Florida Jury Can Mull Lump Sum in Tobacco Suit
Rejecting a last-ditch attempt by tobacco companies to forestall the risk of massive punitive damages in a Florida class-action case, the Florida Supreme Court on Monday said it will allow the jury to consider a potentially crippling lump-sum award to as many as hundreds of thousands of sick or deceased smokers.
The ruling helped drive tobacco stocks, already beaten down by litigation fears, into even lower territory.
The court’s decision upstaged the industry’s filing Monday of a motion to dismiss the multibillion-dollar lawsuit that the Justice Department filed against it in September.
In papers filed in U.S. District Court in Washington, cigarette makers asked federal Judge Gladys Kessler to throw out the government’s suit, which seeks recovery of more than $20 billion per year purportedly spent by the government to treat smoking-related ailments of federal employees, military veterans and Medicare recipients.
In their 83-page brief, the companies said the U.S. is not legally entitled to recover the funds and is demanding reforms the industry already agreed to in its $246 billion in settlements with the states.
The companies are saying, “Lay off, enough’s enough,” one tobacco lawyer said.
But Wall Street only had eyes for the Florida ruling, which shaved already depressed tobacco share prices to near or below 52-week lows. Industry leader Philip Morris fell $1.94 to close at $21.50; No. 2 RJ Reynolds Tobacco Holdings slipped 56 cents to $16.75, a new 52-week low; and Loews Corp., owner of Lorillard Tobacco, skidded 94 cents to $60.50. All trade on the New York Stock Exchange.
Eager to put the best face on the Florida setback, William S. Ohlemeyer, a vice president and associate general counsel at Philip Morris, said the state’s high court had not ruled on the merits of the industry’s position but only refused to intervene until the trial is over.
In the initial phase of the long-running trial, the six-member jury found that the industry had conspired to conceal the hazards of smoking and could be held liable for a host of smoking-related ailments afflicting a vast class of Florida smokers that might number in the hundreds of thousands.
In phase two of the trial, which resumes Jan. 18 in Miami’s Dade County Circuit Court, the jury is considering the specific claims of three cancer victims who have been designated class representatives. But Judge Robert Kaye has also told jurors to determine whether to award a lump sum of punitive damages for the entire class before determining how many members it has or how much compensatory damages they are owed.
Monday’s ruling “gives this jury the opportunity to vent the same anger that they showed at the end of phase one,” said Martin Feldman, a tobacco analyst with Salomon Smith Barney.
Should jurors award punitive damages, the industry, in order to appeal, could be required by the court to post a bond covering the full amount of damages plus interest for the period of the appeal. And if the damages were in the tens or hundreds of billions of dollars, the companies would probably be unable to post the bond. That could force them to abandon the appeal and seek a settlement on harsh terms.
“While the result is disappointing, it is not surprising” given the usual reluctance of appellate courts to intervene in an ongoing trial, Ohlemeyer said in a prepared statement. He also said he didn’t believe a bond would be required during an appeal.
In its lawsuit filed Sept. 22, the Justice Department is seeking damages under two cost-recovery statutes and the federal racketeering law known as RICO.
The suit contends that the industry conspired for decades to conceal the risks of their products, thus increasing the number of people who became addicted to smoking and boosting the health-care burden of the government.
In its filing Monday, the industry said the government has relied on legal theories “that have never been recognized by any court before,” and “that it has never asserted before.”
Moreover, the companies said that in trying to force them through the lawsuit to change their business practices, the government had “totally failed” to acknowledge that the reforms it seeks are already in place thanks to settlements with the states.
Justice lawyers declined to comment. “We gladly will respond when our response is due” in February, said Justice spokeswoman Kara Peterman.
Judge Kessler tentatively has set a trial date of January 2003, leading to speculation the case will be settled by then.
Mary Aronson, a Washington-based legal and financial analyst, said such a settlement might resolve not only the federal lawsuit but also the battle over the authority of the Food and Drug Administration to regulate tobacco.
It might also include creation of a compensation fund to settle lawsuits by sick smokers, she said. The industry is looking to “bring predictability to its stocks, and the government, I’m sure, is not particularly enamored with having to spend the next three years preparing” for trial, Aronson said.
