The Supreme Court Breakfast Table

The Purpose of Punitive Damages
An email conversation about the news of the day.
June 26 2008 11:25 AM

The Supreme Court Breakfast Table


Dear Dahlia, Cliff, and Jack,

Before responding  to Dahlia's question  about whether the Exxon Valdez decision will have a significant impact on punitive damages generally, I can't resist putting her comments about the case in context, expressly noting as a caution to readers that I argued the case for Exxon in the Supreme Court. This case raised the question of whether punitive damages should be paid, and if so, in what amount, for one and only one aspect of the tragic Valdez oil spill—economic losses to a class of individuals, principally those engaged in commercial fishing. The court held yesterday that the award of punitive damages for that commercial-fishing class should be limited to $500 million—an amount equal to the compensation previously paid to members of the class for economic losses. As Justice Souter notes in his majority opinion, the company years ago separately paid more than $3 billion for environmental damages, fines and penalties, cleanup costs, and compensation. The punitive damages for the commercial-fishing class members at issue before the court were to be in addition to those previously paid amounts.

One fundamental point that your comments seem to overlook is the public purpose of punitive damages. Like others, you note that the amount of punitive damages in this case are relatively small, if considered in light of what the average award would be for each member of the large class. But as Justice Souter notes, the court has long held that "punitive damages by definition are not intended to compensate the injured party, but rather to punish the tortfeasor … and to deter him and others. …"  It's the total amount that serves that  purpose, whether it's awarded to one person or thousands. 

You also mention the net worth of the defendant in this case. The court understands, however, that the total wealth of the company is less relevant than what kind of profits the wrongful acts would have engendered. And that is the factor that leads the court to conclude that an amount equal to compensatories is the limit in this case—the absence of either malice or a desire to increase profits from the wrongful acts in question. Justice Souter writes that "in cases like this one, without intentional or malicious conduct,  and without behavior driven primarily by desire for gain," there is no basis for exceeding the 1:1 presumption for cases with "substantial" compensatories (which surely includes this case).

Will this case, you ask, have an influence beyond the area of maritime law and become something more like the "law of the land" as well as the sea? I think it will. The court's prior punitive damages cases have involved the court in its customary role of enforcing constitutional limits on the outer boundaries of what state courts (and legislatures) have done in awarding punitive damages. The justices in those cases are somewhat like umpires setting the outer boundaries within which punitive damages determinations are made by the states.

But maritime law governing the Valdez oil spill is different. It's federal law—and, here, judges made federal law. That means the justices are less like umpires and more like players—they get to suit up and play the game the way state court judges do. Here the court gets to decide what the right answer ought to be, not just where the constitutional outer boundaries are located.

So while the court's approach is not binding on states, it did present a unique opportunity for the court to lead by example and demonstrate for judges around the country how they ought to go about limiting punitive damages awards. And the justices' message was that state courts ought to be placing some serious, predictable limits on punitive damage awards. In particular, the court strongly suggested that states should adopt a limit of 1:1—an award equal to the compensatory damages—in cases where there was no malicious intent to harm and where the wrongful conduct was not driven by a desire to maximize profits. The opinion suggested that if state courts don't so limit punitive damage awards, the court may impose a 1:1 limit (at least in non-malicious, non-intentional harm cases) as a constitutional matter. Whether a majority of the justices would impose such limits as a matter of constitutional due process is yet to be resolved. But what the Supreme Court justices believe state courts should do comes though clearly.

Well, it's on to the final day and the Second Amendment case, Heller. An imaginary conservative friend of mine has a simple reason for believing the District of Columbia will lose:  "Having ruled last Thursday in Boumediene that all the terrorists can get out on habeas and roam free in the streets, the least the court could do today is let everybody arm themselves with a handgun."  We'll know by the time this is posted.





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