The Admiralty Clause grants maritime jurisdiction to federal courts without establishing a particular substantive standard of rulemaking for those courts to follow. (1) Since Erie Railroad Co. v. Tompkins, (2) however, courts have required common-law rules--including admiralty rules--to be grounded in an identifiable sovereign authority. (3) Last Term, in Exxon Shipping Co. v. Baker, the Supreme Court disregarded Erie's mandate when it held that the ratio of punitive to compensatory damages in maritime cases could not exceed 1:1. (4) The Court's 5-3 decision found compelling reason to limit recovery for maritime punitive damages where Congress had not yet legislated, (5) but its ruling adhered to no set standard of rulemaking in admiralty. Rather than ground its judgment in a sovereign authority, the Court neglected to conform to federal statute or state law and thereby engaged in the type of federal common-lawmaking that is no longer constitutionally permitted.
As early as 1985, Exxon Shipping's upper-level management was aware of Captain Joseph Hazelwood's drinking problem. (6) Yet despite a series of alcoholic relapses, on the night of March 23, 1989, several miles from the Alaskan coastline, Captain Hazelwood was navigating the Exxon Valdez, a 900-foot oil tanker, after downing five double vodkas prior to departure from port. (7) Shortly before midnight, an intoxicated Hazelwood steered the Valdez off course to avoid hitting an iceberg. (8) He then abruptly abandoned his position and left at the mast a third mate who was unlicensed to navigate. (9) The Valdez continued to stray from its course, and shortly after midnight it collided with Bligh Reef. (10) The hull of the ship broke, spilling an estimated eleven million gallons of crude oil into the waters of Prince William Sound. (11) The marine life and its surrounding environment never completely recovered from the widespread resulting devastation, and the area's fishing industry suffered extensive damage in the aftermath of the accident. (12) A group of affected local residents, commercial fishermen, and native Alaskans subsequently filed a class action suit against Exxon, seeking reparations for their economic losses. (13)
The U.S. District Court for the District of Alaska separated the trial into three phases and ruled in favor of the plaintiffs in each phase. (14) In Phase I, the jury determined that Captain Hazelwood had acted recklessly and that Exxon was liable for his conduct occurring within the scope of his managerial duties. (15) In Phase II, the jury awarded $287 million in compensatory damages and an additional $2.6 million for claimants who had opted for the out-of-court settlement. (16) In Phase III, the jury awarded plaintiffs punitive damages of $5 billion against Exxon and $5,000 against Hazelwood. (17) Exxon appealed the judgment.
The Ninth Circuit remanded the punitive damages award twice on due process grounds. (18) On the third appeal, a panel of the Ninth Circuit upheld the Alaska jury's determination that Exxon was liable for the reckless conduct of its employees acting within the scope of their managerial duties. (19) After conducting a review of punitive damages for conformity with due process standards, the Ninth Circuit concluded that an award of $4.5 billion remained excessive and reduced it to $2.5 billion. (20) Exxon appealed, arguing that even the reduced punitive damages award was excessive and disputing its liability for an employee's recklessness. (21)
The Supreme Court affirmed in part and reversed in part. (22) The Court divided equally on the first issue concerning Exxon's liability, leaving undisturbed the Ninth Circuit's opinion that a ship owner could be liable in punitive damages for the reckless conduct of managerial employees occurring within the scope of their employment. (23) Moving to the second issue, federal preemption, Justice Souter affirmed that federal civil penalties for the company's environmental violations did not preempt punitive damages awarded in admiralty. …