Jury Clears Big Tobacco in Key Case

The tobacco industry won a major victory Thursday when an Ohio jury cleared the nation’s major cigarette companies of allegations by 114 union health funds that they conspired to suppress information about the hazards of smoking and targeted unsophisticated blue-collar workers with slick marketing campaigns.

The jury, hearing the first case of its kind to go to trial, reached a verdict after just two days of deliberations in a case where the industry faced up to $2 billion in damages.

“The significance of this case is profound at this point in time,” said Robert C. Weber, R.J. Reynolds Tobacco Co.’s lead lawyer. “This was a dream case for the plaintiffs. They got to introduce a hit parade of industry documents they like to use out of context, and the jury unanimously rejected every claim . . . including the claim that this industry had engaged in a 50-year conspiracy.”

The decision was a surprise in some quarters. Gary Black, one of Wall Street’s leading tobacco analysts, had predicted that the industry would be found liable and damages assessed against it in the Akron, Ohio, trial.

The industry was charged with perpetrating a conspiracy, mail fraud, wire fraud, tampering with evidence, obstructing justice and engaging in a racketeering enterprise. But the 11-member jury unanimously rejected all of those claims.

If the plaintiffs had prevailed--employing the novel theory that the companies were responsible for costs the union health funds’ incurred as a result of their members’ smoking-related injuries--it would have expanded the realm of the industry’s liability.

The victory clearly comes as a significant shot in the arm to the industry just four months after a San Francisco jury awarded a female smoker $51.5 million in a personal-injury suit, sending tobacco stocks tumbling. It also comes in the wake of the industry agreeing during the last two years to pay $246 billion to settle cases filed by state attorneys general around the country.

Industry analyst Martin Feldman said that although he had not spoken to the jurors yet, the verdict clearly demonstrated that the industry had been able to mount a convincing defense to about 400 seemingly damaging documents introduced by the plaintiffs’ lawyers.

Those documents included material about RJR’s controversial Joe Camel advertising campaign, Philip Morris’ overseas research activities and testimony from a witness that Thomas Osdene, a former Philip Morris research director, destroyed potentially incriminating internal documents.

The defendants countered with testimony from witnesses saying that the dangers of smoking had been long known and that the companies had mounted considerable efforts to make their products safer. Other witnesses, such as James Morgan, former president of Philip Morris, denied that the industry had engaged in a conspiracy to target youths or blue-collar workers.

San Diego attorney Patrick J. Coughlin, lead lawyer for the plaintiffs, said he found it difficult to understand how the jury could have heard so much damaging information about industry conduct and not found them responsible. “It’s tough. . . . We’ll get them another day,” he said.

Investors reacted quickly to the news. In trading on the New York Stock Exchange, Philip Morris, the world’s largest cigarette maker, shot up $3.75 to $42 a share. R.J. Reynolds, the second-largest U.S. cigarette company, rose $1.69 to $30.31. British American Tobacco, parent company of Brown & Williamson Tobacco Corp., the third-largest cigarette maker, climbed 31 cents to $17.69 on the American Stock Exchange. In addition to those companies, Lorillard Tobacco Co. was also exonerated by the jury.

Gregory Little, Philip Morris’ deputy general counsel, said he thought the verdict would have broad ramifications. “I do think this case will have a tremendous impact in arresting” so-called third-party suits, he said.

So far, about 30 labor union claims have been filed. In pretrial rulings, nine of 15 suits have been dismissed by federal judges. Any injury suffered by union health funds was too remote from the injuries suffered by smokers for the companies to even have to face a jury, the judges ruled.

In six other cases, though, judges have permitted one or more claims to go forward. The next case of this type set for trial, filed by the Laborers Union in the state of Washington, is scheduled for September.

Despite Thursday’s victory, the industry still faces a lot of legal problems. According to papers just filed with the Securities and Exchange Commission, the number of smoking and health lawsuits pending against Philip Morris rose from 545 to 660 for the 12 months ending March 1.

About 500 of those suits were filed by individuals alleging that their health was damaged by smoking, the filings show.

Until 1997, the industry had never paid a dime in damages during four decades of smoking litigation. But in the last two years, it has settled with state attorneys general for $246 billion and resolved a class action by flight attendants in Florida for $350 million.

* STATES WIN A ROUND: The Senate backs governors in using tobacco settlement funds as they see fit. A20