In Re Exxon Valdez (9th Cir. 2000)

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

In Re: THE EXXON VALDEZ

ICICLE SEAFOODS, INC.; SEVEN SEAS
CORPORATION; OCEAN BEAUTY
SEAFOODS, INC.; OCEAN BEAUTY
ALASKA, INC.; WARDS COVE
PACKING COMPANY, INC.; ALASKA
BOAT COMPANY; NORTH PACIFIC
PROCESSORS; TRIDENT SEAFOODS
CORPORATION; NORTH COAST
                                                     No. 96-36038
SEAFOOD PROCESSORS, INC.; ADF,
INC., dba Aleutian Dragon
                                                     D.C. No.
Fisheries,
                                                     CV-89-00095-HRH
Plaintiffs-Appellants,

and

EXXON SHIPPING COMPANY; EXXON
CORPORATION,
Defendants-Appellants,

GRANT BAKER, et al., as
representatives of the Mandatory
Punitive Damages Class,
Plaintiffs-Appellees.

13063

ALASKA SPORTFISHING ASSOC., INC.;
                                                     No. 97-35036
LOUIE E. ALBER; AHMET ARTUNER;
                                                     D.C. No.
GRANT C. BAKER; JEFFREY BAILEY;
                                                     CV-96-00056-HRH
WILLIAM BENNETT; MICHAEL
WAYNE BULLOCK; ROBYNE L.
BUTLER; ALBERT RAY CARROLL;
DEBRA LEE, INC.; DEW DROP, INC.;
LARRY L. DOOLEY; MARK DOUMIT;
STEVE DOUMIT; DOUGLAS R.
JENSEN; DENNIS G. JOHNSON;
DONALD P. KOMKOFF, SR.; JOSEF
KOPECKY; DANIEL LOWELL; ANDREW
E. MARTUSHEFF; CAROL ANN
MAXWELL; JACQUELAN JILL
MAXWELL; ROBERT A. MAXWELL,
SR.; MICHAEL MCLENAGHAN;
ELENORE E. MCMULLEN; LESLIE R.
MEREDITH; THE NATIVE VILLAGE OF
TATITLEK; LEONARD S. OGLE;

13064

STEVEN T. OLSEN; AUGUST M.
PEDERSON, JR.; MARY LOU
REDMOND; JOSEPH DAVID STANTON;
JEAN A. TISDALL; DARRELL WOOD,
Defendants-Appellees.

In Re:
THE EXXON VALDEZ

ICICLE SEAFOODS, INC.; PETER PAN
SEAFOODS, INC.; SEVEN SEAS
CORPORATION; STELLAR SEAFOODS,
INC.; OCEAN BEAUTY SEAFOODS,
INC.; OCEAN BEAUTY ALASKA, INC.;
WARDS COVE PACKING COMPANY,
INC.; ALASKA BOAT COMPANY;
NORTH PACIFIC PROCESSORS; ADF,
                                                     No. 97-35190
INC., dba Aleutian Dragon
                                                     D.C. No.
Fisheries; TRIDENT SEAFOODS
                                                     CV-89-00095-HRH
CORPORATION; NORTH COAST
SEAFOOD PROCESSORS, INC.,
                                                     OPINION
Plaintiffs-Appellants,

GRANT BAKER, et al., as
representatives of the Mandatory
Punitive Damages Class,
Plaintiffs-Appellees,

EXXON CORPORATION, EXXON
SHIPPING COMPANY,
Defendants.

13065

Appeals from the United States District Court
for the District of Alaska
H. Russel Holland, District Judge, Presiding

Argued and Submitted
May 3, 1999--Seattle, Washington

Filed October 12, 2000

Before: James R. Browning, Mary M. Schroeder,1 and
Andrew J. Kleinfeld, Circuit Judges.

Opinion by Judge Schroeder

_________________________________________________________________

COUNSEL

David C. Tarshes, Davis Wright Tremaine, LLP, Anchorage,
Alaska, for the plaintiffs-appellees.

James vanR. Springer, Dickstein Shapiro Morin & Oshinsky,
Washington, DC, for the plaintiffs-appellees.

Brian B. O'Neill, Faegre & Benson, Minneapolis, Minnesota,
for the plaintiffs-appellees.

John F. Daum, O'Melveny & Myers, LLP, Los Angeles, Cali-
fornia, for defendants-appellants Exxon Corporation.

Bradley S. Keller, Byrnes & Keller, LLP, Seattle, Washing-
ton, for plaintiffs-appellants North Coast Seafood Processors,
Inc.

_________________________________________________________________

OPINION

SCHROEDER, Circuit Judge:

This appeal represents a small part of the massive litigation
generated by the 1989 Exxon Valdez oil spill into the waters
of Prince William Sound, Alaska. The dispute we consider
here arises from the punitive damages claims filed against
Exxon2 by private parties injured by the spill and consolidated
_________________________________________________________________
2 We follow the practice of other panels of this court who have decided
cases involving the Exxon Valdez, and use "Exxon " to refer to Exxon
Corporation, Exxon Shipping Company, Exxon Transportation Company,
and any other related entity. See Eyak Native Village v. Exxon Corp., 25
F.3d 773, 774 n.1 (9th Cir. 1994).

13069

into a single mandatory class action in federal court. Aligned
on one side in this appeal are Exxon and a group of plaintiff
seafood processors known as the Seattle Seven. The Seattle
Seven reached a $64 million settlement agreement with
Exxon in the immediate aftermath of the Valdez spill. On the
other side are the remaining class plaintiffs, referred to in this
opinion as "plaintiffs."

The critical factual element is the settlement agreement
between Exxon and the Seattle Seven. The Seattle Seven, who
process seafood caught in Prince William Sound, sued Exxon
for compensatory and punitive damages after the spill forced
their operations to shut down for significant periods of time.
The settlement agreement they reached with Exxon did not
include a release and therefore did not formally terminate the
Seattle Seven's claims against Exxon. The Seattle Seven
agreed, however, that they would not execute on any compen-
satory damages award entered in their favor and also would
pay or "cede" back to Exxon any punitive damages they
might recover. The agreement was subsequently modified to
permit the Seattle Seven to retain a portion of the punitive
damages award received.

Although both the district court and the plaintiffs knew that
there had been a settlement agreement between Exxon and the
Seattle Seven, neither knew of the existence of the cede back
provision. Acting in its own best interest, Exxon chose not to
inform the punitive damages jury either. On September 16,
1994, the jury assessed punitive damages against Exxon in the
amount of $5 billion. The plan of allocation the plaintiffs
eventually proposed for this award, and that the district court
approved, did not include the Seattle Seven.

The central issue for us to decide is whether the jury should
have been told of the cede back provision during the last
phase of the punitive damages trial. The district court, agree-
ing with the class plaintiffs, held that Exxon's failure to affir-
matively disclose this information to the jury merited

13070

exclusion of the Seattle Seven from the plan of allocation.
Exxon and the Seattle Seven appeal this ruling.

Exxon's liability for any punitive damages, and the amount
of punitives the jury imposed are challenged in related
appeals. We here assume without deciding, for purposes of
this appeal, the validity of the judgment against Exxon. We do
not intimate what the result of that appeal will be.

BACKGROUND

The oil tanker Exxon Valdez ran aground on the Bligh Reef
in Prince William Sound, Alaska on the evening of March 23,
1989. Damage to the Valdez's cargo holds caused it to spill
11 million gallons of oil into the Sound, resulting in a great
environmental disaster. The spill grievously injured both the
environment and the economic livelihood of those individuals
who relied on the theretofore abundant marine life of the
region for their livelihood.

The State of Alaska and the United States brought actions
against Exxon for the injury to the environment. Those cases
were resolved by entry of a consent decree on October 8,
1991, under the terms of which Exxon agreed to pay at least
$900 million to restore damaged natural resources. See Eyak
Native Village v. Exxon Corp., 25 F.3d 773, 775 (9th Cir.
1994).

The hundreds of private civil actions filed in federal court
were consolidated before Judge H. Russel Holland of the Dis-
trict of Alaska. First the plaintiffs, and then Exxon moved the
district court to certify a mandatory punitive damages class.
Judge Holland granted Exxon's motion on April 19, 1994.
Alaska's state courts agreed to recognize the class action as
the only avenue through which any plaintiff, whether in state
or federal court, could recover punitive damages from Exxon.
See Chenega Corp. v. Exxon Corp., 991 P.2d 769, 775
(Alaska 1999).

13071

The Seattle Seven, the largest of the region's seafood pro-
cessors, sued Exxon in 1989. Exxon sought to reach a settle-
ment as quickly as possible, but its negotiations with the
Seattle Seven and other plaintiffs revealed a roadblock posed
by the increasing likelihood that a mandatory punitive dam-
ages class would be certified. Claims for compensatory dam-
ages could be easily disposed of by exchanging payment for
releases, but a plaintiff's release of its slice of the future
lump-sum punitive damages award merely reduced the num-
ber of claimants sharing the punitive damages pie, not the size
of the pie itself. Exxon thus actually faced a financial disin-
centive to settle, because any amount of money it paid to per-
suade a plaintiff to forgo its slice would nevertheless be
included in the amount of the eventual award.

On January 8, 1991, the Seattle Seven and Exxon settled
the Seattle Seven's claims for the 1989 and 1990 fishing sea-
sons in exchange for a payment of $63.75 million. To avoid
the punitive damages dilemma, the parties included in the
agreement a "cede back" provision. The provision stated that
the Seattle Seven would not release their punitive damages
claims against Exxon but would instead remain parties to the
litigation in order to receive their share of an eventual puni-
tive damages award, which they would then cede back to
Exxon. The existence of a settlement agreement was made
known to the rest of the subsequent punitive damages class,
but its terms were kept confidential.

The mandatory punitive damages class action was tried to
a jury in three phases in 1994. The first determined that Cap-
tain Joseph Hazelwood's behavior had been reckless, a neces-
sary prerequisite for an award of punitive damages. The
second phase assessed the amount of compensatory damages
attributable to the spill to give the jury guidance in fixing the
appropriate amount of punitive damages. For purposes of this
appeal, we need not question the determinations during those
phases. The third phase fixed the amount of punitive dam-
ages.

13072

Before the third phase began, the parties entered into an
Impact Stipulation. This described the harm the Valdez spill
had caused private parties and quantified part of it by refer-
ring to the total amount already paid by Exxon to private par-
ties in compensation (approximately $300 million). This
figure included the approximately $64 million paid to the
Seattle Seven under the 1991 settlement agreement.

In the third phase of the punitive damages proceedings, the
plaintiffs emphasized to the jury the magnitude of the harm
and the resulting need for punishment and deterrence. Exxon,
for its part, sought to demonstrate that it had already accepted
corporate responsibility by pointing to the fact that in many
cases, it had paid money to injured parties without requiring
anything in return but a receipt and without requiring releases.
Exxon's president testified that Exxon had paid "over $300
million" receiving only receipts in return, and thus, that it had
received nothing of value in return for its payments. Exxon's
counsel reiterated this in his closing argument. In fact, how-
ever, because the $300 million figure included amounts paid
to parties such as the Seattle Seven, who did agree to settle
their claims, these statements were inaccurate. The amount
paid in return for nothing but receipts was actually some-
where around $168 million.

Exxon's apparent strategy to maximize to the jury what
Exxon had already paid in order to minimize punitive dam-
ages did not work well. On September 16, 1994, the jury
awarded punitive damages in the sum of $5 billion, at that
time the largest award of its kind in history.

The next step was to allocate those damages among the
plaintiffs in a manner proportionate to their injury. The origi-
nal plan of allocation, drawn up by the non-settling plaintiffs,
did not include the Seattle Seven because the Seven's lack of
a financial interest in the recovery meant that they also lacked
motivation to pursue a stake in the award. In order to create
a financial incentive for the Seattle Seven, in 1996 Exxon

13073

negotiated a modification to the 1991 settlement agreement
with the Seattle Seven. The modification permitted the Seattle
Seven to retain $12.4 million of their punitive damage alloca-
tion rather than ceding it all back to Exxon.

The Seattle Seven then filed an objection to the proposed
allocation with the district court, contesting their exclusion
from the plan. At this point, the reason for the requested mod-
ification, the cede back provision, became known both to the
district court and to the plaintiffs. The plaintiffs began vigor-
ously to oppose inclusion of the Seattle Seven in the plan of
allocation.

The district court agreed with the plaintiffs, originally tak-
ing the position that the cede back provision itself was unlaw-
ful as against public policy. The Seattle Seven and Exxon
moved for reconsideration, supporting their motion with dec-
larations of numerous legal luminaries, including former U.S.
Attorneys General, judges of various U.S. Courts of Appeal,
law professors, and an Alaska Supreme Court Justice, all to
the effect that cede back agreements are ethical, enforceable,
and necessary for the orderly administration of justice in mass
tort cases.

Upon reconsideration, the district court agreed that the cede
back agreement was not in and of itself unethical, but held
that the Seattle Seven were nonetheless barred from partici-
pating in the allocation of damages because the jury was not
told of the agreement's existence. The court's order stated that
the problem was Exxon's failure to tell the jury "the whole
story" regarding the agreements. The court emphasized its
belief that the jury should have been entitled to determine
how much Exxon should actually pay in punitive damages,
out of its own pocket, stating: "Punitive damages are imposed
to punish the conduct which juries determine to be reckless.
The court has no doubt that the Exxon Valdez jury would be
outraged if Exxon, through the Seattle Seven settlement

13074

agreement, rather than the claimants, were to wind up with
almost 15% of the punitive damages award."

In this appeal, appellants Seattle Seven and Exxon contend
both that cede back agreements are lawful and that for their
proper administration, they must not be disclosed to juries.
Otherwise, appellants argue, the jury in order to compensate
for them or to prevent the defendant from paying less than
what the jury believes is appropriate punishment will inflate
the punitive damages award.

The appellee plaintiffs defend the district court's reasoning,
arguing that such agreements are unethical and unenforceable
unless juries are told of them. They also contend that even if
juries should ordinarily not be told, disclosure in this particu-
lar case was warranted by Exxon's exaggerated statements to
the jury regarding the amount paid to claimants without
releases in return. We review approval of the plan of alloca-
tion for abuse of discretion and any necessary legal questions
de novo. See In re Mego Financial Corp. Sec. Litig., 213 F.3d
454, 460 (9th Cir. 2000).

There are accordingly three principal issues that we must
consider in the disposition of this appeal: (1) the lawfulness
and enforceability of cede back agreements like the one in this
case; (2) whether, if lawful and enforceable, they should gen-
erally, as a matter of law, be kept from the jury; and (3) if
they should ordinarily be kept secret, whether there were cir-
cumstances present in this case that should have required
Exxon to tell the jury about the existence of this particular
agreement. We hold that cede back agreements are enforce-
able; that in accordance with the general principle that indem-
nification arrangements should not be allowed to affect a
jury's determination of damages, cede back agreements
should not be disclosed to the jury; and, finally, that there are
no circumstances in this case that would have warranted dis-
closing the terms of this cede back provision to the jury. We
therefore conclude that the district court abused its discretion

13075

in approving a plan of allocation that denied enforceability of
the settlement agreement between Exxon and the Seattle
Seven and that barred the Seattle Seven from receiving any
allocation of punitive damages.

I. ENFORCEABILITY OF THE CEDE BACK
PROVISION

In recent years, federal courts have become all too familiar
with the peculiar problems posed by mass tort litigation. See,
for example, Amchem Products, Inc. v. Windsor, 521 U.S. 591
(1997) (asbestos); Valentino v. Carter-Wallace, Inc., 97 F.3d
1227 (9th Cir. 1996) (epilepsy medication); In re Agent
Orange Product Liability Litigation, 818 F.2d 145 (2d Cir.
1987). Such litigation clogs dockets for decades, creating bur-
dens on the judicial system and delaying relief for injured par-
ties. As a result, the general policy of federal courts to
promote settlement before trial is even stronger in the context
of large-scale class actions. See Franklin v. Kaypro Corp.,
884 F.2d 1222, 1229 (9th Cir. 1989) (stating that the fact that
"there is an overriding public interest in settling and quieting
litigation . . . is particularly true in class action suits."). It is
unfortunately also true, however, that such settlements are dif-
ficult to reach. "[O]btaining a settlement in multi-party litiga-
tion may be quite complex." Id. at 1225. It will frequently be
very close to impossible for a mass tort defendant to achieve
a settlement with every potential plaintiff. The resulting pres-
ence of non-settling defendants, non-settling plaintiffs, or
both, may seriously affect the parties' incentives to settle in
the first place.

In addition to encouraging individual settlements, courts
have encouraged the use of mandatory class actions to handle
punitive damages claims in mass tort cases. Mandatory class
actions avoid the unfairness that results when a few plaintiffs
--those who win the race to the courthouse--bankrupt a
defendant early in the litigation process. They also avoid the
possible unfairness of punishing a defendant over and over

13076

again for the same tortious conduct. As a result, mandatory
classes have been endorsed by many courts and commenta-
tors. See In re A.H. Robins Co., Inc., 880 F.2d 709, 738 (4th
Cir. 1989) (recognizing that "the `trend' of the authorities is
clearly in the direction of a more liberal approach to the certi-
fication of the mass tort action"). See also II The American
Law Institute, Enterprise Responsibility for Personal Injury
263 (Reporters' Study 1991) (recommending federal legisla-
tion to create nationwide mandatory punitive damages
classes); Richard A. Seltzer, Punitive Damages in Mass Tort
Litigation: Addressing the Problems of Fairness, Efficiency
and Control, 52 Fordham L. Rev. 37, 61 (1983) (arguing that
only class actions provide a practical means for resolving the
problems that accompany punitive damage awards in mass
tort litigation).

One drawback to the mandatory class action, however, is
that it makes it even more difficult to settle the claims of any
individual plaintiff. Because punitive damages in a mandatory
class action are awarded in one lump sum, a defendant has a
serious disincentive to settle with any plaintiff unless it can
negotiate a settlement with them all, a staggering feat if not
a practical impossibility. Partial settlement merely reduces the
number of plaintiffs who share an eventual award. It does not
reduce the award's amount. Because a defendant like Exxon
would presumably be indifferent as to whether it paid 10,000
plaintiffs $500,000 each or 500,000 plaintiffs $10,000 each,
the creation of mandatory punitive damages classes cuts
against the strong judicial policy of encouraging settlement in
class actions.

We deal here with multiple plaintiffs suing one defendant,
but an analogous problem frequently occurs in the more typi-
cal situation of a single plaintiff with claims against multiple
defendants. When a plaintiff is able to settle with fewer than
all of the defendants, the question becomes how to determine
what share of a jury's total assessment of damages a non-
settling defendant should pay. Courts agree that the non-

13077

settling defendant does not have to pay the entirety of any
eventual damages award. They diverge, however, on the issue
of apportionment, taking three distinct approaches. See
McDermott, Inc. v. Clyde, 511 U.S. 202, 215-17 (1994)
(explaining the three approaches).

Under the first approach, the non-settling defendant pays
the entire amount of the award less the actual amount the
plaintiff has already received from the settling defendant,
even if this total turns out to be in excess of the non-settling
defendant's share of the fault as determined by the jury. The
non-settling defendant then retains the right to seek contribu-
tion from the settling defendant in order to bring total pay-
ments in line with allocation of fault. This is called the "pro
tanto with contribution" approach, and it creates little incen-
tive for any defendant to settle.

The second approach is known as "pro tanto without contri-
bution." Under this approach, the non-settling defendant pays
the entire amount of the award less the amount of the settle-
ment and does not retain the right to seek contribution. This
helps ensure that the plaintiff receives the full amount of dam-
ages and maintains incentives to settle, but can result in the
non-settling defendant paying more than its share of fault.

Finally, under the "proportionate share" approach, the non-
settling defendant pays only the amount of the award that is
allocable to its share of the fault, as determined by the jury.
The proportionate share approach is the law in the Ninth Cir-
cuit, has been adopted by the Supreme Court for use in mari-
time actions, and is the approach recommended by the
American Law Institute. See Kaypro, 884 F.2d at 1231. See
also McDermott, 511 U.S. at 217; Restatement (Third) of
Torts: Apportionment of Liability S 16.

The main advantage of the proportionate share approach is
that it is the only one of the three that combines fairness to all
parties with an appropriate balance of individual incentives to

13078

settle. The effect of proportionate share apportionment, how-
ever, is that the actual amount of damages the plaintiff
receives will deviate from the amount awarded by the jury,
unless the amount of the settlement exactly matches the set-
tling defendant's share of fault as subsequently determined by
the jury. If the jury later determines that the settling defen-
dant's share of fault is less than the amount paid in settlement,
this will result in a windfall to the plaintiff. If the jury's allo-
cation is higher, this will result in a shortfall.

This case differs from the typical situation in that we do not
have a single plaintiff seeking to recover a single award from
multiple defendants. The Exxon Valdez punitive damages
class involves multiple plaintiffs seeking to recover a single
award from a single defendant. Neither our court nor leading
authorities have addressed this situation. The potential distor-
tion of settlement incentives that occurs when some parties
settle and some do not is the same, however, as with the mul-
tiple defendant situation. If Exxon could have been sure that
the district court would eventually adopt a form of the propor-
tionate share approach, permitting non-settling plaintiffs to
recover damages only in proportion to their allocation of harm
and allowing the remaining punitives to go uncollected, settle-
ment incentives would have been preserved and the cede back
provision would not have been necessary. Exxon had no such
certainty, though (and indeed, the district court eventually
refused to adopt such a method). Exxon therefore sought to
achieve a proportionate share result without the court's assis-
tance by adding the cede back provision to its settlement
agreement with the Seattle Seven.

An analogous type of cede back agreement has been used
in the multiple-defendant context and is called a Pierringer
release, after the leading case to consider it, Pierringer v.
Hoger, 124 N.W.2d 106 (Wis. 1963). Pierringer releases have
been approved in Wisconsin and Minnesota. See id.; Frey v.
Snelgrove, 269 N.W.2d 918, 922 (Minn. 1978).

13079

Pierringer releases have the effect of reaching a proportion-
ate share result and have principally been used in jurisdictions
that adhere to the "pro tanto with contribution " approach. A
plaintiff who settles with one of multiple defendants agrees to
indemnify that defendant for any eventual contribution action
brought by the non-settling defendants after the entry of judg-
ment. See Peter B. Knapp, Keeping the Pierringer Promise:
Fair Settlements and Fair Trials, 20 Wm. Mitchell L. Rev. 1
(1994).

The Supreme Court has recognized that Pierringer releases
mitigate the adverse effect on settlement that exists under a
"pro tanto with contribution" regime, but has worried that the
prospect of indemnity actions might add "yet another poten-
tial burden on the courts." McDermott, 511 U.S. at 212. As a
practical matter, however, Pierringer releases do not require
the actual litigation of a contribution action, followed by an
indemnity action. The portion of the judgment allocable to the
settling defendant's fault is simply considered uncollectible,
just as it would be under the proportionate share approach.
See Austin v. Raymark Ind., Inc., 841 F.2d 1184, 1190 (1st
Cir. 1988) (stating that through a Pierringer release, a non-
settling defendant "effectively obtain[s] its contribution from
the settling defendants by having assessed against it only its
own percentage of liability"). Similarly, in the multiple plain-
tiff context, a non-settling plaintiff through a cede back agree-
ment obtains only its proportionate share of the entire punitive
damages award.

[1] What Exxon and the Seattle Seven did, therefore, was
use a Pierringer device to obtain the functional equivalent of
a proportionate share allocation of damages. Since both the
Ninth Circuit and the Supreme Court have endorsed the pro-
portionate share approach because of its superiority in blend-
ing fairness to the parties with incentives to settle, we cannot
hold such an agreement unenforceable as a matter of public
policy. Far from being unethical, cede back agreements make
it easier to administer mandatory class actions for the assess-

13080

ment of punitive damages and encourage settlement in mass
tort cases. As a result, such agreements should typically be
enforced.

II. WHETHER CEDE BACK AGREEMENTS SHOULD
GENERALLY BE DISCLOSED TO THE JURY

The district court in this case held that cede back agree-
ments, though ethical, should be disclosed to the jury because
the jury should be able to take them into account in assessing
punitive damages. Exxon and the Seattle Seven contend, how-
ever, that juries should never be told. They argue persuasively
that the salutary purposes of such agreements would be frus-
trated if the jury knew about the terms of the agreement and
were permitted to offset them by increasing damages. We
agree.

If a jury was told that the defendant would eventually get
back a portion of the punitive damages assessed, the jury
would likely compensate by imposing more damages, thereby
assuring that the defendant would pay the entire amount
deemed appropriate by the jury. This is exactly what the dis-
trict court believed the jury should have been permitted to do
in this case. Yet if that were to be the result of the settlement
agreement, from the defendant's perspective there would be
no point in settling in the first place. The defendant would still
have to pay the full amount assessed by the jury, in addition
to the amount paid in settlement.

This is what we have recognized elsewhere in our law: that
a jury should assess damages but not determine how much
defendants should "actually" pay or how much plaintiffs
should "actually" receive. In Larez v. Holcomb, 16 F.3d 1513
(9th Cir. 1994), we held that it was prejudicial error to inform
a jury deliberating on an award of punitive damages that the
defendant would be indemnified by his employer for any such
award. See id. at 1520-21. We stated that a jury's task is to
arrive at a "dispassionate" determination of the proper award,

13081

and that evidence of indemnification might have tempted the
jury to inflate the award out of sympathy for the plaintiff. See
id. at 1519. Similarly, we held in Brooks v. Cook, 938 F.2d
1048 (9th Cir. 1991), that juries should not be told about the
availability of attorneys' fees when fixing an award for a pre-
vailing plaintiff. We explained that "the fear is that a jury,
informed of plaintiff's right to additional funds, will view the
money as a windfall and take steps to offset it. " Id. at 1052.

[2] These principles are not unique to this circuit. It is uni-
formly held that absent exceptional circumstances, a jury
deliberating on the amount of a damages award is not to con-
sider where the funds that constitute that award will come
from, or where they will end up. For example, the states of
Georgia and Oregon both have enacted tort reform measures
that provide that large portions of punitive damages awards
(75 percent in Georgia and 50 percent in Oregon) go to the
state or state-designated charities rather than the prevailing
plaintiff. Both states have held that it is prejudicial error to
inform the jury of this ultimate outcome, because of the temp-
tation for the jury to inflate the award in order to more fully
compensate the plaintiff. See Ford v. Uniroyal Goodrich Tire
Co., 476 S.E.2d 565, 570-71 (Ga. 1996); Honeywell v. Ster-
ling Furniture Co., 797 P.2d 1019 (Ore. 1990). Similarly, the
Supreme Court of Minnesota has held that juries should not
be informed that a finding of a certain percentage of compara-
tive negligence on the part of the plaintiff will serve to reduce
the damages award by that percentage. See Rosenthal v.
Kolars, 231 N.W.2d 285, 288 (Minn. 1975). Juries are also
not to be told of statutory caps on damages, or, in antitrust and
RICO cases, that damages will eventually be trebled. See
Sasaki v. Class, 92 F.3d 232, 237 (4th Cir. 1996) (holding that
informing a jury of a statutory cap on damages for one of
plaintiff's claims may have led to an increased award on the
non-capped claim); HBE Leasing Corp. v. Frank , 22 F.3d 41,
45-46 (2d Cir. 1994) (holding that informing a jury of RICO's
treble damage provision may confuse or prejudice jury into
lowering the award in order to counteract the trebling effect);

13082

Pollock & Riley, Inc. v. Pearl Brewing Co., 498 F.2d 1240,
1242-43 (5th Cir. 1974) (treble damages); Semke v. Enid
Automobile Dealers Ass'n, 456 F.2d 1361, 1370 (10th Cir.
1972) (treble damages); Weiss v. Goldfarb, 713 A.2d 427, 480
(N.J. 1998) (holding that informing a jury of a statutory cap
on damages that applied to one defendant may have led the
jury to increase the amount of damages allocable to other,
non-capped defendants). The message from these cases is the
same: juries are to 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. See Rosenthal, 231
N.W.2d at 288.

In cases involving settling and non-settling defendants, sev-
eral states provide by statute that in allocating fault, the jury
cannot be told of a settlement or its terms. See Conn. Gen.
Stat. S 52-216a; Fla. Stat. ch. 768.041; Maine Rev. Stat. Ann.
S 163; N.H. Rev. Stat. Ann. S 507:7-i; N.Y. C.P.L.R. 4533-b
(McKinney). The reason for this is the danger that the jury
will adjust its award of damages according to the amount of
the settlement. See Builder's Square, Inc. v. Shaw, 755 So.2d
721, 725 (Fl. Ct. App. 1999). If the jury perceives that the set-
tlement amount is low, for example, it might be tempted to
increase the amount of fault allocable to the non-settling
defendants in order to maximize the plaintiff's recovery.

In Minnesota, a state that has recognized the validity of
agreements similar to the cede back provision in this case, the
Supreme Court has held that the existence of a Pierringer
release may be admissible for limited purposes such as to
show witness bias. The court must exercise its discretion,
however, as to what details of the agreement should be pro-
vided to the jury, and "as a general rule the amount paid in
settlement should never be submitted." Frey v. Snelgrove, 269
N.W.2d 918, 923 (Minn. 1978). Thus, the existence of an
agreement between the parties is clearly relevant should the
settling defendant attempt to testify at trial in a manner favor-
able to the plaintiff. The details of the agreement should not

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be disclosed, though, and the evidence admitted should be
limited to avoid distorting the jury's deliberations on dam-
ages. See id. See also 23 Wright & Miller, Federal Practice
and Procedure S 5311 (commenting that when evidence of a
settlement agreement is admissible to show witness bias, "it
is true that often the fact of a compromise will suffice to show
bias and that exploring the details will increase the prejudice
to the opposing party without any appreciable effect on the
credibility of the witness"); Restatement (Third) of Torts:
Apportionment of Liability S 24, Reporters' Note, comment i
(recommending that when the fact of a settlement agreement
is admissible to show witness bias, the agreement itself should
not be admitted into evidence, and that if it is, potentially
prejudicial portions of it should be redacted).

Therefore, it is clear that cede back agreements should gen-
erally not be revealed to juries deliberating on punitive dam-
ages. The only remaining question is whether any particular
circumstances in this case warranted an exception from this
general rule.

III. SPECIAL CIRCUMSTANCES

The plaintiffs argue that even if evidence of a cede back
agreement would ordinarily be kept from a jury, Exxon
should have volunteered it in this case to correct the false
impression Exxon created when it announced that it had paid
out $300 million in compensation requiring only receipts in
return when the correct figure was approximately $168 mil-
lion. They further argue that the fact that the exaggeration
went uncorrected justifies the district court's decision to
exclude the Seattle Seven from the plan of allocation and ren-
der the cede back provision completely unenforceable.

The plaintiffs rely on Lawson v. Trowbridge, 153 F.3d 368
(7th Cir. 1998). Lawson holds that otherwise inadmissible evi-
dence of indemnification may be admitted on cross-
examination to impeach a testifying defendant who intimates

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to the jury that he will be financially ruined by a large dam-
ages award. See id. at 379. Lawson does not concern the
enforceability of the underlying indemnification agreement.

We will not extend Lawson beyond its holding to justify
the district court's exclusion of the Seattle Seven from the
plan of allocation on the basis of Exxon's trial conduct. Deny-
ing the Seattle Seven recovery on the basis of Exxon's actions
would be manifestly unfair.

[3] As for Exxon itself, we do not condone its conduct. The
exaggerations it made at trial, however, have little, if any-
thing, to do with the cede back provision. Exxon stated that
it had paid out $300 million requiring only receipts in return;
the only correction necessary was the alteration of that figure
to $168 million. There would have been no need to mention
the cede back provision, and thus no need to disturb the gen-
eral rule that such agreements should be ordinarily be kept
from the jury. Furthermore, the only conceivable prejudice the
plaintiffs could have suffered when Exxon overstated its cor-
porate benevolence would have been a downward adjustment
by the jury of the damages award, and the proper remedy for
such prejudice would be a new trial on punitive damages. The
plaintiffs have never claimed that $5 billion was too low an
award, however, nor have they ever sought a new trial. Refus-
ing to enforce the cede back provision is not a remedy that
relates to the error complained of.

IV. OTHER ARGUMENTS

The plaintiffs raise on appeal two alternative arguments in
support of the district court's decision to exclude the Seattle
Seven from the plan of allocation. First, the plaintiffs claim
that because the Seattle Seven "settled" their claims against
Exxon, they have no right to claim a share of punitive dam-
ages regardless of the existence of the cede back provision. It
is clear, however, that the settlement agreement did not con-
tain a release of any claims; it merely "settled " the matter of

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what would happen to the claims once the claims were finally
adjudicated. Second, the plaintiffs argue that public policy
precludes any agreement that diminishes the deterrent effect
of a punitive damages award. This argument runs contrary to
the law of this circuit, which permits indemnification agree-
ments and the settlement and release of punitive damages
claims. As exemplified by Larez, it is not up to the jury to
decide how much a defendant must actually pay at the end of
the day, or how much a plaintiff will actually receive. We
therefore reject both of the plaintiffs' alternative arguments.

CONCLUSION

We hold that the district court abused its discretion in
approving the plan of allocation over the Seattle Seven's
objection. Cede back agreements are lawful and enforceable,
and generally should not be disclosed to the jury. No special
circumstances in this case justify the district court's refusal to
enforce the cede back agreement between Exxon and the
Seattle Seven. As a result, the existence of the cede back
agreement cannot justify exclusion of the Seattle Seven from
the plan of allocation.

The approval of the Allocation Plan is VACATED and the
matter is REMANDED.

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