The $145 Billion Message

To call it the biggest liability award in history would be an understatement. On July 14, a Florida jury ordered the five leading tobacco companies to pay $145 billion in punitive damages.

That's more than six times the largest judgment on record, $22 billion in a suit against former Philippines President Ferdinand Marcos (a verdict that was overturned on appeal). It's 29 times the $5 billion in punitive damages that Exxon was hit with after the Exxon Valdez oil spill.

To put the figure into further perspective, it's almost twice what the five cigarette makers are worth (about $80 billion, based on stock market value). It's more than twice the gross domestic product of New Zealand.

It is, in short, a ridiculous number, pulled out of thin air by a jury bent on destroying the tobacco industry. It came out of a ridiculous case, a class action called Engle v. R.J. Reynolds in which grown men and women are trying to blame "Big Tobacco" for their decision to smoke.

The jury had already concluded that the cigarette makers were at fault because they had for so long refused to concede the hazards of smoking. It was not impressed by the fact that, whatever the tobacco companies said or didn't say, these hazards (including the difficulty of quitting) have been common knowledge for decades, if not centuries.

The jury also had already awarded $12.7 million in compensatory damages to two smokers and the survivors of a third, representatives of a class that may include as many as 700,000 people. If these plaintiffs really are representative of the larger group, total compensatory damages in the case should be in the trillions.

Clearly, the numbers generated by this jury are completely disconnected from reality. The point is not to achieve justice but to express the jurors' outrage and demonstrate their moral superiority.

The question is, if $145 billion is appropriate, why not $290 billion, or $145 trillion? The plaintiffs' attorney, Stanley Rosenblatt, had asked for $154 billion, but the jurors, with comical false precision, whittled the amount down by $9 billion. Evidently, they thought the tobacco companies had behaved almost as badly as Rosenblatt argued, but not quite.

Now the judge is widely expected to reduce the award, mainly because Florida law says punitive damages should not be so high that they drive a company out of business. Whatever number he settles on will seem almost reasonable by comparison with $145 billion, but it will be equally unmoored from any objective standard.

Part of the problem is the very concept of punitive damages. They resemble criminal penalties but can be imposed without proof beyond a reasonable doubt, protection against double jeopardy, and other safeguards enjoyed by criminal defendants.

Punitive damages are intended not to compensate victims but to punish wrongdoing (and provide added deterrence). Oddly, the money still generally goes to the plaintiffs. And unlike in criminal cases, the size of the penalty, subject to the limits set after the fact by the judge and the appeals courts, is almost entirely up to the jury, which has no experience to guide it in determining what's appropriate.

This system invites arbitrary verdicts. As hard as it may be to put a dollar value on, say, an early death from lung cancer, it's infinitely harder to say what Philip Morris et al. should pay to atone for their alleged role in that death.

Add to that case hundreds of thousands, involving people who have not even been identified, let alone asserted a claim or presented evidence to back it up, and you've got a real puzzle on your hands. In this context, I suppose, $145 billion is as good an answer as any.

Aside from the inherent problems with punitive damages and class actions, this verdict illustrates the persistent desire by jurors to "send a message" rather than deal with the case at hand. The message, according to Rosenblatt, was: "Cut it out. Talk straight with us."

It's not surprising that the jurors were tired of the industry's notorious doubletalk. Who isn't? But it's quite a leap from that understandable impatience to the conclusion that the tobacco companies fooled the public into believing their product was safe–something they plainly could not have done.

In the end, the jurors were guilty of the very sin for which they thought the tobacco companies should be punished: denying reality.