Time Is On Big Tobacco's Side

The bad news for five tobacco companies Friday is that they got stuck with a record-setting $145 billion verdict in a class-action smoker's trial in Florida. The good news is that those companies likely won't have to pay anything near that amount after a series of appeals whittle it down to a more palatable size. And don't be surprised if the parties reach a settlement of this dispute after the first few rounds of appeals go by the boards.

Friday's jury verdict is astonishing -- for its sheer size, for the dazzling speed with which it was reached by those Florida jurors, and for the profound extent to which it is likely to affect future tobacco trials around the country. Between 30 and 40 times larger than the previous record for a punitive damages verdict in the United States, the Florida jury has certainly sent a message to tobacco proponents and opponents alike that there are few, if any, "ceilings" when it comes to these kinds of cases.

And that message likely will encourage other "classes" in other states to bring similar suits based upon similar facts. More big headaches for Big Tobacco, in other words, as if the industry didn't have enough to worry about these days, what with all the government settlements and suits they've been fighting over.

But things aren't as gloomy for the companies as they now appear to be. First, damage awards are typically only as good and valid as the defendants' ability to pay them. So if, indeed, the five horsemen of tobacco's apocalypse cannot afford to pay but a small fraction of the jury's award -- as tobacco executives claimed both before and after the verdict -- their verdict will only be as good as the paper it is written on. You can't draw blood from a stone.

At some point, then, the practical realities of the business of Big Tobacco will take precedence over the amount of damages they have to pay. Eventually, the defendants here will say: either take what we offer you in settlement or deal with us in bankruptcy and take your place behind all of our secured creditors. And that's where a relatively new Florida law comes into play in this case. The law is designed to put a limit, or cap, on the amount of punitive damages that can be awarded in a particular case in order to preclude a company from going bankrupt as a result of a punitive damages award.

Now, the tobacco lawyers are hanging their hats and their coats on this law, hoping that it will cut into shreds the big verdict against them. And on the face of it, the law could have that sort of effect on this case. But the law isn't set in stone and hasn't withstood prior legal challenges, so you can bet that it will be challenged by the plaintiffs' attorneys in this case. They will argue that it is unconstitutional, that it unfairly limits the remedy injured people are entitled to when they seek redress before a court. This Florida law is still an open question and its interpretation -- by Florida courts ad then perhaps even the U.S. Supreme Court -- likely will go a long way in determining how and when this case ends.

So what happens next? First, the defendants will "appeal" Friday's verdict -- and the verdicts which preceded it months ago -- to the same trial judge who has ruled against them at various stages of the case. The tobacco companies likely will ask the judge to throw the verdicts out in their entirety because they aren't based on enough evidence or applicable law and, in the alternative, they'll argue that the $145 billion award simply has no rational or legal basis. But if the judge were inclined to toss out the plaintiffs' case, he would have done so already, so don't bet on that occurring. A more likely possibility is that the judge would reduce, in relatively small part, Friday's award.

Which would force the defendants to appeal the verdicts to Florida's appeals court, a prospect which likely would take years. In order to make their appeal, the companies likely would have to post a significant bond -- a guarantee, if you will -- that they aren't appealing just for the sake of it. The amount of that bond likely will be enormous, in and of itself, and the interest on it alone likely will cause financial hardship to the defendants. And then the case will go up, up, up the judicial ladder, with the defendants clamoring at every turn to reduce the verdict and the plaintiffs clamoring that the jury's verdict ought to be respected.

And at some point during this appellate process, I think, reasonable people on both sides of this case will get together and hammer out a deal. For the plaintiffs, a deal would give the actual class participants some retribution before they die (often of cancer-related illnesses) and would be certainly better than waiting in vain for an award which the defendants cannot necessary pay. For the defendants, a deal would offer the industry a little more certainty its business leaders want and need and would help reduce legal fees and costs -- which by now are astronomical, too.

Friday's verdict is a big win for the Florida plaintiffs and for plaintiffs in smoking cases in general around the United States. And, to the extent that it puts the tobacco companies even more on the legal and political defensive than they ever have been, it's a significant loss for the industry. But the magnitude of that loss can't be counted in the astronomical figure tossed out by the Florida jury. That figure likely will make it into history books, but probably won't ever be recorded in the defendants' corporate books.

  • CBSNews.com staff CBSNews.com staff

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