Why the Huge Recent Jury Verdict in a Tobacco Case May Be Unappealable
By ANTHONY J. SEBOK
Monday, Mar. 31, 2003
On March 21, an Illinois judge held Philip Morris Corporation (now Altria) liable for $12 billion in a tobacco class action.
America by now may have gotten used to multi-bullion dollar jury verdicts against its most hated industry. But lot of aspects of this suit, in particular, were quite unusual.
For one thing, it was not some "rogue jury" that decided against Philip Morris, but the trial judge, the Honorable Nicholas G. Byron. (The plaintiffs had requested a bench trial). For another thing - and perhaps most unusual of all - Philip Morris may not be able to appeal this huge verdict against it.
The Plaintiffs, Their Allegations, and the Court That Tried the Case
The plaintiffs were two smokers who said Philip Morris had defrauded them and the members of the class. They sued in state court in Madison County, Illinois, under Illinois' Consumer Fraud Act - which, along with California's, is one of the most plaintiff-friendly consumer protection statutes in America.
Madison County, Illinois, is one of the most infamous venues for class action litigation in America - even more so than certain Southern states. Its judges are known to be permissive with regard to both the substantive law, and class certification rules.
In this case, Judge Byron followed the trend: He certified the case as a class action even though to prove fraud, one has to show "reliance" - meaning not only that the misrepresentation was made, but also that it caused the plaintiff to act differently than they otherwise would have acted. For instance, if Philip Morris had been entirely honest about Lights, what would smokers have done? Quit? Switched to another brand? Kept on smoking Lights?
Figuring out what a person would, or would not, have done if they hadn't heard a lie is arguably best done by deposing that person. According, a number of states have rejected class certification of cigarette-related fraud cases, and forced plaintiffs to sue one by one. (This isn't as inefficient as it sounds; other components of discovery, not relating to reliance, can be consolidated.)
Thus, many defendants' lawyers view litigation in Madison County as a lost cause. All they can achieve, they assume, is the preservation of a clean trial record for appeal, and the reversal of the trial court ruling.
Philip Morris was no different: Even before Judge Byron had issued his verdict, the lawyers for Philip Morris had assumed the worst, and promised that the "real" proceedings would take place once they had gotten around to appealing. The class certification decision probably caused them to think Judge Byron would be plaintiff-friendly.
Judge Byron's Decision
Philip Morris was right to anticipate an adverse verdict. After hearing the evidence, Judge Byron determined that Philip Morris had engaged in consumer fraud.
His next step was to calculate what the award to the plaintiff class should be. He gave back to Illinois smokers the full $7 billion they spent on Lights during the relevant period. In addition, to these "restitution" damages, the court added punitive damages of $3.5 billion and attorney's fees at $1.2 billion - 25% of the restitution award.
This damages calculation is highly problematic. By giving all the smokers all their money back, it assumes, in effect, that except for the lies about Lights, none of them would have purchased another, equally unhealthful cigarette. That seems extremely unrealistic.
Philip Morris Has Pinned Its Hopes on Appeal, But Can It Afford the Bond?
Having lost before Judge Byron, Philip Morris will appeal - if it can. In order to do so, it will have to post an "appeal bond," (called, in some jurisdictions is called a supersedeas bond).
An appeal bond is designed to assure the plaintiff who has won a verdict that he will get paid if the appeal fails - even if the defendant's financial circumstances worsen in the interim. To guarantee this, the defendant must post a bond in the amount of the judgment.
How does the defendant get a bond? Normally, it can go to a surety company -which is sort of like a high-class bail bondsman. The surety will issue appeals bonds for a fee. Or, if a company can afford it, it can just post the bond itself.
But what if the company can't afford it, and no surety is willing to take the risk (or has that much money)? This sometimes happens with cases - like this one - that involve huge verdicts.
When A Defendant Literally Cannot Afford To Appeal
For instance, in 1984, Texas was held liable to Pennzoil for $11 billion, based on Pennzoil's claim that Texaco had tortiously interfered with its contract. In Texas, the appeals bond has to be 120% of the award - here, $13 billion. Texaco did not have that much in liquid assets, and no surety was able to lend that much. So Texaco was stuck. It had to give up its appeal, or be thrown into bankruptcy by having to pay the judgment immediately.
Texaco thought this was unfair - after all, it had money to pay, that money just wasn't liquid. And if it won the appeal, it wouldn't have to pay anything at all. Its right to appeal, Texaco argued, was therefore being robbed.
Texaco thus tried to get a federal court (in New York!) to declare that the choice forced upon it by Texas law was a violation of its due process rights. The court agreed, and so did the U.S. Court of Appeals for the Second Circuit. However, the Supreme Court reversed, and upheld Texas law. In the end, Texaco settled.
Though Philip Morris is hardly the most sympathetic possible appellant, we should be concerned whenever a defendant effectively loses, due to financial issues, the legal right to appeal.
To begin, it's asymmetrical. In cases like this, plaintiffs - in the modern era of high-stakes class actions and a well-funded entrepreneurial plaintiffs' bar - will always be able to afford to appeal. If defendants cannot, it's plainly unfair.
In addition, it gives the trial court too much power. Philip Morris is arguing that the trial court wrongly inflated damages into the billions, when they should have been (if awarded at all) more modest. If it is right, then the court did double damage - inflating the award, and precluding an appeal.
Moreover, it leads to bad precedents. In cases like this, trial judges are forced to decide extremely novel, extremely important issues of law. Vast sums of money turn on the outcome. Legal rulings not only affect the case before the judge, but all the cases in the future that settle in the shadow of the ruling.
Finally, it leads to unfairness not only as between plaintiffs and defendant, but also among plaintiffs. As tobacco cases go, Miles is a relatively weak one - and as a matter of law, as I explained above, the $12 billion award is much too high. It calculates damages wrongly. That's not just a problem for Philip Morris; if awards like this drive Philip Morris and other tobacco companies into Chapter 11, it's a problem for tobacco plaintiffs too. Numerous states are still depending on money from the multi-state tobacco settlement - money they may not get from bankrupt companies.
For all these reasons, it is not only in the defendant's, but also in society's, and other plaintiffs' interest - and in the interest of fairness - that these cases are heard on appeal if either party seeks it.
A Good Solution: Appeals Bond Caps
Fortunately, there is a solution. The Illinois Court of Appeals can reduce the bond Philip Morris must post. Let's hope it does so.
In addition, there is a broader solution to the general problem of prohibitively expensive appeals bonds. About eight states now cap their appeals bonds at between $25 million - $100 million. Illinois itself was reportedly thinking of passing such a statue in the weeks before Judge Byron decided the Miles case.
Every state should have such a cap.