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Court Reviews exxonmobil Damages Case

  Breaking Legal News  -   POSTED: 2007/11/12 16:37

The Supreme Court on Oct. 29 agreed to review an award of $2.5 billion in punitive damages against ExxonMobil, stemming from the 1989 Exxon Valdez oil spill in Alaska: --The case is the final major litigation stemming from spill of 258,000 barrels of oil by the Valdez into Prince William Sound.

--It was brought as a class action on behalf of 32,600 Alaskan fishermen.

--ExxonMobil (nyse: XOM - news - people ) has already paid more than $3.5 billion in fines, clean-up costs and other legal settlements relating to the spill.

A jury in an Alaska federal district court had originally awarded $5 billion in punitive damages, which the U.S. Court of Appeals for the Ninth Circuit cut in half in a December 2006 decision. The new figure was five times the economic damages of $500 million that the jury awarded to the class. The Supreme Court is the final avenue of appeal, and its decision could have implications that go beyond Exxon, and affect the wider corporate world.

Business groups have been prominent advocates of tort reform, and had hoped that the Valdez action would provide the Court with a further opportunity to circumscribe punitive damages awards. Yet the decision's impact is likely to be limited:

--By agreeing only to consider narrow issues of maritime law raised in this case, the Court signaled that for the time being, it is content to leave the current punitive damages framework alone.

--The Court could decide to expand this initial limitation and consider larger punitive damages issues, but in that event, would allow the attorneys involved additional time to brief these issues.

Over the last two decades, the Court has extended what until relatively recently had been a novel legal theory: that the U.S. Constitution imposes limitations on punitive damages awards. This departed from the then-precedent, in which the Court had declined to enunciate any constitutional or other legal limits on these awards:

--BMW case. In BMW of North America vs. Gore (1996), the Court decided that the Constitution's due process clause imposed limitations on punitive damages awards. In the past decade, the Court has further defined and refined this framework.

--Capping damages. In State Farm Insurance vs. Campbell (2003), the Court declined to set a 'hard cap' on the level of punitive damages that would be "excessive" on constitutional grounds. Yet the Court noted that, in most cases, punitive damages that exceed compensatory damages by more than a single digit ratio violate due process requirements. It suggested that a four-to-one ratio, while not "binding," should be regarded as "instructive."

--Reducing awards. In February, the Court in Philip Morris USA vs. Williams sent back for further review a jury award of $79.5 million in punitive damages (where $821,000 of compensatory damages had also been awarded) in product liability litigation over the death of an individual smoker. The Court decided that a jury's punitive damages award set in part on the basis of a desire to punish a defendant for harming 'non-parties' to the lawsuit--in this case, for injuries to smokers other than the plaintiff--contravenes the Constitution's due process clause. Yet in a confusing twist, the court determined that harm to others could still be considered when the jury assesses the "degree of reprehensibility" of a defendant's conduct.

Constitutional jurisprudence is not the only area in which significant changes have made it more difficult for plaintiffs to bring successful claims against (usually corporate) defendants. Several legal reform initiatives have occurred over the past few years, at both the federal and state levels, which taken together have also contributed to this trend.

Yet there are signs that the tort reform movement has peaked:

--Democratic resurgence. Following a series of successful efforts to change state laws to make lawsuits more difficult, and to elect state judges who would endorse pro-business legal interpretations, consumer advocates and trial lawyers who favor more plaintiff-friendly policies were boosted by the Democratic party's victory in the November 2006 elections.

--Congressional resistance. Advocates of further 'civil justice reform' are facing a much more skeptical Congress. Congressional leaders have linked disparate areas, such as widespread recalls of Chinese products, and the subprime mortgage crisis, to the failure of the relevant federal regulators to provide effective monitoring and oversight. Congressional leaders are currently ill-disposed to any further limitations on the ability of plaintiffs to bring lawsuits when the federal government has failed to regulate effectively. Some lawmakers may be open to expanding federal legal liability into new areas.

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