WASHINGTON–The Supreme Court ruled yesterday in the 19-year-old Exxon Valdez oil spill case that punitive damage awards should be predictable and not exceed a one-to-one ratio with compensatory damages.
The effect of the decision was to cut what was originally a $5 billion punitive damages award for the spill to about $500 million.
"The court has provided needed predictability in maritime cases and set forth a sound approach for courts and legislators to consider with regard to punitive damages in general," according to Mark Behrens, a partner in Shook, Shook, Hardy & Bacon LLP., Washington, D.C.
"This is good news for companies concerned about reining in excessive punitive damages," said Tom Donohue, president and chief executive officer of the U.S. Chamber of Commerce. "For years the Chamber has argued that punitive damages are too unpredictable and unfair, and today the court agreed."
"The decision could have an effect far beyond federal maritime law," added Robin Conrad, executive vice president of the National Chamber Litigation Center. "Limiting punitive damages to no more than the amount of a compensatory award will go a long way in cabining unpredictable punitive damages."
The decision in Exxon Shipping Co. v. Baker, No. 07-219, appeared to expand to federal courts the State Farm v. Campbell decision of April 2003, which reversed a $145 million punitive award by a Utah state court.
"The court's finding that a 1:1 ratio is supported by empirical data may be useful in efforts to cap punitive damages through state legislation," added Mr. Behrens.
Also, he said, "the data relied upon by the court to arrive at the 1:1 ratio might be useful to defense counsel in punitive damages appeals."
Mr. Behrens cautioned, "While the court was dealing with maritime law, and its ratio, therefore, is not constitutionally mandated, the court's findings suggest that any punitive damages award that exceeds a 1:1 ratio to compensatory damages should raise a suspicious judicial eyebrow."
In its decision, the court said it was expanding on the State Farm v. Campbell case. In the context of the latest case, it said, "the unpredictability of high punitive awards is in tension with their punitive function because of the implication of unfairness that an eccentrically high punitive verdict carries."
The case dealt with the 1989 oil spill in Alaska. The decision was written by Justice David Souter.
However, in a statement, Kathleen Flynn Peterson, president of the American Association for Justice (formerly known as the Association of Trial Lawyers of America), emphasized that the case involved only maritime law.
"Those in the business community who claim this decision stands for a generalized punitive damage limit are wrong," she said.
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