Big Tobacco Must Pay Damages in Florida Case
Jurors in a landmark class-action case in Miami on Friday ordered tobacco companies to pay damages of up to $12.7 million to three representatives of a giant class of ailing Florida smokers, exposing the industry to a punitive damages verdict for all of the state’s sick smokers that could reach into the tens or even hundreds of billions of dollars.
The six-member jury, which has been hearing the case since 1998, ordered top cigarette makers to pay a total of $6.9 million in compensatory damages to lung cancer victim Mary Farnan, a 44-year-old nurse, and to the husband of Angie Della Vecchia, a longtime smoker who died of lung cancer last summer at the age of 53.
The jury also found the tobacco companies liable for the throat cancer of a third class member, 60-year-old clockmaker Frank Amodeo. However, Amodeo’s $5.8 million award appeared to be in jeopardy because jurors also found that his claim was filed after expiration of the four-year statute of limitation.
As a result, the exact damages will be determined next week in a post-verdict conference--though in the wider context of the history-making case the precise amount is a small matter because an award of any amount to even one class representative was enough to launch the case’s most crucial phase. Under the trial plan set by Dade County Circuit Judge Robert P. Kaye, and bitterly opposed by the industry, Friday’s damage award triggers a determination of punitive damages in a single lump sum for a class of sick and deceased smokers that may number 500,000.
After a hiatus of several weeks, jurors will regroup, most likely in May, to hear arguments on punitive damages.
Since the same jury found last year in the trial’s first phase that smoking was responsible for 20 specific diseases, and that the industry lied for decades about the risks and addictiveness of smoking, speculation on the amount of punitive damages has ranged from a low in the hundreds of millions to $100 billion and beyond.
Industry officials, released earlier this week from a long-standing gag order that had barred them from commenting on the case, expressed disappointment with the verdict but said they expect to prevail on appeal, noting that many courts have ruled that smoking and health claims should be resolved on an individual basis.
Friday’s verdict was “the clearest demonstration of why these kinds of cases . . . shouldn’t be tried as class actions,” said William S. Ohlemeyer, vice president and associate general counsel for Philip Morris, the top U.S. cigarette maker. The industry has long contended that because individual smokers do not have identical injuries or smoking histories they should not be lumped together in a class. Ohlemeyer said the outcome “dramatically enhances our arguments on appeal” to get the entire class action thrown out.
And R.J. Reynolds Tobacco Co. said, “The errors committed by [Kaye] during this trial are too numerous to mention, but all of them will be raised in our appeal of the two adverse verdicts.” Brown & Williamson Tobacco Corp., Lorillard Tobacco Co. and Liggett Group Inc. are also on trial in the case.
Matthew Myers, president of anti-smoking group Campaign for Tobacco Free Kids, cheered the verdict as possibly “the most crippling . . . the tobacco industry ever suffered” because it “opens the door for . . . potentially massive punitive damages.”
Known as the Engle case after lead plaintiff Howard A. Engle--a South Florida pediatrician who suffers from emphysema--the suit is the only class action on behalf of sick smokers ever to reach trial.
The expectation of huge damages in the upcoming punitive damages phase is the biggest reason tobacco shares have been trading at or near five-year lows. On the New York Stock Exchange on Friday, Philip Morris closed off 44 cents at $22.50; R.J. Reynolds Tobacco Holdings dipped 6 cents to $20; and Loews Corp., parent of Lorillard, was unchanged at $51.81. American depositary receipts for British American Tobacco, parent of Brown & Williamson, slipped 44 cents to $10.19.
The threat of immense punitive damages in the Engle case has even prompted discussion of bankruptcy scenarios if, in the worst case for the companies, forestalling payment of a gigantic punitive award would require the posting of an appeal bond for the full amount.
According to some legal observers, however, a punitive damage award--or appeal bond--large enough to force a bankruptcy would be prohibited under Florida law.
Others note that Stanley and Susan Rosenblatt, the husband-and-wife legal team representing the Engle plaintiffs, have little interest in triggering a bankruptcy that would only delay and probably reduce payouts to members of the class.
David Adelman, a tobacco analyst at Morgan Stanley Dean Witter, said the industry can take some comfort in the jury finding that Amodeo filed his claim too late under the statute of limitations--suggesting that “this is not a runaway jury. . . . I am confident that this will not be a bankrupting process.”
Taking no chances, however, four major tobacco states--Virginia, North Carolina, Kentucky and Georgia--in recent days have passed emergency laws capping the amount of tobacco industry assets within their borders that can be pledged to an appeal bond.
And in the run-up to the punitive phase, Florida lawmakers have discussed--but not moved--a proposal to declare that the Engle trial plan violates existing state law, which arguably requires that punitive damages be considered only after compensatory damages for all plaintiffs are set.
Officials from Florida and other non-tobacco states are watching closely because of their growing dependence on annual payments from the industry under litigation settlements totaling $246 billion that were reached in 1997 and ’98.
“All of the states have to be looking at Florida and biting their nails about what the jury will do,” said Mary Aronson, a legal and financial analyst based in Washington.
Attorneys general for all 50 states are in the process of jointly retaining a bankruptcy law firm to advise them because bankruptcy for one or more of the companies “is a potential at some point in the future, if not now,” said Washington state Atty. Gen. Christine Gregoire.
The industry’s liability problems go well beyond Engle. Cigarette makers also face other big lawsuits, including a multibillion-dollar Justice Department suit, which is seeking reimbursement for money spent treating sick smokers under Medicare and other federal programs. And lawsuits by individual smokers, which cigarette makers once routinely flicked away, have emerged as a serious challenge.
Before Friday, juries had awarded damages to individual smokers only six times--and three of those verdicts were overturned on appeal.
But over the last 14 months, cigarette makers have suffered major defeats in three straight lung cancer trials on the West Coast. Two of the verdicts are under appeal, and the third will be appealed shortly.
In the most recent case, a San Francisco jury on March 27 ordered Philip Morris and RJR to pay $21.7 million to a lung cancer victim who began smoking after warning labels were placed on cigarette packs--a sign of how far the industry’s legal fortunes have fallen.
In their Friday verdicts, Engle jurors set compensatory damages for Mary Farnan at $2.85 million, but found her to have been 20% responsible for her illness. A damage figure of $4.02 million was set for Ralph Della Vecchia, husband of Angie Della Vecchia, but she was ruled to be 15% responsible.
In most cases, final damages to plaintiffs would be reduced by the amount they contributed to their injuries. But because jurors found that cigarette makers guilty of deliberate harms--including fraud and misrepresentation--it appears likely the damages will not be reduced.
Kaye is also expected to rule as early as Monday on whether the $5.8-million award to Amodeo will be wiped out by his failure to file a timely claim. His throat cancer was diagnosed in 1987, which normally would require the filing of a damage claim by 1991.
