Does Philip Morris Really Care?

Tobacco companies are famous for their scorched-earth litigation tactics. For more than half a century, the industry never paid out a dime in damages in smokers' lawsuits. That's largely because they spent ungodly amounts of money grinding down plaintiffs with deathbed depositions and nasty investigations into their personal lives. (Juries have also been rightly skeptical of smokers' claims that they really didn't know that smoking six packs a day could kill them.)

But yesterday, after watching the oral arguments in Philip Morris v. Williams at the U.S. Supreme Court, where the tobacco company's attorney gave a distinctly lackluster performance, I started to wonder whether Philip Morris actually cares that much about the $79 million punitive damage award at issue in the case. Obviously the business community cares greatly about it because a favorable ruling could essentially cap punitive damages nationally once and for all. The National Association of Manufacturers, the auto industry and insurance companies have all weighed in through amicus briefs.

For Philip Morris, though, this case is pretty small potatoes, especially compared to some of the billion-dollar punitive awards the company's been hit with lately. Most of those verdicts (mostly in class actions) have been overturned without the help of the U.S. Supreme Court. But over the long haul, as Williams' attorney Bob Peck argued yesterday (read the transcript here), the number of potential cases where Philip Morris could realistically face a big punitive award is dwindling, because once the tobacco companies came clean about the risks of smoking and nicotine addiction, their legal exposure started to diminish.

Another reason I think Philip Morris isn't all that concerned about punitive damages anymore is that that Victor Schwartz, the general counsel to the American Tort Reform Association and Philip Morris's longtime lawyer/lobbyist, told me yesterday that his camp is no longer pushing caps on awards. He said trial lawyers' obsession with caps is "so 1880s." Instead, he's pursuing other issues, like dismantling consumer protection laws that allow these cases to proceed (my words, not his).

Incidentally, because ATRA has worked hard to pretend it isn't a wholly owned subsidiary of the tobacco industry, I once asked Victor whether he represents cigarette companies. He quickly descended into his trademark imitations of various politicians--Arlen Specter is the current favorite--and wouldn't give me a straight answer. But the documents produced during the state tobacco litigation are full of memos written by him or to him from the company's big shots, often referring to him as the "PM Family" tort consultant.

My guess is that Philip Morris has better things to spend its money on these days than winning legal battles that mostly benefit the insurance, oil and auto industries---and it has a lot of money, despite its legal woes. Shares of Altria, its parent company, are up nearly 9 percent this year.

One interesting tidbit I picked up at the court yesterday: Philip Morris apparently believes that even if the Supreme Court ordered it to pay the $79 million punitive award, a big chunk of that money would revert to the company under the Master Settlement Agreement, which settled the states' attorneys general lawsuits against the tobacco industry in the mid-1990s. Don't ask me how this works exactly, but here's my rough understanding of the argument: The Williams case comes from Oregon, where state law requires 60 percent of all punitive damage awards to be paid to the public victims' compensation fund. Because the state already got a bunch of money from the tobacco companies in the earlier litigation, Philip Morris thinks taking the punitive award would be double dipping and thus, won't have to pay...

Comments

[Mackenzie]

I don't buy the double-dipping argument. I've done some extensive work on this stuff before and I think the argument fails because the money is for different things. The MSA was meant to (and originated from state suits asking to) compensate the states for all the money they spent on smokers. Their expenses were for things like Medicare, uninsured ill patients, and other state-funded health losses. It is purely compensatory and, now, contractual.

The punitive damages, though, are levied for a wholly different purpose: punishment (obviously). The tobacco companies owe that money for different reasons and to different people, even if some of it finds its way into one of the states that gets MSA money (46 of them do).

PM's argument seems a lot like saying, "the plaintiff already got compensatory damages, so getting more money in punitive damages is double-dipping." It just doesn't make sense.

[Ted]

If Mackenzie has done extensive work on this, then he or she should be aware that PM's argument is based on Section XII of the MSA, where the states released their claims to future punitive damages against tobacco companies, a provision without which the agreement never would have happened. It's a reasonable reading of the agreement, and the Georgia Supreme Court has already accepted it in the Gault case to bar all punitive damage awards against tobacco companies in that state, though Oregon has already rejected the broader parens patriae argument Georgia accepted.

[Ed Sweda]

The MSA has a specific provision that it is not to be used in other litigation. Section XVIII(f) states:"Neither this Agreement nor any public discussions, public statements or public comments with respect to this Agreement by any Settling State or Participating Manufacturer or its agents shall be offered or received in evidence in any action or proceeding for any purpose other than in an action or proceeding arising under or relating to this Agreement." That's one reason that evidence of the MSA should not help Philip Morris in the Williams case. The other is that the payments made pursuant to the MSA are not "punishment" since it is a settlement voluntarily entered into by Philip Morris and not a verdict imposed upon it.

[Ted]

Philip Morris has a right to enforce the release regardless of whether the MSA can be used as evidence in a litigation. The payments were not "punishment" perhaps, but they certainly were consideration.

[Mackenzie]

I'm not saying that reasonable minds couldn't differ on the issue, just that I don't buy the PM argument. Others may.

I also don't, as my first impression, buy the claim-release argument. The states released claims against the tobacco companies. But taking a cut of all punitive damage awards is not a claim against a tobacco company. If it is a claim at all, it is against the plaintiff and is more in the nature of a tax.

Of course, I'm not familiar enough with the Oregon law to know the procedural details, and I'm certainly not going to write a brief as a weblog comment. But my initial response to that line of reasoning is skepticism.

I'll take a look at that Georgia case to see the court's reasoning. Thanks for the reference.

Phillip Morris, with their "prevent childhood smoking" adds and their "stop smoking now" adds are the biggests hypocrites in the world.

Tell us that smoking can kill us, yet sell us the product that WILL kill us.

Waiter,... check please!