's Docket No. 7501.
(21) $219,305 paid by TAPL Fund to area businesses
Oesting Declaration at 13, ¶ 19, which is appended to Plaintiffs' Opposition, Clerk's Docket No. 7501.
(22) $821,000 paid by Exxon to reinstated seafood processors
Exxon's Second Renewed Motion for Reduction or Remittitur of Punitive Damages Award at 23 n. 27, Clerk's Docket No. 7753.
(23) $3,067,646 paid by Exxon to reinstated cannery workers
(24) $1,750,000 paid by Exxon to reinstated tenderboat operators and crew.
These figures represent a total actual harm of $513,147,740.
Laying aside briefly the question of whether it is possible to place a number on the likely or potential harm flowing from the grounding of the Exxon Valdez, this court turns now to what it has found to be the most troubling aspect of the decision of the court of appeals in Without citation of authority, and without explanation that has a nexus to the due process fair notice issue which underlies the question of whether or not punitive damages are grossly excessive, the court of appeals observed with respect to the ratio analysis that:
The amount that a defendant voluntarily pays before judgment should generally not be used as part of the numerator, because that would deter settlements prior to judgment.
Following the suggestion that the court should generally discount compensatory damages by the amount of voluntary payments or settlements, the court of appeals goes on (as a part of its discussion of the ratio) to speak of cleanup expenses, observing that they "should be considered as part of the deterrent already imposed." But cleanup costs have to do with environmental damage, and the jury was precluded from considering that harm in making its award of punitive damages. In this case, environmental harm and deterrence of it should stand apart from other harms and the punishment and deterrence of them.
The briefing of the parties and the court's independent research suggest that authority on the issue under consideration is virtually nonexistent, and what sparse authority there is reaches a contrary conclusion. In , the court dealt with an actual damage award of $292,750 and a punitive damages award of $500,000. However, the net actual damages recovered by the plaintiff were only $2,750 because of an offset of $290,000 which was the result of a partial settlement of the plaintiff's claim. The Tenth Circuit employed the $292,750 compensatory award in calculating the ratio of harm to punitive damages. A similar result is to be found in , where the district court reduced a compensatory award made by a jury but did not reduce the punitive award. There, also, the Tenth Circuit rejected the argument that because the district court reduced the compensatory award to prevent a double recovery to the plaintiff, the punitive award should also be reduced. Thus, in determining harm for the second guidepost (the ratio), the Tenth Circuit added back into the compensatory award those damages that had been subtracted out because of a double recovery.
As already noted, the court of appeals' reason for suggesting the subtraction of voluntary payments was because to do otherwise would deter settlements prior to judgment. This court does not understand how or why encouraging settlements should be a part of the due process analysis of a punitive damages award made in a case which went to trial. Moreover, this court believes that a contrary view is more logical. If a defendant knows that it will get credit in the computation of punitive damages for a partial settlement, voluntarily made before trial, it may be encouraged to go to trial; whereas, as a general proposition the specter of a large punitive damages award is a very powerful factor in encouraging settlements of entire cases. Reducing the risk of going to trial on punitive damages by discounting them for voluntary payments does not encourage settlements; it encourages trials.
In this case, if the general rule announced by the circuit--that the harm factor should be reduced by voluntary payments--is held to be the law, then that general rule should not apply in this case. This position is not taken because of this court's view of how reducing harm for purposes of punitive damages evaluation might impact the settlement process, but because of the specific punitive damages instructions given the jury in this case.
Generally, punitive damages instructions are very open-ended as regards how juries should come up with a punitive damages number if liability for such damages is determined. For example, the Ninth Circuit Model Civil Jury Instruction for punitive damages provides as to the amount of punitive damages only that:
If you find that punitive damages are appropriate, you must use reason in setting the amount. Punitive damages, if any, should be in an amount sufficient to fulfill their purposes but should not reflect bias, prejudice or sympathy toward any party. In considering punitive damages, you may consider the degree of reprehensibility of the defendant's conduct and the relationship of any award of punitive damages to any actual harm inflicted on the plaintiff.
Ninth Circuit Model Civil Jury Instruction No. 7.5.
In instructing the jury in this case, and as set out fully in marginal notes above, the court, with much assistance from the parties, went far beyond the norm in endeavoring to give the jury guidance on how to determine punitive damages. In those instructions, the jury was specifically admonished to take account of mitigating factors. It was instructed that it could "consider whether a defendant has made payments for compensatory damages, settlements, and incurred other costs and expenses of remedial measures."
Jury Instruction No. 36, Clerk's Docket No. 5890.
In arguing this case to the jury, the plaintiffs sought punitive damages of more than $5 billion and less than $20 billion. The jury plainly did not buy plaintiffs' top-dollar analysis of how punitive damages should be calculated in this case. The court presumes that the jurors followed and faithfully applied, to the best of their ability, the court's instructions. See ("we must presume the jury understood and followed the instructions"). Presumably the jury already considered whether and to what extent punitive damages should be mitigated based on voluntary payments by Exxon before judgment. Reducing actual harm for purposes of ratio analysis by the amount of voluntary payments unfairly skews the ratio in Exxon's favor, and in effect gives Exxon double credit for voluntary payments by reducing both punitive damages which were based on mitigation instructions and actual harm for purposes of the punitive damages/harm ratio analysis. In this case, the court concludes that it should not discount actual harm by voluntary payments made by Exxon.
See Transcript of Proceedings, Trial by Jury--70th Day, at 7587, lns. 23-25 (Aug. 29, 1994), Clerk's Docket No. 5778.
Thus, the court finds that the actual harm Exxon's conduct caused plaintiffs was $513,147,740. The punitive damages award was $5 billion, which leads to a ratio of 9.74-to-1. This ratio, of course, does not include any consideration of potential harm, a consideration that is still appropriate after
In this case, there was purely non-economic harm that cannot be quantified; there was harm which likely occurred but has not yet been valued; and there was potential harm--all flowing from the grounding of the Exxon Valdez.
Firstly, there are some 32,677 punitive damages claimants. These claimants did not get deceived about the quality of the paint on a new car. As discussed in detail above, the most direct and palpable effect of Exxon's recklessness was upon the livelihood of Prince William Sound, Cook Inlet, and Kodiak area fishermen. However, the spilling of 11 million gallons of crude oil into Prince William Sound and Lower Cook Inlet also disrupted the lives of thousands of claimants and their families. The trauma was real although not physical. That harm cannot be quantified.
See Plaintiffs' Response to Court's Requests at Oral Argument at 4, Clerk's Docket No. 7553. This number includes claimants whose claims are based on recreational uses or commercial fishing activities in unoiled commercial fisheries. These claimants may be entitled to punitive damages under the Ninth Circuit's holding in . But see Exxon's Memorandum with Respect to Plaintiffs' Response to Court's Questions, Clerk's Docket No. 7561.
Here, the court discusses potential harm, so use of the number of claimants potentially entitled to receive punitive damages seems most appropriate.
Secondly, there are plaintiffs whose claims have been reinstated in and whose claims are not yet determined. Putting a number on these claims would be speculative, even though the harm is very likely to have occurred.
Thirdly, and in the area of potential harm, there is no way of calculating how much additional oil might have spilled into Prince William Sound and spread elsewhere had Captain Hazelwood's efforts to back the Exxon Valdez off Bligh Reef succeeded. Here, the risk of more extensive economic and non-economic losses to the plaintiffs is immense and incalculable. If more oil would have been spilled, it is very likely that the oil would have spread further so as to affect more fisheries and more fishermen than the thousands who are plaintiffs in this case. Had the entire cargo spilled, the risk to the Exxon Valdez crew and its rescuers would have also been enhanced. Exxon insists that precludes any consideration of potential harm to anyone besides the plaintiffs. While it is the court's view that consideration of the risks to rescuers and crew does not run afoul of or other constitutional concepts, even if this potential harm is excluded, the additional harm to the plaintiffs had the entire cargo spilled would have been immense. For Exxon to suggest that spilling the entire tanker load of crude oil into Prince William Sound involved no more risk or no more potential loss to anyone than spilling a fifth of its cargo is ludicrous. It is true that having once closed fishing for a full season, the season cannot be closed again, but that says nothing about whether additional fisheries or fishing seasons could have also been lost.
Because there is no way to quantify the non-economic, potential, and yet-to- be-litigated economic harms discussed above, the appropriate approach is to accommodate the unknowns by allowing a higher ratio to pass constitutional muster. This is in keeping with Supreme Court precedent. In the Court observed that "[a] higher ratio may ... be justified in cases in which the injury is hard to detect or the monetary value of noneconomic harm might have been difficult to determine." .
Besides unquantified harm, there are other factors that support a higher ratio in this case. In the Court observed that a higher ratio may be appropriate when the defendant's conduct is highly reprehensible and the economic damages recovered by the plaintiffs are small. Exxon insists that the economic damages in this case were "substantial" and thus a 1-to-1 ratio is all that is appropriate. In the Court found the $1 million in compensatory damages awarded to the Campbells "substantial" and suggested that a lower ratio, in the realm of 1-to- 1, would be appropriate in that case. In there were two plaintiffs. Assuming that each plaintiff was entitled to an equal share of the damages, each plaintiff received $500,000 in compensatory damages, a substantial number under any circumstances. Here, there are 32,677 claimants. Using the $513,147,740 as the measure of damages and assuming that each plaintiff was entitled to an equal share (which the court is aware is not the case), the plaintiffs' average share of the total recovery is $15,704. That is a far cry from the half-million dollars each plaintiff in received. The court is unpersuaded that the damages in this case were "substantial". Rather, this is a case in which the economic damages recovered by the average plaintiff was relatively small.
In the Court indicated that where compensatory damages already contain a punitive component, a lower ratio may be appropriate. In the compensatory damages awarded to the Campbells contained such a punitive component. The same is not true here. The compensatory damages that the plaintiffs received were solely for economic losses and had no punitive component. Unlike the Campbells, who pursued an intentional infliction of emotional distress claim against State Farm, the plaintiffs here never pursued such claims against Exxon. Therefore, unlike the Campbells who were compensated for the emotional distress that State Farm caused, the plaintiffs here have never been compensated for the emotional distress (the disruption of their lives discussed earlier) that resulted from oil spill which was caused by Exxon's reckless behavior. Because the plaintiffs' compensatory damages did not already contain a punitive component, a higher, single-digit ratio is appropriate in this case.
The court of appeals suggests that the cleanup costs and the like paid by Exxon would go a long way toward effecting appropriate deterrence. As discussed above, this court is of the view that we are far past the question of whether the cleanup costs incurred by Exxon was sufficient deterrence in and of itself. That was the dealt with in the environmental litigation as discussed above. However, the issue of over- deterrence is relevant to the constitutional analysis because over- deterrence may mean that a defendant did not have fair notice that its actions could subject it to the level of punishment and deterrence imposed.
Apparently taking a cue from Justice Breyer's concurrence in the court of appeals discusses how entrepreneurs do their planning, suggesting that they are deterred by the prospect of cleanup costs and the like. The appeals court concludes by observing, "[a]s bad as the oil spill is, fuel for the United States at moderate expense has great social value and that value as well as the value of avoiding horrendous oil spills can be reconciled by ratio analysis."
(Breyer, J., concurring).
While the court of appeals' economic analysis makes sense in the abstract or academic world, its analysis reflects what well-informed, rational entrepreneurs would do. In the real world, Exxon and its officials and managers do not work this way. If they did, they would remove the Captain Hazelwoods from the bridge because leaving them there is what creates a risk of horrendous cleanup costs and other expenses. Thus, what it theoretically takes to deter a rational business person (cleanup costs, etc.), and what it takes to deter corporate officials given to reckless conduct are very different. Here, we are dealing with reckless corporate officials.
The following considerations cause this court to believe that a higher, single-digit ratio presents no identified risk of over-deterrence. Firstly, a huge number of claimants suffered harm that was not purely economic. The harm struck at their lifestyle, causing trauma but no proven physical injuries. The health and safety of the residents of the Sound, people working on the Sound, the Exxon Valdez crew, and their rescuers were put at risk.
Secondly, the court is aware of no evidence in the record of this case suggesting that Exxon is able to pass its cleanup and other costs associated with the Exxon Valdez spill on to the public. Thus there is no showing that the deterrent effect of Exxon's costs (or the punitive sanctions) threatened the socially valuable availability of moderately priced fuel.
As already observed, cleanup costs have to do with environmental damage; and in this case, environmental damages have been excluded from the punitive damages determination and this court's ratio analysis.
Thirdly, the discussion thus far has said nothing about the financial circumstances of the defendants. In the Court stated that "[t]he wealth of a defendant cannot justify an otherwise unconstitutional punitive damages award." However, the Court also observed that it was neither unlawful nor inappropriate to consider the defendant's wealth. Punitive damages are intended to punish and deter; they are not intended to be an economic death sentence. Here, after judgment was entered on the punitive damages award, Exxon's treasurer advised the court that "the full payment of the Judgment would not have a material impact on the corporation or its credit quality." In fact, Exxon was able to protect itself from the risk of the plaintiffs executing on the $5 billion judgment by posting an irrevocable, syndicated standby letter of credit for over $6 billion. There is absolutely no chance of a $5 billion punitive damages award amounting to an economic death sentence for Exxon. This is at least some evidence of the absence of over-deterrence. In any event, this is not a case where Exxon's size and wealth has been used by the plaintiffs as a surrogate for the " 'failure of other factors, such as "reprehensibility." ' " (quoting (Breyer, J., concurring)).
Declaration of Edgar A. Robinson at 16, ¶ 30, pertinent portion attached as Exhibit 33 to Oesting Declaration, which is appended to Plaintiffs' Opposition, Clerk's Docket No. 7501.
See Clerk's Docket No. 6914.
The foregoing discussion of deterrence says nothing about the coequal goal of punitive damages: punishment. The deterrence aspect of punitive damages is intended to be essentially forward-looking. The goal is to modify the future conduct of Exxon and others similarly situated. The punishment aspect of punitive damages awards is backward-looking. The law imposes sanctions for reckless conduct of the past. The concepts are therefore quite different and foster different societal goals.
The harms visited upon the plaintiffs and punitive damages class members (both actual and potential harm) are, for reasons discussed above, not entirely economic, and Exxon's conduct was highly reprehensible. Thus, the applicable ratio of punitive damages to harm must be such as to accommodate not just the deterrence of reckless conduct in the future, but also punishment for the recklessness which gave rise to the harm.
"Single-digit multipliers are more likely to comport with due process, while still achieving the State's goals of deterrence and retribution [.]" The court concludes that the dual purposes of punitive damages and the circumstances of this case justify a 9.74- to-1 punitive damages to actual harm ratio. The reprehensibility of Exxon's conduct, the low per-plaintiff average economic damages recovered, the actual and potential unquantified harm, and the lack of a punitive component in the compensatory damages all point to a higher ratio in this case. Considering all of the foregoing, the court is persuaded that a punitive damages award of $5 billion was "both reasonable and proportionate to the amount of harm to the plaintiff[s] and to the general damages recovered." That award was not grossly excessive in comparison to the actual and potential harm occasioned by the grounding of the Exxon Valdez.
Comparable Penalties. In the Court announced that "[c]omparing the punitive damages award and the civil or criminal penalties that could be imposed for comparable misconduct provides a third indicium of excessiveness." Although indicating that both civil and criminal penalties were appropriate for comparison, the Court only looked to the comparable civil penalty, which was $10,000. The Court observed that the $2 million punitive damages award was "substantially greater" than the statutory fine of $10,000. .
In the Court dropped any reference to criminal penalties, stating that "[t]he third guidepost in [ ] is the disparity between the punitive damages award and the 'civil penalties authorized or imposed in comparable cases.' " (quoting The Court acknowledged that in past cases it had looked to comparable criminal penalties that might be imposed. The Court then observed that
[t]he existence of a criminal penalty does have bearing on the seriousness with which a State views the wrongful action. When used to determine the dollar amount of the award, however, the criminal penalty has less utility.
The Court emphasized that "[p]unitive damages are not a substitute for the criminal process, and the remote possibility of a criminal sanction does not automatically sustain a punitive damages award." The Court then only looked at the comparable civil penalty to which State Farm could have been subject, which again was $10,000. The Court observed that the civil fine was "dwarfed by the $145 million punitive damages award."
Thus, after there has been some discussion as to whether comparable criminal penalties are still appropriate for consideration under the third guidepost. This court's role is to make a due process inquiry. The potential size of criminal sanctions not only tells us that Alaska (and Federal) authorities view oil spills as very serious, but the criminal (and civil) sanctions available are a useful double-check of what Exxon reasonably would have understood was the outside limit of punishment that it could incur by reckless conduct. The latter is the focus of the constitutional inquiry.
In criminal proceedings brought against them by the federal government, the Exxon defendants were charged with five separate counts. Count I charged a violation of the Clean Water Act, and ; Count II, a violation of the Refuse Act, and ; Count III, a violation of the Migratory Bird Treaty Act, and ; Count IV, a violation of the Ports and Waterways Safety Act, ; and Count V, a violation of the Dangerous Cargo Act, . Exxon Corporation pled guilty to Count III, and Exxon Shipping pled guilty to Counts I, II, and III, and both were fined. That said, the point to be made here is that Exxon has admitted criminal responsibility for its conduct. It is plainly, therefore, not unreasonable to evaluate the constitutionality of a civil award of punitive damages in the light of what Exxon could have reasonably been on notice of had it considered the civil and criminal sanctions which could flow from the conduct in question. The actual criminal penalty imposed is not the proper criteria for the constitutional inquiry in which we are engaged. Our focus is the outer limit of potential sanctions that Exxon was charged with knowing prior to the grounding of the Exxon Valdez.
See United States v. Exxon Corp., No. A90-0015-CR.
Pursuant to a joint plea agreement, Exxon was fined a net amount of $25 million and ordered to pay restitution in the amount of $100 million. See Judgments at Clerk's Docket Nos. 235 and 236 in Case No. A90-0015-CR. The net amount of the fine was affected by at least three considerations: (1) the plea agreement effected a settlement which avoided a difficult and expensive trial, (2) at the time of the disposition of the criminal case, this court did not have the benefit of the more robust development of actual damages which took place later in the civil proceedings, and (3) there were practical reasons why the court eschewed a larger fine in favor of a substantial restitution obligation. The court deemed it far preferable for Exxon to be sanctioned by means of a restitution obligation which would be employed for restoration of the environment than by a larger fine which would not be so employed.
For each of the five criminal offenses brought against it, the Exxon defendants might have been fined "twice the gross [pecuniary] loss" occasioned by the oil spill. . Laying aside harm likely caused by the oil spill which has not been quantified, and laying aside harm that might potentially have been occasioned by the spill had Captain Hazelwood succeeded in backing the Exxon Valdez off Bligh Reef, the court has found the actual pecuniary loss for purposes of the constitutional analysis to be $513.1 million. That amount doubled, as provided by the statute, and multiplied by five offenses equals $5.1 billion. Because Exxon is on notice of the provisions of the criminal laws of the United States, in particular , it was, for constitutional due process purposes, on notice that criminal sanctions for spilling even a modest portion of the cargo of the Exxon Valdez could lead to truly horrendous criminal penalties. Perhaps more important because we are concerned about notice of what could be, Exxon is fairly chargeable with knowledge that reckless conduct on its part could result in the spill of the entire cargo of a tank vessel such as the Exxon Valdez. While the court is not prepared to say that spilling the entire cargo of the Exxon Valdez would cause additional damage in direct proportion to that actually observed, spilling five times as much oil as was spilled would surely result in a significant increase in Exxon's exposure for criminal and civil penalties. Surely Exxon knew that billions of dollars were at stake if it were to criminally spill a tanker-load of oil in Prince William Sound. Plainly those fines could exceed the jury's punitive damages award in this civil case.
Exxon suggests that voluntary pre-judgment payments should be deducted when calculating a potential fine, just as those payments should be deducted when calculating the ratio under the second factor. In this case, a reduction would be no more appropriate here than it was for purposes of calculating the ratio.
Subsection 3551 of Title 18, United States Code, also provides for imprisonment. While it is not possible to imprison a corporate defendant in a criminal case, provision for imprisonment is a recognized legislative signal of heightened seriousness of the offense, and therefore, for purposes of the constitutional analysis, justifies a punitive damages award " 'much in excess of the fine that could be imposed[.]' " (quoting
Exxon personnel with the authority and responsibility for placing a relapsed alcoholic in control of a large tank vessel might be imprisoned for up to one year. and .
The Ninth Circuit Court of Appeals observed that "[c]eilings on civil liability are also instructive." The court of appeals discussed the $100 million "cap" on liability for discharging oil from a vessel as provided by the Trans-Alaska Pipeline Act. . This limit upon liability is not in any sense a sanction, nor is it a limit on civil liability. It is, rather, an upper limit of strict liability for harms caused by non-negligent spilling of oil. Here, we deal with Exxon's reckless conduct and focus upon sanctions as to which the statutory limit of strict liability for non-negligent conduct is not instructive.
In the Court suggests that a more appropriate consideration is exposure to civil penalties for wrongful conduct. Both state and federal law make provision for the imposition of civil penalties for spilling crude oil into Prince William Sound. , imposes civil penalties ranging from $1 per gallon to $10 per gallon, depending on where the oil is spilled. The plaintiffs estimate that state civil penalties for spilling 11 million gallons of oil in Prince William Sound would amount to $63.8 million, or an average of $5.80 per gallon. Federal civil penalties of $270,000 could also have been imposed for the spill. See , ; , , , ; ; and . Again, the foregoing pre-supposes the actual spill, whereas Exxon was fairly on notice that reckless conduct could cause the loss of the entire cargo thereby putting it at risk for state civil penalties approaching five times the civil penalty which would attend the actual spill. Such a civil penalty could be in excess of $255 million.
Plaintiffs' Opposition at 70, Clerk's Docket No. 7501. Exxon could have received an offset equal to the amount of oil it removed from the environment as part of cleanup efforts. See .
The court is well satisfied that Exxon was fairly on notice that its officers could face imprisonment and the company could face in excess of $5 billion in criminal and civil penalties for recklessly spilling crude oil into Prince William Sound.
Since the Supreme Court's decisions in and both state and federal lower courts, when faced with the constitutionality of a punitive damages award, dutifully cite the three guideposts and apply them, with varying results. In general, a review of post- and post- cases offers little guidance to the court in its evaluation of the punitive damages award in this case. However, because this court is bound by the precedent of the Ninth Circuit Court of Appeals, the court has found , the one published case in which the court of appeals has considered the constitutionality of a punitive damages award after helpful to its analysis.
was an employment discrimination case in which one plaintiff was awarded $360,000 in compensatory damages and $2.6 million in punitive damages on his Section 1981 claim. The court of appeals applied the guideposts as clarified by to determine whether the punitive damages award was grossly excessive.
As for reprehensibility, the court of appeals found a "substantial gulf" between the reprehensibility of the defendants' intentional racial and ethnic discrimination and the conduct at issue in and . Similarly here, this court finds a vast gulf between the reprehensibility of Exxon's conduct in willfully allowing a relapsed alcoholic to continue to command a supertanker filled with toxic cargo and the conduct at issue in and
As for the ratio guidepost, the court of appeals found a 7-to-1 ratio constitutionally acceptable, in large part because it was a single-digit ratio. The court of appeals observed that it was "aware of no Supreme Court or Ninth Circuit case disapproving of a single-digit ratio between punitive and compensatory damages, and we decline to extend the law in this case." Here, this court finds a single-digit ratio constitutionally acceptable--not grossly excessive.
Lastly, as to the comparable sanctions guidepost, the court of appeals noted that there was no comparable civil penalty but that Congress has imposed a $300,000 cap on punitive damages for Title VII discrimination claims. Although recognizing that $300,000 is less than the $2.6 million in punitive damages imposed, the court of appeals noted that it was not as great a discrepancy as there was in and The court of appeals also stated that simply because one factor raises constitutional concerns does not mean that the punitive damages award is constitutionally excessive. Here too, if we were to only look at comparable civil penalties, there could be constitutional concern. But here, as in the defendant (Exxon) engaged in highly reprehensible conduct. The latter is " '[t]he most important indicium of the reasonableness of a punitive damages award.' " (quoting
The Supreme Court instructed that punitive damages awards must be subjected to an "exacting" review to "ensure[ ] that an award of punitive damages is based upon an " 'application of law, rather than a decisionmaker's caprice.' " " (quoting (quoting (Breyer, J., concurring)). This court has engaged in an exacting review of the $5 billion punitive damages award not once or twice, but three times, with a more penetrating inquiry each time. This court again concludes that a $5 billion award was justified by the facts of the case and is not grossly excessive so as to deprive Exxon of fair notice--its right to due process. This conclusion is based on the court's findings that:
(1) Exxon's conduct was highly reprehensible;
(2) the ratio of punitive damages to actual harm inflicted on the plaintiffs is a permissible one, 9.74-to-1; and
(3) the comparable criminal and civil penalties could have exceeded $5 billion.
However, the court of appeals did not just remand this case for application of and It instructed this court to reduce the punitive damages award, and the court must do that. Determining the amount of an award that will be constitutionally acceptable " 'is not an enviable task.' " (quoting ). As the Third Circuit Court of Appeals explained:
We have searched vainly in the case law for a formula that would regularize this role, but have not found one.... [T]he Supreme Court has instructed as to the analysis but has provided nothing concrete as to the amount.
This observation remains as true today after as it was before
Because the court's independent evaluation of the guideposts as applied to the facts of this case have led it to the conclusion that the $5 billion award was not grossly excessive, the court does not perceive any principled means by which it can reduce that award. In their memorandum in opposition to the first renewed motion for reduction or remittitur of punitive damages, plaintiffs suggested that "a punitive damage[s] award of at least $4 billion satisfies the requirements of due process consistent with ." In light of which tells us that single-digit multipliers pass constitutional muster for highly reprehensible conduct, which is what we have here, and in light of in which the Ninth Circuit Court of Appeals approved a 7-to- 1 ratio for conduct that was also highly reprehensible, the court reduces the punitive damages award to $4.5 billion as the means of resolving the conflict between its conclusion and the directions of the court of appeals.
Plaintiffs' Opposition at 80, Clerk's Docket No. 7501.
Exxon's motion for reduction or remittitur of the punitive damages award is granted. The sum of $500 million of the $5 billion jury award is remitted, and therefore the punitive damages award in this case is reduced to $4.5 billion. The clerk of court shall enter an amended partial judgment accordingly.
If Exxon accepts this result by paying the punitive damages award plus accrued interest, this case should of course end at that point. However, if Exxon chooses to take a further appeal for the purpose of seeking a more generous reduction of the jury's punitive damages award, then the court again urges the plaintiffs to cross-appeal. If left to apply and without the requirement that it effect some reduction of the $5 billion punitive damages award, this court would have, as set out above, denied Exxon any relief whatever on its third motion for reduction or remittitur of punitive damages.
Interest on the reduced award of punitive damages shall accrue from September 24, 1996, in accordance with .
All plaintiffs' lead counsel's motion for a Rule 54(b) determination as to the punitive damages judgment is reinstated as is Exxon's opposition to the motion. The court again concludes that there is no just reason to delay entry of a final judgment in this case. The court's judgment as to the $4.5 billion punitive damages award is deemed final for purposes of . In the alternative, the court concludes that an interlocutory appeal under is appropriate.
Clerk's Docket No. 7569.
Clerk's Docket No. 7577.
All plaintiffs' lead counsel's motion for a finality determination or, in the alternative, an interlocutory appeal, is granted.