Appealing Price

A tobacco case shows the cost of justice can be prohibitive.

"At first blush," wrote Miami-Dade Circuit Judge Robert Kaye in a November 2000 court order, a $145 billion punitive damage award "seems so far outside the comprehension of any reasonably thinking person that one would immediately say it is shocking and not in keeping with rational thought." Kaye should have stuck with his first impression.

Last Wednesday, Florida's Third District Court of Appeal threw out the $145 billion verdict that Kaye let stand when he presided over a class action lawsuit against five tobacco companies. The court said the "astronomical" award, the largest in U.S. history, was a "grossly excessive" judgment—"roughly 18 times the defendants' proven net worth"—from a "runaway jury" that was "swept along in lemming-like fashion" by a lawyer who "inflamed juror passion and prejudice" through "improper race-based appeals" that "irretrievably tainted the case."

During the trial, plaintiffs' attorney Stanley Rosenblatt likened selling cigarettes to genocide and slavery. He informed the six jurors, four of whom were black, that tobacco companies segment their markets by race, and he urged them to emulate Rosa Parks and Martin Luther King Jr. by flouting the law.

The jurors did so, violating the well-established principle that prohibits punitive damages that would bankrupt a plaintiff. Judge Kaye also ignored the law, putting "the cart before the horse" (as the appeals court put it) by allowing punitive damages to be set for the entire class after compensatory damages had been determined for only three members.

According to the appeals court, the trial was not only "fundamentally unfair"; it was a mistake from the beginning: How could the claims of an estimated 700,000 smokers—each with his own personal history, knowledge base, and medical condition—possibly be assessed in one class action?

An optimist might see this decision as evidence that outrageous verdicts ultimately are rectified by appeals courts. Hence we needn't worry too much when juries pull numbers out of thin air to express their antipathy toward a defendant rather than judging a case on its merits.

The optimist's faith might be shaken when he learned that the same appeals court that now says Rosenblatt's class action was inherently unmanageable and should never have gone to trial nevertheless allowed it to proceed in a ruling seven years ago. And even though the tobacco companies have (for the time being) won this case, they still have to pay Rosenblatt and his clients more than $700 million. That sum was the price the defendants paid (on top of millions in lawyer fees) to get due process.

When the trial started, Florida law required that defendants appealing an adverse judgment post a bond equivalent to the entire amount of the award. Under this rule, the more ridiculous a verdict, the harder it is to appeal. Worried that the tobacco companies would not be able to meet the bond requirement, Florida's legislature passed a law that capped appeal bonds at $100 million.

The legislature acted not out of love for cigarette makers but out of love for the money they pay the state each year under an agreement that settled Florida's lawsuit against the industry. If the tobacco companies could not challenge the verdict, their ability to keep feeding the state treasury would have been jeopardized.

But the tobacco companies worried that Rosenblatt would challenge the new law, arguing that retroactively changing the rule for appeal bonds was unconstitutional. To forestall that possibility, Philip Morris, Liggett, and Lorillard agreed to pay him and his clients $709 million, whatever the final outcome of the case.

The upshot was that, win or lose, the defendants had to pay off the people who sued them. Otherwise, they would not have had an opportunity to challenge the verdict that an appeals court ultimately rejected as patently absurd.

Philip Morris recently faced a similar quandary in Illinois, where the company was told it could not appeal a $10 billion judgment in another class action unless it posted a bond for $12 billion (the award plus interest). The judge reduced the amount to $6.8 billion after Philip Morris argued that it would be forced to file for bankruptcy.

Illinois is one of many states that do not limit appeal bonds, and there is more than money at stake here. Whatever you think of the tobacco companies or of smokers' claims against them (my opinion of both is low), there's no justice when financial ruin is the cost of getting a fair hearing.