Legal Diary: The Tobacco Torts

(RTTNews) - Tobacco is a product that is both exulted and damned alike. No tobacco company's balance sheet is ever replete without a mention of legal expenses incurred by it.

..... Ever wondered why tobacco companies continue to dole out millions or billions in legal settlements year after year? Here's why.

The tobacco industry is faced by a barrage of lawsuits related to product liability and advertisements concealing the health risks of cigarette smoking. Smokers in the U.S. did not know the dangers of smoking until the 1950s when results of a study linking smoking to cancers and cardiovascular diseases were published.

The first U.S. lawsuit against a tobacco company was filed in 1954. The plaintiff Eva Cooper sued RJ Reynolds Tobacco, a subsidiary of Reynolds American Inc. (RAI | Quote | Chart | News | PowerRating) for the death of her husband who died of lung cancer, which she alleged was caused by smoking RJR's (R. J. Reynolds Tobacco) Camel brand.

Cooper alleged that RJR had deceived her husband and the public into believing that its Camel brand cigarettes were "wholesome, fit for use and unlikely to cause any harm or disease whatever". The lawsuit asserted that RJR had advertised that 20,000 doctors believed that Camel cigarettes were healthful. However, the case was dismissed for lack of evidence that the plaintiff's husband was influenced by the company's advertisements to smoke.

It was only in the 1960s that the federal government began to take greater note of smoking-related health risks. In 1966, the feds mandated that cigarette packs should carry a warning label "Caution - cigarette smoking may be hazardous to your health" Three years later, the U.S government banned cigarette advertising on television and radio.

Between 1950 and 1993, over 800 personal injury claims were filed against tobacco companies. Only 23 lawsuits were tried, while the remaining fizzled as the plaintiffs became worn out financially and emotionally by the delay in the trials. However, out of the 23 cases that came up for trial, the tobacco companies emerged victorious in 22 cases, barring the lone Cipollone vs. Liggett Group Inc. et.al suit.

A product liability suit filed in 1983 by Rose Cipollone against three cigarette makers - Liggett Group, Philip Morris International Inc. (PM | Quote | Chart | News | PowerRating) and Lorillard Inc. (LO | Quote | Chart | News | PowerRating) was the first case to go in favor of the plaintiff. Liggett Group is now a subsidiary of Vector Group Ltd. (VGR | Quote | Chart | News | PowerRating)

After years of delay, the case finally went to trial in 1988. Cipollone, who had been smoking for 40 years, died of lung cancer in October 1994. The suit was still pursued by her lawyer. It was this lawsuit that brought to light the internal documents containing ample proof to show the callousness of tobacco companies. As can be evidenced by the internal documents, the tobacco firms were well aware of tobacco-related health risks. Yet, they extolled the pleasures of smoking through media advertisements with no mention of any risk.

The case went in favor of the plaintiff Cipollone and in 1988, cigarette-maker Liggett was held liable for falsely advertising that its products were safe, despite being aware of research demonstrating smoke-related illnesses. Liggett was ordered to pay $400,000 in damages to Cipollone's family. However, the other tobacco manufacturers Philip Morris and Lorillard named in the case were let off because Cipollone started smoking their brands only after 1966 - when cigar packs started displaying a warning label.

But Liggett appealed the ruling and the case was overturned in its favor, once again proving the invincibility of tobacco companies in courts. Cipollone's family dropped the case for lack of funds.

The Seismic Shift In Tobacco Legal Landscape

In 1994, the litigation landscape of tobacco industry changed dramatically like never before in the U.S. That year, several states led by Mississippi initiated court cases against tobacco companies to recover health care costs associated with smoking.

Diane Castano, whose husband died of lung cancer and three others, sued American Tobacco Co., American Brands, R.J. Reynolds, Brown & Williamson, British American Tobacco plc. (BTI | Quote | Chart | News | PowerRating), Philip Morris, Liggett, Lorillard, Loews Corp. (L | Quote | Chart | News | PowerRating), UST Inc. (UST | Quote | Chart | News | PowerRating) and the Tobacco Institute in March 1994. This class action suit, which was filed through a consortium of approximately 60 plaintiffs' law firms, alleged that the defendants fraudulently failed to inform consumers that nicotine was addictive, and manipulated the level of nicotine in their cigarettes to sustain that addiction.

In 1995, judge Okla Jones who heard the case certified that the national class action suit could proceed.

To limit its liability for damages, Liggett, one of the tobacco companies named in the suit, agreed to settle the Castano class action in March 1996. In addition, Liggett settled with 5 states over Medicaid lawsuits to avoid the onslaught of similar trials in the future. Among other things, Liggett agreed to pay 2.5% of its annual profits for the next 25 years to five states. In both the cases, Liggett denied any wrongdoing.

Meanwhile, the defendants who had appealed the 1995 decision that would have allowed every cancer-stricken cigarette smoker in the United States to sue the tobacco firms won a major victory in May 1996. The Appeals Court ruled that tobacco firms would have faced judicial blackmail if the case proceeded as a class action and therefore refused to grant it class action status. The Appeals Court allowed the case to proceed with the four original plaintiffs.

However, not cowed down by the Appeals Court ruling, the consortium of nearly 60 plaintiffs' lawyers filed new class-action lawsuits in all 50 states.

Engle Lawsuit

The history of lawsuits against tobacco companies will be incomplete if there is no mention of Engle et al. vs. R.J. Reynolds Tobacco Co. et al. suit. The other defendants named in the suit were Philip Morris, Brown & Williamson, Lorillard and Liggett Group.

On May 5, 1994, a national class action suit was filed by attorneys Stanley and Susan Rosenblatt on behalf of sick smokers and the families who lost their dear ones to smoking-related diseases. It was the first class-action suit to go to trial. Though it was certified as a class action, the Third District Court of Appeals in Florida in 1996 narrowed the class to citizens and residents of Florida numbering 700,000. The case bears the name of physician Howard Engle, who was originally the lead plaintiff in the landmark class-action lawsuit against the tobacco industry.

In July 2000, the tobacco industry was slapped an eye-popping punitive damages verdict totaling $145 billion by a jury in the Engel trial. The final judgment was issued on November 6, 2000.

However, the plaintiffs' joys were short-lived. In May 2003, a panel of the Third District Court of Appeals not only decertified the class action suit but also reversed the $145 billion verdict. The plaintiffs appealed to the Florida Supreme Court.

But in July 2006, the Florida Supreme Court agreed with the verdict of the Third Distrcit Court of Appeals, and overturned the punitive damages. Further, it decertified the 'class action' status of the suit. So.... this time too, the tobacco companies were victorious.

However, the Florida Supreme Court ruled that all 700,000 members of the Engel suit can file an independent claim for damages. The deadline for filing individual lawsuits passed on January 11, 2008. These trials will have to proceed independently.

Historic Settlements

With regulations looming large, in June 1997, the tobacco companies Brown & Williamson, Lorillard, Philip Morris, R. J. Reynolds, Commonwealth Brands Inc., and Liggett agreed to reach a settlement on lawsuits brought by the states to gain immunity from future trials. It was proposed that the tobacco companies would pay the states $368.5 billion over a 25-year period to compensate them for their tobacco-related medical costs and to pay for nationwide tobacco-control programs to restrict tobacco use among teenagers. In return, the tobacco companies were to be given immunity from future class action suits and exemption from punitive damages for past conduct.

However, the Congress rejected the June 1997 agreement as being too favorable to the tobacco industry. Following the failure of the June 1997 deal, four states namely, Florida, Minnesota, Mississippi and Texas entered into out of court settlements with the tobacco companies for about $40 billion over a period of 25 years.

In March 1997, Liggett entered into a settlement with 22 states, agreeing to pay $25 million up front and then pay 25% of its pre-tax profit for 25 years. In its 1997 settlement, Liggett for the first time admitted cigarettes are addictive in nature. In return, Liggett was insulated from tobacco litigation.

In November 1998, Brown & Williamson, Lorillard, Philip Morris and R. J. Reynolds entered into an agreement with 46 states to settle their Medicaid reimbursement claims. The agreement was later joined by over 40 other tobacco companies. Under the agreement dubbed master settlement agreement, or MSA, the tobacco companies committed to pay the 46 states an estimated $206 billion over 25 years. The new accord did not require a Congressional endorsement. Unlike the earlier proposed 1997 agreement, the MSA does not protect tobacco companies from class-action lawsuits and claims brought by individuals, labor unions, and private heath care insurers.

As recently as April 2008, a Miami judge ordered that the Florida smokers be paid from the $600 million Engle Trust Fund. The deadline to register for the Engle Trust Fund passed on June 16, 2008. The defendants in the Engel case - Philip Morris, R.J. Reynolds Tobacco, Brown & Williamson, Lorillard Tobacco, and the Liggett Group, had set up a $600 million fund to compensate smokers for illnesses caused by addiction to cigarettes that contained nicotine. To be eligible to receive money from the Engle Trust Fund, the disease or medical condition of the claimants must have been first diagnosed or first manifested itself on or before November 21, 1996.

Statistics

Smoking is an acquired behavior and is the cause of many diseases affecting lung, heart, blood vessel and includes stroke and cataracts. According to the National Cancer Institute, cigarette smoking causes 87% of lung cancer deaths. Women who smoke during pregnancy have a higher rate of foetal and infant deaths.

In 2006, 44.5 million U.S. adults were current smokers, according to the Centers for Disease Control and Prevention, or CDC. (Data pertains to most recent year for which numbers are available). The American Cancer Society estimates that each year about 438,000 people in the United States die from illnesses related to cigarette smoking.

There are medications approved by the FDA, which aid smoking cessation. Nicotine patches, nicotine gum and nicotine lozenges are available over-the-counter, and a nicotine nasal spray and inhaler are currently available by prescription. Zyban, manufactured by Glaxosmithkline plc (GSK | Quote | Chart | News | PowerRating), and Chantix, manufactured by Pfizer Inc. (PFE | Quote | Chart | News | PowerRating) are non-nicotine pills. However, serious neuropsychiatric symptoms have been linked to Chantix and there have been reports of suicidal thoughts and aggressive and erratic behavior in Chantix users.

Conclusion

It is no secret that product liability suits against tobacco companies are going to continue in the years to come. The tobacco companies are also gearing up to fight each and every case. After all, suits and countersuits are part of the legacy of America's long love affair with tobacco.

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