Two controversies shed light on some of the idiocies of our lawsuit culture, and on the anti-corporate populist delusions and political influence-peddling that help explain why the law is so often an ass. The first involves a $2.5 billion award of punitive damages against ExxonMobil, $484 million of which would go to the plaintiffs’ attorneys. The second involves countless billions of dollars in "privacy" claims against telecommunications companies for helping the government seek to prevent terrorist attacks through arguably illegal wiretaps.
The Supreme Court is poised to decide whether to hear an ExxonMobil subsidiary’s petition for relief from the $2.5 billion punitive award that a federal Appeals Court approved in one of the cases arising out of the catastrophic oil spill after the tanker Exxon Valdez hit a reef off the coast of Alaska 18 years ago.
That would be $2.5 billion on top of the $3.4 billion that the company has already paid to clean up the environmental damage, to compensate all injured fishermen and other parties, and to pay fines and settle claims with Alaska and the U.S. government.
The legal explanation for why Exxon should not pay a dime in punitive damages, let alone $2.5 billion, is complicated. But the fundamental folly underlying this and many other huge awards is pretty simple, in my opinion:
This punitive award would not punish any human being who had anything to do with the oil spill. (The ship’s captain has already been assessed $5,000 in punitive damages.) It would enrich only lawyers and Alaskans who have already been fully compensated for losses caused by the oil spill. And it would deter no future corporate misconduct, prevent no accidents, and serve no public interest of any kind, in any way.
This sort of award is, in other words, pure waste. And ultimately such awards come out of your pockets and mine.
To be specific, the $2.5 billion would initially be taken out of Exxon’s profits. This prospect has presumably depressed Exxon’s stock somewhat and may depress it more if the justices let the award stand. The people most immediately affected would be the millions of ordinary Americans who invest some of their savings in Exxon, mostly through pension funds.
The overpaid executives at the top of Exxon’s chain of command might lose a small percentage of their gigantic compensation packages if the award stands. But they would continue to be overpaid, as (in my view) are most top corporate executives.
And ultimately, the aggregate costs of thousands of such unwarranted awards are spread to all of us through higher prices and insurance premiums. The same is true of most, if not all, of the huge damage awards and settlements involving asbestos, silicosis, tobacco, and lead paint, among other major litigations. This is a price worth paying when necessary to compensate victims or deter misconduct. But most huge awards in recent years, including Exxon’s, serve no such purpose.
Where would Exxon’s $2.5 billion go? After the plaintiffs’ lawyers take their $484 million, the balance would go to a class of some 30,000 individual and organizational plaintiffs who have already been compensated.
This is not to deny that large punitive awards may occasionally help spur defendants and others to behave better in the future, in those unusual cases in which compensatory damage awards (often including vast sums for plaintiffs’ pain and suffering) are too small to create the right incentives. But the $3.4 billion already paid by Exxon is more than enough to make it and others exceedingly careful to avoid future tanker accidents. Especially because no jury has ever clearly found that anybody at Exxon did anything wrong, with the exceptions of the tanker’s possibly, but not provably, drunken captain and its third mate.
I also suspect that most of the total amount paid out in all of the punitive awards around the country, and in settlements driven by fear of such awards, similarly serves little or no useful social purpose. Indeed, the useless award against Exxon alone is larger than the sum of all other punitive awards for unintentional conduct affirmed by all federal Appeals Courts in all of American history.
In addition, studies show that juries are wildly unpredictable in awarding punitive damages. The consequence is that such awards, in the aggregate, may well do less to deter harmful conduct than to deter conduct that is, on balance, socially valuable even though it carries some risk of harm.
Three forces sustain this lunacy: 1) the entrepreneurship (if not greed) and political clout of plaintiffs’ attorneys, some of whom aggressively recruit clients who are not seriously injured, as illustrated by the recent guilty plea of securities-class-action superlawyer William Lerach for paying kickbacks to his "plantiffs"; 2) the populist fantasy that hitting big companies with huge punitive awards punishes individual corporate malefactors, or at least soaks the rich; and 3) the reluctance of courts and elected officials to get rid of claims that serve to enrich some people at the expense of the general public.
It’s also worth noting the disputed evidence that in the Exxon Valdez spill, nobody except the captain, Joseph Hazelwood (who left the bridge in violation of Exxon policy), and his third mate (who was thus alone when he failed to make a crucial turn to avoid the reef) did anything wrong.
In my opinion, it was unwise of Exxon executives to allow anyone with an alcohol problem to command what the plaintiffs correctly stressed was "an enormous vessel carrying toxic cargo across treacherous and resource-rich waters."
But the same U.S. Court of Appeals for the 9th Circuit that approved $2.5 billion in punitive damages, while halving the jury’s $5 billion award, admitted that there was substantial (albeit disputed) evidence that "Exxon followed a reasonable policy of fostering reporting and treatment by alcohol abusers, knew that Hazelwood had obtained treatment, did not know that he was an alcoholic, and did not know that he was taking command of his ship drunk."
Indeed, it might have been illegal for Exxon to fire Hazelwood had this occurred just two years later, after adoption of the Americans with Disabilities Act of 1990.
To be sure, the panel also noted that there was disputed testimony that high-level executives knew that the captain "had fallen off the wagon and was drinking on board their ships and in waterfront bars."
Whom did the jury believe? We don’t know. Under the trial judge’s instructions, once having found that the captain had acted recklessly, the jury was legally required to impute his recklessness to Exxon. This despite the fact that the captain had violated Exxon policy by leaving the bridge and getting drunk (if he did) on the job.
Exxon’s petition for Supreme Court review makes powerful arguments that federal maritime law — not to mention common sense — prohibited any punitive award based on imputed recklessness. The petition also shows that the award is so grossly excessive as to violate constitutional due process.
Similar folly is presented by the battle now raging in Congress over whether to immunize AT&T and Verizon, among others, from the dozens of lawsuits that seek to hit them for countless billions of dollars for cooperating with the Bush administration’s "terrorist surveillance program."
Only in America would anyone take seriously the notion that these companies should be penalized for trying to help prevent mass-murder terrorist attacks while relying on the government’s assurance (questionable though it was) that the program was legal.
If these lawsuits go forward, any jury awards or settlements will, as usual, come out of all of our pockets in the long run — this time in the form of higher prices for telecom services. Worse, the only significant monetary beneficiaries will be the plaintiffs’ attorneys and the mostly Democratic politicians on whom they shower campaign cash.
Few, if any, members of the plaintiff classes would see much money because few, if any, of the hundreds of millions of supposed "victims" of the surveillance program have been injured in any serious sense. Our "compensation" would be a few bucks or discount coupons.
To be sure, civil libertarians are allied with the plaintiffs’ attorneys on this issue because they hope that the litigation might intimidate telecoms into refusing to cooperate with government surveillance programs. The unintended, incidental beneficiaries of any such blow for privacy might also, of course, include Al Qaeda and others bent on mass-murdering Americans.
AT&T and Verizon (and Exxon) will survive. Meanwhile, the lawyers suing the telecoms essentially hope to take money from our left pockets, rake off a huge cut for themselves, and put what’s left into our right pockets. This emperor has no clothes.