Tobacco's New Best Friend


Last week, after a Florida jury ordered the five leading tobacco companies to pay $145 billion in punitive damages, the industry's lawyers reacted calmly, saying the verdict would have "no practical impact." By contrast, Stanley Rosenblatt, who represents the plaintiffs in the case, a suit by Florida smokers, seemed disconcerted by the other side's confidence that it would prevail on appeal.

This spectacle of cocky losers and a rattled winner was not just a reversal of expected roles but a dramatic shift from a few months ago, when it was doubtful whether the tobacco companies would be able to appeal at all. Then, Florida law would have required them to post appeal bonds equal to the amount of the award plus 20 percent. With a $145 billion award, the total would have been twice the $80 billion stock value of the entire industry. Coming up with that would have been tough, to say the least.

But in May, the Florida legislature came to the industry's rescue by passing a law that limits appeal bonds to $100 million per defendant.

On the face of it, Florida's sudden concern for the tobacco industry's welfare is puzzling. After all, this is the same legislature that passed an earlier law authorizing the state to sue cigarette manufacturers for the cost of treating smoking-related illness under Medicaid.

Facing a rigged game, the tobacco companies agreed to pay the state $13 billion over 25 years.

Now Florida's legislators apparently are eager to protect that loot. Rather than applauding the class-action suit as another attempt to punish the tobacco companies, they have protected the industry's ability to appeal.

If allowed to stand, the $145 billion award would endanger the industry's ability to continue paying the state, providing money that helps subsidize legislators' favorite projects.

Politicians in the other states are in a similar position. Under settlements reached in 1997 and 1998, they are supposed to receive more than $200 billion in tobacco money during the next couple of decades. Smokers, the supposed victims of Big Tobacco, are picking up the tab through higher cigarette prices.

This arrangement magnifies the government's financial stake in the cigarette business, which was already bigger than that of the tobacco companies. As of December, according to a calculation by Philip Morris, the average state cigarette tax, weighted by sales, was 40 cents a pack, on top of a 34-cent federal tax (scheduled to hit 39 cents in 2002). By contrast, Philip Morris was making a profit of roughly 28 cents on each pack of Marlboros.

Some will protest that there is a moral distinction here. To be sure: While politicians and tobacco companies both take money from smokers, only the tobacco companies give them something in return.