The award, which the cigarette maker has said it will contest,
likely falls outside the boundaries for punitive damages that the
U.S. Supreme Court has laid down in a series of cases, the lawyers
RJ Reynolds is a unit of Reynolds American <RAI.N>, which last week
announced it would acquire rival Lorillard Inc <LO.N> in a
cash-and-stock deal valued at $27.4 billion, including net debt.
A Florida state court jury decided the award in a case brought by
Cynthia Robinson of Pensacola. She is the widow of a chain smoker,
Michael Johnson, who died of lung cancer in 1996 at 36.
After a four-week trial and 11 hours of deliberations, the jury
returned a verdict granting compensatory damages of $7.3 million to
the widow and the couple's child, as well as $9.6 million to
Johnson's son from a previous relationship.
The same jury deliberated for another seven hours before awarding
Robinson the additional sum of $23.6 billion in punitive damages,
according to the verdict forms.
"Nobody thinks the $23 billion is going to remain," said Richard
Daynard, a law professor at Northeastern University and the chair of
its Tobacco Products Liability Project.
Because of constitutional guarantees of due process, the Supreme
Court has shown a reluctance to allow punitive damages that are far
out of line with compensatory damages in the same case, he said. The
court's general guideline is that the ratio of punitive to
compensatory damages should be below 10:1.
The court precedent, though, still leaves room for a punitive award
of more than $150 million, Daynard said.
Punitive damages are meant to discourage companies or people from
bad conduct, while compensatory damages are intended to pay victims
for their actual losses.
"There were all these concerns about runaway awards with regard to
punitive damages," said Neil Vidmar, professor of law at Duke
University. "Some are saying that nine times (the compensatory
damages) is the absolute limit, but actually many times, the courts
have cut that down to one or two times."
In 2008, the high court cut a $2.5 billion punitive damages award
against Exxon Mobil Corp for the 1989 Exxon Valdez oil spill off
Alaska to about $500 million, saying the ratio in that case should
be 1:1 with compensatory damages.
But there is "no mathematical bright line rule," said Professor
Catherine Sharkey, a tort law expert at New York University School
Robinson sued R.J. Reynolds in 2008 over the death of her husband,
Michael, claiming the company conspired to conceal the health
dangers and addictive nature of its products. Johnson, a hotel
shuttle bus driver, smoked one to three packs a day for more 20
years, starting at age 13.
[to top of second column]
Robinson's lawsuit originally was part of large class-action
litigation known as the "Engle case," filed in 1994 against tobacco
A jury in that case issued a verdict in 2000 in favor of the
plaintiffs, awarding $145 billion in punitive damages, which at the
time was the largest such judgment in U.S. history.
That award, however, was rejected in 2006 by the Florida Supreme
Court, which decertified the class. It agreed with a lower court
that the group was too disparate and that each consumer had smoked
for different reasons.
But the court said the plaintiffs could file lawsuits individually.
Robinson was one of them.
"I worked with juries for several decades, and I cannot put my mind
on what they are doing, but the Florida jury (in awarding a huge
sum) seems to be sending a message," said Duke's Vidmar. "This is a
statement from the jury that this was an outrageous behavior by the
RJ Reynolds has paid about $114 million for 15 Engle-related cases
that have been finalized, the company said in an April regulatory
filing with the Securities and Exchange Commission. Another $180
million in damages are on appeal.
Northeastern's Daynard noted that the $23 billion is close to the
cost of the Reynolds-Lorillard merger deal, adding that Wall Street
should be aware of the potential for more huge damage awards.
"You're going to have a lot more cases where juries could find
themselves similarly outraged," he said. "The reluctance of the
tobacco companies to settle these cases, thinking they can handle
the cases as a matter of course, may be a mistake."
The two cigarette makers face thousands of suits, but the impact has
not been as dramatic as was expected a decade ago, and trials have
given investors an idea of what the companies will pay.
(Reporting by Gertrude Chavez-Dreyfuss and David Ingram; Editing by
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