Philip Morris USA scrambled yesterday to reduce a massive court-ordered bond that it needs to pay to appeal a $10.1 billion consumer-fraud verdict an Illinois state judge issued late last month.
On one front, the tobacco giant asked Madison County Judge Nicholas Byron, who issued the verdict, to reduce the $12 billion bonding requirement to no more than $1.5 billion, saying it would otherwise be forced into bankruptcy. Byron found that the company had deceived smokers into thinking its low tar and nicotine cigarettes were safer to smoke than regular cigarettes.
Philip Morris also filed suit in another Illinois court, in Cook County, asking the state to stop collecting any of the $3 billion in punitive damages awarded as part of the verdict. The company said Illinois gave up all claims to any punitive damages in 1998 when it joined other states and signed a $246 billion agreement to resolve an earlier lawsuit over health claims.
The tobacco giant also continued to press the Illinois legislature to enact a law to limit the amount of money a company has to pay as a bond to appeal a court decision.
William S. Ohlemeyer, Philip Morris USA vice president and associate general counsel, said the company was only seeking "the opportunity guaranteed by the United States and Illinois constitutions to have our appeal heard without being forced to post a bankrupting bond."
Byron's March 21 verdict has already had repercussions in the financial markets. Credit-rating firms downgraded the debt of Philip Morris's parent firm, Altria Group Inc.
Yesterday, another company controlled by Altria, Kraft Food Inc., announced that the downgradings had eliminated its access to commercial paper. As a result, Kraft said, it was forced to borrow through its revolving credit facilities. The move will raise borrowing costs but should not significantly affect earnings, the company said.
In a telephone news conference, Ohlemeyer said that while Philip Morris is "a viable and successful business," its "net worth is not $12 billion and Philip Morris does not have the ability to post a $12 billion bond." He added that the company has provided Byron with proprietary data about its finances that it wouldn't disclose publicly.
"It cost the plaintiffs $186 to file the case; it shouldn't cost us $12 billion to have an appellate court decide whether Judge Byron was right or wrong," Ohlemeyer said.
Plaintiff's attorney Stephen M. Tillery said he was not surprised by Philip Morris's court filings but said the company was trying to keep secret its financial relationship with its parent, Altria. "It can't seek bankruptcy protection without implicating Altria," he said. Tillery said he would ask the judge next week to unseal the financial documents and make them public. The only reason Philip Morris is seeking additional court protection in Cook County, he added, "was to get a hearing in front of a judge who hadn't heard seven weeks of testimony about the terrible things they've done over 30 years."
Tillery and other tobacco industry critics have argued that Altria can afford the bond. However, Ohlemeyer said, "Altria is not part of this case and the judge cannot demand that Altria post bond for this case."
He noted that the surety bond industry could only afford to post, at most, a $1.5 billion bond.
There are 15 states that have capped the amount of an appellate bond, including Florida, where the biggest verdict against tobacco firms is now being appealed. Philip Morris is to pay nearly $75 billion of that $145 billion verdict.
Philip Morris has an unusual group of supporters in its quest to reduce the bond: state attorneys general who successfully sued the tobacco industry, reaching the landmark $246 billion settlement in 1998. That money is to be paid out over 25 years, but the Illinois decision has threatened Philip Morris's next payment of $2.6 billion, which is due April 15. The state attorneys general have said they plan to file legal briefs early next week supporting a reduction in the bond.
However, they also told Philip Morris yesterday that it can expect lawsuits from the states if it fails to meet its April 15 payment.
That demand, Ohlemeyer said, put the company "in a difficult bind."