Publication Date: 7/2/2008
Author: Karen E. Kahle
Contact: karen.kahle@steptoe-johnson.com
U.S. Supreme Court reduces punitive damages award after finding unfairness and unpredictability in award ratio – reduces compensatory/punitive ratio to 1:1 in a maritime case. This ruling may fuel future challenges to damage awards.
The following is provided by the Toxic Tort practice team of Steptoe & Johnson PLLC.
U.S. Supreme Court Slashes Punitive Damages Award
July 2, 2008
www.steptoe-johnson.com
By Karen E. Kahle, karen.kahle@steptoe-johnson.com
In Exxon Shipping Co. v. Baker, No. 07-219 (U.S. June 25, 2008), the Supreme Court slashed a punitive damages award of $2.5 billion against Exxon to $507.5 million (a 1:1 ratio between compensatory and punitive damages), holding that the award was excessive as a matter of maritime common law. Although this holding is technically limited to federal common (maritime) law, because of the broad and thorough analysis underlying the Court’s decision, the holding will lend strong support to future defendants wishing to challenge punitive damages awards, regardless of the law under which they arise.
As the Court noted, the major problem with punitive damages awards in America is their stark unpredictability. The Court found the spread between high and low end individual awards to be unacceptable, inconsistent and therefore, unfair. In order to be effective, the severity of the penalty should be reasonably predictable. The Court decided to set a maximum ratio of punitive to compensatory damages as the best method for eliminating unpredictable outlying punitive awards, and for providing consistency and fairness of such awards. After analyzing historical damage awards in all types of claims in the United States, the Court found a median ratio of punitive to compensatory damages of 0.62:1, meaning that compensatory damages actually exceed punitive damages in most cases. Thus, in order to protect against the possibility of awards which are unpredictable and unnecessary, the Court held that a 1:1 ratio is a fair upper limit in maritime cases such as the one before it.
Karen E. Kahle, Esq.
Steptoe & Johnson PLLC
P.O. Box 751
Wheeling, West Virginia 26302
(304) 231-0441
(304) 233-8089 Fax
Karen.kahle@steptoe-johnson.com
This alert is a periodic publication of Steptoe & Johnson PLLC and should not be construed or relied upon as legal advice or legal opinion on any matter. The content is intended for general information purposes only. You should consult with your own lawyer for legal advice or a legal opinion on the specific facts and circumstances of your own situation. For further information about this alert, please contact Steptoe & Johnson PLLC.
Additional information about the Steptoe & Johnson Toxic Torts Team can be found on the Steptoe & Johnson website at http://www.steptoe-johnson.com/practices/practicegroup/Toxic-Torts,60.aspx, or contact the Toxic Tort Team leader, James J.A. Mulhall at james.mulhall@steptoe-johnson.com, or by phone at 304.624.8164.
The following is provided by the Toxic Tort practice team of Steptoe & Johnson PLLC.
U.S. Supreme Court Slashes Punitive Damages Award
July 2, 2008
www.steptoe-johnson.com
By Karen E. Kahle, karen.kahle@steptoe-johnson.com
In Exxon Shipping Co. v. Baker, No. 07-219 (U.S. June 25, 2008), the Supreme Court slashed a punitive damages award of $2.5 billion against Exxon to $507.5 million (a 1:1 ratio between compensatory and punitive damages), holding that the award was excessive as a matter of maritime common law. Although this holding is technically limited to federal common (maritime) law, because of the broad and thorough analysis underlying the Court’s decision, the holding will lend strong support to future defendants wishing to challenge punitive damages awards, regardless of the law under which they arise.
As the Court noted, the major problem with punitive damages awards in America is their stark unpredictability. The Court found the spread between high and low end individual awards to be unacceptable, inconsistent and therefore, unfair. In order to be effective, the severity of the penalty should be reasonably predictable. The Court decided to set a maximum ratio of punitive to compensatory damages as the best method for eliminating unpredictable outlying punitive awards, and for providing consistency and fairness of such awards. After analyzing historical damage awards in all types of claims in the United States, the Court found a median ratio of punitive to compensatory damages of 0.62:1, meaning that compensatory damages actually exceed punitive damages in most cases. Thus, in order to protect against the possibility of awards which are unpredictable and unnecessary, the Court held that a 1:1 ratio is a fair upper limit in maritime cases such as the one before it.
Karen E. Kahle, Esq.
Steptoe & Johnson PLLC
P.O. Box 751
Wheeling, West Virginia 26302
(304) 231-0441
(304) 233-8089 Fax
Karen.kahle@steptoe-johnson.com
This alert is a periodic publication of Steptoe & Johnson PLLC and should not be construed or relied upon as legal advice or legal opinion on any matter. The content is intended for general information purposes only. You should consult with your own lawyer for legal advice or a legal opinion on the specific facts and circumstances of your own situation. For further information about this alert, please contact Steptoe & Johnson PLLC.
Additional information about the Steptoe & Johnson Toxic Torts Team can be found on the Steptoe & Johnson website at http://www.steptoe-johnson.com/practices/practicegroup/Toxic-Torts,60.aspx, or contact the Toxic Tort Team leader, James J.A. Mulhall at james.mulhall@steptoe-johnson.com, or by phone at 304.624.8164.