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Florida Appeals Court Overturns $145 Billion Tobacco Judgment

The nation's largest tobacco companies -- reeling from a price war with discount brands, slashed credit ratings and adverse legal rulings -- won a significant victory as a Florida appeals court tossed out a landmark $145 billion judgment that had threatened to imperil the industry.

The ruling reversed a July 2000 jury verdict that had produced the largest damage award in U.S. history. Jurors had found the five biggest U.S. cigarette companies liable for the illnesses of about 700,000 Florida smokers, saying they had misled Americans about the risks of smoking.

But in a strongly worded 68-page ruling, Florida's Third District Court of Appeal said the smokers and their issues with the cigarette companies were too diverse to be lumped into a single claim. The unanimous three-judge panel ticked off multiple reasons for its decision to throw out the verdict, including misconduct by plaintiffs lawyers during trial proceedings and the argument that the $145 billion award would bankrupt the defendants under Florida law.

"The present case presents a classic example of the inherent dangers that arise when a complex mass tort action is improperly certified," the judges said in their opinion. "Awarding the [gross national product] of several countries is an error."

Their opinion provided a much-needed boost to tobacco companies. The industry is suffering economically in the U.S. from a surge in the popularity of bargain-price cigarettes that have squeezed profits, in addition to jury awards and bonding requirements that have spooked credit-rating agencies and investors. The industry also faces significant public-policy woes abroad from a World Health Organization accord that would restrict tobacco advertising and introduce the concept of manufacturer liability in countries around the world.

"This is the single best legal development for the tobacco industry in the last decade," said David Adelman, a tobacco analyst at Morgan Stanley who has an "attractive" rating on the industry.


Some milestones in the Engle case.

 Jan. 31, 1996: The Florida District Court of Appeal in Miami upholds the class-action certification of the Engle case, but restricts the class to Florida citizens and residents. The class size could get as large as one million people.
 Oct. 3: The Florida Supreme Court allows the case to move forward as a class-action lawsuit by refusing to hear an appeal to the January decision.
 July 7, 1999: Jury finds tobacco companies not only liable for causing lung cancer, heart disease and other illnesses. The jury also found that the companies committed fraud, concealment, and negligence by privately acknowledging the risks of smoking but publicly playing down these concerns.
 September 1999: The Third District Court of Appeal reverses an earlier decision requiring plaintiffs to determine punitive damages from the lawsuit one individual at a time, opening the way for potentially enormous damage awards.
 July 2000: Jury awards $145 billion in punitive damages
 May 2001: In order to protect themselves from potentially ruinous court bonding requirements, three of the five tobacco companies agree to pay $709 million into an escrow account that will be handed over to the court at the end of the appeals process, no matter which side wins.
 May 21, 2003: The Third District Court of Appeal tosses out the $145 billion judgment and rules that the case shouldn't have proceeded as a class-action.

Tobacco stocks soared. As of 4 p.m., in New York Stock Exchange composite trading, shares of Altria Group Inc., the parent of Philip Morris USA, were up $3.39, or 9.71%, at $38.30, and R.J. Reynolds Tobacco Holdings Inc. shares were up $1.57, or 5%, at $33.28. Other defendants in the suit were Lorillard Tobacco Co., a unit of Loews Corp; the Brown & Williamson unit of British American Tobacco PLC, and Liggett Group Inc., a unit of Vector Group Ltd.

Lawyers for the plaintiffs in the suit couldn't be reached for comment Wednesday. Mark Gottlieb, an attorney with the antismoking Tobacco Products Liability Project at Northeastern University School of Law in Boston noted that the smokers have the right to ask the district appeals court to review the panel's decision. They also are free to appeal Wednesday's ruling to the Florida Supreme Court and are free to pursue the option of filing individual suits.

Brought on behalf of a group of thousands of Floridians suffering diseases or medical conditions caused by cigarettes, the so-called Engle case was the first class-action lawsuit against tobacco companies to move to trial. The trial lasted nearly two years. Each smoker had his or her own smoking habits and alleged diseases or harms.

The jury award at the time shocked legal experts because "generally, in this type of case, where there is so much variability in the claims, class-action status can be unfair to the defendants and also unfair to the plaintiffs," said Theodore J. Boutrous Jr., a lawyer at Gibson, Dunn & Crutcher, which isn't representing either side in the Engle case.

A recent U.S. Supreme Court ruling established guideposts on punitive-damage awards, suggesting that the amount should be linked to the harm to the plaintiffs. In the Engle case, "it was improper to put the cart before the horse and have a punitive-damage award established without knowing what the individual harm was to the plaintiffs," Mr. Boutrous said. "I think that's an important principle in this case, and it flows directly to the Supreme Court's jurisprudence."

The judges said in their ruling that "each class member had unique and different experiences that will require the litigation of substantially separate issues." Lawyers for tobacco companies said Wednesday that they believe the Florida decision will give them a leg-up in efforts in other parts of the country in defending against class actions and enormous punitive-damage awards.

The Florida appeals-court ruling in Engle doesn't have any direct legal implications for the Price class-action case in Illinois, also known as the Miles case. A judge in Madison County, Ill., has ruled that Altria's Philip Morris USA division misled Illinois smokers about the dangers of smoking light cigarettes. Earlier this month, Philip Morris asked the Illinois Supreme Court to hear its appeal of a $10.1 billion judgment against it in yet another class-action, circumventing the Illinois Fifth District Court of Appeals. Similar suits have been certified for class-action status in Florida and Massachusetts.

William S. Ohlemeyer, Philip Morris USA vice president and associate general counsel, said Wednesday that Philip Morris would try to leverage Wednesday's ruling, noting that the company is "looking forward to asking" the Illinois Supreme Court to review the Miles decision using the same principles as the Florida appeals court used in reaching its conclusion that class-action status shouldn't have been given.

--Desiree J. Hanford and Beth Demain Reigber contributed to this article.