A jury in Los Angeles awarded a smoker with lung cancer $28 billion in punitive damages against the tobacco giant, Philip Morris.

Betty Bullock, now age 64, began smoking when she was 17 years old. She was diagnosed last year with lung cancer that since has spread to her liver. Philip Morris Companies is the No. 1 manufacturer of tobacco products in the world. Its brands include Marlboro and Benson & Hedges.

Bullock claims she believed the tobacco company when it said in the past that the was no proven link between smoking and cancer. She sued for fraud, negligence and products liability. Each of these legal theories was founded on the misrepresentations made by the tobacco companies, denying or downplaying the dangers of smoking. The claim which allowed Bullock to seek punitive damages, however, was fraud. In addition to proving the tobacco companies failed to tell her or warn her about the dangers of smoking, she had to prove they lied deliberately to keep millions of smokers addicted to their product. Fraud is an intentional tort. Its elements are (a) a misrepresentation of fact, (b) known by the maker to be false, (c) made with the intent to deceive and to induce the other party to act in reliance, and (d) actually relied on by the other party to his or her detriment.

Bullock's lawyer, Michael Piuze, argued that Philip Morris concealed the dangers of cigarettes. He managed to make out a case of fraud despite a recent California State Supreme Court ruling, affirming a statute which in essence immunized tobacco companies from suits for false statements made between 1988 and 1998, a period which includes a well-publicized incident where several tobacco industry executives testified before Congress that, to their knowledge, cigarette smoking was neither harmful nor addictive. This verdict, and a prior verdict Mr. Piuze obtained for another client in the amount of $3 billion, proves that even with one hand tied behind his back, a talented lawyer can make a very persuasive case against the tobacco industry.

Philip Morris reportedly did not attempt to defend its actions, but rather focused its attention on Ms. Bullock’s decision to smoke and keep smoking. On September 26, 2002, Bullock was awarded compensatory damages in the amount of $850,000: $750,000 in economic damages and $100,000 for pain and suffering.

Following the determination of liability and compensatory damages, the jury was presented with additional evidence and argument pertaining to punitive damages. Unlike compensatory damages, the purpose of punitive damages is not to make up plaintiff’s loss or compensate for her injuries. The purpose of punitive damages is to deter similar misconduct, by that defendant or similarly situated defendants. One factor that may be considered in awarding punitive damages is the wealth of the defendant. If punitive damages are to deter misconduct, they must put a strain on the defendant’s resources. The $28 billion in punitive damages would amount to 38 percent of the company's $72.9 billion in revenue last year.

While undoubtedly subject to remittitur and appeal, the $28 billion verdict has already dealt a blow to Big Tobacco finances. Stock prices for Philip Morris fell 7%, and for rival RJR fell 9%, on Friday, October 4, 2002, after the punitive damage award was announced.


Update:

On December 19, 2002, California Superior Court Judge Warren L. Ettinger partialy granted a post trial motion by reducing the jury’s punitive damages award from $28 billion ($28,000,000,000.00) to $28 million ($28,000,000.00).

The remittitur reduces the ratio of punitive to compensatory damages from 33,000-to-1 down to 33-to-1. Philip Morris contends that any ratio higher than 4-to-1 violates its constitutional right to due process of law. The ratio of punitive to compensatory damages is a factor that appeals courts must consider in deciding whether to uphold the award.


Sources:

http://news.findlaw.com/business/s/20020927/tobaccophilipmorrisdc.html

http://money.cnn.com/2002/10/04/news/companies/philipmorris/

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