Altering the Economics of Civil Litigation
No doubt they were throwing back double vodkas at the U.S. Chamber of Commerce last week following the Supreme Court's decision to cut the punitive damages in the Exxon Valdez oil spill to a week's worth of Exxon Mobil's profits.
The chamber, through two affiliates, the National Chamber Litigation Center and the Institute for Legal Reform, has waged a decade-long campaign to make it harder -- much harder -- for businesses to be sued for their mistakes or their fraudulent behavior and to limit damage awards in those cases that manage to get to a jury.
In recent years, that well-funded legal, legislative and public relations effort has chalked up a series of impressive wins, including the prosecution of three of the country's best-known and most successful plaintiff's attorneys -- Richard Scruggs, Melvyn Weiss and William Lerach -- on charges of having abused the legal system. The image of the trial lawyer is so tarnished that the Association of Trial Lawyers of America saw fit to change its name to the more nebulous American Association for Justice.
For the chamber, however, the biggest win of all was last week's Supreme Court ruling that, as a matter of federal common law, punitive damages should rarely exceed the so-called compensatory or economic damages assigned by the judge and jury. The high court affirmed a legitimate role for punitive damages as a way for society to exact a measure of revenge for reckless and malicious behavior and deter others. But Justice David Souter, writing for himself and four colleagues, said fairness demands that such a penalty must be "reasonably predictable in its severity" so that even wrongdoers "can look ahead with some ability to know what the stakes are in choosing one course of action or another."
Although the court's decision ostensibly applies only to federal cases decided on the basis of common law, the betting is that the Supremes, at the next opportunity, will extend the 1:1 cap on punitive damages to all state and federal courts based on the constitutional "due process" guarantee. Without the prospect of winning big punitive damage awards, plaintiff's attorneys will be less eager to take on contingent-fee personal injury and class-action lawsuits. With fewer suits and lower damage awards, corporate insurance premiums will decline and companies will feel more comfortable taking more risks -- good risks as well as bad.
Given the chamber's legal victory, it is more than a bit ironic that, buried in Souter's elegantly written and reasoned opinion, is a stunning rebuke to the fundamental rationale behind the chamber's campaign -- namely, that excessive punitive damage awards have crippled U.S. business. "A survey of the literature reveals that discretion to award punitive damages has not mass-produced runaway awards," Souter wrote, citing in a footnote a study of the country's 75 most populous counties showing that the median punitive damage award in civil jury trials decreased from 1992 to 2001.
It is also worth noting that Souter rejected another argument made by the chamber: that punitive damages in areas such as environmental protection are a form of double jeopardy because businesses are also subject to extensive government regulation and prosecution. Perhaps Souter was too polite to point out that the chamber and its business allies have spent decades trying to eviscerate the very government regulation and enforcement that they now claim should preempt private penalties. This is the kind of hypocrisy we've come to expect from the chamber, which basically takes the view that the only good regulation is self-regulation.
For my money, however, the problem with court's decision in the Exxon case is not that it went too far in trying to reform the civil justice system, but that it didn't go far enough.
Consider that it was back in 1989 when the Exxon Valdez went aground off the Alaskan coast after its skipper, who later testified that he had consumed three vodkas in town, decided to take to his cabin, leaving an unlicensed pilot to steer the fully loaded, 900-foot supertanker through a narrow strait. During the ensuing 19 years, Exxon unsuccessfully appealed the jury's original finding of fault to the U.S. Court of Appeals in San Francisco and the Supreme Court. Exxon then twice appealed the jury's punitive damage awards to the circuit court, which each time sent the case back to the trial judge with instructions to reduce the award. Unsatisfied, Exxon launched a fourth appeal, this time taking the case all the way to the Supreme Court, which has now sent the case back yet again to the lower court with a fresh set of instructions.
What should be clear from this history is that cases like this are ridiculously expensive for plaintiffs and their lawyers, not only because they are complex, but because of corporate defendants who embrace a legal strategy of trying to bleed the other side dry.
For years, the plaintiff's bar has tried to justify outlandish punitive damage awards by arguing, in part, that they are necessary to pay the expense of waging these marathon legal battles -- not just the winning cases, but the losing ones as well. Now the Supreme Court has said that it offends our sense of justice to extract outlandish awards from a few deep-pocketed corporate defendants to finance this system of private regulation.
At the same time, however, it ought to be equally offensive to our sense of justice that corporate defendants are routinely allowed to manipulate the judicial process with an endless stream of motions, depositions and appeals, many as frivolous as anything served up by the plaintiff's bar. For years, federal and state judges have turned a blind eye to this obvious and rampant abuse of process, which rivals anything conjured up by Charles Dickens in his famous novel, "Bleak House." Symbolically, the case of Exxon Shipping Co. v. Baker is to 21st-century jurisprudence what Dickens' Jarndyce v. Jarndyce was to the 19th century.