Cigarette Cos. Agree on Minimum Pay
MIAMI (AP) - Three cigarette makers who lost a record-setting $145 billion verdict to sick Florida smokers agreed Monday to pay them $710 million, no matter how their appeals turn out, attorneys for both sides said.
``That amount of money is guaranteed to the class win, lose or draw,'' said Lorillard general counsel Ronald Milstein. ``We've decided this is the surest path to (making) the appeals process unencumbered and unhindered.''
The guarantee represents the industry's first major financial commitment directly to smokers in nearly four decades of hotly contested tobacco litigation. The industry agreed in the late 1990s to pay $248 billion over 25 years to settle state lawsuits.
``Obviously this is a milestone,'' said longtime industry critic Richard Daynard. ``At least for a moment, the industry spin stopped long enough for them to shell out $700 million.''
Philip Morris, Lorillard and Liggett chose for the agreement to keep the sick smokers from challenging the constitutionality of a new state law placing a $500 million cap on appeal bonds in the case.
Without the law, the companies would have been required to buy bonds worth more than the $145 billion verdict to be able to get higher court review - an impossibly high requirement, in the industry's view.
``Even if we were to lose ultimately, which I hope and pray would not happen, the class would be guaranteed $700 million,'' said smokers' attorney Stanley Rosenblatt. ``This $700 million plus interest, the class would keep.''
Under a 28-page order approved by Miami-Dade Circuit Judge Gerald Hubbard, the three companies agreed to increase their current bond from $203 million already on deposit with the trial court to $2 billion, including the nonrefundable $710 million.
``No money is going to change hands until all appeals are exhausted in this case,'' said Philip Morris vice president William Ohlemeyer.
``That was the price we were willing to pay to remove this uncertainty and get this appeal focused on the real issues,'' he said. ``We wanted to eliminate any uncertainty or any distraction that might exist.''
Ohlemeyer said the money might not go to smokers if an appeals court reverses a key decision on class-action status, which unites Florida residents under a single lawsuit. The allocation then would be up to a Miami-Dade Circuit judge.
Former smoker Frank Amodeo sat through the two-year trial and won a $5.8 million compensatory damage award from the same jury for his throat cancer. He said he was aware the talks were going on but had little to say other than, ``I'm very satisfied.''
R.J. Reynolds and Brown & Williamson have two weeks to decide whether to join. If they do, the amount of the guarantee would increase. If they don't and Rosenblatt appeals the bond cap, they take their chances. Both companies were left out of the negotiations and said they learned of the agreement Monday.
Reynolds issued a statement expressing confidence in the constitutionality of the bond cap law.
Brown & Williamson spokesman Mark Smith said his company was evaluating the agreement.
Daynard said he expects the other two companies to join the bond agreement and bring the total reserved for smokers to about $1 billion. He said the alternative would be a bankruptcy risk if the bond law enacted last year during trial were challenged and overturned.
The jury decision on punitive damages last July broke all records for damages in a lawsuit. The industry responded by saying it wasn't an amount any business could pay and confidently predicted an appellate victory.
``It really flies in the face of the expressions of confidence that they have made to date'' about appeals, said Martin Feldman, Salomon Smith Barney's tobacco analyst. He said he was surprised by the agreement and called it ``an expensive insurance policy.''
The financial split is $500 million by industry leader Philip Morris, $200 million by No. 4 Lorillard and $10 million by No. 5 Liggett.