The threat of a crippling, multibillion-dollar verdict against the tobacco industry vanished yesterday when a Florida appeals court ruled that damages in a path-breaking lawsuit may not be awarded in a single lump sum.
The decision is a victory for cigarette makers in a class action lawsuit that had, until yesterday, been considered a potentially lethal danger. Analysts had predicted that some of the smaller players in the industry might have been forced to file for bankruptcy had they been been slapped with a gigantic, one-time verdict.
The ruling stems from a lawsuit seeking damages on behalf of 500,000 injured smokers in Florida, the first successful suit of its kind. In June, a Miami jury decided that the tobacco makers had "engaged in extreme and outrageous conduct," a verdict that raised the possibility the companies would be hit with a record-setting damage award.
But in a two-paragraph ruling yesterday, a panel of appeals judges in Florida's Third District stated that damages must be considered one smoker at a time. Tobacco makers could still end up spending billions of dollars on the litigation, but the expense will trickle in rather than arriving with a calamitous thud.
The difference is vast, experts said. Some of the small players in the industry, already shaken by a $206 billion settlement with attorneys general last year, might have folded, unable to find an insurer willing to put up the money for an appeals bond. And the decision makes it less likely that attorneys in other states will file their own class action suits.
"All along the banner of success has shifted from one side to the other in the tobacco wars and I'd say this is a win for the industry," said Mary Aronson, an industry analyst. "Although the individual cases will continue, you're not going to see the huge numbers."
Still, anti-tobacco activists yesterday found bits of encouraging news in the decision. Though its now more likely that cigarette makers will survive, the companies are still going to suffer, they said.
"They've ducked a cannon ball, but they've opened themselves up to a fusillade of bullets," said Richard Daynard, an anti-tobacco lawyer with the Tobacco Products Liability Project. Indeed, Daynard said, cigarette makers might end up with spending more as a result of this case-by-case approach because courts often whittle down massive, all-in-one awards.
"It's a short-term victory for tobacco, even if it's not reversed," said Matthew Myers of the National Center for Tobacco-Free Kids. "While it does alter the likelihood that there will be a devastating verdict, it doesn't alter the fact that the industry is facing hundreds, if not thousands, of potentially damaging suits in Florida."
The plaintiffs' lawyer in the case, Stanley Rosenblatt, as well as the defendants -- Philip Morris Co., R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp., Lorillard Tobacco Co. and Liggett Group Inc. -- are barred from discussing the case. The second phase in the trial, to determine whether the first two plaintiffs in the case should be compensated, will start Tuesday.
Last year's settlement with attorneys general blocks states from filing suits against tobacco makers, but it does not prevent private lawyers from suing. In recent months, both sides in this decades-old battle could claim victories. The industry beat back litigation in Ohio and several other states, but lost cases in Oregon and California.
Historically, such suits have proven exceedingly difficult to win, particularly class action cases that seek to lump together scores of plaintiffs. Judges and juries have often concluded that injuries suffered by the class members are too diverse. In other instances, juries have decided that plaintiffs fully understood the risks of smoking and could not hold the tobacco makers liable for their health problems.
Rosenblatt managed to beat the odds, a feat he achieved once before. In 1997, he won a $349 million settlement from the tobacco makers on behalf of flight attendants alleging they'd been injured by second-hand smoke.
For a time, it looked as if Rosenblatt was on the verge of another eye-opening payday. Armed with hundreds of recently disclosed industry documents, he and his wife filed suit on behalf of all sick Florida smokers, a group that included a plaintiff who'd lost his legs and another whose vocal cords were removed. After eight months of testimony, a jury decided that tobacco makers had, as the Rosenblatts argued, defrauded consumers by lying about the risks of a product that caused a wide variety of fatal diseases.
That raised the specter of a verdict exceeding tens of billions of dollars. But the terse ruling yesterday means that a final tally from this lawsuit is years in the offing.
According to analyst Aronson, the downside for the industry is that the public and Wall Street are likely to be reading about smaller jury awards in this case for a very long time.
"Had punitive damages been aggregated, it would have been over and done with," she said. "Now, it's going to continue to be a thorn in the side of the investment community, which has always had to worry about these sorts of trials."
Tobacco stocks surged on the news of the ruling. On the New York Stock Exchange, market leader Philip Morris gained $2.37 1/2 to $39.25, while R.J. Reynolds Tobacco Holdings rose 75 cents to $28.37 1/2.