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...