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Court Throws Out $144.8-Billion Award Against Tobacco Industry

May 22, 2003|Myron Levin | Times Staff Writer

Cigarette makers scored a huge win Wednesday when a Florida appeals court tossed out a $144.8-billion verdict against them and declared that the case should never have been tried as a class action in the first place.

The long-awaited ruling by Florida's 3rd District Court of Appeal overturned the record punitive damages award, which was to be split among members of an immense class of Florida smokers. As many as 700,000 smokers were seeking compensation for tobacco-related diseases, which they blamed on an industry conspiracy to conceal the addictiveness of smoking.

The July 2000 damage award by a Miami jury in the so-called Engle case was by far the largest in U.S. history.

Although cigarette makers still face liability threats, the Engle award was overwhelmingly the biggest. The case was brought against Philip Morris USA, R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp., Lorillard Tobacco and Liggett Group, along with two defunct industry organizations: the Tobacco Institute and the Council for Tobacco Research.

"This is the best possible outcome for the industry, and it fundamentally reduces its legal risk in a way very few things could," said David Adelman, a tobacco analyst at Morgan Stanley.

The three-judge panel said the award was "fundamentally unfair" and would have bankrupted the companies, in violation of Florida law. "Mere participation in the tobacco industry does not destine a corporation to legal suicide on the shores of bankruptcy," the court said.

In a sometimes scathing 68-page ruling, the judges assailed the "astronomical" verdict as the work of a "runaway" jury that had been "swept along in lemming-like fashion" by improper arguments, including "raced-based appeals" by the plaintiffs' lead lawyer, Stanley Rosenblatt.

Rosenblatt did not return a call seeking comment, and a staff member in his Miami office said he was out of town. Rosenblatt may ask the full appeals court to review the decision and, if unsuccessful, is expected to appeal to the Florida Supreme Court.

The decision was the second recent high-profile ruling on punitive damages to favor corporate defendants. Last month, the U.S. Supreme Court threw out a $145-million award against State Farm Mutual Insurance Co. and declared that punitive damages rarely should exceed nine times the amount of compensatory damages. Based on that ruling, the Supreme Court on Monday ordered a California appeals court to reconsider a $290-million punitive damages award against Ford Motor Co. in a vehicle rollover case.

Wednesday's decision does not prevent Florida smokers from bringing individual anti- tobacco lawsuits, as they could all along. But given the expense and difficulty of suing the industry, only a small fraction of class members are likely to do so.

William S. Ohlemeyer, associate general counsel of Philip Morris, praised the ruling as "in line with the country's legal mainstream, which does not allow class actions in smoking and health cases but preserves the rights of individual smokers in the state to pursue their claims in court."

Matt Myers, president of the National Campaign for Tobacco-Free Kids, said the ruling "in no way absolves the tobacco industry of the decades of deception and wrongdoing that led a jury to assess the largest punitive damage award in history."

On Wall Street, shares of Altria Inc., parent of Philip Morris, rose $3.39, or 9.7%, to close at $38.30 on the New York Stock Exchange. R.J. Reynolds Tobacco Holdings Inc. rose $1.57, or 5%, to $33.28, also on the NYSE.

News of the ruling boosted the value of about $19 billion in state and municipal bonds backed by payments by cigarette makers under a 1998 legal settlement with the states. Tobacco bond prices recently fell sharply after a big loss by Philip Morris in an Illinois case and the downgrading of the tobacco industry's debt by credit-rating firms.

The marathon case in Miami-Dade Circuit Court was the first smokers suit to be granted class-action status. It was tried in three phases, beginning in October 1998, and ended nearly two years later with the punitive damages award.

In the trial's first phase, jurors found that smoking causes a host of diseases and that the industry had lied about the hazards to induce people to smoke.

In the second phase, jurors awarded compensatory damages totaling $12.7 million to three class representatives with cancer. Those awards were thrown out Wednesday too, including $5.8 million in damages to Frank Amodeo for throat cancer. His wife, Margaret, told Associated Press that her husband was "very disappointed" by the ruling. Janine Goluba, whose late mother had won a $3.5-million award, told AP the decision was "beyond my comprehension.... Lie, cheat, deceive and still be able to be on top."

The lump sum of punitive damages was awarded in the third phase. Eligibility for a share of punitive damages was to be determined in thousands of mini-trials, which could have taken many years to complete.

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