U.S. SUPREME COURT REDUCES EXXON VALDEZ PUNITIVE DAMAGES, ADOPTS BRIGHT-LINE LIMIT UNDER FEDERAL COMMON LAW

The U.S. Supreme Court issued its decision this morning in the Exxon Valdez punitive damages litigation (Exxon Shipping Co. v. Baker).  A five-Justice majority of the Court concluded that the $2.5 billion punitive damages award was excessive by about $2 billion.

The Court based its excessiveness analysis not on the Due Process Clause (as in its earlier decisions in BMW v. Gore and State Farm v. Campbell), but on principles of federal common law.  The Court held that the "stark unpredictability" of punitive damages raises concerns about fairness and consistency.  In order to ensure that punitive damages are reasonably predictable in severity, the Court established a bright-line limit of a 1:1 to ratio of punitive damages to compensatory damages in maritime cases, at least in the absence of aggravating factors. Accordingly, the Court reduced the punitive damages in this case down to $507.5 million, equal to the amount of compensatory damages as determined by the district court.  While the Court's actual holding is limited to maritime law, the Court's reasoning is not based on any peculiarities of maritime law but on policy concerns that can arise in every sort of punitive damages case.

For further news and commentary on this decision, visit our blog at www.calpunitives.com or contact Horvitz & Levy partner Curt Cutting (818.995.0800; ccutting@horvitzlevy.com).

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