If the six jurors in the Miami tobacco case decide Big Tobacco must pay $154 billion to 500,000 sick Florida smokers, the industry says it will be in ruins. But will it?

Experts say Big Tobacco could be forced into bankruptcy if the five defendant companies had to pay a massive award immediately. But that's a very unlikely scenario. First, Big Tobacco plans to appeal any unfavorable verdict, and the appeals process could stretch for two to three years. A massive award could be reviewed and reduced by the trial judge or the appeals court. The industry also could reach a settlement that allows it to pay over time. And most experts agree that, over time, tobacco companies will have no problem paying off a $154 billion verdict by raising prices on the 20 billion packs of cigarettes sold each year in the United States. ``Whatever the verdict is, this case is not a death sentence for the tobacco industry,'' said Matt Myers, president of the Campaign for Tobacco-Free Kids in Washington, D.C. ``There are 46 million Americans addicted to tobacco; there will be 46 million Americans addicted to tobacco tomorrow.'' A year ago, the jurors found the industry liable for not telling the public about the dangers of nicotine. And in April, they ordered the country's five largest cigarette makers to pay two smokers with cancer and the husband of a third who died of cancer a record $12.7 million in compensatory damages -- including medical expenses and pain and suffering. EXPERTS' OPINIONS Legal experts also say it's unlikely a staggering punitive award would stand. It's ``very, very likely in this case that such an award would be reduced,'' said Clark Freshman, an associate professor at the University of Miami Law School. ``In principle, awards shouldn't be such that they would force companies into bankruptcies.'' The two sides in the long-running case are light-years apart on the issue of how much the big five companies -- Philip Morris, R.J. Reynolds, Lorillard Tobacco, Brown & Williamson, and Vector Group's Liggett unit -- can afford. `JUST NUMBER' Stanley Rosenblatt, attorney for the 500,000 sick smokers, has called the $154 billion figure ``an appropriate, just number'' for deceiving smokers about tobacco risks for years. This week, Philip Morris lawyer Dan Webb said a $154 billion award ``is a death warrant because the amount will destroy each of these companies, not once, but 10 times over.'' Jim Reynolds, an R.J. Reynolds attorney, told jurors Wednesday the company is ``living from paycheck to paycheck ``and can't afford to pay any punitive damage award. The tobacco companies had asked Circuit Judge Robert Kaye to cap punitive damages at $15.3 billion -- their combined net worth based on their 1999 annual reports. But Kaye refused, saying ``There's much more to this case than their net worth or stockholder equity.'' He told the jury to consider the companies' overall financial resources. ADDED VALUE Among the factors that could be considered are profitability, goodwill -- the value of a business to a purchaser above and beyond its net asset value -- and the value of trademarks. In the case of Philip Morris, those trademarks include Marlboro, Benson & Hedges, Parliament, Miller beer, Jell-O, Maxwell House, Oscar Mayer and Post cereals. ``The jurors have a hard puzzle to solve (in determining how much Big Tobacco) can actually afford to pay),'' said Richard Daynard, chairman of the Tobacco Liability Products project and a Northeastern University law professor. But ``here you have Philip Morris that just bought Nabisco and took it in stride.'' Last month, Philip Morris said it will buy Nabisco Group, whose brands include Ritz crackers, Oreos and LifeSavers, for $14.9 billion, and assume $4 billion in debt. ``We know that by raising the price of cigarettes they can raise tens of billions of dollars in additional revenue a year,'' said Myers of the Campaign for Tobacco-Free Kids. ``There may be a number beyond which they can't pay, but it is more than they're saying.'' PRICE INCREASES Since 1998, when tobacco companies first began making settlement payments with a group of states that sued over Medicare costs for ill smokers, the industry has hiked prices by 94 cents per pack. The price increase reduced demand for cigarettes, but still raised $18.8 billion in new revenue. That's nearly double the amount tobacco companies had to pay in annual settlement costs. Daynard, the Northeastern law professor, said that ``if the industry raised prices, they would be in the position to have money in hand by the time the appeals process is complete.'' Unlike the settlement with the states that allows payments over the next two decades, Kaye has said that any penalties the jury awards in the Florida tobacco case must be based on the money the tobacco companies have now. ``They have to pay immediately,'' said David Adelman, a tobacco analyst with Morgan Stanley Dean Witter. He doubts the companies would even be able to come up with a $15 billion award. ``Any judgment approaching their net worth means bankruptcy,'' he said. He dismisses the notion that companies can continue raising prices, saying potential competitors not involved in the lawsuits could begin selling cheaper cigarettes. DIFFERING VIEW But Jeffrey E. Harris, a Massachusetts Institute of Technology economist and a medical doctor, says cigarette makers have the clout to pass through substantial price increases and that no new competitors have entered the U.S. market in more than 40 years. At a recent conference at Northeastern University, he said cigarette manufacturers could raise an additional $50 billion a year through price increases. There is little dispute that down the road, as more cases are filed in other states, the financial burden could overwhelm the tobacco industry and force it into bankruptcy.

<< Prev	CIGoutlet.NET News Home	Next >>