NEWS ANALYSIS : For the Tobacco Industry, Worries of a Legal Tailspin

In the wake of Friday’s stunning victory by a lung cancer victim in a Florida cigarette liability trial, cigarette executives, shareholders and tobacco industry foes are all mulling the same question: Was the verdict against Brown & Williamson Tobacco Corp. just the start of a legal tailspin for the $50-billion industry?

Or was the damage award of $750,000 to Grady Carter, a retired air traffic controller, a mere aberration--and a reversible loss at that?

One case is not a trend. And because tobacco cases reach juries so infrequently--indeed, the last case ended in a hung jury 18 months ago--it’s impossible to know what lies ahead.

But for the tobacco industry, which has never paid a nickel in damages in nearly 45 years of cigarette litigation, the outcome certainly is worrisome. For one thing, this was the first jury ever--but will not be the last--to see explosive documents suggesting that B&W; executives knew more than 30 years ago that their products were addictive.

Moreover, internal documents from other cigarette makers--made public in congressional hearings and media reports but not yet shown to juries--will be aired in upcoming trials.

Tobacco lawyers will have to confront this new evidence not only in individual suits, like the Carter case in Jacksonville, Fla., but in class-action claims and mega-suits filed by state attorneys general.

And one possible lesson of last week’s verdict, some observers said, is that the industry’s credibility has slipped so far that jurors may be willing to take the onus off smokers for persisting in a dangerous habit. “Potentially, it’s indicative of a change in jurors’ attitudes toward the industry,” said David Adelman, senior vice president of Dean Witter Reynolds.

Historically, the industry’s defense has been that smokers made a personal choice to smoke despite the risks and should not come whining into court when they get sick. That argument always resonated strongly with jurors.

Robert Rabin, a Stanford University law professor, said tobacco juries have been asked to decide who was more irresponsible--the industry for making and promoting a dangerous product, or smokers for foolishly continuing to smoke.

In the past, he said, jurors usually had little trouble deciding that question in the industry’s favor. But recent revelations may “make some juries at least less inclined to put great weight on the smokers continuing to smoke,” Rabin said.

Still, many industry executives and Wall Street analysts were predicting the verdict will be voided on appeal and the case will be retried. In particular, they claimed that Florida state court Judge Brian J. Davis erred in allowing decades-old B&W; documents into evidence, when Carter had actually smoked brands manufactured by American Tobacco. B&W; acquired American Tobacco last year in a $1-billion merger, in the process becoming the defendant in this case.

Industry executives also said Davis’ decision to allow testimony about American’s failure to produce a safer cigarette, when no evidence was presented of the existence of a safer design, is further grounds for appeal.

On those predictions and hopes, tobacco stocks, scorched late Friday, rebounded somewhat Monday. Industry leader Philip Morris, whose shares fell $14.625 on news of the verdicts, rose $2.625 to $93.375. After falling Friday by $4.25, RJR Nabisco Holdings lost 62.5 cents to close at $28. U.S. shares of BAT Industries, parent company of B&W;, declined 62.5 cents to close at $15.

“I think it’s [the Florida verdict] appealable,” said John C. Maxwell Jr., a tobacco analyst with Wheat First Securities. He said the firm is continuing its “hold” rating on RJR and its “buy” rating on Philip Morris, whose decline Friday presents “a good buying opportunity,” Maxwell said.

Some analysts said the case may be an echo of the Cipollone verdict in 1988, in which a federal court jury in New Jersey awarded $400,000 to the family of lung cancer victim Rose Cipollone. But the outcome was voided on appeal and the Cipollone family abandoned the case before the retrial.