Will the tobacco industry face a tsunami of lawsuits in California, and the risk of billions of dollars in liability? Or will high court rulings eliminate the threat, making the hostility of jurors irrelevant?

Three consecutive mega-verdicts against cigarette makers have put California in the forefront of the legal war over smoking. The first of them--a $26.5-million damages award against Philip Morris Inc.--was affirmed last week by a state appeals court, which called the conduct of the tobacco company "reprehensible." But the extent of Big Tobacco's vulnerability in California will be determined by the state Supreme Court, when it sets critical ground rules for tobacco litigation in rulings expected next year. The court will determine if sick smokers are permitted to make almost unlimited use of incriminating tobacco industry documents, like the ones plaintiffs deployed with devastating effect in their three victories so far. If the answer is yes, hundreds or even thousands of new cases could be filed. If the answer is no, the liability threat may all but disappear. Though the recent plaintiffs' victories will be profoundly affected, the Supreme Court's rulings will directly involve a pair of other cases that were dismissed before trial. At issue is what the state Legislature did--and meant to do--when it granted legal protection to cigarette makers in 1988, then repealed their immunity a decade later. The immunity clause, included in a broader tort reform measure, has been called the "napkin deal," because details were scribbled on a napkin at Frank Fat's, a Chinese restaurant in Sacramento. The law barred claims against tobacco or other inherently dangerous products whose risks were well-known to the ordinary consumer. Lawmakers stated in the bill that they were not creating new law but merely clarifying existing law. The immunity clause triggered the dismissal of dozens of anti-tobacco lawsuits pending at the time. Then a decade later, the Legislature repealed the ban on tobacco suits, effective in 1998. Cigarette makers contend that plaintiffs can't cite evidence of deceptive statements or acts that occurred from 1988 to 1998, because they were immune to liability in that time. Moreover, they claim, since lawmakers said they were only clarifying state law, tobacco's immunity existed before 1988--including in the 1950s, '60s, and '70s, when many incriminating documents were produced. Thus, industry lawyers contend, Californians who sue tobacco companies can base their claims only on industry conduct after 1998. Should the Supreme Court accept this reasoning, the three plaintiffs' verdicts, and probably all future California cases, would be doomed. Without the ability to present evidence of past wrongdoing, sick smokers wouldn't stand a chance. But plaintiffs say this would be a farfetched interpretation of the Legislature's actions and intent. In their view, evidence from all years is fair game--because the Legislature meant the '98 law to be retroactive and because cigarette makers were never truly immune in the first place. Plaintiffs contend that much of what is known about smoking and addiction was revealed in internal documents that weren't disclosed until the 1990s. Therefore, they say, in 1988 the risks were not fully known to the ordinary consumer, so tobacco was not immune to lawsuits even then. At the most, plaintiffs say, evidence from 1988 to 1998 could be restricted. Otherwise, they argue, the '98 repeal would be meaningless, because it would not give sick smokers their day in court. The rulings will come in a pair of cases the Supreme Court already has agreed to review. One was filed against Philip Morris, Brown & Williamson Tobacco Corp. and R.J. Reynolds Tobacco Co. by Betty Jean Myers in federal district court in Fresno. Although Myers was diagnosed with cancer and filed her case after 1998, her claim, like all others, was based on prior conduct by the industry and was dismissed. After taking the appeal, the U.S. 9th Circuit Court of Appeals asked the state Supreme Court for guidance on the impact of the immunity law. The other case involves a deceased smoker named Edwin Brigham, who filed suit after January 1998 but was diagnosed with cancer earlier. The trial court dismissed the case on grounds that the industry was immune to lawsuits at the time Brigham became ill. In ruling on the immunity questions, the Supreme Court also will decide whether the two cases should be reinstated. About 55 anti-tobacco cases are pending in California, but if immunity is decided in the plaintiffs' favor, a flood of new filings could ensue. In California, thousands of people each year suffer smoking-related ailments, so there is almost no limit to the number of potential plaintiffs--only of lawyers willing to take their cases. "I think it's obvious that California is an important focal point for the industry," said Steven Rissman, associate general counsel for Philip Morris. But he said that apart from its position on the immunity issue, the industry has solid arguments for reversing its losses and changing the ground rules. For one thing, Rissman said, the victorious plaintiffs offered little proof that they had believed industry claims that the risks of smoking were unproved. Rissman said he expects the Supreme Court to agree that unless someone accepts and relies on deceptive claims, he cannot be a victim of fraud. "We have reason to be optimistic that at the end of the day ... the industry is going to end up in good shape," he said. Others, including Richard Daynard, a law professor who heads the Tobacco Products Liability Project, an anti-tobacco group, say the industry is unlikely to get the sweeping relief it wants. A decision "really damaging" to plaintiffs is highly doubtful, he said, because effectively closing the courthouse to sick smokers would be a "crazy interpretation" of the 1998 repeal. Martin Feldman, a tobacco analyst with Salomon Smith Barney, also said he doubts the Supreme Court will bar evidence of industry conduct before 1998. Even so, Feldman said, a bar on evidence from the immunity period of 1988-98 would be helpful to the industry. Most damning exhibits are from previous years, but there are some exceptions--including 1994 testimony by tobacco executives, who stated under oath that they did not believe nicotine was addictive. "The greater the extent to which the evidence is restricted, the more easily the tobacco industry will be able to defend itself," Feldman said. But figuring out how to sway California juries, he added, is "the real challenge." Cigarette makers have their work cut out for them, based on results so far. In March 1999, in the first case tried after the immunity repeal, a San Francisco jury ordered Philip Morris to pay Patricia Henley, a longtime Marlboro smoker, $1.5million in compensatory and $50million in punitive damages--more than three times the amount Henley's lawyer asked for. The trial judge later cut the punitive award to $25million. In the second case, Philip Morris and R.J. Reynolds were ordered to pay $21.7 million to Leslie J. Whiteley of Ojai. She died at the age of 40, about three months after the verdict. Last June, in the first tobacco case ever tried in Los Angeles, jurors ordered Philip Morris to pay $5.54 million in compensatory and $3 billion in punitive damages to Richard Boeken, a 57-year-old Topanga man. Punitive damages were trimmed to $100 million, still a record for an individual case. The Henley verdict was the one affirmed Wednesday by the 1st District Court of Appeal. In its 54-page ruling, the panel called Philip Morris' behavior "reprehensible" and agreed "that only a very substantial award was sufficient to reflect the moral opprobrium in which defendant's conduct ... should be held." According to Daynard, large verdicts in tobacco cases are perplexing to people who haven't seen the evidence. But he said the harsh language of the appeals court showed that when jurors see the evidence and "an obviously sober-minded appellate court looks at the evidence ... they conclude basically that just about any amount of punitive damages would be appropriate for the depraved behavior of the tobacco industry." However, punitive damages are where the state's highest court might cut the industry some slack. The U.S. Supreme Court has ruled that punitive damages should bear some reasonable relationship to actual damages. Without establishing a firm standard, the court has said that a 4-to-1 ratio might pass constitutional muster. Indeed, on the same day the appeals court affirmed the Henley verdict, the U.S. 9th Circuit Court of Appeals reversed a $5-billion punitive damages award against Exxon Mobil Corp. in an Alaskan oil spill case. The court found the award was excessive, noting that it was 17 times more than the $287million in compensatory damages awarded in the case. Punitive damages awards in the Henley, Whiteley and Boeken cases ranged from 12 to 18 times compensatory damages.

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