BP Oil Spill Set in Motion by Supreme Court's Decision on the Exxon Valdez

A Special Commentary by Terence Perenich

As we watch the catastrophe in the Gulf of Mexico expand daily, seemingly with no end in sight, we are left to contemplate what the ultimate destruction will look like to our environment and our local and national economy.  Of course, a persistent question that is left unanswered is whether this event was foreseeable and if so, could it have been prevented.  Aside from discussions as to whether the cause was a faulty “fail-safe” or other structural failing, the more incisive questions consider whether the disaster had its inception in a lack of governmental oversight at best, or at worst is the result of collusion and deal making between governmental regulators and the corporate rule breakers pervasively at the helm of Big Oil.  While these matters are debated daily, few, if any, have contemplated a broader perspective that is at the end of any consideration of the jurisprudence of the judicial activism and corporate protectionism brought to us by the Supreme Court of the United States.

The specific case in question is Exxon Shipping v. Baker, and this was the main civil litigation brought against Exxon by the citizens affected by the ill-fated Exxon Valdez. Exxon had already agreed to pay the verdict of $507.5 million in compensatory damages, but appealed against the extraordinary punitive award levied against them. In the original trial court, the jury, after seeing the evidence and listening to the testimony, determined that a punitive damages verdict of $5 billion was appropriate for this particular lawsuit. This verdict was based on the evidence that demonstrated how company officials became complacent and overlooked key safety measures that had been in place for twelve years. A key radar system was broken and Exxon had failed to repair it, and the captain, an inveterate and unrepentant alcoholic, who was supposed to be alert on the bridge, was instead sleeping off his afternoon of drinking at port.

In civil cases, a punitive damages verdict is intended to not only punish the defendant for its actions of gross or wanton negligence, but to also serve as means of deterring future incidents of such catastrophic nature from happening. The hope was that large oil companies, such as Exxon and BP, would take heed to undergo all necessary measures to prevent accidents, whether the situation involved a relapsed alcoholic who was allowed to captain a supertanker (as in the case of the Exxon Valdez), or equipment failures and disregard for established safety practices (the alleged causes of the BP Oil Leak).

In 2008, the Supreme Court of the United States heard this case, and specifically reviewed the appropriateness of the extensive punitive award. The Court, led by Justice Souter and joined by Justices Roberts, Scalia, Kennedy, and Thomas, re-examined this punitive award, and upon their findings, decreed that the punitive award should be discounted 90% to a total of $507.5 million which matched the award given in actual compensatory damages (thereby creating a compensatory/punitive award ratio of 1:1).  Citing, what they referred to as “anecdotal evidence” of a wide range of verdicts where punitive damages were found owing, the justices expressed great concern about the unpredictability of such verdicts and the unreliability of juries to make such determinations.  The Court determined that these factors left civil defendants in positions of insecurity in terms of knowing how juries would deal with their wrongful conduct.

The Exxon v. Baker Court went to great lengths to provide security and predictability for corporate defendants at the end of the barrel of a punitive damages verdict.  Of course, these defendants, unlike the vast majority of civil litigants, only find themselves at the risk of a judgment of punitive damages when the plaintiffs have marshaled evidence of extreme indifference or recklessness.  However, it is these defendants, and in most cases powerful corporations, that the Court felt needed the protection of a judicially created measure that would cap their liability.

Upon this logic and this stated mission of relieving the grossly negligent corporate defendants of an uncertain outcome of the claims of their victims and the inability to calculate the financial feasibility of extreme wrongdoing, the Exxon v. Baker Court engaged in admitted judicial activism.  Pronouncing that they had “a free hand” to create a rule that would otherwise be within the legislative province of Congress, the Supreme Court announced that in Maritime cases, punitive damages verdicts would be forever capped to never exceed an equal amount of compensatory damages.  Justice John Paul Stevens noted in his dissenting opinion that “it is telling that the Court has failed to identify a single state court that has imposed a precise ratio.”  Many state legislatures had taken up this issue, and through the representatives of the people of each state, they determined appropriate ranges for such punitive awards.  Notwithstanding the observations of Justice Stevens, the Exxon v. Baker Court sidestepped the process of a representative legislature for the sake of corporate protectionism.

Moreover, no consideration was given to the value of the Constitution and the Seventh Amendment specifically.  The jury, in itself a microcosm of democracy, had considered all of the facts and arguments by expert lawyers representing both sides, including Exxon.  Upon the facts presented, the jury set the damages award.  By changing the punitive award in this case, the Supreme Court rejected the value of the jury system established in the Seventh Amendment, an amendment so important to our Founding Fathers that it was placed alongside such venerated rights as the freedom to bear arms, the freedom of association, the freedom of the press, the freedom of religion, the right to due process, and the right to protect us as citizens against unlawful search and seizures. The Seventh Amendment states:

“In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.” (Emphasis added).

This 90% discount on the verdict for Exxon was without precedent and established better certainty for those corporate wrongdoers whose negligence borders on the criminal.

Any cynical perspective may lead one to believe that such a law would provide cover for corporations who see the short term financial benefit of cutting corners on safety.  One may have considered the Exxon v. Baker case to have provided an easy calculation for corporate boardroom decision making when the choices are laid out between profit or people and the environment.

By creating a punitive/compensatory damages award ratio of 1:1, the Supreme Court laid the groundwork for the tragic oil spill we deal with today. Through this decision, which, in effect, created a cap for punitive damages, the Court essentially signaled a green light for large corporations to commit their malfeasance with confidence in the knowledge that the risks will always be predictable and that their bottom line would always be protected.

In light of the tragedy that we face today, we must inquire what reassurance of predictability for loss may have led to the result of BP’s extreme negligence.  BP had known that some of its equipment and practices could have been insufficient to deal with an event like the oil blowout we now see in the Gulf. But, thanks to the Supreme Court, the company could determine that the risks of the cost of a disaster like this did not outweigh the benefits of doing nothing about these problematic practices. Negligent behavior and insufficient planning, in essence, became condoned; for now viewed from the business angle, the costs of a potential disaster could be justified by saving money and not acting on the potential problems that were identified.

When the catastrophe in the Gulf stops gushing oil into our waters, and people start looking for the culpable parties, their eyes will most likely turn towards BP, Transocean, and Halliburton as more details about the cause of the deadly explosion are presented. But when the ultimate blame is being assigned, we should be mindful of the Supreme Court’s decision in Exxon v. Baker, and although BP is directly responsible for this incident, perhaps greater scrutiny should be placed upon the Court. The consequences of its overreaching ruling are now affecting hundreds of miles in coastline and hundreds of thousands of hard working citizens. However, the destruction that the Supreme Court hath wrought upon the Gulf Coast may not be the worst to come.  As citizens of this great nation, it is our duty to protect the rights we have fought to protect over the past 234 years, calling us to stand up against judicial activism in the name of corporate protectionism endangers lives and the environment while sacrificing the rights of the people.