Big Tobacco's Many Days in Court

U.S. cigarette makers, led by Altria Group (MO) and Reynolds American (RAI), have racked up a dismal record in Florida courts, where smokers and their families won 14 of the last 15 trials and were awarded more than $200 million in damages. But plenty of battles remain. That's because there are still more than 9,000 claims left to be tried.

The industry's string of 14 losses, followed by one victory on May 19, are among the first cases to be heard on behalf of sick and dead smokers since the Florida Supreme Court threw out a huge class action aiming to represent 700,000 smokers in 2006. The suit claimed tobacco companies misled smokers about the addictive nature of smoking and its impact on health. The state high court, which in the same ruling gave Big Tobacco a victory by striking down a $145 billion punitive damage verdict against the industry, said individuals in the disallowed class could instead sue on their own. That set off a rush of lawsuits that has left a cloud over tobacco companies' finances, although few expect the individual judgments to approach the class action's $145 billion.

"Collectively, these cases are the single greatest litigation threat facing the industry," says Morgan Stanley (MS) analyst David Adelman.

Lawyers for Florida smokers say they hope the early verdicts will spur tobacco companies to settle remaining claims. Defense lawyers, however, argue the losing streak shows that the ground rules applied in the trials make it impossible for the companies to get a fair hearing.

About 5,000 smokers' claims are filed in Florida state courts, where the industry has won 3 verdicts and lost 15 since February 2009. Some 4,400 more are pending in federal courts in Florida.

The cases stem from a class action filed in 1994 and litigated for 12 years in the Florida court system. That case was brought by Howard Engle, a Miami pediatrician who died last year at age 89.

As part of its 2006 decision ending the case, the state Supreme Court gave members of the disallowed class a year to file individual claims and said they can use some of the jury findings of a 2000 trial in their cases. Among those findings are that tobacco companies sold defective products, concealed dangers of smoking, and acted negligently.

The federal cases are on hold while the U.S. Court of Appeals in Atlanta considers a challenge to the application of the 2000 jury findings. The epicenter of the post-Engle litigation, for now, is the Fort Lauderdale courtroom of Circuit Judge Jeffrey E. Streitfeld. A 19-year veteran of the Florida bench, Streitfeld has tried eight smoking cases to verdict in the past 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 plaintiff was a member of the disallowed Engle class—that is, whether the smoker's illness was caused by addiction to smoking. If the jurors find the plaintiff to be in that group, they move to the next phase to consider whether the tobacco companies are at fault and, if so, what damages they should pay. During the second phase, Streitfeld reads jurors the factual findings upheld by the court in the Engle case.

Tobacco industry lawyers claim that this arrangement means smokers no longer have to prove that specific wrongdoing by cigarette companies actually caused their injuries. They say that violates Florida law and the companies' right to a fair trial. "It is a due process violation of the most basic sort," says Murray Garnick, senior vice-president and associate general counsel for Altria.

Edward Sweda, senior staff attorney for the Tobacco Products Liability Project, an antismoking group, says he thinks the Florida trial procedures are fair, and that the 9,000-plus people bringing claims now are a fraction of the estimated 700,000 Engle class plaintiffs.

Both sides agree it could take decades for the cases to wind their way through Florida's legal system. Streitfeld says the 350 cases pending in his court alone may take more than 20 years to try. That's unwelcome news for many plaintiffs. Said Streitfeld in an interview: "There's no way all these cases can be reasonably tried in our lifetimes."

The bottom line: More than a decade after state governments and tobacco companies reached a master settlement, private suits are being litigated.

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