Smoked!

By ADAM COHEN

Even in this age of runaway jury verdicts, the punitive-damage awards that rang out in a hushed Miami courtroom last Friday were impressive. Against Philip Morris--$73.96 billion; R.J. Reynolds--$36.28 billion; Brown & Williamson--$17.59 billion; Lorillard--$16.25 million; Vector Group (owner of Liggett)--$790 million. By the time Circuit Court Judge Robert Kaye reached the bottom of the verdict sheet, the total had climbed to $144.8 billion. "A lot of zeros," the judge observed dryly.

It was, in fact, the most zeros ever. The record award, in favor of a class of some 500,000 Floridians made sick by smoking, took punitive damages to a bold new level. And it quickly set off a heated debate over the future of Big Tobacco. Antismoking forces bluntly predicted that the ruling could eventually cause the tobacco industry to go up in smoke. But the cigarette companies, backed by Wall Street, called the award a $145 billion joke, a judicial travesty that would be snuffed out on appeal.

The Florida suit had made history even before it hit the damages phase. It was the first time a class action against Big Tobacco had ever gone to trial. The cigarette companies have already lost some suits by individual smokers--a $26.5 million award in California from a February 1999 verdict, $33 million in Oregon a month later--but those can be seen as just the cost of doing business.

Class actions pose a far greater threat because they give plaintiffs the ability to mount ever larger legal offensives. Armies of lawyers could represent thousands of plaintiffs, and the potential losses would be correspondingly larger. And the cost of defending the cases would escalate. Tobacco companies have succeeded in blocking 24 lawsuits around the country from proceeding as class actions, and they expected to do that in Florida too. But plaintiffs' lawyer Stanley Rosenblatt persuaded the Florida courts--over heated objections from the other side--to let him represent a stateful of smokers.

Rosenblatt put on an epic case--one that stretched out for two full years, with testimony from 157 witnesses. A skilled trial lawyer with a flair for the dramatic, he pulled at jurors' heartstrings by putting his ailing clients front and center. Mary Farnan, a nurse with lung and brain cancer, began smoking at age 11 and was unable to quit even during early rounds of chemotherapy. Frank Amodeo, a 60-year-old Orlando clockmaker with throat cancer, is unable to swallow food. Rosenblatt had hoped to put Angie Della Vecchia on the stand during the damages phase. She died before she could testify, but Rosenblatt made sure the jury saw the teary face of her husband Ralph in court.

And Rosenblatt backed up the pathos--after all, a nurse like Farnan knows the risks of smoking--with strong evidence of malfeasance by the tobacco companies. Taking advantage of mounds of industry documents turned over in other smoker lawsuits, he argued that the cigarette makers had intentionally kept the public in the dark about the dangers of smoking. Even in the face of that evidence, the tobacco companies tried to avoid conceding that cigarettes are addictive or cause cancer. They made a big mistake, says Rosenblatt. "To continue to carry on with this moronic debate...It made the jury as angry as we wanted them to be."

The first phase of the lawsuit ended last July when the jury--composed of one smoker, one ex-smoker and four nonsmokers--found that the defendants made a deadly product. In April the jurors ordered the defendants to pay $12.7 million in compensatory damages to three individual smokers who represented the class. At last week's punitive phase, Rosenblatt urged the corporate equivalent of a death sentence, asking the jury for $154 billion.

In a courtroom rarity, tobacco executives took the witness stand. They testified that there was no need for punishment because they had cleaned up their act, in part by spending millions of dollars on advertising to discourage young people from smoking. And they had agreed in 1998 to pay out $246 billion to settle a lawsuit by a group of states. Brown & Williamson lawyer Gordon Smith pleaded on behalf of the company's 7,000 employees, who he said are working to make the company more responsible. "I ask that you don't kill that dream," Smith urged the jurors. They didn't budge.

The $145 billion award far exceeds the old record for punitive damages--a paltry $5 billion dished out for the Exxon-Valdez environmental disaster. (It's on appeal.) Critics of Big Tobacco hailed the award as a breakthrough. "This is unquestionably the most important case in terms of both real dollars and impact on the industry," said Mark Gottlieb, a lawyer with Northeastern University law school's Tobacco Products Liability Project. Gottlieb dismissed the defendants' prediction of a reversal. "We think it will stick and that the industry will actually have to pay," he said. The award has the potential to be more devastating to Big Tobacco than even the states settlement, Gottlieb said, because unlike the payouts to states, which are spread over a period of years, this entire amount might have to be paid at once.

The tobacco industry insisted, however, that last week's action would have "no practical impact." Tobacco-company lawyers quickly ticked off grounds for reversing the results of the trial, which Philip Morris lawyer Dan Webb called "an unfair procedure, unheard of in American history." The Florida courts should never have permitted the case to proceed as a class action, the tobacco lawyers said, and they were harshly critical of the record-setting award. Under Florida law, punitive damages cannot be so large that they bankrupt a defendant. The defendants contend that the $145 billion award would do just that. "There's absolutely no question it would put every one of these companies out of business five times over," said Webb. The companies have said the most they can afford to pay is $150 million to $375 million, figures that critics dismissed as ludicrously low.

Whatever the merits of their appeal, the tobacco companies are hoping at the least to buy time by dragging the proceedings out. They contend that there must now be individual, factual trials for each of the roughly 500,000 class members. Even with 100 judges working full time, says Philip Morris lawyer Greg Little, "that could take decades."

An important question for the defendants is how much money they will have to put up during the appeals process. Typically, the loser must post the full amount of the award while the case is under appeal. The Florida legislature passed a law this year capping the size of the appeal bond that each tobacco company must post at $100 million--a law the plaintiffs are challenging. If the cap is removed, the tobacco companies could conceivably be forced to file for bankruptcy, which would disrupt this case as well as the $209 billion settlement with the states, part of which goes to Florida.

Wall Street dismissed the $145 billion setback as if it were a parking ticket. Tobacco stocks were off marginally, indicating that investors had already priced the decision into the shares. And industry analysts remain bullish. "The scale of the verdict speaks to the unconstitutionality and the absurdity of the whole process," says David Adelman of Morgan Stanley Dean Witter.

Some legal experts beg to differ, saying the threat to tobacco is quite real. University of Miami law professor Clark Freshman notes that the state appellate courts have already ruled for the plaintiffs on two key points: the courts okayed the size of the class, and they agreed that any punitive damages could be ordered to be paid out all at once.

The last time the tobacco industry faced potentially crushing liability--at the hands of the states--it decided to settle, a course Rosenblatt seemed to encourage. Speaking after the verdict, he delivered an unusually angry--and personal--challenge to Philip Morris' CEO. "Geoffrey Bible, I'm available, pal," he bellowed to a crowd of reporters. "Mr. Bible, with all your shareholder meetings and all your stock and your $25 million bonuses, yes, and all your tough talk. Mr. Bible, call me next week. I'll take a payout."

Hours after the verdict, Rosenblatt got an answer: Don't wait by the phone. The company made it clear it wasn't going to settle and dismissed him as a lawyer who was running scared. "He knows the case will not withstand scrutiny at the appellate level," company lawyer Little said.

Rosenblatt and his co-counsel, wife Susan, later took the high road, saying that by holding the tobacco companies publicly accountable, they've already racked up an important victory. "This was never only about money," Rosenblatt said. "This was about showing up these companies for what they really are." Many of the plaintiffs--some of whom are unlikely to live to collect any damages--agreed. "No amount of money is going to change the way I have to eat," says throat-cancer victim Amodeo, who has to ingest nutrition through a hole in his stomach. "Fifteen cents, $15 million--it doesn't change it."

--With reporting by Tim Padgett/Miami and Eric Roston/New York

With reporting by Tim Padgett/Miami and Eric Roston/New York