U.S. - Recent Decisions on Punitive Damages

December 2007

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I  Introduction   

The United States Supreme Court recently agreed to decide whether punitive damages awarded to third parties as a result of the grounding of the “Exxon Valdez” in Alaskan waters in 1989 were excessive.[i] On 29 October 2007 the Court agreed to consider the $2.5 billion in punitive damages awarded by the Ninth Circuit Court of Appeals to a group of nearly 33,000 fisherman, landowners and others who brought a suit over the environmental disaster. Although only half of the original $5 billion award handed down by a federal jury in Alaska in 1994, this is still the largest ever punitive damages total in U.S. history. The Supreme Court’s consideration of the “Exxon Valdez” award is likely to be guided by a number of the Court’s decisions over the past few years concerning the availability of punitive damages in certain types of civil actions. These recent decisions have established certain still-evolving parameters for the lower U.S. federal and state courts concerning the availability and scope of the award of punitive damages.

Though none of these recent Supreme Court decisions relate directly to maritime law, recent maritime decisions of the lower courts in the U.S. (some of which are reviewed below) have held that punitive damages are still available in certain classes of maritime cases in areas where the claims are not contractually based or where the subject matter of the claims has not been pre-empted by federal legislation excluding punitive damages altogether. This, however, excludes many maritime areas frequently encountered by practitioners; such as seaman’s actions or claims under the U.S. Oil Pollution Act (OPA), except in the Ninth Circuit as shown below. Also excluded are other contractual or quasi-contractual claims such as cargo damage under the U.S. Carriage of Goods by Sea Act (COGSA) or seamen’s maintenance and cure claims where the courts have also disallowed punitive damages as contractually based. Subject to these broad exceptions, punitive damage awards, subject to any contrary ruling by the U.S. Supreme Court in the “Exxon Valdez” case, do still remain a possibility under general maritime law, assuming of course that the requisite degree of willful and wanton conduct exists and other substantive and procedural due process requirements are met.           

II  Recent Lower Court Maritime Decisions: 

A: Guevara v MOC/ Fifth Circuit 1995 

In Guevara v Maritime Overseas Corp., 59 F.3rd 1496 (5th Cir. 1995 en banc) the Fifth Circuit was faced with the question of whether punitive damages were allowed for willful failure to pay maintenance and cure. The Fifth Circuit concluded they were not recoverable, overruling a prior Fifth Circuit case Holmes v J. Ray Mc Dermott & Co., 734 F.2d 1110 (5th Cir. 1984). In doing so, the Fifth Circuit essentially concluded that prior Fifth Circuit precedent, particularly Dyer v Merry Shipping Co., 650 F.2d 622 (5th Cir. Unit B 1981), which had allowed punitive damages under general maritime law in unseaworthiness actions,was no longer sound after the Supreme Court’s decision in Miles v Apex Marine Corp., 498 U.S. 19 (1990).

 In Miles, the Court held that due to the limits imposed by Congress in the Jones Act and the Death on the High Seas Act (DOHSA) even in a general maritime law survival action damages could not include non-pecuniary damages such as for loss of society or recovery of a decedent’s lost future earnings. The Fifth Circuit in Guevara reasoned that a similar award of punitive damages under the Jones Act would be improper given the pecuniary limits imposed by the incorporation of the Federal Employers Liability Act (FELA) into the Jones Act. Applying what it believed was a uniformity principal established by Miles, the Fifth Circuit thus considered Merry Shipping overruled. It also considered as a result of Miles that there was no valid tort foundation for an award of punitives in a maintenance and cure claim where the seaman’s physical or mental health was worsened by the failure to pay or in what the Court termed a “contract-like” scenario where there is no personal injury resulting from the failure to pay. The Fifth Circuit also noted the fact that punitive damages are not generally available for breach of contract, but concluded that an award of attorneys fees was still allowable in egregious cases under Miles and Vaughan v Atkinson, 369 U.S. 527 (1962).     

 B: In re: “Exxon Valdez”/ Ninth Circuit 2001 and 2006 

Other significant recent punitive damages cases are the two Ninth Circuit cases of In Re: “Exxon Valdez”, 2002 AMC 1 (9th Cir. 2001) and 2007 AMC 1 (9th Cir. 2006). In its first decision, the Ninth Circuit held that punitive damages for oil pollution were not barred to private parties, despite the fact that a prior decision of the First Circuit in South Port Marine LLC v Gulf Oil Limited Partnership, 234 F.3rd. 58 (1st Cir . 2000)(reviewed below) had held that punitive damages were not available under the Oil Pollution Act (OPA). 

Exxonargued to the Ninth Circuit in its first visit that punitive damages were not traditionally allowable in maritime law. The Ninth Circuit reviewed the history of punitive damages concluding that the argument was mistaken “...as sometimes punitive damages were allowable in maritime law and sometimes not.” The Ninth Circuit started by reviewing cases all the way back to the seminal decision of the “Amiable Nancy” 16 U.S. 546 (1918) which concluded that exemplary damages might be appropriate against the “original wrong-doers”. The Ninth Circuit also considered the Eleventh Circuit’s 1997 decision in Amtrak Sunset Limited , 121 F.3rd 1421 (11th Cir. 1997) where that Circuit concluded that general maritime law does allow for the recovery of punitive damages but only on a showing of willful and wanton misconduct. The Ninth Circuit distinguished the maintenance and cure cases of CEH, Inc. v F/V Seafarer, 70 F3rd. 694 (1st Cir. 1995) and Glynn v Roy AL Boat Management Corp., 57 F. 3rd 1495 (9th Cir. 1995) where non-pecuniary damages were barred under Miles. The Ninth Circuit also discussed Guevara (reviewed above) where the Fifth Circuit held that because the Jones Act did not provide for punitive damages in the wrongful death and personal injury area, the Plaintiff could not then claim punitive damages as a tort under general maritime law and also as from a contractual standpoint punitive damages were barred.

Following the Ninth Circuit decision in 2001 referred to above, the “Exxon Valdez” case was remanded to the district court, which reduced the punitive damage award to $4.5 billion. Following a second remand, the 9th Circuit in 2006 (In Re: “Exxon Valdez”, 2007 AMC 1, 3) reduced the punitive damage award to $2.5 billion, citing State Farm v Campbell, 538 U.S. 408 (2003) (reviewed below) in concentrating on assessing the reprehensibility of Exxon’s misconduct and claiming that an award of punitive damages (representing a ratio of punitive to compensatory damages of 5 to 1) was consistent with the Supreme Court’s ruling in State Farm.                              

C: South Port Marine LLC/ First Circuit 2000 

As noted above, the First Circuit’s decision in South Port Marine, LLC v Gulf Oil Limited Partnership, 234 F. 3rd 58 (1st Cir. 2000) predated the 9th Circuit’s first decision in the “Exxon Valdez”, supra.  In this case, the First Circuit held that from a plain review of OPA it was clear that Congress did not intend to include punitive damages. The Court reviewed the comprehensive list of recoverable damages set forth in the statute, such as removal costs, damage to natural resources, loss of government revenues, lost profits and earning capacity and costs of increased or additional public services and concluded that by leaving punitive damage out of OPA, Congress intended to supplant the general maritime law that existed prior to the enactment of the statute which permitted the award of punitive damages for reckless behavior; citing CEH Inc. v F/V Seafarer, 70 F. 3rd 694 (1st Cir. 1995). 

D: Action Marine Inc. v Continental Carbon Incorporated/11th Circuit 2007 

In this very recent case reported at 2007 U.S. APP Lexis 6463 (11 Cir. 2007), the 11th Circuit upheld an award of $17.5 million in punitive damages concluding that it met constitutional muster because the plaintiff’s conduct arising from many years of substandard manufacturing equipment and failure to remedy the defects, damaged non-parties as well as parties. The 11th Circuit considered that due process concerns were met because the intentional harm caused to the plaintiffs and non-parties presented a rare instance of the type of extreme reprehensible conduct the Supreme Court had in mind in State Farm v Campbell when it suggested that punitive awards could sometimes exceed a 4 to 1 ratio. In this case, the punitive damages award of $17.5 million was far in excess of the compensatory damage award of $3.2 million. 

E: Atlantic v Townsend/11th Circuit 2007

In this also very recent 11th Circuit decision reported at No. 06-13204, 2007 U.S. App. LEXIS 20078 (11th Cir. 2007), the Court resuscitated punitive damages available to a seaman when an employer refuses to pay maintenance and cure. In Atlantic, the 11th Circuit rejected the argument that the Supreme Court's decision in Miles abrogated the 11th Circuit rule allowing punitive damages in maintenance and cure cases. Rather, the Atlantic court concluded that its prior decision in Hines v. J.A. LaPorte, Inc., 820 F.2d 1187 (11th Cir. 1987) that a seaman may recover punitive damages when "an employer arbitrarily and willfully refuses to pay maintenance and cure" was still binding law. In doing so, the Atlantic court took a very narrow reading of the holding in Miles, finding that it provided no basis to depart from Hines because “Miles says - and more important -decides nothing about maintenance and cure actions or punitive damages." The Court thus avoided addressing the issue by drawing a distinction between the holding of a case and its underlying reasoning. In doing so, the Atlantic court found that although Miles held non-pecuniary damages were not available under general maritime law, it did not specifically address punitive damages in maintenance and cure actions and therefore that the Court was not bound to follow the decision. 

III  Recent Supreme Court Decisions 

Some recent Supreme Court cases have, at least on the surface, been limited to clarifying procedural due process restrictions due apparently to pressures from the dissenters on the Court that the due process restrictions outlined below constitute judicial legislation or otherwise impermissibly invade the prerogatives of the states. The Court’s current majority has avoided establishing any “bright-line” test on the amounts of such awards, but at the same time strongly suggested that these awards should generally be confined to single digit multipliers of the underlying compensatory awards, not normally exceeding a 4 to 1 ratio. They have, however, in every instance that has come before the Court vacated any award in excess of this ratio, leading the dissenters (with some justification it would seem) to contend that the majority has in fact developed substantive as well as procedural due process constitutional limits on the award of punitive damages.  

The most recent decision by the U.S. Supreme Court on punitive damages is Philip Morris USA v Williams, 549 U.S. ___, 127 S.Ct. 1057 (2007), decided on 20 February 2007 on review of a decision from the Supreme Court of Oregon. In Phillip Morris, the Supreme Court reiterated its prior decisions in BMW v Gore, 517 U.S. 559 (1996) and State Farm v Campbell, 538 U.S. 408 (2003) to the effect that while punitive damages may properly be imposed to further a state’s legitimate interests in punishing unlawful conduct and deterring its repetition, the punitive damage system must place a defendant on fair notice of the severity of the penalties that a state may impose.  

In Phillip Morris, the Supreme Court took this analysis further and held that the due process clause forbids a state from using a punitive damage award to punish a defendant for injuries inflicted on non-parties to an action. The majority in Phillip Morris, in an opinion authored by Justice Breyer, focused on whether due process (without using the apparently taboo word “substantive”) allows a jury to base a punitive award in part upon its desire to punish a defendant for harming persons who are not before the court, i.e. victims whom the parties do not represent. The majority held that this is tantamount to taking of property from a defendant without due process. Regardless of whether one agrees with the outcome, it seems the dissenters may be right at least in stating that this is in fact a substantive due process restriction. 

The Court in Phillip Morris had granted certiorari to consider first whether the Oregon Supreme Court had unconstitutionally allowed punishment for harming non-party victims and secondly whether Oregon had in effect disregarded the constitutional requirement that punitive damages be reasonably related to the plaintiff’s harm. The opinion essentially only considered the first question accepted on certiorari and as such did not reach the second proportionality argument. The dissents, particularly by Justice Stevens, objected to what he considered the Court’s unjustifiable expansion of substantive due process limits, believing that the Oregon Supreme Court had faithfully applied the procedural standards set forth in the court’s prior decisions. Justice Thomas also dissented, reiterating his view that the Constitution does not at all constrain the size of punitive damages awards. Justice Ginsburg, joined by Justices Scalia and Thomas, separately dissented focusing on the reprehensibility of Phillip Morris’ conduct.

In reaching its conclusions, the majority first revisited the Court’s prior decisions, particularly BMW, that focused more directly on whether the award was excessive. According to the majority opinion, the appellants had pointed to the roughly 100:1 ratio involved given the $79.5 million in punitive damages against only $821,000 in compensatory damages. The Phillip Morris majority also noted that the Court in BMW had emphasized the constitutional need for punitive damages to reflect 1) the reprehensibility of the defendant’s conduct; 2) a reasonable relationship to the harm the plaintiff suffered and; 3) the presence or absence of other sanctions such as criminal penalties that might be provided for by state law for comparable conduct. 

The majority in Phillip Morris further pointed out that in State Farm v Campbell the Court had held that the long-standing historical practice of setting punitive damages at ratios of two, three or even four times the size of compensatory damages, while not binding, was instructive and that single digit multipliers were more likely to comport with due process. The majority does not explain why it seems to embrace but then does not actually adopt such a “bright-line” test. One can only guess that they did not want to provide further fuel to the dissenters’ complaints about impermissible use of substantive due process.

IV  Conclusions        

The Supreme Court, while recognizing in some of its most recent cases that there are procedural and substantive due process limits applicable, still seems to be grappling with awards it considers “grossly excessive” such as to make an award constitutionally impermissible. In Phillip Morris the Court premised its holding on a finding that a jury may not award punitive damages against the defendant for harm caused to strangers to the litigation while leaving open the possibility that a jury might take into account conduct that risks harm to many as more reprehensible than conduct that risks harm to a few. The Court, or at least the majority, seem to believe that while the states have some flexibility in determining what kind of procedures they will implement to safeguard federal constitutional protections, the states must provide some form of procedural protection in appropriate cases. The Court also feels free to vacate punitive damage awards it views as “clearly excessive” without being prepared to establish a clear limit. 

In short, the current majority epitomized by Justice Kennedy clearly believe that punitive damages are permissible under certain circumstances, but equally believe that there are “procedural and substantive due process limits” i.e. limits both with respect to procedures for awarding punitive damages and to amounts forbidden as grossly excessive. The majority stops short of imposing a “bright-line” constitutional limit and it is not clear whether it intends on ever developing such a “bright line” given the strong dissents claiming their view that an extension of substantive due process restraints are improper invasions by the Court of state legislative prerogatives. Some courts however, such as the Eleventh Circuit in Action Marine and the Ninth Circuit in its most recent “Exxon Valdez”, have taken advantage of the failure to enact strict “bright-lines” and have attempted to sustain awards in excess of the suggested 4 to 1 ratio. It will be interesting to see how these competing factors will shape the Court’s upcoming consideration of the largest punitive damages award in U.S. history when it takes on the “Exxon Valdez” award. 

With thanks to Charles G. De Leo[ii] of Fowler White Burnett P.A., Miami, for preparing this article

 

[i]On October 29, 2007, the U.S. Supreme Court agreed to consider the following questions presented:

1. May punitive damages be imposed under maritime law against a shipowner (as the Ninth Circuit held, contrary to decisions of the First, Fifth, Sixth, and Seventh Circuits) for the conduct of a ship’s master at sea, absent a finding that the owner directed, countenanced, or participated in that conduct, and even when the conduct was contrary to policies established and enforced by the owner?

2. When Congress has specified the criminal and civil penalties for maritime conduct in a controlling statute, here the Clean Water Act, but has not provided for punitive damages, may judge-made federal maritime law (as the Ninth Circuit held, contrary to decisions of the First, Second, Fifth, and Sixth Circuits) expand the penalties Congress provided by adding a punitive damages remedy?

3. Is this $2.5 billion punitive damages award, which is larger than the total of all punitive damages affirmed by all federal appellate courts in our history, within the limits allowed by (1) federal maritime law or (2) if maritime law could permit such an award, constitutional due process?

[ii]With thanks to Damon Hartley, also of Fowler White Burnett P.A., for his help in preparing this article.