Summary of the Exxon Valdez, U.S. Court of Appeals for the Ninth Circuit (2001)

Cause of action: The following is an appeal of a $5 billion punitive damages award arising out of the Exxon Valdez oil spill.

Procedural History: Hundreds of actions ensued from the accident, and the district court certified the case into 4 class actions: three for compensatory damages (commercial fishing, natives, and landowners), as well as one “mandatory” punitive class action in which all PL’s were involved in it.  Compensatory awards went to the three classes in the hundreds of millions of dollars.  The jury award for punitive damages for $5 billion was the largest in American history at the time, and was appealed.  On appeal, award vacated and remanded so that the district court can set a lower amount in light of the BMW and Cooper Industries standards.

Facts: 11 million gallons of crude oil were negligently spilled into AK’s Prince William Sound .  Captain Hazelwood, who directed the ship on its fateful voyage, went to bed 2 minutes before a critical turn, which violated protocol of having 2 officers on deck at all times.  Hazelwood left the ship’s control (b/c he was drunk) to an exhausted 3rd mate, and left the ship on autopilot, which made the ship go faster.  Cost to clean things up: and estimated $3 billion.

Issue(s): Under federal law of civil procedure, should punitive damages be barred as a matter of law b/c as a matter of policy they are inappropriate in the order that appellants and cross appellants raise them?

Court’s Rationale/Reasoning: On the first prong of the test, the court determined that since Exxon immediately cleaned its mess up, and settled with all the appropriate parties, that there was no malice on their part.  Negligence, but no malice or evil intent on their parts.  The jury was even instructed to limit the award on only non-environmental costs (the court said they didn’t kill anyone?).  Thus, the award was too excessive in light of their immediate behavior after the accident.

On the second prong, the ratio of the award was found to be disproportionate as were those in BMW and in Cooper Industries.  After calculating a formula which measured harm likely over punitive damages, the court somehow figured that there was a 17.42:1 ratio in favor of the punitive damages.  In light of the fact that Exxon settled with all parties, and cleaned up the accident on its own dime, and settlements with private parties, the totals there added up to over $3.4 billion.  The court found another $5 billion dollars, which is what the estimated earnings of the corporation each year are, would be a bit too much.

The third prong was measured by the criminal code for fines in this case, which was $500K for felonies, or for a misdemeanor resulting in a death, or $200K for a class A misdemeanor not resulting in a death.  The court said if the latter were used as a base for determining whether the fine was too excessive, the punitive damages in this case would be 25,000 times the potential legislative judgment, which is far too much in comparison.  Additionally, they argue the district court already settled what they thought was an appropriate claim for damages for $125 million with the U.S. Government in a penal action by the U.S. Attorney General.  The evidence is hard to overlook, the court says.

Rule: Three prong test from BMW and Cooper Industries for determining if a punitive damages award is excessive:

(1) reprehensibility of DF’s conduct

(2) the ratio of the award to the harm inflicted on PL

(3) and the difference between the award and the civil or criminal penalties in comparable cases.

Holding: Yes they can be, if they fail the three guidepost test established in BMW and in Cooper Industries, which it did here on all three counts.  Since the test did not come until after Exxon was originally decided, the award is vacated and remanded to recalculate.