INSIGHT: US business gets major win in high court

30 June 2008 15:57  [Source: ICIS news]

By Joe Kamalick


US Supreme Court hands major win to businessWASHINGTON (ICIS news)--The broad US manufacturing sector won a major victory in the US Supreme Court last week when the high court justices ruled that punitive fines in liability cases generally should not exceed actual damages.


It is a significant ruling because it establishes the first Supreme Court standard for punitive cash awards assessed by juries in liability cases, a standard that will restore some balance and reasonable certainty in product liability lawsuits.


In US civil trials in liability cases, juries can compensate victims with an assessment based on their actual losses - property damage, lost wages, etc. - and they also can assess a punitive award meant to punish the company or person responsible for the damage and to deter other parties from similar reckless behaviour.


There is no set standard on how much juries may award in punitive damages, however, and they can and often do assess huge amounts that later are often sharply reduced by appellate courts. 


US businesses have long sought some sort of guidance from the US Supreme Court on what punitive assessments should be, so that companies facing liability cases might have some expectation of their potential financial exposure.


The Supreme Court ruled on Wednesday that the $2.5bn (€1.6bn) punitive damages award assessed against ExxonMobil for the 1989 Exxon Valdez oil spill on the Alaska coast was excessive. The high court sent the case back to the Ninth Circuit Court of Appeals with the instruction to reconsider the punitive damage award and suggesting that such jury-awarded penalties should not exceed the actual damages caused by a company in a given case.


In the 19-year-old Valdez case, ExxonMobil was assessed a compensatory penalty of $507.5m, an amount calculated to reimburse the State of Alaska, coastal property owners, fishermen and others whose livelihoods or property were damaged by the huge oil spill on 24 March 1989.


ExxonMobil chief executive Rex Tillerson issued a subdued statement on Wednesday 25 June acknowledging the ruling, seemingly at pains to avoid any expression of delight or satisfaction with the decision - even though it had to be a huge relief for the energy giant. 


Tillerson said that “The Valdez spill was a tragic accident and one which the corporation deeply regrets”.


Tillerson also noted that ExxonMobil took immediate responsibility for the spill at Alaska’s Prince William Sound and that the company has paid out more than $3.4bn in compensation, cleanup work, settlements and fines.


A federal court jury had initially assessed a $5bn punitive damages fine against ExxonMobil in addition to the $507.5m compensatory assessment, but the federal appeals court cut that penalty amount in half.


The High Court’s decision on Wednesday means that the initial $5bn punitive damages award will likely be reduced by about 90% to $507m.


While Tillerson was careful to not sound too happy about the ruling, you can bet that there were plenty of high-fives being exchanged in the ExxonMobil legal department and in boardrooms across the country.


The ruling was more openly welcomed by the broader US production sector, with the National Association of Manufacturers (NAM) saying the court action sets a key standard in “clarifying the limits on punitive damages”.


“The justices clearly found the original punitive damage award excessive and arbitrary,” said Quentin Riegel, the association’s deputy general counsel.


“By settling on a one-to-one standard - punitives equal to compensatory damages - they provided a standard that other courts can turn to,” Riegel said.


“Future defendants can point to that standard as a means of eliminating the ‘stark unpredictability’ of punitive damages the Supreme Court was so concerned about,” Riegel said, quoting the high court’s ruling.


Riegel noted that the court’s decision was based on maritime common law, not on any fundamental element of the US Constitution. The business community would have much preferred a ruling based on the firm foundation of the Constitution, and the maritime common law basis means the ruling is limited in scope.


Even so, the Supreme Court has delivered a key precedent and a clear preference that punitive damages generally should not exceed actual damages - and certainly should not reach a level ten times actual damages as in the initial ExxonMobil punitive assessment.


NAM along the American Chemistry Council (ACC) and other business trade groups had filed legal briefs with the Supreme Court expressing support for ExxonMobil’s appeal. 


Although not directly affected by the lower court rulings against ExxonMobil in the Valdez case, manufacturers in general were worried that if allowed to stand, the $2.5bn punitive award against the energy company would serve as a precedent that could influence a broad range of future product liability rulings.


Council senior attorney Don Evans called the $5bn punitive damages award in the ExxonMobil case “the poster child for the abuse of punitive damages”.


($1 = €.64)


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By: Joe Kamalick
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