Opinion ID: 3040089
Heading Depth: 3
Heading Rank: 6

Heading: The District Court Opinion on our First Remand.

Text: The district court again did an extensive analysis of the relative reprehensibility of Exxon’s misconduct and of the harm it caused. In re the Exxon Valdez, 236 F. Supp. 2d at 1054-60. Though noting that an accurate assessment of the full extent of the plaintiffs’ actual harm was impossible, the district court attempted to reconstruct that harm by adding together the jury’s compensatory damages verdict of $287 million, judgments in related cases, as well as payments and settlements made to plaintiffs before and during the punitive damages litigation. Id. at 1058-60. The district court concluded that the actual harm was just over $500 million. Id. at 1060. The district court also concluded that the circumstances of this case justified a ratio of punitive damages to harm of 10 to 1. Id. at 1065. This calculation would have supported the original $5 billion award. Id. The district court nevertheless reduced the punitive damages to $4 billion, to conform to what it viewed as our mandate. Id. at 1068. G. The Second Appeal, the Supreme Court’s Opinion in State Farm, and our Second Remand. Not surprisingly, Exxon appealed again. And, not surprisingly, the Supreme Court issued an opinion in still another 19716 IN RE: THE EXXON VALDEZ punitive damages case while the appeal was pending. State Farm Mut. Auto Ins. Co. v. Campbell, 538 U.S. 408 (2003). The plaintiffs in State Farm, the Campbells, were involved in a head-on collision and sued their automobile insurer, State Farm, for bad faith. Id. at 413. The claim was based on State Farm’s rejection of an offer to settle the Campbells’ claims at the policy limit, State Farm’s assurances to them that they had no liability for the accident, State Farm’s resulting decision to take the case to court despite the substantial likelihood of an excess judgment, and its subsequent refusal to pay an adverse judgment over three times the policy limits. Id. at 413-14. The case was similar to BMW v. Gore in that there were only two plaintiffs before the jury. Id. Nevertheless, as in BMW v. Gore, the jury was allowed to consider the effects of similar but unrelated misconduct on many potential plaintiffs who were not before the court. Id. at 415. Final judgment after appeal to the Utah Supreme Court was for $1 million in compensatory and $145 million in punitive damages. Id. at 412. The United States Supreme Court remanded for the Utah courts to reduce the award. Id. at 429. The Supreme Court in State Farm once again emphasized that the “most important indicium” of a punitive damages award’s reasonableness is the relative reprehensibility of the defendant’s conduct. Id. at 419; see also BMW v. Gore, 517 U.S. at 575. Yet State Farm significantly refined the reprehensibility analysis by instructing courts to weigh five specific considerations: (1) whether the harm caused was physical as opposed to economic; (2) whether the conduct causing the plaintiff’s harm showed “indifference to or a reckless disregard of the health or safety of others;” (3) whether the “target of the conduct” was financially vulnerable; (4) whether the defendant’s conduct involved repeated actions as opposed to an isolated incident; and (5) whether the harm caused was the result of “intentional malice, trickery, or deceit, or mere accident.” 538 U.S. at 419. The Court did not rank these factors. It did explain, however, that only one facIN RE: THE EXXON VALDEZ 19717 tor weighing in a plaintiff’s favor may not be sufficient to support a punitive damages award, and the absence of all factors makes any such award “suspect.” Id. As to BMW v. Gore’s second guidepost, the ratio between harm or potential harm to the plaintiff and the punitive damages award, the Court “decline[d] again to impose a brightline ratio which a punitive damages award cannot exceed.” Id. at 425. But it provided some sharper guidance than it had in previous cases. First, it indicated that ratios in excess of single-digits would raise serious constitutional questions, and that single-digit ratios were “more likely to comport with due process.” Id. In fact, despite the Court’s disclaimer that “there are no rigid benchmarks that a punitive damages award may not surpass,” the Court strongly indicated the proportion of punitive damages to harm could generally not exceed a ratio of 9 to 1. Id. at 425 (“[F]ew awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.”). Second, the Court discussed particular combinations of factors that would justify relatively higher or lower ratios. For example, where a “particularly egregious act has resulted in only a small amount of economic damages” or where “the injury is hard to detect or the monetary value of the noneconomic harm might have been difficult to determine,” ratios in the high single-digits and perhaps even higher might be warranted. Id. (quoting BMW v. Gore, 517 U.S. at 582). Conversely, “[w]hen compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee.” Id. Finally, the Court minimized the relevance of criminal penalties as a guide, saying that they were not particularly helpful in determining fair notice. Id. at 428. Indeed, the Court did 19718 IN RE: THE EXXON VALDEZ not analyze State Farm’s potential criminal penalty at all, characterizing it as a “remote possibility.” Id. As to civil penalties, the Court noted only that the $145 million punitive damages award “dwarfed” the $10,000 maximum applicable fine. Id. The Supreme Court’s opinion in State Farm was filed in 2003, after the district court, on our first remand, had already reviewed the punitive damages award. Because the district court performed its review without the benefit of the more focused guidance provided by the Court in State Farm, we remanded the second appeal summarily for the district court to reconsider the punitive damages award in light of State Farm. Sea Hawk, No. 03-39166. H. The District Court Opinion on our Third Remand and this Appeal. On remand for the third time, the district court, in an assessment similar to that in its opinion after our first remand, calculated plaintiffs’ harm at $513.1 million. District Court Opinion, 296 F. Supp. 2d at 1103. Interpreting State Farm as holding that “single-digit multipliers pass constitutional muster for highly reprehensible conduct,” and citing our decision in Zhang v. American Gem Seafoods, Inc., 339 F.3d 1020 (9th Cir. 2003), the district court decided to increase punitives from $4 billion to $4.5 billion. 296 F. Supp. 2d at 1110. The final punitive damages award represented a ratio of just under 9 to 1. Id. Once again, Exxon appealed. The plaintiffs also appealed, seeking to reinstate the jury’s full $5 billion punitive damages verdict. In this appeal, Exxon has focused intensively on the sentences in our earlier opinion where we noted that prejudgment payments generally should not be part of the “numerator” to avoid deterring pre-judgment settlements. PuniIN RE: THE EXXON VALDEZ 19719 tive Damages Opinion I, 270 F.3d at 1242. Exxon has argued strenuously in the district court and to us that all of its settlement and other pre-judgment compensatory payments to plaintiffs must be subtracted from the over $500 million amount of actual harm in the ratio of punitive damages we use to review the award pursuant to the BMW v. Gore/State Farm factors. This would reduce the harm to the relatively paltry figure of $20.3 million. We recognized in Punitive Damages Opinion I that Exxon, soon after the spill, instituted a claims payment system that almost fully compensated plaintiffs for their economic losses and did so promptly. Id. We also recognized that Exxon’s prompt payment of compensatory damages should be a substantial mitigating factor in our review of punitives. Id. In Exxon’s appeal, major issues therefore relate to how, after State Farm, to assess the reprehensibility of Exxon’s conduct and the effect of the mitigating factors. An important subsidiary issue is the extent to which we are bound to give literal effect to the sentences in our earlier opinion concerning subtracting the pre-judgment payments from actual harm, even though State Farm suggests the mitigating factors should be taken into account differently. For the reasons more fully explained in this opinion, we do not accept the minimal bottom line figure urged by Exxon and properly rejected by the district court. We do, however, conclude there is merit to Exxon’s contention that punitives should be reduced. In their cross appeal, plaintiffs seek a reinstatement of the original $5 billion punitive award. We do not fully adopt their position either because doing so would peg the ratio of punitive damages to harm at a level State Farm reserves only for the most egregious misconduct. There was no intentional infliction of harm in this case. In addition, because Exxon’s mitigating efforts after the accident diminish the relative reprehensibility of its original misconduct for purposes of 19720 IN RE: THE EXXON VALDEZ reviewing punitive damages, such a high ratio is not warranted in this case.