Tobacco Industry Loses Crucial Court Case

Jury awards $8 million to widow of addicted smoker.

In a court decision that attorneys for Philip Morris called “profoundly flawed,” a Florida jury last week awarded $8 million to the widow of a man who died of lung cancer, ruling that nicotine addiction was the cause of his death.

Attorneys for Altria, the parent company of Philip Morris, argued in Hess v. Philip Morris USA that the deceased man had been fully aware of the dangers of smoking, and had been fully capable of quitting, had he chosen to do so.

Philip Morris will most certainly lodge an appeal, given that the closely-watched “Hess case” is the first of an estimated 8,000 similar cases filed in Florida in the wake of a class-action suit against cigarette makers in 1994. In 2006, the class-action suit was overturned by the Florida Supreme Court, which ruled that smokers had to prove in individual court cases that cigarettes were the immediate cause of their health problems.

Attorneys for the widow, Elaine Hess, argued that Philip Morris sold cigarettes that were “defective and unreasonably dangerous,” according to a Miami Herald report by Patrick Danner. Phillip Morris attorneys argued that smoking had simply been a “lifestyle choice” for Stuart Hess. Hess, the tobacco lawyers asserted, voluntarily chose not to follow the advice of family members and doctors, who told him to quit smoking.

According to the Miami Herald report, Hess “tried various means to quit smoking, including hypnosis, Nicorette gum and even going cold turkey. But all of his attempts failed.”

While technically the Hess case has no bearing on the individual court cases to come, attorneys said it was expected to serve “as a template for the other cases,” Danner wrote in the Herald article. Murray Garnick, a senior vice president and associate general counsel for parent company Atria, said in a press release that the verdict was the result of “an unconstitutional and profoundly flawed trial procedure. Fundamental fairness requires the plaintiff to establish basic liability before a jury can award damages.”

Photo Credit: http://snus-news.blogspot.com/2008_01_06_archive.html

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Tobacco Settlement Turned Upside Down

“Tobacco bonds” link state budgets to cigarette sales.

Bob Sullivan of MSNBC reports that ten years after a group of states wrestled Big Tobacco to its knees in a $200 billion settlement, the creation of “tobacco bonds” by Wall Street has allowed investors and state governments to borrow against their future tobacco settlement payments. The result? Money that was to be paid out over the next thirty years for smoking cessation programs is being redirected into infrastructure projects and shoring up municipal credit.

“A review of 660 leading bond funds covered by the investment research firm Morningstar Inc., conducted at msnbc.com’s request, showed that more than 260 are invested in tobacco bonds,” Sullivan writes on his blog, The Red Tape Chronicles.

What, you may well ask, are tobacco bonds, and where did they come from? “Perhaps from you,” Sullivan writes. “When Wall Street talked 25 states into borrowing against future tobacco payments—a process known as ‘securitization’—it sold bonds to individual investors and mutual funds that buy municipal bonds.”

The irony of that approach, says Sullivan, is that “because these states have essentially borrowed against future payments from the tobacco industry, they are now dependent on the continued vitality of cigarette sales. If Big Tobacco stumbles, states will be on the hook for these massive, billion-dollar loans.” As a lawyer involved in litigation over the tobacco settlement put it to Sullivan: “Now [the states] have an incentive not to put tobacco out of business.” More than that, any significant failure by the tobacco industry to make its payments would be “catastrophic both to state budgets and individual investors.”

It wasn’t supposed to be this way. But the settlement from the lawsuit designed to blow up Big Tobacco was just too attractive to investment bankers. Sullivan notes that Oppenheimer’s Rochester family of bond funds includes funds with up to 20 per cent of assets held in tobacco bonds. The lure to the states was that, rather than waiting for the money, they could opt for an attractive lump sum payment up front. And many states did just that.

The problem, according to a tobacco policy researcher quoted on Sullivan’s blog, is that “the states have this horribly naive view that they will outsmart Wall Street. Wall Street always gets the better deal.” Many states have settled for a payout of 50 cents on the dollar, plus additional insurance fees against the risk of tobacco companies going out of business.

Eric Lindblom, a director of the Campaign for Tobacco-Free Kids, told Sullivan: “There is a horrible failure of the states to invest even a minuscule amount of the funds for tobacco control. It’s a real tragedy for our country.”

Roughly 3 per cent of tobacco settlement money has been paid out for smoking cessation efforts over the decade since the settlement, Sullivan writes.

Photo Credit: www.treasury.state.la.us

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Supreme Court Lights Up

Unlikely to let states sue over low tar cigarettes.

Can states sue tobacco companies for marketing one of the most addictive products known to man? Not if the claim hinges on deceptive claims about “light” cigarettes, the U.S. Supreme Court seemed to say last Monday.

The Court began its new term by taking up the tobacco case, in which three residents of Maine filed suit against Altria Group Inc. and its subsidiary, Philip Morris USA, under a state law barring unfair marketing practices. According to an Associated Press report, the plaintiffs argued that Philip Morris had long known that smokers of low tar cigarettes compensate by taking longer puffs and smoking more cigarettes.

After being thrown out by a federal district court, a U.S. Circuit Court of Appeals allowed the suit to proceed. Several similar cases are in progress around the country, pending a decision. If the Supreme Court finds against Philip Morris and its parent company Altria, states could initiate a new round of lawsuits as tobacco manufacturers once again face the prospect of huge class-action settlements.

Industry Week reported that Altria’s defense is that “cigarette packaging falls under the domain of the U.S. Federal Trade Commission (FTC), which failed to act despite being aware that light cigarettes were no less a health hazard than regular cigarettes.”

In other words, Altria knew that its advertising was deceptive—but so did the FTC, which approved it. Judge Samuel Alito summed up this thinking when he told an FTC attorney that by allowing cigarette ads to display tar and nicotine levels, “You have misled everyone who has bought these cigarettes for a long time.”

Chief Justice Roberts, according to the AP report, questioned why the case was focused on deception rather than the relationship between cigarettes and health: “How do you tell it’s deceptive or not unless you look at smoking and health?”

At the heart of the argument is the question of whether the 1966 federal legislation governing cigarette labeling and advertising takes precedence over more recent state legislation. Representing Altria, conservative attorney Theodore Olson found himself in the odd position of arguing that federal law should take precedence over state law.

Clifford E. Douglas of the University of Michigan’s Tobacco Research Network, told the New York Times in May that the difficulties of pushing forward with cases against light cigarettes “underscores the need to combat the light cigarette scam in the public policy arena.” Douglas said he supported legislation that would give the U.S. Food and Drug Administration (FDA) authority to regulate tobacco.

The New York Times reported that a bill under consideration in Congress “would ban the use of terms like light and low-tar in marketing such cigarettes, which contain the same tobacco as other cigarettes but have filters that allow more air to mix with the smoke, diluting it.”

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