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Member, Beacon International Group, Ltd.
SOMETIMES, PARSING Supreme Court opinions can be a bit difficult. The language used may be English, but the words don't carry their customary meaning.
Fortunately, that was not the case in the high court's recent opinion in Exxon Shipping Co. et al. vs. Grant Baker et al. As we reported last week, the Supreme Court confronted a liability case that began when the Exxon Valdez ran aground off the coast of Alaska nearly two decades ago, causing one of history's worst environmental disasters. A lower court had approved punitive damages of $2.5 billion, when compensatory damages totaled less than $508 million. The court majority held that under maritime law, punitive damages cannot exceed compensatory damages.
The justices' decision is confined to maritime law, but the reasoning behind it could and should apply to punitive damages in other contexts as well.
Associate Justice David Souter, who wrote the majority opinion, stressed the "stark unpredictability" of punitive damage awards. Even though most punitives are less than the underlying compensatory awards, data suggests that the wide range between highest and lowest awards is "unacceptable," he said. High "outlier" awards carry an implication of unfairness, noted Justice Souter.
The opinion governs only federal maritime law, not state law. But even where Supreme Court rulings don't directly affect state law, state courts often apply the Supreme Court's reasoning to cases before them.
We hope both lower federal and state courts heed the majority's assessment of the potential pitfalls of outlier punitive damages when reviewing damage awards that come before them in the future.