In Exxon Shipping Co. v. Baker, No. 07-216 (June 25, 2008), the United States Supreme Court cut the punitive damage award against Exxon arising out of the Exxon Valdez oil spill from $2.5 billion to approxinmately $500 million, and provided further guidance for the review of punitive damage awards.
Justice Souter authored the 5-3 majority opinion. In his opinion, Justice Souter found that this was a maritime case, and thus decided under the federal common law and not due process principles. Justice Souter discussed at length the different punitive damage standards used by various states, and discussed the general purposes of punitive damages. Interestingly, Justice Souter notes that "by most accounts the median ratio of punitive to compensatory awards has remained less than 1:1." Slip Op. p. 24-25.
Justice Souter also examined three various methods used to review punitive damages: (1) verbal tests (using criteria such as "shock the conscience" or "passion and prejudice"); (2) dollar caps; and (3) ratios.
In the end, Justice Souter found the ratio test most appropriate. Under the facts of this case, where no malicious intent was found or behavior driven primarily for gain, and with a substantial compensatory award, a 1:1 ratio was appropriate. Thus, the award was reduced to the amount of the compensatory award, which is approximately $500 million.
For more information on the case, click the links:
"Supreme Court overturns Exxon Valdez ruling" – AP via msnbc.com
"Exxon Oil-Spill Damages Slashed by Supreme Court" – Wall Street Journal