Smoke Not Clearing for Big Tobacco

Tobacco companies soon may be out from under a multibillion-dollar lawsuit by the Justice Department, but they still face a slew of legal worries, according to analysts who said the Justice suit was not even the worst liability threat facing cigarette makers.

To be sure, the department’s desire to settle is good news for U.S. cigarette makers, which will be negotiating from a position of strength and might be able to end the case with only token concessions.

But in a rare instance of agreement, defenders and foes of the industry said it will continue to face serious courtroom challenges. Among them: a record-breaking $144.8-billion Florida loss that is under appeal and a resurgence of claims by individual smokers, with the epicenter in California.

Cigarette makers have suffered three consecutive losses in this state--including a stunning $3-billion punitive damages award two weeks ago in Los Angeles.

The Justice Department suit, filed in September 1999, was the largest civil case ever brought by the department and a centerpiece of the Clinton administration’s crusade against smoking. The suit sought reimbursement for $20 billion a year in smoking-related health-care costs, along with billions more in damages for fraud and racketeering.

But President Bush opposed the suit, and administration officials earmarked only $1.8 million this year, a fraction of what lawyers at Justice said they needed to prosecute the case.

Citing a federal judge’s decision to dismiss a portion of the case, aides to Atty. Gen. John Ashcroft acknowledged Tuesday that he has appointed a team of lawyers to seek a negotiated settlement.

But tobacco officials, who still face a swarm of legal problems, should be toasting the news with “a mild sip of sherry, rather than breaking open a case of champagne,” said Richard Daynard, a law professor at Northeastern University and head of the Tobacco Products Liability Project, which promotes suits against the industry.

A tobacco industry lawyer, who would not speak for attribution, agreed. “I don’t want to sound like an alarmist, but this industry has a lot of problems,” he said.

“I never viewed the federal government as the only, or even the most dangerous, opponent for the tobacco companies,” said Stephen Gillers, a New York University law professor. “Having one thousand hungry, well-financed plaintiffs’ lawyers out there ready to take quick bites can be as damaging as one monster opponent--even more damaging,” Gillers said.

After agreeing to $246 billion in settlements with state attorneys general in 1997-98, cigarette makers had hoped their worst liability problems were behind them. Yet the Justice Department case and many others followed.

Remaining legal challenges include:

* The Engle case and other class actions.

In July, a jury in Miami ordered cigarette makers to pay $144.8 billion in punitive damages to an immense class of sick Florida smokers. The verdict, many times larger than any previous damage award, has been appealed by the industry on various grounds, including that the case should not have been allowed to proceed as a class action.

Tobacco companies have been largely successful in getting federal courts to dismiss class actions by arguing that there are more differences than similarities between plaintiffs, which requires that their cases be heard one at a time.

However, the Engle case was tried in state court and is being challenged through the appeals courts of Florida, which has its own laws on class actions.

Many analysts believe that if cigarette makers lose their state appeals, the U.S. Supreme Court will hear the case, but there is no guarantee.

Philip Morris and two other cigarette makers recently agreed to pay the Engle plaintiffs $709 million simply to preserve their appeal rights in the case. Plaintiffs’ attorneys had threatened to challenge a new legislative cap on appeal bonds in Florida, which spared defendants from having to post a bond for the full amount of the verdict in order to proceed with their appeals. In return for the $709 million, the Engle lawyers agreed that if the cap is repealed, they will not seek bonding for the full verdict amount.

Other class actions are pending against cigarette makers in state courts. In Louisiana, for example, jury selection is underway in a case that seeks to make cigarette makers fund medical monitoring for smokers in the state.

In California, two anti-tobacco class actions have been certified for state court trials: one for all underage smokers and the other on behalf of California smokers allegedly injured as a result of industry violations of consumer protection laws.

* Individual cases in California and elsewhere.

Hundreds of claims by individual smokers are pending in courts throughout the country, although the industry’s worst problem is in California.

Since a ban on anti-tobacco suits was lifted by state lawmakers in 1997, three cases have gone to trial, and in all three, lung cancer victims won compensatory and punitive damages.

The most dramatic victory occurred two weeks ago when a jury in Los Angeles County Superior Court ordered Philip Morris to pay $5.54 million in compensatory and $3 billion in punitive damages to Richard Boeken, 56, a Topanga-area resident who is gravely ill with lung cancer that has spread to his brain. The award is likely to be significantly reduced by the trial judge or on appeal.

But if the state Supreme Court upholds the anti-tobacco verdicts, the industry could be deluged with cases in California, where there is no shortage of potential plaintiffs--only of lawyers willing to invest the time and money to take their cases.

* Lawsuits in federal court in Brooklyn, N.Y.

Federal courts largely have rejected reimbursement claims by insurance companies and union health-care funds, ruling that they are too remote from the harm suffered by sick smokers. But within the federal judiciary, U.S. District Judge Jack B. Weinstein in Brooklyn has been receptive to these so-called third-party payer claims.

In a case tried by Weinstein, jurors this month awarded $17.8 million to Empire Blue Cross Blue Shield, the largest health insurer in New York. It was the tobacco industry’s first courtroom defeat at the hands of an insurance company, though the size of the award was relatively modest.

About 10 other cases by insurers and asbestos compensation funds are pending before Weinstein in federal court in Brooklyn. And Weinstein, who has fashioned sweeping litigation settlements involving asbestos and Agent Orange, has made no secret of his desire to craft a nationwide tobacco settlement.

One of the suits before Weinstein, known as the Simon case, seeks a determination of punitive damages for all plaintiffs nationwide who win cases against the industry.

Industry lawyers have argued vociferously that a nationwide punitive damages class should not be certified. Weinstein has yet to rule.

Weinstein sits under the U.S. 2nd Circuit Court of Appeals, one of the appeals courts that has rejected third-party payer suits and aggregation of claims.

As a result, Wall Street analysts and tobacco lawyers believe that the industry has a good chance of overturning adverse rulings by Weinstein.