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In re In re Exxon Valdez

ELR Citation: 31 ELR 20220
Nos. Nos. 96-36038 et al., 229 F.3d 790/(9th Cir., 10/12/2000)

The court holds that a district court abused its discretion during the Exxon Valdez oil spill litigation when it approved a plan of allocation that denied enforceability of a settlement agreement between Exxon and seven seafood processors and that barred the processors from receiving any allocation of punitive damages. The settlement agreement included a provision whereby the processors agreed to cede back to Exxon any punitive damages that they might recover in the punitive damage allocation from pending litigation. After a jury assessed punitive damages against Exxon, the district court barred the processors from participating in the allocation of damages because the jury was not told of the cede-back agreement. The court first holds that cede-back agreements are lawful and should typically be enforced. Cede-back agreements have the effect of reaching a proportionate share allocation of damages. Both the Ninth Circuit and the U.S. Supreme Court have endorsed the proportionate share approach because of its superiority in blending fairness to the parties with incentives to settle. Therefore, the agreement at issue here cannot be held unenforceable as a matter of public policy. The court next holds that cede-back agreements should generally not be revealed to juries deliberating on punitive damages. The salutary purposes of such agreements would be frustrated if the jury knew the terms of the agreement and were permitted to offset them by increasing damages. Juries should be kept free of any outside influence that might lead them to inflate or reduce their damages award in order to secure justice for the parties. The court further holds that there were no special circumstances in this case requiring disclosure of the cede-back agreement to the jury. The court, therefore, vacates the district court's approval of the allocation plan.

Counsel for Plaintiffs
David C. Tarshes
Davis, Wright & Tremaine
550 W. 7th Ave., Ste. 1450, Anchorage AK 99501
(907) 257-5300

Counsel for Defendants
John F. Daum
O'Melveny & Myers
400 S. Hope St., Los Angeles CA 90071
(213) 669-6000

Before Browning and Kleinfeld, JJ.