Florida high court to review voiding of award to smokers

Appeals court threw out $145 billion in damages, suit's class action status

May 13, 2004|By BLOOMBERG NEWS

TALLAHASSEE, Fla. - Shares of Altria Group Inc. and R.J. Reynolds Tobacco Holdings Inc. fell yesterday after the Florida Supreme Court agreed to review a lower court's voiding of a $145 billion punitive damage award against U.S. cigarette makers.

The court will review an appellate ruling last year that the lawsuit had been improperly filed as a class action and that the amount of punitive damages was excessive to the point of bankrupting the companies.

The Florida case was the first tobacco lawsuit in the nation to be granted class action status and resulted in the largest punitive damage award in U.S. history.

The Florida Supreme Court's decision surprised investors, since class action lawsuits by smokers generally have not been successful in the courts.

The high court's "review has introduced some uncertainty," said Brian R. Bruce, director of investments at PanAgora Asset Management in Boston, which has $13 billion in assets, including about 1.2 million shares of Altria, which controls about half the U.S. cigarette market.

The Florida Supreme Court scheduled oral arguments in the case for Oct. 6 without saying why it granted the appeal.

Robert L. Rabin, a law professor at Stanford University who tracks lawsuits against tobacco companies, predicted the state Supreme Court will ultimately affirm the appellate ruling, which threw out a Miami jury verdict in 2000 that found the tobacco companies responsible for the deaths and disease of thousands of Floridians.

"There is nothing distinctive about the Florida case that would suggest a different result," Rabin said. "If I had to guess, I'd guess they'd affirm the latest decision, and they wouldn't certify the class."

Moreover, he said, if the Florida Supreme Court reinstates the lawsuit as a class action, "this $145 billion award isn't going to stand."

One of the appellate court holdings was that the jury shouldn't have awarded punitive damages in the absence of actual damages for all 700,000 Florida smokers in the case.

Stanley M. Rosenblatt, the Miami attorney who represents smokers in the case, said his clients do not expect a settlement with the tobacco companies.

"There's never been a hint or a whisper of settlement," he said. "Our reliance is on the Florida Supreme Court, not on the graciousness of the tobacco industry."

Altria said it expects a favorable ruling from the Florida Supreme Court.

"At the end of the day, I think the plaintiffs are going to have a very difficult time persuading the court that the appellate court had it wrong," said William Ohlemeyer, Altria's associate general counsel, in a conference call with investors.

Even if the Florida high court rules against the industry, cigarette makers would probably appeal to the U.S. Supreme Court.

"The tobacco industry is not going to stop if the ruling ends up being unfavorable [to them]," said Donald A. Yacktman, who oversees $1 billion, including about 255,000 Altria shares, at Yacktman Asset Management in Chicago.

Spokesmen for co-defendants British American Tobacco PLC's Brown & Williamson Tobacco Corp. and Loews Corp.'s Lorillard Tobacco Co. didn't return calls seeking comment.

"We said all along that this case at best is fundamentally flawed and that the class should be decertified and the case dismissed, as the appellate court did in May of 2003," said Ellen Matthews, a spokeswoman for R.J. Reynolds, one of the companies sued.

The state Supreme Court acted after the appeals court refused in September to reconsider its ruling on the verdict against Altria's Philip Morris USA, the biggest U.S. cigarette maker, and the other producers.

Altria's shares fell $3.60, or 6.7 percent, to close at $49.80. R.J. Reynolds shares fell $3.47, or 5.6 percent, to $58.08.

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