Fool.com: Philip Morris, Big Tobacco Dodges Yet Another Bullet (News) September 7, 1999

Philip Morris, Big Tobacco Dodge Yet Another Bullet

By Bill Mann (TMF Otter) (TMF Otter)
September 7, 1999

The tobacco industry won a major victory Friday when a state appeals court ruled that damage claims in a landmark smoking case must be considered on an individual case basis. This reversal reduces the threat of a single multi-billion dollar verdict, as the plaintiff's class that brought about the original suit has, in effect, been broken up.

The tobacco company defendants in the case, Philip Morris (NYSE: MO), RJ Reynolds Tobacco (NYSE: RJR), Brown & Williamson Tobacco, a subsidiary of British American Tobacco (AMEX: BTI), Lorillard Tobacco, a subsidiary of Loews Corporation (NYSE: LTR), and the Liggett Group, a subsidiary of Brooke Group (NYSE: BGL), will not have to face the 500,000 plaintiffs in this case as a single class. In its decision, the Florida 3rd Circuit Court of Appeals denied the jury in the case the ability of awarding a single judgment, the potential liability for which exceeded $200 billion.

This case first made headlines in July, when a jury found that the tobacco companies made a "defective product" that causes emphysema, lung cancer, and heart disease. The lawyers in the case were seeking $200 billion in punitive damages to be divided among the members of the plaintiff class. This was the first instance of a successful product liability class action suit against the tobacco companies.

Many analysts believe that this decision marks, for all practical purposes, the death of one of the biggest threats to the tobacco companies in history. Most of the tobacco companies would have been forced into bankruptcy had the maximum judgment been granted.

Now each individual smoker must bring suit, so the companies now face the potential for thousands of individual multi-million dollar filings, each of which can independently by contested. To date, there are only five instances in which punitive damages in smoking liability have been awarded. Two of these cases were later overturned.

Anti-smoking advocates still believe that the July ruling gives them a powerful weapon for future lawsuits. Still, that may not be of any consolation to the members of this class.

Since each class member must individually press for damages, the tobacco companies have the advantage of being able to leverage a single successful appeal to be applied to other damages hearings on the case. This will have the effect of greatly reducing or eliminating their potential for punitive liability to any member of the class.

The case is scheduled to resume today, when plaintiff lawyers begin presenting a series of eight individual cases in which smokers became sick or disabled. The procedure is to allow jurors to determine compensatory damages in each of those cases and then to establish an overall judgment based on those individual results.

Although several Wall Street analysts stated their belief that this ruling was a huge victory for the tobacco companies, several lawyers familiar with the case said that they were not entirely sure what effect it will have on the total amount the companies will have to pay. The cigarette industry has said it plans to appeal any money verdict against it.

Feedback about News & Commentary? Please send mail to news@fool.com.