Big Tobacco Is Lobbying the States for Protection
Cigarette makers, faced with the prospect that a Miami jury may soon hand out the largest punitive damage award ever, have taken unprecedented steps in recent weeks to protect themselves from bankruptcy by persuading tobacco states to pass bills that shie
Typically, a defendant in a civil lawsuit must post cash or a bond in the full amount of a jury award, plus interest, to avoid enforcement of that judgment while the defendant appeals. But at the behest of tobacco producers, legislatures in four states -- Georgia, Kentucky, Virginia and North Carolina -- have passed or are being urged to take up bills that limit the financial requirements a defendant must meet during the appeal process.
The new measures are not specific to the tobacco industry, but both cigarette makers and state officials acknowledge that the industry is behind the legislative push. The effort comes as the Miami jury, which is hearing a class-action case brought on behalf of all Florida smokers, nears a critical decision on punitive damages.
Tobacco company analysts anticipate that the panel may award record punitive damages against the industry of tens of billions or even hundreds of billions of dollars -- sums that could bankrupt most, if not all, cigarette companies if they are required to post an appeal bond.
Cigarette makers are expected to argue against a bond. But should they fail, the new measures, which, depending on the state, put a limit of $25 million to $100 million on a bond that has to be posted while punitive damages are appealed, are intended to buy the companies time while they fight the Florida verdict.
The largest punitive damages ever awarded appear to be the $5 billion awarded by an Anchorage jury in 1994 against the Exxon Corporation in connection with the Exxon Valdez oil spill. The company is still appealing that decision.
Stanley Rosenblatt, a lawyer in Miami who represents smokers in the Florida case, told a court there last year that he would seek $100 billion in punitive damages, said Martin Feldman, a tobacco industry analyst with Salomon Smith Barney who attended that hearing. Mr. Feldman and others said they believed that the tobacco industry as a group could put up $10 billion to $20 billion while it appealed.
"We are in totally uncharted water," Mr. Feldman said.
The bulk of the tobacco industry's operations are in the four states that have passed or are considering the new measures. Several legal experts said they believed such laws were unconstitutional because they were designed to frustrate the actions of courts in other states. However, such legislation would still help the companies gain time, because a drawn-out legal fight would precede any final court decision on the laws.
Tobacco companies have agreed to pay $246 billion over the next two decades to settle lawsuits brought by state attorneys general to recover costs spent treating smoking-related ills. But the type of class-action case under way in Florida is not covered by that settlement.
Christine Gregoire, the Washington State attorney general, said producers told regulators late last year that damages in the Florida case could pose a bankruptcy threat. As a result, she said, state officials expected this week to hire an expert to represent them as creditors in the event of a bankruptcy filing.
"We don't anticipate any need for them to file bankruptcy, but we are going to be ready if they do," Ms. Gregoire said.
Judge Robert P. Kaye of the Florida Circuit Court, who is presiding over the Miami case, has barred tobacco company officials and Mr. Rosenblatt, the plaintiffs' lawyer, from speaking about the proceeding. But without commenting on that action, officials of several tobacco companies said they believed the new measures were needed.
"We want to maintain our ability to adequately appeal judgments without going into bankruptcy first," said Tommy Payne, a spokesman for R. J. Reynolds Tobacco in Winston-Salem, N.C.
Last year, the Miami jury found that the nation's biggest cigarette makers had hidden information about the potential dangers of their products. That same jury is expected to start deliberations as early as this week on whether the illnesses of three plaintiffs selected as representative of class members were caused by smoking.
Should the jury decide that any one of those people was sickened by smoking, it will then be asked to award punitive damages on behalf of the entire class. While that figure is unknown, Mr. Rosenblatt has estimated that 300,000 or more people in the state might qualify as members of the class action, which is known as the Engle case.
The timing of the punitive damages is significant because it would come before compensatory damages are awarded to the entire class. But given last year's findings against the tobacco producers, many analysts and observers of the case expect the panel to award a record figure.
Under Florida law, a defendant who appeals must post 115 percent of an award once a judge enters that verdict, a process that takes about 30 days. Cigarette manufacturers are expected to argue that any award be stayed while they exhaust their appeals.
It is not clear what action Mr. Rosenblatt might take, because a large award could push most, if not all, cigarette makers into bankruptcy, an action that would freeze all litigation against them.
Most cigarette makers have said they believe that any award in the Florida case can be overturned on appeal, because many courts have dismissed other class-action suits against them.
It is the prospect of keeping their businesses intact during that appeal that is behind the push for the new laws.
This month, Gov. James S. Gilmore of Virginia signed a bill that would place a $25 million limit on a bond during the appeal of punitive damages. Lila Young, a spokesman for Mr. Gilmore, said that lobbyists for Philip Morris U.S.A., which has its tobacco headquarters in Richmond, had urged Mr. Gilmore to back the bill.
"The success of the tobacco corporations has a tremendous impact on the vitality of our state," said Ms. Young, who added that large punitive damages in the Florida case could "cause disaster to our economy."
Peggy Roberts, a spokeswoman for Philip Morris, declined to comment. But in a recent filing with the Securities and Exchange Commission, Philip Morris, the nation's biggest cigarette maker, said that "in a worst-case scenario, it is possible that a judgment for punitive damages could be entered in an amount not capable of being bonded."
In Georgia, a bill similar to the new Virginia law has passed both houses of the state legislature, and Gov. Roy Barnes is expected to sign it soon. In Kentucky, a bill placing a limit of $100 million on an appeal bond has passed the state Senate. The state's House judiciary committee is expected to begin action on it this week.
Each tobacco company is pushing bills in states where it has major operations. For example, Brown & Williamson, which has headquarters in Louisville, Ky., and a major cigarette plant in Macon, Ga., has been promoting bills in those states, said Mark Smith, a company spokesman.
In North Carolina, the principal proponents of the legislation are R. J. Reynolds and Lorillard Tobacco, which along with the Liggett Group have headquarters there. Because the state legislature does not meet until May, both R. J. Reynolds and Lorillard have been calling for an emergency session to consider an appeal bond limit.
"Essentially, we are not seeking anything different than what our neighboring states have enacted," said Martin Orlowsky, chief executive of Lorillard, which is based in Greensboro.
Tad Boggs, a spokesman for Gov. James B. Hunt Jr., said that cigarette makers had contacted Mr. Hunt and that "they feel very strongly about this." He said that no decision had been made about an emergency session of the legislature.
John Coffee, a law professor at Columbia University, said he believed the new laws would be overturned because they appear to violate the "full faith and credit" clause of the United States Constitution, which requires the authorities in one state to enforce court judgments from another state.
Mr. Feldman, the financial analyst, said he expected the laws to be overturned. "This is about time buying," he said.