Tobacco Wins When It Loses

A California jury’s decision on Friday that Phillip Morris must pay $28 billion in punitive damages to a lifetime smoker may prove a blessing in disguise for the tobacco giant. Betty Bullock, a 64-year-old with lung cancer who has smoked since age 17, persuaded the jury to punish the company for malicious deception she claims lured her into addiction. They were so disgusted that they set the award a full $8 billion higher than Bullock’s attorney requested, and $25 billion higher than the largest settlement to date.

Whatever vulnerability the Bullock decision may seem to suggest for the tobacco industry, more than anything, it highlights the dangers inherent in using individual liability lawsuits to punish big tobacco. Not only have suits like Bullock’s been historically ineffective, but they also threaten to weaken support for other more effective types of legal attacks. Collective suits, like class actions or those by the government, exert more financial leverage on tobacco companies, rest on a stronger legal foundation and engender less skepticism from the public.

The bitter reality of the Bullock decision is that Phillip Morris will never turn over a penny of the award. After four decades and thousands of lawsuits, Robert A. Levy of the CATO institute points out, no tobacco company has ever paid any court-awarded damages. Given that they win eight or nine of every ten individual litigations on average, according to Goldman Sachs tobacco analyst Marc Cohen, they have little cause for concern. If the Bullock decision signaled a real threat to Phillip Morris, we would expect investors, the most paranoid sentries of corporate danger, to sell off stock as quickly as possible. But although its share prices slipped about 10 percent on Friday, it rebounded Monday to within 4 percent of its value before the decision.

The courts’ history of overturning individual litigation is probably related to the tenuous legal arguments on which they rest. Bullock’s and other plaintiffs’ arguments require evidence that simply is not available. They argue they were not fully aware of the risks of smoking due to tobacco companies’ deceptive tactics, which included misleading advertising and understatement of health risks. Proving such an argument requires clairvoyant insight into decisions made decades ago. The plaintiff’s word should not be enough, especially when so much money is at stake.

Collective litigation, on the other hand, does not seem to suffer the same legal burden as litigation brought by individuals. In the aggregate, juries may not need to second guess individual decisions; attorneys need only show that populations of people would not have chosen to smoke with full disclosure of information. The ultimate test of this distinction will not come until the first appeals of this type are decided, but there is certainly potential for success. As Goldman Sachs tobacco analyst Marc Cohen points out when analyzing the legal threats of individual and collective lawsuits, “The real challenge, in our opinion, are the aggregate suits.”

In their short history, collective suits have already shown their potential to penetrate the armor of the tobacco industry. In a 1998 settlement between the industry and 45 states, for example, tobacco companies agreed to pay out $206 billion in damages over 25 years, in addition to sponsoring anti-smoking advertisements and programs to help smokers quit. The unprecedented size of this settlement, together with the small but important reforms on which it is contingent, represent the first forced concession of the seemingly impervious industry. In Miami, the first class action lawsuit decided by trial has yielded a $144 billion award, pending appeal.

But the promise of collective litigation may not be fully realized if hindered by public backlash to individual litigation. The public will be rightfully indignant over the absurd size of the award and the greed that clearly motivates many plaintiffs. In an already litigious society, these cases will be associated with the same kind of shameless opportunism behind, for example, the farcical McDonald’s suit this year that blames the company for a customer’s obesity.

Rather than arousing our indignation at big tobacco, money-hungry litigation distracts us from the nefarious practices most in need of reform. As greedy copycats line up for a piece of the pie, the truly effective collective suits may suffer an undeserved fallout. No matter how big the price tag looks, if collective action falls by the wayside, tobacco companies will have won without even trying.

Blake Jennelle ’04 is a social studies concentrator in Adams House. His column appears on alternate Wednesdays.