Steven Pham's Legal Blog

Last week, the U.S. Supreme Court ruled on the Exxon Valdez case in which it limited the punitive damage to equal the actual damage for $507.5 million.  The court reversed the 9th Circuit Court’s ruling that the $2.5 billion in punitive damage award, roughly 5 times the actual damages, holding that the punitive damage award was excessive for maritime law.  The court took into consideration in light of the actual damage and the retribution in which Exxon already paid for the cleaning-up efforts.  Although the Court’s holding is only intended to apply toward maritime law, it is likely that other courts will use this holding and limit other form punitive damages in none-maritime cases. 

The fundamental basis of for punitive damages is to punish the wrong-doer, and discourage such behaviors, and avoid tragic events such as the oil-spill in 1989 by The Exxon Valdez.  The Court’s holding on June 26, 2008 takes away the punishment aspect of punitive damage in light of the amount of the award verses Exxon-Mobile’s record earnings over the past few years.  In its first quarter of 2008, Exxon-Mobile boasted a $10.5 Billion in profits.  That is $10.5 billion in net.  Therefore, the annual net income would expect to be roughly $42 billion.  Thus, a punitive damage of $500 million is only roughly 1.25% of Exxon-Mobil’s annual profit.  That is hardly any punishment to the company of that size and profits.  The $500 million punitive damage is not a punishment; but rather, it’s a joke!

The award is so small that it is silly.  Why do we have it at all if punitive damage will no longer deter the wrong-doer from commit crimes?  At 1.25%, it becomes a risk/benefits analysis, and for most business owners, they would take that risk.  If I were to have a business that potentially makes $100 million a year, which I would be able to profits millions dollar more by illegal activities, and the only risk are (1) retribution when get caught (2) punitive damages equal to that amount, I might be very tempted to take that risk.  Let us take it another step further.  If I were to rob a store, and my only punishment, if I happen to get caught, is to pay back the amount stolen and the same amount in punitive damage, without jeopardizing my liberty, the risk is very minimal.  Isn’t it?  We would have chaos and society would not be what we know it today. 

The punishment, regardless of whether it is a poverty crime, a white collar crime, or a crime contributed by corporate gross negligence, such as the Exxon Valdez, should fits such crime.  The punishment should be a deterrent factor.  By deciding that the punitive damage should be equal to the actual damage, the Supreme Court had taken away the punitive (punishment) aspect away.  Exxon-Mobile no longer feels the pain in its pocket and will continue to violate federal laws to reap record profits.  Where is the justice in that?