October 4, 2002 - L.A. Jury Orders Philip Morris to Pay $28 Billion
LOS ANGELES - A Los Angeles jury on Friday ordered Philip Morris Cos. to pay a record $28 billion in damages to a 64-year-old woman with lung cancer who blamed the tobacco giant for failing to warn her of the risks of smoking.
Philip Morris said it would appeal the massive judgment, the largest award ever in an individual tobacco liability lawsuit, calling it ``inconsistent with the evidence and applicable law.''
The company said it would ask the court to set aside the verdict and order a new trial, or, failing that, to reduce the massive award. If denied, the company said it would appeal.
Philip Morris shares fell sharply, closing down over 7 percent to their lowest level since December 2000 and pulling other tobacco stocks and the Dow Jones industrial average lower.
The Los Angeles jury deliberated for about a day and a half in the punitive damages phase of the trial after hearing testimony on the market value of Philip Morris, which had been above $80 billion before Friday's rout and still ranks as one of the top 20 U.S. companies by market capitalization.
Industry analysts expect the huge award to be reduced, but said it showed that the tobacco industry's legal strategy of stressing the individual responsibility of smokers had failed. The unprecedented scale of the award also underscored the risk to the industry from hostile California juries, analysts said.
Last week, the jury awarded $850,000 in compensatory damages to Betty Bullock of Newport Beach, California, after finding Philip Morris liable for fraud, negligence and product liability.
The previous record for punitive damages had been $3 billion awarded by a Los Angeles jury last year to a smoker who later died. A judge later reduced that award to $100 million.
A Florida jury awarded $144.8 billion to a statewide class of injured smokers in July 2000. That state court award is under appeal.
``We believe that this is an absurd number -- the jury might as well have rolled chicken bones to come up with the numbers,'' said Prudential Securities analyst Rob Campagnino said.
The judgment ``does show that the tobacco industry has missed the mark entirely in terms of finding a litigation strategy that works,'' Merrill Lynch tobacco analyst Martin Feldman said.
Feldman had a ``buy'' rating on Philip Morris and a ``neutral'' rating on R.J. Reynolds, but said the judgment worried him.
``I continue to believe that the litigation threat in California is more worrisome than any other litigation the industry faces because of the history of the losses,'' he said.
Prudential's Campagnino said the ``ludicrous amount'' of the award to Bullock would be reduced ``dramatically by the trial court judge in very short order.''
Edward Sweda, senior attorney for the non-profit Tobacco Products Liability Project in Boston, which promotes anti-tobacco litigation, hailed the verdict a ``tremendous victory for public health.''
Philip Morris attorneys said the size of the punitive damage award opened it to a constitutional challenge. The U.S. Supreme Court has suggested that punitive awards be limited to four times compensatory damages, but Bullock's award was 33,000 times greater, the company said.
``This jury should have focused on what the plaintiff knew about the health risks of smoking, and whether anything the company ever said or did improperly influenced her decision to smoke or not to quit,'' said William Ohlemeyer, associate general counsel for Philip Morris.
The jury's decision may have been motivated by revelations about the role of the Council for Tobacco Research, an entity created in the 1950s by the tobacco industry to study smoking risks, Sweda said.
``Documents shown to this jury showed that this was a front group set up to buy time for the companies to do business as usual -- to go after kids and get them hooked and get people who were already hooked to keep smoking and buying, and smoking and buying,'' he said.
BELIEVED COMPANY'S STATEMENTS
During the trial, Bullock, who began smoking at 17, said Philip Morris hid evidence about the link between smoking and cancer. She said she believed the company when it said in the past there was no evidence that smoking caused cancer.
Attorneys for the tobacco company said the leading U.S. cigarette maker played no role in the woman's addiction and that she had been warned of the risks by her doctors.
If she collected, Bullock would become the third richest American, behind only Microsoft founder Bill Gates and legendary investor Warren Buffet.
But she never expected to collect the jury award, her lawyer said.
``Betty Bullock knew she would never see a penny of it,'' said attorney Michael Piuze, who had also argued last year's $3 billion judgment against Philip Morris, a record at the time. ``She did it to make them pay for taking away 20 years of her life.''
The lawsuit was the first to be tried since the California Supreme Court issued a pivotal ruling that protects cigarette makers from liability for actions between 1988 and 1997 -- the years covered by a state law that shielded companies from liability for products that were known to be dangerous.
The state legislature repealed the law so California could participate in the multi-state litigation and settlement against the tobacco industry.
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