When the Supreme Court slashed punitive damages in the Exxon Valdez case last month, it was more than a travesty of justice. The court's decision also charted a dangerous course for America — one largely overlooked in the flurry of coverage on the court's other eleventh-hour, high-profile decisions, but one that renders our legal system incapable of protecting people from long-term harm caused by corporations as large and profitable as ExxonMobil. Unless Congress acts to overturn this ruling, the court has paved the way for corporate rights to trump individual rights whenever manmade disasters put people, their livelihoods, or both, at risk.
Here, in a nutshell, are pieces of the Exxon Valdez story that are familiar to most news-reading Americans: 19 years ago, the Exxon Valdez grounded on Bligh Reef in Prince William Sound, Alaska, causing the largest oil spill in the United States, contaminating 10,000 square miles of ocean and 3,200 miles of pristine coastline, and trashing the local fishing industry and the communities it supports.
And, here are the lesser known elements of the story: after Exxon got thousands of claims thrown out of court, the roughly 32,000 that remained were heard by a jury that awarded spill victims $5 billion in punitive damages and another $287 million in compensatory damages. The compensatory damages were only for short-term harm — mostly fisheries closures in 1989 — and not for the long-term harm that we have since experienced in Prince William Sound from collapsed fisheries. Exxon, then ExxonMobil, appealed the punitive award, and the Ninth Circuit judges cut that award in half despite finding no legal reason to do so. ExxonMobil appealed again, this time to the Supreme Court — keeping the case unsettled for nearly two decades — and that court slashed the punitive award to just $507 million, a mere 10 percent of the original award and an amount so small, after court expenses, that many plaintiffs face bankruptcies, foreclosures, and other financial distress from debt stemming from this spill.
But that is not the worst of it. The biggest injustice is that the Supreme Court set a dangerous precedent by ruling to limit the size of punitive damages in maritime cases to no more than compensatory damages. In other words, the court set a cap of 1:1 punitive to compensatory damages.
It is just a matter of time before this precedent in maritime law is extended to other fields of law — which will affect everyone in America.
No community should have to go through what we, in Cordova and other oiled communities, have been through. Livelihoods have been lost, financial stress has broken families apart, businesses supported by fishermen have crumbled, and our environment remains oiled after 19 years awaiting compensation. Ultimately, the law could not replace what we lost. And the Supreme Court has just assured that others will fare no better in future manmade disasters, unless we act now.
On July 23, the U.S. Senate Judiciary Committee is holding a hearing on the effects of this case and others on ordinary Americans. The chair, Senator Patrick Leahy (D-VT), has invited comments.
I hope many of those comments will stress that the Supreme Court decision creates too much leeway for carelessness by corporations. I also hope those comments advocate that the decision should be overturned for three reasons.
First, legislating from the bench undermines the power of people to self-govern and sets bad precedent. The high court overstepped its boundaries. Several Supreme Court judges wrote in their opinions, in effect, if Congress doesn't like what the high court did, then Congress should set guidelines for punitive awards. Congress must take up this challenge.
Second, setting a cap of 1:1 punitive to compensatory damages makes an absolute mockery of "punitive" damages as punishment. Some corporations have grown far too large and profitable to be punished sufficiently enough under this ruling to deter behavior that puts the public and environment at risk.
By minimizing financial liability — a powerful incentive for corporations to abide by the law — the Supreme Court's ruling practically guarantees that there will be many more such industrial disasters. Further, the Supreme Court's decision to low-ball predictability of punitive awards allows industries to externalize the cost of risks to the public and environment, thus ensuring that citizens and communities will bear the full brunt of industrial accidents, pollution, and faulty consumer products.
Third, linking punitive damages to compensatory damages instead of profits is wrong-headed. The jury of peers — ordinary Americans who first heard the Exxon Valdez case — realized that to punish a mega-corporation like ExxonMobil, the punitive award needed to be linked to corporate profits, not compensatory damages. Linking punitive damages to profits creates a tool for ordinary people to dispense meaningful punishment to all sizes of corporations, including giants like ExxonMobil. It gives big business the predictability it desires — and that the Supreme Court sought to achieve with its most recent ruling. It also gives ordinary people the predictability we need of knowing that corporations will act responsibly to minimize risk of harm to people and the environment.
By tying punitive damages to net profits, not a fixed amount, then the award rises if profits rise while the case is appealed. This would have a secondary desirable effect of hastening case closure by removing a powerful incentive to profit by stalling. Further, Congress should also mandate that punitive awards be escrowed when entered to further remove financial incentives for corporations to stall payment through appeals — as ExxonMobil did for 12 years.
Obviously, given the size of some corporations, capping punitive damages in a 1:1 ratio with annual net profits could result in some obscenely high awards — in keeping with obscenely high profits posted by ExxonMobil and some other corporations. In anticipation of this, Congress could mandate guidelines to share such large awards.
For example, if the punitive award exceeds compensatory awards by more than, say, ten-fold, then Congress could mandate that the excess must be distributed to community foundations within the affected region.
In Alaska, the plaintiffs (and I am one) were prepared to share the taxable portion of the punitive award with local communities through charitable giving strategies. If ordinary people can figure out an equitable way to share large punitive awards, then Congress ought to be able to do the same.
Congress has the power to make a course correction of the Supreme Court's ruling before it is too late for other communities to avoid our fate. Congress should restore people's primary tool to hold corporations accountable to the law: financial liability in the form of large punitive damage awards.
Further, Congress should overturn this decision retro January 1, 2008. More than one-third of the plaintiffs in the Exxon Valdez case — some 6,000 people — have died and will never see justice done. It is now up to Congress to make good on Exxon's promise to make the rest of us whole.
Riki Ott is author of the book