After this term’s recent Supreme Court case ruling slashing the punitive damages award that Exxon had been penalized in the disastrous Valdez spill, tort and maritime lawmakers, corporate lawyers, and CEO’s around the world are paying attention. What started as a $500 billion award in punitive damages (compared to $287 million in compensatory damages) was slashed first by the 9th Circuit Court of Appeals from $500 billion to $2.5 billion and again by the U.S. Supreme Court to about $500 million- closer to the 1:1 ratio Justice Souter argued for in his theory that punitive damages should be “reasonably predictable.”

So what does this mean in terms of basic economics for both consumers and corporations?  While it may theoretically take away a bit of the incentive to bring big tort cases against large companies and some environmental groups are concerned that big oil and other companies are more likely to cut corners without the threat of enormous, unpredictable punitive awards over their heads, the larger impact may be for the companies themselves.

In what started as a Due Process debate under the 14th Amendment, several corporations with large pending or potential lawsuits could be directly impacted. This continues a trend started several years ago, which began the slicing and dicing of seemingly arbitrary punitive damages in BMW v Gore, an Alabama case in 1996, where a jury awarded Gore, a man whose car had been slightly damaged and repainted before he purchased it, $4000 in compensatory and $4million in punitive damages. This punitive damage control also includes awards like the 2003 Campbell v State Farm case, when the high court cut a $145 million damage, which was later reduced to approximately $9 million.

The immediate impact may be felt sooner rather than later by big corporations and shareholders alike, whose holdings often fluctuate based on the daily headlines and potential pending lawsuits. Chevron is facing a potential $16 billion lawsuit in Ecuador over environmental issues. And what about the big MTBE water cleanup settlement recently? Several oil companies (including Chevron) have settled 59 cases for $422 million dollars over cleanup. Exxon Mobil did not settle. An agreement was reached several weeks before the Valdez ruling. Perhaps the other oil companies were worried about the possibility of large punitive damages if they failed to settle. And maybe Exxon will come out smiling.  Again.

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