Canthook

Are you old enough to remember the Exxon Valdez? Twenty years ago this winter, Joe Hazelwood drank 15 shots of liquor, enough to raise his blood alcohol to three times the legal limit for driving a car, then he sped up his ship, turned on the autopilot, and headed to his bunk to sleep off the booze, turning over the ship to an inexperienced pilot.

Oh, and by the way, he was going through the treacherous and rocky Prince William Sound at the time.

As you might expect, what you might expect happened. The ship ran aground on Bligh Reef a little after midnight, and because of delayed efforts to contain the spill, they lost 10.9 million gallons of oil into Prince William Sound.

Hmmm. At Builder Square prices for 10w40 Pennzoil, that'd be $160 million.

The oil covered everything, as you might expect. It killed a lot of birds, killed a lot of fish. The Prince William Sound commercial fishermen harvest over five billion pounds of fish annually.

You priced salmon lately?

The Supreme Court of the United States has just rendered an opinion in the case of Exxon Shipping Company v. Baker. They've decided that $2.5 billion in punitive damages is excessive. It should only be 20% of that.

Excuse me, but aren't punitive damages supposed to be excessive? They don't get imposed in cases where the defendant is trying his best. The whole idea is to punish the miscreant, to get his attention, so he straightens up and flies right.

So instead of Exxon paying those 30,000 defendants an average of $83,000 each, the defendants will get about $16,000 each, which translates into $10,000 after lawyers. And they've had to wait two decades to get it.

How much do you pay on your credit card? A few people pay as little as 1% per month. Many people pay something like 2.5% per month. If you had invested $33.50 on the day the Exxon Valdez wrecked, and you were getting 2.5% per month, you'd have more money than the average defendant will be getting. If you think 1% per month is a more reasonable figure, then you'd have to have invested almost $1,000 back then.

Or take a look at Exxon stock. For every $5.94 you invested in Exxon at the time of the wreck, you'd have earned $17.68 in dividends and you'd have $86.92 worth of stock today. If they'd have had that $10,000 back in 1989, the defendant would have $176,680 today.

Is that a reasonable amount? Well, no. It's incredibly expensive to run your own business. Even a business that manufactures and sells advice - a CPA, for instance, or a law firm - has to have $2 in gross income to generate $1 in salaries. It's a lot more expensive to run a fishing boat. Fishermen themselves have to pay for such items as wet-weather gear ($100 per set), rubber boots ($40 to $70 per pair), gloves ($2 to $12 per pair), wrist covers or sleeves ($5 per set) and a sleeping bag ($70 to $200).

On the "Deadliest Catch", a boat with 5 fishermen aboard may pay 10% of their net earnings to the fishermen, after paying for food, fuel, bait, and ice. The rest is needed to pay for the multi-million dollar boat. But if there's nothing to catch because of an oil spill, the bank still wants to be paid for the boat.

If you risk your life, pay is typically high. Earning $100K a year is not unusual - and the boat needs to bring in $5 million to pay those salaries. If the boat can't go out, they save that $500K payroll - but they still need $4.5 million to remain tied up at the dock. If the five fishermen get $50,000 from Exxon instead of $5 million in fish, and they have to wait 20 years to get it, even the $2.5 billion originally assessed would be a small fraction of what they should be compensated.

If you were driving a $4000 used car and ran into an Exxon-Mobil gas station, setting it on fire and causing an explosion, would they be happy to settle for $4000 in compensation? Of course not.

Government has two essential functions. It exists to provide order to those who are governed, by providing peaceful remedies. It also needs to defend the government itself - but if it's not doing the first job, nobody really gives a damn whether the second job is performed or not.

If we don't provide a lawful way to get justice, people will take justice into their own hands. There are three things that can happen. We can establish a huge bureaucracy and huge manuals of regulations for the bureaucrats to enforce. We can allow people to seek redress for injuries in court. Or we can simply sweep everything under the carpet. But that doesn't mean that those who are injured will forget about it. They'll find a way to get even, using shotguns, billy-clubs, brass knuckles, and knives. They'll use arson and explosives. They'll use vehicles as weapons.

There are many who complain about punitive damages, but really, they are the cheapest, most efficient, tool we have to ensure people behave.

Other Bloggers On These Subjects:
Exxon Valdez - fisherman economics - fishermen - justice - prince william sound - punitive damages - SCOTUS