Analysis: A new day on punitive damages law
Conspicuous in the Supreme Court’s lengthy and scholarly review Wednesday of the role punitive damages verdicts play in punishing serious wrongdoing, especially by big corporations, there is this crucially significant statement: “The real problem, it seems, is the stark unpredictability of punitive awards.” And, for that problem, the Court has found a simple, easy-to-use solution: a low numerical ratio between the damages awarded to compensate for actual loss or harm and the damages awarded on top of that to punish or to make an example of the wrongdoer. In the case before it Wednesday, the Court set the ratio at 1-to-1. That approach provides a rule-of-thumb that may well guide the Court as it looks, in the future, at a wide array of punitive verdicts.
It is necessary, in examining what the Court has done in Exxon Shipping Co. v. Baker (07-219), the celebrated case of the Exxon Valdez’s oil spill in Alaskan waters 19 years ago, to acknowledge that this is not a constitutional ruling, that it is only about the Court’s common-law powers, and that it arises only in the context of law governing maritime commerce. But to look at it only in those narrow terms is to miss the signal that the Court is giving — that is, it has grown highly skeptical that it can spell out, in words rather than numbers, workable guidelines that could bring some sense — some consistency — to punitive damages awards.
For years, the Court has had on display its prevailing view that punitive damage awards in the modern era have gotten out of control. It has undertaken, under the Constitution’s Due Process Clause, to lay down a number of verbal standards that supposedly could keep juries in check when they ponder punitive verdicts. But, try as it might, its efforts have not achieved that objective; year after year, corporations return again and again to the Court, arguing anew that juries and some lower courts don’t get it, that the problem of punitives is not getting solved.
In Justice David H. Souter’s long and detailed opinion in Exxon Shipping, the Court makes clear that it has not seen convincing evidence that juries are acting in runaway fashion, or that the actual dollar amounts of punitive awards are far too high. It homes in on the central problem it sees: “stark unpredictability,” which it perceives as an indication that maybe the process is not fair because of its inconsistency.
That comes in a part of the opinion where the Court was examining punitive damages in a much wider context than merely maritime law, or federal common law. Poring over the options it sees for dealing with the unpredictability phenomenon, it finds that “verbal formulations” of punitive damages limits have not worked to produce consistency. The Court says explicitly that it is “doubtful that anything but a quantified approach will work.” It expresses its concern over those trying to manage a system without numerical guidelines being”left at large, wandering in deserts of uncharted discretion.”
It then turns to alternatives for a verbal approach: a hard dollar ceiling on any punitive award, or “pegging punitive to compensatory damages using a ratio or maximum multiple.” And, since it is operating in the Exxon Shipping case as a common-law court, unguided by constitutional or statutory mandates, it is free to choose which of those alternatives to apply in the maritime context. It chooses the ratio approach, and settles here on the 1-to-1. (It should be noted, as a matter of caution, that this particular 1-to-1 gauge is chosen in a case where corporate behavior was found to be more reckless than malicious, and where there was a sizable compensatory verdict; a somewhat higher ratio — but still a number — might be appropriate without those two factors in a future case.)
Justice Souter’s opinion goes on to reject the suggestion that the Court, in so choosing, is engaging too much in policy and too little in principle. The opinion comments: “Traditionally, courts have accepted primary responsibility for reviewing punitive damages and thus for their evolution, and if, in the absence of legislation, judicially derived standards leave the door open to outlier punitive-damages awards, it is hard to see how the judiciary can wash its hands of a problem it created, simply by calling quantified standards leigslative….History certainly is no support for the notion that judges cannot use numbers.”
Since it is the Court that decides constitutional standards, perhaps the same sentiments as expressed by Justice Souter might apply in that context, too. If so, t hose makingfuture Due Process claims against punitive awards might well suggest that there is merit to going to the numerical approach there, too. True, Justice Souter does say, at one point, that the Court was reaching for “more rigorous standards” in the maritime/common law arena than the Constitution would require, that may not mean that the Court, in time, would find that using the numbers is a better alternative than the verbal formulations the Court has laid down in judging the constitutionality of punitive verdicts.
What’s more, in a final footnote in the opinion, Justice Souter suggests, even in the Exxon Shipping context, “the constitutional outer limit may well be 1:1.”
It hardly will be a surprise if lawyers for corporations facing large punitive awards will find ways to cite Exxon Shipping as persuasive authority for adopting the numbers approach as a workable formula under the Constitution.