Thursday, June 26

Will Supreme Court's Reduction of Exxon's Damages Effect Employment Suits?

A while back, Exxon lost a lawsuit over the notorious Valdez spill (shocker), and a jury said they had to pay $500 million to compensate the plaintiffs, and $5 billion in punitive damages. Yesterday, the Supreme Court said that award was excessive, and reduced the punitive damages to $500 million, equal to the actual damages.

Richard Bales at Workplace Prof Blog has a brief commentary on the effect yesterday's decision could have on employment suits.

He quotes Lyle Denniston at SCOTUSblog to point out the underlying importance of the Exxon decision:

To look at it only [in maritime and common law cases] is to miss the signal that the Court is giving – that is, it has grown highly skeptical that it can spell out, in words rather than numbers, workable guidelines that could bring some sense – some consistency – to punitive damages awards.

And in numerical terms, as Denniston points out, the Court has fixed that ratio at 1:1.

In other words, if you have $500 million in ACTUAL damages (like, what it costs to clean up Alaska), the maximum PUNITIVE damage award will be $500 million - and that's for a case where the captain was drunk.

Bales thinks this could have an awful effect on employment cases. His argument is: since damages in employment cases are usually determined by lost wages, and lost wages are (obv) low for low-income workers (or those unlucky enough to find another job), the actual damages won't cover the cost of trying the case. So an attorneys' only real incentive for taking these cases is the potential recovery of hefty punitive damages. If the punitive damages are capped at 1:1, then the recoveries would be so small that lawyers would stop taking the cases altogether. And then none of us would have anything to do.

But I think it's a little premature to be sounding the end of high-punitive employment cases. First, the Court wasn't making a constitutional decision here, so the 1:1 ratio isn't binding on lower courts. Denniston's argument was that the Court is tired of trying to explain punitive damages, and is going to push other cases to use Exxon math, but that misses Souter's point.

Denniston focuses on a note at the end of the case in which Justice Souter says the 1:1 ratio "may be the constitutional limit." But what he doesn't mention is that this idea comes from the Court's previous decision in State Farm v. Campbell, which said that a single digit ratio (i.e., 9:1 or less), not a 1:1 ratio, is reasonable for punitive damages. State Farm only mentions the 1:1 ratio when ACTUAL damages are really, really big on their own.

In other words, let's say you work in BigBox USA in the Cheap Crap department, and they fire you. You sue, and your lost wages add up to $15,000. Under State Farm, I think, the court will be much less concerned about holding you to an equal ratio for punitive damages than in cases like Exxon or Phillip Morris where the actual damages were 50 to 500 times that much. Under State Farm, you could be looking at punitives at a 9:1 or 8:1 ratio, depending on the severity of the employer's actions. That's $135,000 in punitives, $150,000 total. And I think you could find a lawyer for that kind of return.

If you can't, actually, give me a call.