Exxon Discussion Board: Beyond Maritime Law
By recusing himself from this case, Justice Alito may have done a tremendous favor to appellate lawyers seeking guidance regarding limitations on punitive damages awards. Had he participated and had he (as many believe likely) provided a fifth vote for the view that maritime law bars punitive awards in cases of this sort, the Court’s opinion would have been limited to a discussion of an issue that is of interest only to the maritime industry. Instead, we have an opinion that lawyers on both sides of the punitive damages issue will be citing for many years to come. This comment focuses on the practical implications of today’s decision rather than its actual holding.
First, there is little reason to believe that Justice Souter’s discussion of 1:1 ratios (of punitive damages to compensatory damages) is limited to maritime law cases. Rather, his opinion suggests that the ratio applies in any federal-question case in which Congress has not spoken to the issue of appropriate limits on punitive damages. And it turns out that Congress has only rarely addressed that issue (e.g., the 2:1 ratio mandated in antitrust and RICO cases; the $300,000 cap on punitive damages in Title VII cases). Unless there is evidence in the statutory text or history suggesting that Congress did not wish courts to impose limits on punitive damages awardable under a federal statute, today’s decision is a mandate to federal judges to engage in similar federal common law rulemaking. Certainly, there is no such evidence in 42 USC 1983 (or in Bivens suits alleging a violation of constitutional rights under federal law), so cases raising federal constitutional claims are likely to be affected dramatically by today’s decision.
Second, Souter very clearly was not indicating that a 1:1 ratio is the maximum permissible in all federal question cases. Rather, he limited himself to cases in which the defendant was not acting intentionally or maliciously (but merely recklessly) and was not acting “primarily by desire for gain.” Presumably, Souter would establish higher upper bounds in cases in which the defendant acted in one of those manners. Perhaps the federal common law limit would be no lower than the constitutional limit (set roughly at 10:1 in State Farm) when the defendant has behaved in a particularly blameworthy manner.
Third, today’s decision will dramatically change the manner in which courts review punitive damages in a federal question case. In the past, many appeals courts have stated that the only limits on punitive damages awards are those imposed by State Farm and other due process cases, even when the cause of action was one arising under federal law. Hereafter, courts will also be required to review such awards to determine whether they are excessive under federal common law.
Fourth, by confining itself to a discussion of ratios, the Court avoided addressing an issue that repeatedly arises in punitive damages cases: what do you do when the actual damages are small but the defendant has acted in a particularly heinous manner (e.g., Judge Posner’s hotel which purposely did nothing about its known bedbug problem)? Conversely, what about the defendant whose not-particularly-blameworthy conduct caused massive damages; such a defendant gets scant protection from a 1:1 ratio, yet the compensatory damages award by itself is likely to have significant deterrent and punitive effects. The Court may eventually turn to a system that starts with a high ratio but reduces the ratio as the size of the compensatory damages increases.
Finally, today’s decision may cause some States to rethink their punitive damages jurisprudence. While recognizing that judges need to impose some limits on jury awards, state court generally have confined themselves to verbal formulations of those limits (e.g., does the award “shock the conscience”). Today’s decision may persuade at least some state courts that such formulations do little to eliminate unpredictability of awards and that they should act on their own to impose numerical limits.