{"id":52577,"date":"2016-09-30T11:27:00","date_gmt":"2016-09-30T16:27:00","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/supreme\/legal-commentary\/money-for-nothing.html"},"modified":"2016-09-30T11:27:00","modified_gmt":"2016-09-30T16:27:00","slug":"money-for-nothing","status":"publish","type":"supreme","link":"https:\/\/supreme.findlaw.com\/legal-commentary\/money-for-nothing.html","title":{"rendered":"Money For Nothing"},"content":{"rendered":"\n
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MONEY FOR NOTHING: Why Tobacco Companies Must Pay Even If They Win In Court <\/h1><\/td>\n <\/tr>\n

By ANTHONY J. SEBOK <\/h2>
<\/a>\nanthony.sebok@brooklaw.edu<\/a>
\n—-\n
Wednesday, May. 23, 2001<\/div><\/td>\n\n <\/tr>\n <\/table>\n

On May 7, Philip Morris and two other tobacco companies agreed to pay $710 \nmillion to a Florida court in the event that they are successful in defending \nthemselves against a class action lawsuit brought five years ago by 500,000 Florida \nsmokers. <\/p>\n

Yes, you read that right. Usually defendants pay to settle lawsuits, because \nthey fear losing. How can it be that in this lawsuit the defendants are offering \nto pay if they win? The answer tells a lot about how this nation’s recent experimentation \nwith class action lawsuits against the tobacco industry has spun out of control.<\/p>\n\n<\/b>

Bifurcating the Florida Class Action<\/p>\n\n

Last July, a jury returned a historic punitive damage award of $164 billion \nagainst the tobacco industry in a lawsuit that was as peculiar as it was spectacular. \nThe class action, called \n\n<\/p>\n \n \n
<\/td>\n\"[citizen<\/span><\/td>\n<\/tr>\n
<\/td>\n<\/tr>\n<\/table>\n\nEngle<\/i> after the Florida pediatrician who is one of the named plaintiffs, \nwas brought on behalf of all of Florida’s smokers. \n

Both the United States and the Florida Supreme Courts have made it clear that \nissues of individual causation cannot be tried in a class action. As a result, \nthe lawyers in Engle<\/i>, Stanley and Susan Rosenblatt, asked the judge to \nimpose a two-part structure on the case (in legal parlance, to bifurcate it). \nThe judge agreed. <\/p>\nSecond, if enough of the common issues were decided against Big Tobacco, the court \nand the parties would then design a schedule that would allow causation questions \n\u0097 the question of whether Big Tobacco “caused” harm to any and each of the \n500,000 class member \u0097 to be tried separately, one by one.\n\n<\/b>

Bifurcation as a Settlement Tool<\/p>\n\n

Of course, the judge cannot have had any intention of overseeing half-a-million \nmini-trials on causation, nor can the Rosenblatts have had any intention of lawyering \nthem. Instead, the judge and the plaintiffs’ lawyers must all have been gambling \nthat once the common issues had been evaluated by a jury in the first phase of \nthe case, Big Tobacco would be begging to settle. <\/p>\n

To understand this calculation, it is important to know what the two major \n“common issues” the jury would settle were to be: Did Big Tobacco act wrongfully? \nAnd, if so, what should the dollar amount for the pool of punitive damages be? \n(This pool would be shared among a subset of the 500,000 class members: those \nwho could prove that they were in fact defrauded by cigarette advertising and\/or \nwere harmed by the defective design of cigarettes.) <\/p>\n

This potentially huge money pool \u0097 which turned out, in fact, to total \n$164 billion \u0097 must have been instrumental in the Rosenblatts’ likely calculation \nthat a “common issues” verdict would ensure a big settlement from Big Tobacco. \n<\/p>\n

\n\nWhy? Big Tobacco, like many defendants in products liability suits, likes to \nlook to the appellate courts to get them off the hook if the jury returned a big \npunitive damage award. But in Florida, this avenue of escape would be closed off. \n<\/p>\n

There, as in many states, a defendant has to post a bond in order to appeal \na trial court judgement. And, as the Rosenblatts must have anticipated, the amount \nreturned by the jury last year is so large it is unbondable \u0097 that is, no \nbond company will put up that much money for an appeal.<\/p>\n\n<\/b>

Florida Legislation Intervenes<\/p>\n\n

So why didn’t Big Tobacco settle or declare bankruptcy? Why has the stock price \nof Philip Morris instead doubled? One reason is that the Florida legislature came \nto Big Tobacco’s rescue. <\/p>\n

About a month before the jury returned its punitive damage verdict, the Republicans \nand Democrats in Tallahassee joined together in a rare show of unity and passed \na law that would\u0097surprise, surprise\u0097cap the bond required of any defendant \nat $100 million. So after their jury came back with the $164 billion punitive \ndamage award, each of the five tobacco companies put up the required $100 million \nand filed their appeals. <\/p>\nits widespread popularity among Florida’s politicians, the bond cap statute was \nnot entirely kosher from a constitutional point of view. \n

The suspicious timing of the statute’s promulgation and <\/i>the fact that \nit affected the rights of parties who already were in litigation before it was \npassed led the Rosenblatts to warn darkly that a judge just might strike it down. \nThe reason? The separation of powers limits how much the legislative branch of \ngovernment can interfere with the judicial branch. <\/p>\n

Despite this warning, though, the Rosenblatts didn’t want to bankrupt Big Tobacco \n(that would yield them nothing); they wanted to bargain with it. So the Rosenblatts \ndid nothing, biding their time. That is, until this month.<\/p>\n

<\/p>\n\n<\/b>

The Bond Agreement<\/p>\n\n

The document signed on May 7 is a remarkable legal instrument. It is an agreement \namong the plaintiffs and three of the five defendants (Philip Morris, Lorillard, \nand Liggett), and it seems to be an attempt to increase these defendants’ bond \nbeyond the $100 million per company, to about $1.3 billion in total (with Philip \nMorris putting up the lion’s share). <\/p>\n

In exchange for this increased security, the plaintiffs promise in the agreement \nthat they will not challenge the constitutionality of the statutory bond cap (as \napplied to just these three defendants). In other words, the plaintiffs seem to \nbe saying that a $1.6 billion bond makes them feel secure in a way that a $300 \nmillion bond did not. <\/p>\n

That makes sense as far as it goes: The plaintiffs get a larger bond, but give \nup a major argument they might otherwise have made, which would, if successful, \nhave made it too expensive for Big Tobacco to mount an appeal. But the agreement \nalso contains an interesting additional clause.<\/p>\n\n<\/b>

A Win-Win Scenario for Plaintiffs?<\/p>\n\n

According to the agreement, if, after all the appeals are over, the defendants \nsucceed in overturning the punitive damage award, then the $1.6 billion bond is \nreturned. Except for $710 million. That money is never to be returned. Instead, \nthe money is to be allocated by the trial court “for the benefit of the Class.” \n<\/p>\nonly about $900 million is a bond, in any conventional sense of the word. $710 \nmillion is a side payment to the court that will be given to the class members, \neven if the United States Supreme Court tells them 9-0 that they never had a case.\n

Now one has to ask, what is going on here? The Rosenblatts, one imagines, might \nsay the following: It is as American as apple pie to bludgeon your opponent into \nsettlement before they can reach an appellate court, even if that means using \nthe innocuous instrument of the bond requirement as the bludgeon. In this case, \nthough, the defendants stole the bludgeon from the plaintiffs by getting a special \nlaw passed just for them, to lower the bond. <\/p>\n

Now, the plaintiffs just might be able to get a court to force the defendants \nto give the bludgeon back (by increasing the bond). So, the plaintiffs are offering \na simple trade: for $710 million, the defendants can guarantee that they can get \ntheir appeal heard, even though they are unable to provide the usual security \nfor it (the full amount of the jury’s verdict).<\/p>\n\n<\/b>

Or Is It a Lose-Lose Scenario for Plaintiffs? <\/p>\n\n

Fair enough. But one of the things that I find most disturbing about the Rosenblatts’ \nargument is that the plaintiffs may not be around to “benefit” from the $710 million. \nIn fact, they almost certainly will not be. <\/p>\n

One of the most important legal points the defendants will raise on appeal, \neither to the Florida or United States Supreme Court (or both) is that Judge Kaye \nviolated state law and the federal constitution when he certified a class of half \na million smokers. There is every reason to believe that the class will be decertified. \n <\/b>For a class to survive challenge, the plaintiffs must demonstrate that \ncommon issues of fact predominate. Almost every state and federal appeals court \nthat has reviewed class actions in tobacco cases has concluded that the plaintiffs’ \nproduct liability and fraud claims raise too many individual questions to allow \ncertification for trial. <\/p>\n

So, for $710 million, the Rosenblatts may have paved the way for the elimination \nof their clients (the class) \u0097 by allowing an appeal that otherwise might \nnever have been brought, because it could not have been properly bonded.<\/p>\n

What happens if the class is, indeed, decertified on appeal? No one really \nknows. But I have an idea of what may happen. <\/p>\n

Florida law has a “common fund doctrine.” Under this doctrine, if there are \nno plaintiffs left, the court can disburse the $710 million for the public benefit, \nand pay the lawyers who helped obtain the funds for their “public service,” despite \nthe fact that their clients get nothing. <\/p>\n

I have no idea what the “public benefit” might mean in this context (Medical \nschools? Anti-smoking ad campaigns? Better voting machines?). But I do know this: \nThe Rosenblatts will probably get paid at the end of Engle, <\/i>even if their \nclients lose big.<\/p>\n\n<\/b>\n

From this perspective, it is easy to understand why three of the defendants \nallowed themselves to be talked into buying back the right to appeal the punitive \ndamage award \u0097 despite the fact that it was a right that they, at least, \nin theory already had been given by the Florida legislature. Perhaps the more \ndifficult question is why the remaining two defendants, RJR and Brown & Williams, \nhave refused to join in the May 7th<\/sup> compact.<\/p>\n

Consider the agreement from the defendants’ perspective: They probably would \nhave been able to defend the bond cap statute in court against a separation of \npowers challenge, but for $710 million, they don’t have to. And if the bond cap \nstatute were stricken, they would have been left with no recourse against the \n$164 billion<\/i> tab. Compared to that, $710 million looks cheap. <\/p>\n

$710 million used to seem like a lot of money. But after a $206 billion settlement \nwith the states, and a threatened $164 billion punitive damage award in Florida, \n$710 million is a trivial sum to Big Tobacco. After all, current smokers will \npay the bill, in raised tobacco prices. (Being addicted, they have little choice). \n<\/p>\n

From where I sit, as a visiting professor in a German university, I can now \nsee why European lawyers think our tort system is out of control. No one wants \nto admit it, but tobacco litigation reveals the almost schizophrenic nature of \nhow we approach questions of civil liability. <\/p>\n

Let’s face it: When juries hear the cases of individual smokers they have overwhelmingly \nsided with the tobacco companies; despite heartbreaking stories of illness and \ndeath, juries have believed smokers knew, and took, the risks. <\/p>\n

The only really successful litigation against Big Tobacco, as a result, has \ncome in the form of class actions. These have succeeded because the rules of civil \nprocedure ensure that no tobacco company can ever actually try, or appeal, its \ncase, because risking a loss is too grave, and bonding an appeal too formidable. \nAlthough it’s hard to cry tears for Big Tobacco, certainly its inability to go \nto trial and defend itself, and to appeal even with winning arguments, is unfortunate.<\/p>\n

The agreement of May 7 in Engle<\/i> is the most concrete example of how \nbad things can get when the substantive purpose of tort law is subverted by those \nwho think that the ends justify any means. It seems to me that the Rosenblatts, \nwhose original goal was apparently to sue not to win but to settle, may have taken \ntheir strategy to a new level. <\/p>\n

Now they seem to be suing not even to settle, but to pocket what is, in my \nopinion, tantamount to a bribe, and then go home. In the end, it is not the plaintiffs \nor the defendants for whom I feel concern, but our system.<\/p>\n<\/span> \n\n

\n\n\n<\/a>\nAnthony J. Sebok, a FindLaw columnist, is a Professor of Law at Brooklyn Law School, where he teaches Torts, among other subjects. Professor Sebok has written several other columns on mass tort litigation, including tobacco litigation, for FindLaw; they can be located in the archive of his columns on the site.\n\n

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