A huge legal victory for Big Tobacco in Florida considerably brightens the industry’s future.
With the threat of a $145 billion damage award removed, tobacco makers saw their share prices jump as investors cheered clarity on what had been the largest punitive award in U.S. history.
“The damages would have been crippling to businesses,” said R.J. Reynolds Tobacco Co. spokesman David Howard, who added that the Winston-Salem, N.C.-based company is reviewing the ruling. “It was excessive. As a matter of law, punitive damages are not intended to put people out of business.”
In its decision Thursday quashing the verdict, the Florida Supreme Court also approved an appellate court ruling that it had been a mistake to certify the lawsuit as a class-action representing an estimated 300,000 to 700,000 Floridians made ill by smoking.
The ruling could also clear a path for Altria Group Inc., parent of the biggest U.S. cigarette maker Philip Morris USA, to make a long-awaited move to shed its controlling stake in Kraft Foods Inc.
Altria Group shares fell 83 cents, or 1.1 percent to $76.93 in morning trading Friday on the New York Stock Exchange after rising 6 percent a day earlier. Reynolds American Inc., the second biggest domestic cigarette maker, fell $1.26, or 1.1 percent, to $117.69 after gaining more than 4 percent on Thursday.
Analysts expect Altria will spin off its 87.6 percent stake in Kraft Foods sometime after the resolution of Engle case in Florida and the federal government’s civil-racketeering case.
However, the court said individual smokers could still sue the companies. One weapon plaintiffs will have in those suits is the court’s decision to uphold a trial jury’s finding that the companies had negligently misled the public about the dangers and addictive nature of cigarettes.
Reynolds American owns the U.S. tobacco businesses of R.J. Reynolds Tobacco and Brown and Williamson.
William S. Ohlemeyer, Philip Morris USA vice president and associate general counsel, said, “As numerous trial and appellate courts have held, tobacco cases cannot be treated as class actions because liability must ultimately be decided on a case-by-case basis.”
Ohlemeyer said Philip Morris is reviewing the ruling and deciding if more appellate action is necessary.
The class-action trial lasted for two years, but the seven jurors deliberated less than five hours to reach its $145 billion verdict in 2000. The jury that decided the punitive damages said Philip Morris should pay nearly $74 billion, Reynolds more than $36 billion, Brown and Williamson more than $17.5 billion, Lorillard tobacco $16.25 billion and the Liggett Group $790 million.
The Justices Rejected the Punitive Damages Award.
And while the justices rejected the punitive damages award in the July 2000 verdict as excessive, a majority of the state’s high court reinstated a $2.85 million damage award to Mary Farnan and a $4.023 million award to Angie Della Vecchia, who started smoking as an 11-year-old and died in 1999.
Farnan broke into tears upon hearing of the court’s ruling.
“Oh my God, I can’t believe it,” she said. “I’m shaking all over. I had no idea.”
A $5.8 million award to Frank Amodeo – who, like Farnan and Della Vecchia, was cancer-stricken and blamed that on his smoking habit – was not restored in Thursday’s ruling because it fell outside the statute of limitations. Amodeo’s wife, Margaret, said her husband had not spoken with an attorney about the ruling and therefore did not have any immediate reaction.
The suit, led by pediatrician Dr. Howard Engle, was filed a decade ago in Miami by the husband-and-wife legal team of Stanley and Susan Rosenblatt.
Stanley Rosenblatt said Thursday he was disappointed with the decision but was relieved that the Supreme Court said individuals can sue and that the tobacco industry had misled the public.
“That they lied and were negligent, all those findings can be used and cannot be challenged in the individual cases as they go forward,” he said.
Attorney Tim Howard, who teaches constitutional law and judicial process at Boston University, said the court’s decision “opened the door to a hundred thousand suits taking place in Florida for all those that are sick and dying or injured from these products.”
Several anti-smoking groups said they were saddened by the ruling.
“While disappointing, this ruling is not the clear-cut victory the tobacco industry was hoping for,” said Matthew Myers, president of the Washington-based Campaign for Tobacco-Free Kids, referring to the court’s ruling that individuals can still sue. Myers suggested tougher legislation at the federal and state levels and more money for tobacco prevention programs.
Only six of the seven justices heard the case. Justice Raoul Cantero did not participate.