Philip Morris, Reynolds Losing Florida Smoker Suits (Update1)

U.S. cigarette makers led by Philip Morris USA and R.J. Reynolds Tobacco Co. have been on the losing end of recent Florida state court trials, where smokers and their families have won 14 of 15 verdicts and more than $200 million in damages over the past year.

And there are still more than 9,000 cases to go.

The 15 cases are among the first to be tried on behalf of sick and dead smokers since the Florida Supreme Court threw out a statewide class-action suit in 2006, along with a $145 billion punitive-damages verdict against the industry, Bloomberg BusinessWeek reports in its May 24-May 30 issue. The court said individual members of the class may sue on their own.

“Collectively, these cases are the single greatest litigation threat facing the industry,” Morgan Stanley analyst David J. Adelman said in an interview.

Lawyers for smokers say they hope the victories will spur the industry to settle remaining claims. Defense lawyers reject the suits and vow not to settle. They argue rules imposed by judges make it impossible for them to get a fair hearing.

About 5,000 smokers’ claims are pending in Florida state courts, according to Altria Group Inc., parent of Philip Morris. The industry has won three verdicts and lost 15 since February 2009. Another 4,400 claims are in federal courts in Florida.

Class Action

The cases stem from a class action filed in 1994 by Howard Engle, a Miami pediatrician and smoker who died last year at the age of 89.

As part of its 2006 decision ending the case, the state Supreme Court gave former members of the class one year to file individual claims.

In a ruling being fought by the industry, the court said smokers can use jury findings from a 2000 trial in the Engle case as part of their separate cases. Among the findings were jury conclusions that the tobacco companies sold defective products, concealed the dangers of smoking and acted negligently.

The companies haven’t contested other findings that smoking causes illness or that the nicotine in cigarettes can be addictive.

The federal cases are on hold as the U.S. Court of Appeals in Atlanta decides what, if any, use must be made of the Engle factual findings in trials. Florida state appeals courts will weigh that question in company challenges of pro-smoker verdicts. About half the company losses have been appealed, and the companies have made post-trial motions in the others that may be followed by appeals.

Fort Lauderdale Courthouse

The focal point of the post-Engle litigation is a Fort Lauderdale courthouse ringed by store front bail bonds and law offices.

In a courtroom on the ninth floor, Circuit Judge Jeffrey Streitfeld, 62, a 19-year veteran of the Florida bench, has tried eight smoking cases to verdict in two years, more than any other judge in the country.

Under a two-stage trial plan used by Streitfeld, jurors are first asked to decide whether the smoker belonged in the Engle class -- that is, whether the illness was caused by addiction to smoking.

If the answer is yes, Streitfeld reads jurors the factual findings upheld by the Engle court. Then, after hearing the rest of the evidence in the case, they decide whether the tobacco defendants being sued are at fault and, if so, what damages they should pay.

Specific Wrongdoing

Industry lawyers claim this arrangement means smokers no longer have to prove that specific wrongdoing by cigarette companies actually caused their illnesses. That violates Florida law and the companies’ right to a fair trial, they say.

“It is a due-process violation of the most basic sort,” said Murray R. Garnick, senior vice president and associate general counsel for Richmond, Virginia-based Altria.

“Boo-hoo,” responded anti-smoking lawyer Edward Sweda.

A senior staff attorney for the Tobacco Products Liability Project, an advocacy group, Sweda said cigarette makers have unfairly avoided legal liability for decades by withholding evidence, delaying cases and scaring off plaintiffs’ lawyers with a “win by attrition” strategy.

The Florida trial procedures are fair, he argued. And the 9,000-plus people with claims now are a fraction of the estimated 700,000 plaintiffs in the original Engle class, Sweda said.

‘Ultimately Prevail’

David Howard, a spokesman for R.J. Reynolds, said the company will fight the lawsuits and “ultimately prevail at the appellate level.” Garnick said the cases are “fundamentally flawed” and that his company has “no intention of settling.”

Altria, the largest U.S. tobacco company, last month reported first-quarter profit exceeding some analysts’ estimates. Earnings per share rose three cents to 42 cents, with some exclusions, after a projection of 40 cents, the average of 10 estimates in a Bloomberg survey. Shares rose 27 percent in the year ending yesterday.

Reynolds’s parent, Winston-Salem, North Carolina-based Reynolds American Inc., the second-largest tobacco company, reported first-quarter profit of $1.11 a share on an adjusted basis. Analysts surveyed by Bloomberg estimated $1.07 on average. The company rose 36 percent in the year ending yesterday.

Years in Court

All sides agree it will take years for the courts to determine how trial judges should apply the Engle ruling.

Streitfeld, who has tried as many post-Engle cases as the rest of the state’s judges combined, said it may take more than 20 years to try the 350 cases pending in his court.

“We try a couple of cases each quarter,” the judge, who devotes about three weeks to each trial, said in an interview. “There’s no way that all these cases can be reasonably tried in our lifetimes.”

The tobacco cases coincide with a surge in Florida state court filings, including a 258 percent jump in court-supervised property foreclosures, according to a March report by the state’s judiciary. Courts also give priority to criminal cases and other matters that come with legally mandated time limits.

“It could take a great deal of time, especially if the industry is fighting all of them,” said Jesse Diner, president of the Florida Bar, of the tobacco litigation.

Smokers’ lawyers who have tried post-Engle cases say one reason for their success is that Florida juries are willing to award damages to smokers even if they find they are partly to blame for their own misfortune. In one of the cases, Fort Lauderdale jurors awarded $500,000 against R.J. Reynolds after finding the deceased smoker, Laura Grossman, was 70 percent responsible for her illness.

Biggest Verdict

In the biggest post-Engle verdict to date, another Fort Lauderdale jury in November awarded almost $300 million, including $244 million in punitive damages against Philip Morris, to Cindy Naugle, an ex-smoker with emphysema. Streitfeld called the award grossly excessive and cut it to $38.9 million.

Law firms throughout Florida are preparing cases on behalf of smokers, said Jacksonville attorney Norwood “Woody” Wilner. In 2001, Wilner collected the first-ever judgment for a smoker against a tobacco company to be upheld on appeal, $1.1 million for lung cancer survivor Grady Carter.

Another Florida attorney with cases against the cigarette makers is Willie Gary, a Stuart-based trial lawyer whose website features photos of “Wings of Justice II,” his customized 32- seat Boeing 737.

Gary watched opening statements in one of the latest trials before Streitfeld on May 5. He predicted in an interview that he will win the first billion-dollar verdict in the post-Engle litigation.

To contact the reporter on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net.

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