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| BIG TOBACCO SETBACK | |
 July 14, 2000  |
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A Florida jury decided the nation's largest tobacco companies should pay $145 billion in damages to hundreds of thousands of sick smokers. Ray Suarez discusses the jury's decision with Mike France, legal affairs editor for Business Week.
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 RAY
SUAREZ: For more on today's record verdict, we're joined by Mike France,
legal affairs editor for "Business Week" Magazine. Let's begin
by talking about the case at issue. What did the plaintiff say the tobacco
companies had done, and what did the jury find them liable for?
MIKE FRANCE: This was the simple basic case. And what the plaintiff said to the jury was, okay, jury, the tobacco industry lied to everybody about how dangerous cigarettes were. So they put the fundamental question in front of the jury and the jury said that, yes, indeed, the tobacco industry had done that. And the jury was angry. You can see they punished them in these punitive damages, to the sum of $145 billion. RAY SUAREZ: They used what had has been called by the tobacco industry's lawyers, a novel approach. They picked three smokers to represent all the smokers of Florida and different numbers have been thrown around, 300,000, 500,000, 700,000, but those three became the stand-ins for all of them. Is this really a novel approach? Has it been done before?
RAY SUAREZ: But as a matter of process, does it mean that each of the people in Florida who think they may be a member of the class now have to go to court and bring their own action? MIKE FRANCE: That is what it appears to mean. But I will add the judges have a lot of flexibility to come up with specialized procedures to deal with what clearly would be an enormous number of people. And what they might do is formulate some type of alternative dispute resolution, some type of sped-up proceedings so that people could get this done more swiftly than a traditional trial. |
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| Unpayable fees, rising prices | ||||||||||||||||||||
 RAY
SUAREZ: It has been pointed out that the value of the settlement, $145
billion is, in fact, more than the market valuation of all the companies
involved. Some of the lawyers today in their reaction said that the amount
was so huge that it was almost irrelevant because it's unpayable. Is it
unpayable?
MIKE FRANCE: That's possible. There's a rule in Florida that a punitive damages verdict cannot bankrupt a company; but having said that, the tobacco companies have the tremendous ability to recover the prices of these verdicts by increasing the prices of their products. That's what they're always telling Wall Street. Hey, don't worry about these verdicts. We can pay for it through our pricing. So it's possible that they can pay a lot more than it would appear that they would be able to pay, especially given the fact that the payout could be structured so that it would be paid out over a long period of time. RAY SUAREZ: The people watching this process unfold must also include the chambers of the government of Florida in Tallahassee. Florida is one of those states that gets tens of millions of dollars in previous settlements from the tobacco company. Isn't it kind of ironic that they also have an interest in keeping this industry healthy and able to pay?
RAY SUAREZ: Could we end up with a tobacco industry that really continues to exist for the purpose of generating income to pay legal costs? MIKE FRANCE: You know, it's almost starting to look that way. I would say at this point the litigation has not become such a threat that bankruptcy -- you can talk about it, it is a legitimate question, it didn't used to be -- but I would have to see more evidence of industry losses that have been sustained on appeal to truly validate that type of scenario. RAY SUAREZ: Well, we are starting to see plaintiffs win the cases more often. There have been several in the West Coast and they are unusually, I think when you look at all the cases that have been brought, starting to be smokers who began smoking after the warnings were put on the cigarette labels. Has the tobacco industry had to change tactics in order to respond to this new wave of litigation? MIKE FRANCE: They have changed tactics. Their primary change in tactics is now they are trying to turn over a new leaf. They did the settlement in '97. They changed a lot of their marketing practices. In a very broad sense, they're trying to reenter the community of respectable companies in America. And they're hoping that that will count with juries when they assess these verdicts. What's scary for the industry, now, is that they never used to lose cases. And now they're starting to lose one two, three, four, $20 million here, $30 million there in punitive verdicts. This terrifies Wall Street. And, given all the people that have ever smoked and all the potential claims out there, it is just not clear when the industry will ever get beyond this. RAY SUAREZ: In this particular case, in Florida, on the final day of testimony, we saw the executives of all the big tobacco companies testifying and in some of the cases, very frankly admitting things that tobacco company executives never used to talk about before. Maybe you could tell us more about that. |
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| Could legal fees bankrupt the industry? | ||||||||||||||||||||
 MIKE
FRANCE: Well, it's interesting. They're trying to find a way out of this.
If you go back, I think the moment that crystallized so much of America's
anger, many people's anger against these companies was when they went
in front of Congress and they testified that cigarettes were not carcinogenic
and they weren't addictive -- plainly silly positions. And now what they're
trying to do is say that yes, tobacco can be dangerous; yes, it can be
addictive. They're trying to work their way out of the box and to present
positions that are more defensible. What makes that difficult for them
is that some of these admissions can now come back to haunt them in the
courtroom. So they're in a tough spot.
RAY SUAREZ: Well, I was surprised to see frank admissions. It was really quite something in the history of these cases, to see CEO's saying "yes, I believe cigarette smoking causes cancer; yes, I believe it's addictive." Isn't that a risky thing to say once you're sworn and sitting in the dock? MIKE FRANCE: It is a risky thing. And, what's more, it goes directly to liability. Above and beyond that, it contradicts their own public positions for years, their own public documents for years, documents that perhaps many of the people who are now plaintiffs smokers relied upon. I think the really fascinating issue for companies, looking head, is can they do it? Is there some way that they can take steps? They're plainly now willing to do so; they're plainly now willing to change their marketing practices to teenagers and a lot of their other controversial practices. But is there anything they can do that will win back the American public or have they gone so far down in terms of credibility that really no one cares anymore? They're not listening, and they're not hearing -- as you mentioned, some frankly - you know - surprising admissions that they're now making. RAY SUAREZ: So what happens next? What is the next legal shoe to drop? MIKE FRANCE: Well, the next legal shoe-at least in this case - is they'll try to appeal it to the intermediate appeals court in Florida, which has not been friendly to the industry, then to the Florida Supreme Court where they may have better luck. The outcome there is unclear. Above and beyond that, there are more than 700 cases against this industry throughout every state and several different countries. So, it's "shoes," plural, many of them and there is no clear point where the industry is going to be able to say we're done with this anytime in the foreseeable future. RAY SUAREZ: Mike France, thanks for joining us. MIKE FRANCE: Thank you, Ray. |
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MIKE
FRANCE: Well, it's a novel approach, but innovation is not necessarily
bad when a judge does something to handle a pretty novel case that involves
700,000 people. The mere fact that the judge did do something that was
sort of innovative in this case may not be sufficient grounds for appeal.
It's possible, but that is not necessarily a slam dunk for the industry.
MIKE
FRANCE: That's one of the most fascinating things about this verdict.
The key issue for the industry right now is, is this a bankrupting event?
And, beyond that, is the other litigation a bankrupting event? If that
happens, what that would mean is that all of the people that the industry
is now paying out money to, including the state of Florida and all of
the other states, would then have their claims reduced. From a public
health standpoint, you have to really ask yourself whether or not the
industry going into bankruptcy, other than enriching plaintiff's lawyers,
would be something that would deal with the fundamental problems that
the government has been trying to get a handle on, which is teenage
smoking.