5/26/2015
Perhaps no industry besides investment banks has been hit as hard by the federal court system than tobacco over the past several years. A pair of recent appeals rulings, however, indicates a substantial turn in the industry’s decades-long financial flogging. On Friday, the D.C. Court of Appeals delivered a mixed-ruling, in which some of the stern messaging mandates given to several major tobacco firms by U.S. District Judge Gladys Kessler in a 2006 ruling. The other, lesser-noted ruling last month by a 3-judge U.S. Court of Appeals panel in Atlanta may be a much bigger victory for big tobacco. The ruling prevents any individuals suing tobacco companies to use past jury findings as evidence of guilt. Individuals have already been prevented from suing as a class and the time and expense required to file these lawsuits may prove to be too costly. Both rulings perpetuate a recent trend that as University of Michigan law professor Eric Gordon says, “If you look the big picture, the worst of it is behind them. The tobacco industry has survived.”
The D.C. ruling is somewhat of a mixed-verdict, as the 3-judge panel upheld that major companies are required to post that cigarette makers intentionally designed their products to be addictive. They are not required, however, to post that they deliberately deceived the public about the dangers of smoking. Defendants in the case included Altria Group (and Philip Morris USA), R.J. Reynolds, and Lorillard Tobacco. First Amendment rights were among the issues at stake and the D.C. Court agreed that Judge Kessler’s ruling overstepped constitutional bounds. The most pressing issue at stake was Kessler’s ruling that packs of cigarettes must contain a “preamble” that stated:
“A federal court has ruled that Altria, R.J. Reynolds Tobacco, Lorillard, and Philip Morris USA deliberately deceived the American public about the health effects of smoking, and has ordered those companies to make this statement. Here is the truth.”
Altria Group Spokesman, Brian May called the ruling against the preamble to be “the critical part of the appeal. The court correctly found that the preamble violated federal law by focusing on past conduct, instead of the health consequences of cigarettes.”The court said, however, that some of the statements would be included because the defendants did not raise objection to them. One of the upheld statements was, “Cigarette companies intentionally designed cigarettes with enough nicotine to create and sustain addiction.”
As opposed to the mixed-victory in the nation’s capital, the Atlanta appeals ruling was a decisive win for big tobacco. Coming off of a $100 million settlement of 400 federal suits in February, the ruling eases a significant burden off of the lessening number of individual lawsuits. Gordon says the ruling “doesn’t knock the plaintiffs out of the box, but they’ll have to do more work. They have to show what the tobacco company did that was negligent or intentional.” He said, however, that it is “a knockout blow” for weak cases. The Florida Supreme Court set aside the massive $145 billion 2000 verdict against several tobacco companies in 2006. In part of the ruling, known as the Engle decision, the court disbanded the class and gave strict timelines for plaintiffs to file individual claims. To date, R.J. Reynolds has paid $214.7 million in 29 judgments with $293.5 of verdicts on appeal. Altria listed in an April, 20 regulatory filing that it has won 36 and lost 41 cases that have reached a jury. As the Florida cases, which many have drug on for years, dwindle and mixed with February’s settlements, Morningstar analyst, Philip Gorham concludes, “Tobacco litigation in the U.S. is at a stage where it is very manageable for the tobacco firms.”
Sources:
Bloomberg Business – Margaret Cronin Fisk and Bob Van Voris
Wall Street Journal – Brent Kendall
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