Court Throws Out $144.8-Billion Award Against Tobacco Industry

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.

The Engle ruling noted that in the years since the case gained class certification, nearly all courts that had addressed the issue had rejected class-action status for tobacco cases. Portions of the decision read like a catalog of reasons class-action trials in smoking cases are unworkable and improper.

Yet the same Florida appeals court in 1996 had approved the Engle case’s being tried as a class action. In some respects, the ruling seemed an admission that the court had erred.

Bundling plaintiffs together in a single case can promote efficiency and assure that injury victims get their day in court. But the ruling noted that for class status to be granted, common issues of law must predominate over the differences in each individual claim.

Although the suit charged the industry with fraud for concealing the risks and addictiveness of smoking, the court said it could not be assumed that each class member was aware of, and relied on, misrepresentations by the industry. It said such issues could be addressed only in individual trials.

Moreover, the awarding of lump-sum punitive damages when only three class members had proved liability was a case of putting “the cart before the horse,” the ruling said. One irrational result, the court said, was that Liggett was ordered to pay a share of punitive damages, even though none of the three class representatives had ever smoked its products.

In the end, the court said, the jury ordered the payment of $144.8 billion without having any idea how many class members would prove they deserved a cut of the pie.

But the court saved its most withering comments for lawyer Rosenblatt, accusing him of resorting to improper racial appeals, including juxtaposing the industry’s conduct with genocide and slavery.

The court said Rosenblatt had directed the jury to disregard legal limits on punitive damages -- and even quoted from a book he wrote in 1992, in which he described his ability to persuade juries “in a subtle way that they should disregard the law.”

Although trial judge Robert Kaye sustained the industry’s objections to many of Rosenblatt’s remarks, “the prejudicial effect was incurable,” the ruling said.

The ruling will not affect a $709-million payment to the Engle class to settle a side issue. Shortly before the Engle verdict, Florida lawmakers passed a law capping appeal bonds at $100 million -- saving the industry from having to post a bond for the full amount of the judgment to pursue its appeal.

Fearing that Rosenblatt would challenge the constitutionality of the law and might prevail, three of the companies agreed to pay $709 million to the class that would not be returned, whatever the outcome of the appeal.

Although some analysts Wednesday said the ruling could spell the end of tobacco class actions, the Florida decision is not binding on any court outside of the state. And though most courts have taken a dim view of tobacco class actions, there have been major exceptions.

Last month, for example, a judge in Madison County, Ill., ordered Philip Morris to pay $10.1 billion in compensatory and punitive damages for deceiving Illinois smokers into believing low-tar cigarettes were safer. Philip Morris is appealing. Similar class actions against R.J. Reynolds and Brown & Williamson are scheduled for trial in the same Illinois court.

The industry also faces a fraud and racketeering suit by the Department of Justice, which is demanding $289 billion in damages. And tobacco firms are appealing eight damage awards to individual smokers.