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Commentary: Exxon may both lose and win


If the Supreme Court voted immediately in the huge oil spill case heard on Wednesday, and voted the sentiments the Justices expressed throughout 90 minutes of oral argument, this might well be the outcome: Exxon Mobil Corp. and its shipping subsidiary may well have to pay some punitive damages, but not $2.5 billion. The company’s core arguments — that any award of punitive damages violates two centuries of maritime law history and modern congressional policy, and that it was not responsible for the ship captain’s misconduct that led to the spill — did not appear to have fared well, although those points did find some sympathy on the bench. But the backup argument — that $2.5 billion in damages was just too high — loomed as the likely point on which a majority of an eight-Justice Court could agree (with some uncertainty about what the exact final figure might be). The Court will actually cast its first vote on the case on Friday, but that would be only the beginning.

First impressions, based on what was said or intimated at a fast-paced oral argument, can be quite misleading. This Court usually divides quite deeply in considering punitive damages claims — a factor that is even more complex in this case, because one Justice (Samuel A. Alito, Jr.) is not taking part, leaving at least a chance of a 4-4 split, perhaps on some but not all issues. But first impressions also might qualify as reasonable reactions, when what was asked and answered is parsed closely, and when atmospherics are taken into account. It was apparent that Exxon’s lawyer, Washington attorney Walter Dellinger, was under serious challenge throughout his argument, and critically so on his efforts to get the Court to forbid any punitive damages award for this kind of maritime accident. But it was equally apparent that the lawyer for the individuals and businesses who were awarded punitive damages, Stanford professor and lawyer Jeffrey L. Fisher, had to deal with a spreading view on the bench that there had to be some curbs on punitive damages in the maritime context — especially when the punitive verdict runs into the billions.

With Justice Alito out of the case, it could be that the Court would split 4-4 on Exxon’s liability for at least some punitive damage award — an outcome that would uphold the Ninth Circuit Court’s conclusion that a punitive award was justified. It was not apparent that there were five votes for Exxon’s claim that the Court had long ago decided against liability for shipowners who do not take a direct part in crew misconduct, or the company’s view that the captain of a huge supertanker does not rank high enough in a corporate hierarchy to hold the company itself to blame for his misconduct. If the Court splits 4-4 on each of those points, it would not decide them, but Exxon would lose because of the Ninth Circuit’s legal conclusions.

But there did appear to be a majority, perhaps a substantial one, for fashioning a new rule of law in the maritime context that would keep punitive awards in check, perhaps not a great deal higher than the amount of actual (compensatory) damages awarded — the kind of limitation that the Court has imposed when a punitive damages award is weighed as a constitutional matter, even though that is not the standard specifically at issue in this case about judge-made maritime law. Justices Anthony M. Kennedy and David H. Souter, for example, floated the notion that there be no more than a doubling of the compensatory amount in a maritime accident case in which punitives are awarded.

One of the restraints that several of the Justices seemed to feel was at work is that the Court would be essentially making up new legal rules as it went along, without precedent, and should be as cautious in such an endeavor as would be a “common law court,” the role the Court is playing in this instance, as Souter pointed out at one point.

Exxon’s main strategy for avoiding any punitive damages award for the Exxon Valdez‘s spill of 11 million gallons of oil into Alaska’s Prince William Sound 19 years ago is to argue that the Supreme Court made clear in 1818 that no shipowner is liable for such special damages if it did not direct or countenance harmful behavior by a ship’s crew. A secondary argument is that the captain of a ship at sea is not an important enough official within a shipping company’s decision-making echelon to make the company liable for the captain’s accidents. And a third argument is that Exxon has already been punished enough for the 1989 oil spill’s harms, especially since it has already laid out $3.4 billion in response, and since Congress has specified financial penalties (in the Clean Water Act) for maritime mishaps.

Within minutes after attorney Dellinger began his argument, his first two arguments on that point appeared to have been lost, quite decisively. Justice Ruth Bader Ginsburg essentially demolished the claim that there is 200 years of maritime law history on Exxon’s side; she said that claim was “rather an exaggeration.” Justice Antonin Scalia also raised questions about that claim. (Only Justice Stephen G. Breyer seemed somewhat taken with the idea that there was, indeed, a long-standing precedent favoring Exxon.) No sooner had Ginsburg and Scalia finished with the history point, Chief Justice John G. Roberts, Jr., undercut the company’s second argument, suggesting that “someone driving one of these huge tankers” is very close to being a responsible figure within a shipping company’s top ranks. Justice Kennedy looked incredulous at the thought that a ship’s captain could never be treated as a managerial agent, and suggested that Dellinger was arguing that a captain on a huge vessel “binds Exxon for no purposes at all.” Justices Ginsburg and Souter also raised doubts on that point, with Souter opining that a ship putting to sea in the modern era is hardly “a sort of floating world by itself” as it was in olden times as soon as it left port.

When Dellinger got to the point that civil penalties authorized by Congress in the Clean Water Act should militate against any punitive damages, Justice Ginsburg aggressively challenged that argument, too. She suggested that Exxon’s trial lawyers had brought up that point too late, 13 months after the jury verdict was in. Justice Scalia rescued Dellinger from Ginsburg by suggesting that he move on to his argument that Exxon did not deserve any added punishment in the form of punitive damages.

As Dellinger pursued that argument, he found strong support from Justice Kennedy, who expressed concern about “open-ended penalties.” And Scalia chimed in to say that Dellinger could make the argument that, while the Clean Water Act might not bar all punitive damages for a maritime accident, perhaps its penalty scheme should be taken into account as one factor supporting a curb on punitives.

Fisher, the lawyer for the 32,677 commercial fishermen, private landowners and Native American who won the $2.5 billioin punitive damages award at issue, also had some difficulty at the outset, especially with his argument that the Exxon Valdez captain at the time of the spill, Joseph Hazelwood, had enough corporate responsibility to justify making Exxon liable. The Chief Justice expressed doubts about that, and wondered skeptically how to assess blame in the maritime accident context. Kennedy became very aggressive in challenging Fisher on a jury instruction that required that Exxon be held reckless if the captain were found to be reckless (as the jury did.

As Fisher’s argument proceeded, it became increasingly evident that a number of Justices were uncomfortable with the size of the verdict he was asking the Court to sustain. When the lawyer discussed the unsettled legal question that he said the Court was facing in this case, and suggested that that was the reason the Court had granted review, Justice Scalia interjected: “That — and $3.5 billion!”

After the Chief Justice pressed Fisher with more questions about Exxon’s liability for Captain Hazelwood’s conduct, the Justices moved more energetically into quizzing the lawyer about ways to set limits on punitive damages for accidents at sea. “This is a very dramatic accident,” Justice Breyer began, “but there are accidents every day….What principle do you have to suggest for a fair system [of setting punitive damages awards]?” Fisher said there was no need for a special rule just for maritime accidents, that the Court could look to “common law tradition” that focuses on the evidence the jury heard on blameworthiness.

Justice Kennedy again expressed his worry over “excessive damages,” and Justice Scalia repeated the suggestion that the availability of Clean Water Act penalties should be a factor in mediating the punitive award’s amount, or perhaps even in barring any punitive award. Justice Souter said the Court had in recent years had “an awful lot of experience with punitive damages,” but in the process had had serious difficulty “coming up with determinant standards.” Why, Souter asked, “not recognize the difficulty” in writing a standard, and simply come up with a number or multiple of a contemporary award — perhaps just a doubling.

Some members of the Court pondered, as part of this discussion, whether Exxon had already faced enough deterrence in the $3.4 billion it spent in fines, settlements, or clean-up costs. Fisher responded to that issue by saying that the punitive damages award was really based on evidence “all about Exxon’s conduct, not about Captain Hazelwood’s conduct.” There was “deep complicity” on the company’s part, in not dealing effectively with the captain’s recurring problems with alcohol, including consumption while on board supertankers. ‘Knowing what could happen, it left him in command,” Fisher argued. Hazelwood was the only person fired for the oil spill incident, and higher-up executives got bonuses and raises, he said, indicating that Exxon had not yet faced enough punishment to deter it from future misconduct.

Dellinger spent most of his four-plus minutes of rebuttal time arguing the point that the company had, indeed, already been punished enough.

The Court is expected to decide the case by late spring.