Tobacco future lies with juries

Courtrooms.

Legal and financial experts said Tuesday's decision that the Food and Drug Administration cannot regulate tobacco -- combined with the likelihood that Congress will not act on the issue -- means that juries will decide the future of cigarette makers.

Many on Wall Street and within the $50 billion industry are already floating the concept of another global settlement deal in which the industry agrees to be regulated but receives special protection from costly lawsuits.

"This is a huge legal victory for the industry," said Martin Feldman, a tobacco analyst for Salomon Smith Barney in New York. "This gives the industry some major negotiating power in talks or future negotiations."

The Supreme Court decision removes what was one of the major legal threats facing the industry, according to Mr. Feldman and others.

In the immediate future, however, the companies are facing possibly hundreds of billions of dollars in damages from a Florida jury in a class-action lawsuit. Dozens of individual suits from sick smokers are set for trial this year across the country. And hundreds of billions of dollars are also at stake in the lawsuit filed last fall by the U.S. Justice Department.

The industry's vulnerability was underscored this week when a jury in San Francisco awarded $1.7 million in compensatory damages to a 40-year-old woman who received a lung cancer diagnosis after smoking for 27 years. The jury is now considering whether to also award punitive damages to the ex-smoker.

The California verdict is especially notable, according to analysts, because the tobacco officials considered it a weak case against them.

"The Supreme Court is basically saying that the only body that currently has the authority to regulate cigarettes and to h!
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old the industry accountable for its conduct is the American jury," said Russ Herman, a New Orleans lawyer and leading tobacco opponent.

"When government declines to regulate corporate behavior, which is exactly what has happened here, that responsibility falls to juries," said Mr. Herman.

Mr. Herman leads a group of trial lawyers who have sued the tobacco companies for billions of dollars in Louisiana. That case is scheduled to be presented to a jury in January.

For five decades the cigarette makers have won every court battle. Despite being sued more than 300 times, the industry never lost a trial and never paid a dime in damages.

The winning streak ended in 1997 and 1998 when the industry settled lawsuits filed by state attorneys general for $246 billion.

Last year, two juries -- one in California and the other in Oregon -- hit the companies with a combined verdict of $132 million. Those judgments, which were later reduced by the courts to $58 million, are now on!
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appeal.

But the most dangerous court battle is being waged in Florida, where a jury ruled in July that cigarettes are a deadly and defective product. The case is a class action in which an estimated million smokers could collect portions of any damages that the jury awards.

Lawyers for the sick smokers have asked jurors for at least $300 billion -- an amount that even industry analysts now acknowledge is "within the realm of possibility."

Such a verdict would almost certainly push the industry into bankruptcy, according to financial analysts. It also could trigger renewed interest in a global settlement. Mr. Feldman said Philip Morris "has already conceded that they are open to some sort of federal regulation." The question is what does the industry get in return, he said.

Congress would have to approve any regulation of nicotine as a drug and cigarettes as a drug-delivery device.

A comprehensive tobacco agreement remains of interest to only a small group of indus!
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try insiders, and Washington-based financial analyst Mary Aronson and others said they see no momentum for it right now anyway.

"Congress only acts when there is a crisis situation, and it's not at that point yet," Ms. Aronson said. "A huge verdict in Florida may make it a crisis."

However, leaders on both sides of the tobacco debate remain doubtful that a comprehensive settlement can be reached. They point to the failed efforts in 1997 in which the tobacco companies negotiated a deal with 40 state attorneys general, lawyers representing sick smokers and public health leaders.The agreement required the companies to pay the states $368.5 billion over 25 years, agree to cease nearly all forms of advertising and give the FDA control over tobacco. In return, the industry would have received protections from certain kinds of lawsuits.

But the deal required approval from Congress, which killed the measure in June 1998.