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Perry on Economic Loss in the Exxon Valdez Litigation

By Lawrence Solum

Ronen Perry (University of Haifa - Faculty of Law) has posted Economic Loss, Punitive Damages, and the Exxon Valdez Litigation (Georgia Law Review, Forthcoming) on SSRN. Here is the abstract:

On March 24, 1989, an Exxon supertanker ran aground on Bligh Reef off the Alaskan coast, spilling millions of gallons of crude oil into Prince William Sound. The spill was probably the worst environmental disaster in American history, and sparked unusually extensive and complex litigation, as well as a vast academic literature. But the natural focus on concrete legal and procedural questions has left at least one abstract juridical puzzle unsolved - one that goes to the very foundation of tort liability.

The article uncovers a fundamental yet unnoticed inconsistency in American land-based and maritime tort law that surfaced following the unprecedented spill. The understandable emphasis on the award of punitive damages in recent literature has overshadowed an extremely important part of the Exxon Valdez litigation, namely the wholesale rejection of numerous claims for purely economic loss by the federal district court in the early 1990s. Thus, on the one hand, liability for economic loss was strictly limited under the renowned Robins Dry Dock v. Flint, leaving dozens of thousands of victims uncompensated. On the other hand, liability was expanded through an award of punitive damages to relatively few successful claimants. While these two components of the legal saga might not seem incompatible from a simple doctrinal perspective, they are inconsistent on a deeper - justificatory - level. This inconsistency transcends the Exxon Valdez litigation: It is a troubling trait of land-based and maritime tort law, which happened to surface when the Exxon oil submerged.

The first two parts introduce the clashing rules and their underlying rationales: Part I discusses the origins of the exclusionary (economic loss) rule, its scope of application, and most importantly - its main justifications in American case law and academic literature. Part II provides a short history of punitive damages, and discusses the common justifications for this private law anomaly. Next, Part III shows how the two rules were applied through the Exxon Valdez litigation, and explains why their in tandem application gives rise to incoherence on the justificatory level. After delineating the contours of the stark incongruity, the article proposes a conceptual framework for resolution. Generally, it holds that if courts believe liability must be expanded beyond the limits set by the exclusionary rule in order to obtain certain levels of deterrence and retribution, relaxing the exclusionary rule and allowing more victims to recover is a more defensible path than awarding punitive damages to the already compensated few. The former simply extends the application of two general principles of tort law, whereas the latter is based on problematic exceptions to these universal principles and generates severe distributive injustice.

Through this analysis, the article not only sheds new light on the particular proceedings and on the common law of torts, but also lays the foundation for a more holistic approach to legal reasoning: a transition from fragmentation to integration. ?Can two walk together, except they be agreed?? the biblical prophet rhetorically inquires. The Exxon Valdez litigation shows that they can, but this article concludes that they should not.

Recommended.

Full post as published by Legal Theory Blog on May 31, 2010 (boomark / email).