Ore. Supreme Court Overturns Lower Court's Decision in Williams Case

Altria says court "misapplied law, reached erroneous result"

Published in CSP Daily News

RICHMOND, Va. -- Philip Morris USA Inc. said the Oregon Supreme Court has held that the company is required to pay the state 60% of a $79.5 million punitive damages award plus interest in a 14-year old individual smoking and health case.

The decision resulted in the Williams case, where in 1999 an Oregon jury awarded compensatory and punitive damages to an individual smoker. Under Oregon law, the state is entitled to 60% of any punitive damages award. PM USA argued that the state released any right to collect the award when it signed the Master Settlement Agreement (MSA) with tobacco companies in 1998.

"We believe that the Oregon Supreme Court misapplied the law and reached an erroneous result," said Murray Garnick, Altria Client Services senior vice president and associate general counsel, speaking on behalf of PM USA. "As the lower court recognized, the state released its claims to any punitive damages when it signed the [MSA]."

In 1998, the nation's leading cigarette manufacturers signed the MSA with 46 states, five U.S. territories and the District of Columbia. The agreement imposed significant restrictions on a range of cigarette marketing activities and required the participating manufacturers to make billions of dollars of settlement payments to the states. In return, states including Oregon agreed to release claims "directly or indirectly based on, arising out of or in any way related, in whole or in part to" allegations of tobacco-related conduct.

"This decision is grossly unfair and contrary to the language and spirit of the [MSA]," Garnick added.

The remaining 40% of punitive damages plus interest was previously paid to the plaintiff in this case.

Altria Group Inc. said its operating subsidiary, PM USA, is recording a fourth-quarter pretax charge of $62 million related to tobacco and health judgments in the Williams and Bullock cases as well as incurring approximately $57 million in interest costs related to those two cases.

According to a September 30, 2011, Altria SEC filing:

Williams

In March of 1999, an Oregon jury awarded against PM USA $800,000 in compensatory damages (capped statutorily at $500,000), $21,500 in medical expenses and $79.5 million in punitive damages. The trial court reduced the punitive damages award to approximately $32 million, and PM USA and plaintiff appealed.

In June 2002, the Oregon Court of Appeals reinstated the $79.5 million punitive damages award.

In October 2003, the U.S. Supreme Court set aside the Oregon appellate court's ruling and directed the Oregon court to reconsider the case in light of the 2003 State Farm decision by the U.S. Supreme Court, which limited punitive damages.

In June 2004, the Oregon Court of Appeals reinstated the $79.5 million punitive damages award.

In February 2006, the Oregon Supreme Court affirmed the Court of Appeals' decision.

The U.S. Supreme Court granted PM USA's petition for writ of certiorari in May 2006.

In February 2007, the U.S. Supreme Court vacated the $79.5 million punitive damages award and remanded the case to the Oregon Supreme Court for further proceedings consistent with its decision.

In January 2008, the Oregon Supreme Court affirmed the Oregon Court of Appeals' June 2004 decision, which in turn, upheld the jury's compensatory damages award and reinstated the jury's award of $79.5 million in punitive damages.

After the U.S. Supreme Court declined to issue a writ of certiorari, PM USA paid $61.1 million to the plaintiff, representing the compensatory damages award, 40% of the punitive damages award and accrued interest. Although Oregon state law requires that 60% of any punitive damages award be paid to the state, PM USA believes that, as a result of the [MSA], it is not liable for the 60% that would be paid to the state. Oregon and PM USA are parties to a proceeding in Oregon state court that seeks a determination of PM USA's liability for that 60%. If PM USA prevails, its obligation to pay punitive damages will be limited to the 40% previously paid to the plaintiff.

The court has consolidated that MSA proceeding with Williams, where plaintiff is challenging the constitutionality of the Oregon statute apportioning the punitive damages award and claiming that any punitive damages award released by the state reverts to plaintiff.

In February 2010, the trial court ruled that the state is not entitled to collect its 60% share of the punitive damages award.

In June 2010, after hearing argument, the trial court held that, under the Oregon statute, PM USA is not required to pay the 60% share to plaintiff.

In October 2010, the trial court rejected plaintiff's argument that the Oregon statute regarding allocation of punitive damages is unconstitutional.

The combined effect of these rulings is that PM USA would not be required to pay the state's 60% share of the punitive damages award. Both the plaintiff in Williams and the state appealed these rulings to the Oregon Court of Appeals.

In December 2010, on its own motion, the Oregon Court of Appeals certified the appeals to the Oregon Supreme Court, and the Oregon Supreme Court accepted certification.

Argument on the merits of the appeals was heard on September 19, 2011.

Bullock

In October 2002, a California jury awarded against PM USA $850,000 in compensatory damages and $28 billion in punitive damages.

In December 2002, the trial court reduced the punitive damages award to $28 million.

In April 2006, the California Court of Appeal affirmed the $28 million punitive damages award.

In August 2006, the California Supreme Court denied plaintiffs' petition to overturn the trial court's reduction of the punitive damages award and granted PM USA's petition for review challenging the punitive damages award.

In May 2007, the California Supreme Court transferred the case to the Second District of the California Court of Appeal with directions that the court vacate its 2006 decision and reconsider the case in light of the U.S. Supreme Court's decision in the Williams case.

In January 2008, the California Court of Appeal reversed the judgment with respect to the $28 million punitive damages award, affirmed the judgment in all other respects, and remanded the case to the trial court to conduct a new trial on the amount of punitive damages.

In March 2008, plaintiffs and PM USA appealed to the California Supreme Court. In April 2008, the California Supreme Court denied both petitions for review.

In July 2008, $43.3 million of escrow funds were returned to PM USA. The case was remanded to the superior court for a new trial on the amount of punitive damages, if any.

In August 2009, the jury returned a verdict, and in December 2009, the superior court entered a judgment, awarding plaintiff $13.8 million in punitive damages, plus costs.

In December 2009, PM USA filed a motion for judgment notwithstanding the verdict that seeks a reduction of the punitive damages award, which motion was denied in January 2010.

PM USA noticed an appeal in February 2010 and posted an appeal bond of approximately $14.7 million.

On August 17, 2011, the California Court of Appeal affirmed the final judgment entered in favor of the plaintiffs.

PM USA has filed a petition for review with the California Supreme Court.

As of September 30, 2011, PM USA has recorded a provision of approximately $1.8 million for compensatory damages, costs and interest.

Richmond, Va.-based Altria directly or indirectly owns 100% of each of PM USA, U.S. Smokeless Tobacco Co. LLC (USSTC), John Middleton Co. (Middleton), Ste. Michelle Wine Estates Ltd. (Ste. Michelle), and PMCC. Altria holds a continuing economic and voting interest in SABMiller plc. The brand portfolios of Altria's tobacco operating companies include such names as Marlboro, Copenhagen, Skoal and Black & Mild. Ste.

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