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Tobacco Control Resource Center (TCRC) |
Authored by: |
Copyright © 1997 Tobacco Control Resource Center. All rights reserved.
INTRODUCTION
This working paper analyzes changes to the civil justice system in Title VIII of the proposed tobacco Settlement. After more than thirty years of litigation, the current civil justice system is finally forcing the tobacco industry to face the real prospect of being held liable for its misdeeds and the injuries caused by its products. Consequently, the current system is now more likely than ever to achieve some levels of deterrence, compensation, and basic justice with respect to tobacco claims.
However, Title VIII would substantially halt this progress because it contains a unique set of procedural and substantive rules that would tilt the playing field decisively back in the tobacco industry’s direction. It would ban punitive damages for claims involving past conduct, erect annual caps on compensation, and bar the most promising and innovative legal actions against the industry. Moreover, Title VIII purports to "settle" cases of plaintiffs who were not represented in the negotiating process.
As discussed below, each of these provisions runs counter to the basic goals of tort law. Accordingly, tinkering with the civil justice system has no legitimate place in the formulation of national tobacco control policy.
I. Tobacco and the Basic Goals of Tort Law
Tort law furthers the public interest by compensating injured parties, deterring harmful behavior, and exposing misconduct. When a jury punishes an irresponsible corporation for its misconduct, it not only deters future misbehavior but also delivers the accountability that justice frequently demands.
In the case of tobacco, the importance of these goals is magnified by the unparalleled amount of harm and culpability at issue. Each year, more than 410,000 individuals die from tobacco-related diseases. Moreover, for decades the tobacco industry lied about the dangerous and addictive properties of its product.
II. Prospects Under the Current System
Until recently, the civil justice system did not appear to hold much hope for victims of tobacco-related diseases. During the first wave of tobacco litigation (1954-1973), plaintiffs were hampered by the paucity of medical studies establishing the link between tobacco and disease. By the second wave (1983-1992), the evidence of causation was incontrovertible but plaintiffs fared little better. The industry pursued a "scorched earth" litigation strategy designed to spend its opponents into the ground. As one attorney representing R.J. Reynolds Tobacco Company at the time explained,
[t]he aggressive posture we have taken regarding depositions and discovery in general continues to make these cases extremely burdensome and expensive for plaintiffs' lawyers. . . . To paraphrase General Patton, the way we won these cases was not by spending all of [R.J. Reynold's] money, but by making the other son of a bitch spend all his. (See Haines v. Liggett Group, Inc., 814 F. Supp. 414, 421 (D.N..J. 1993).) Given the tobacco industry's enormous financial resources, this strategy seldom failed.
More recently, however, plaintiffs' attorneys have begun using existing tools of the civil justice system to level the playing field. By filing class actions on behalf of tens of thousands of victims, these attorneys are now able to marshal their limited resources more efficiently. Similarly, new suits filed by third-parties to recoup medical costs - e.g., the attorneys' general suits to obtain Medicaid reimbursement - circumvent the industry's financial advantage by litigating thousands of cases of death and disease in a single trial. Moreover, these third-party payor suits possess another advantage: the tobacco industry cannot shift the focus of the jury from its own misconduct to an allegedly blameworthy smoker.
Although it has taken some time, these innovative types of lawsuits are now on the verge of reaping results. The first-ever tobacco class action trial is currently underway. Jury selection has begun in Florida's multi-billion dollar Medicaid reimbursement suit, and other states' cases are soon to follow. Moreover, individual cases and class actions - each with the potential for damages in the nine- or ten-figure range - are scheduled for the remainder of this year. R.J. Reynolds Tobacco Company recently informed shareholders that there are now 448 tobacco-related cases pending against it or its affiliates - more than double the number of cases in 1996. In light of this third wave of litigation, tobacco stock prices reflect a heavy discount for the possibility of bankruptcy.
These new developments indicate that any changes in the civil justice system would have real and potentially severe consequences for tobacco liability litigants.
III. Title VIII Provisions Would Hinder Tort Law Goals
Several provisions in Title VIII would cause a dramatic reversal of the trend emerging under the current civil justice system. This section analyzes the effects of four proposed changes in Title VIII:
• Ban on punitive damages for claims based on past misconduct (¶ B1);
• Annual caps on damages for all cases, with 80 percent of future judgments/settlements credited toward the industry's proposed annual payments under the settlement (¶ B9, C1);
• Elimination of the most innovative and promising actions against the industry - including class actions, consolidations (¶ B.2, C.1), third-party payor suits not based on subrogation (¶ B5(c)), and claims against industry attorneys (¶ B5); and
• Legislative settlement of claims belonging to plaintiffs not represented in the negotiating process.
As discussed below, each of these proposed changes would thwart the fundamental policy goals of tort law. Barring punitive damages for claims based on past misconduct would offend common notions of justice and would reduce the prospects of adequate compensation for plaintiffs. The proposed annual caps for all damages would not only hamper timely compensation but also eviscerate any deterrent to future industry misconduct. Eliminating class actions and non-subrogation third-party claims would return tobacco litigation to the dark ages - where the industry won by outspending its opponents. Finally, the settlement claims belonging to others appears incompatible with accepted notions of fairness and justice.
A. Barring Punitive Damages for Past Misconduct Offends Justice and Blocks Adequate Compensation.
Title VIII grants the tobacco industry complete immunity from any punitive damages for its past misconduct. Although paragraph B1 claims to include some measure of punishment "as part of overall settlement", this claim seems flatly inconsistent with Title VI D., which provides that all payments are "ordinary and necessary business expenses", and that no part of any payment under the agreement "is either in settlement of an actual or potential liability for a fine or penalty (civil or criminal)…."
Moreover, the reason that punitive damages generally serve as effective punishment is that they are awarded above and beyond the full compensation for actual injuries. The proposed settlement award of $368.5 billion over 25 years does not even begin to approach full compensation for the estimated $2.5 trillion ($100 billion times 25 years) in health care costs and lost productivity caused by tobacco products. Accordingly, the proposed Settlement award cannot be construed as containing any punitive damages whatsoever.
1) Insulating the Industry from Punishment for Past Conduct Offends Justice.
As a general principle of justice, wrongdoers ought to be held accountable for their actions. This principle is especially important where, as with the tobacco industry, the wrongs were committed willfully and knowingly. Punitive damages are an effective vehicle for effectuating this principle.
Nevertheless, there are extraordinary occasions when amnesty from punishment for past misdeeds is justified by some notion of the greater good. In South Africa, for example, negotiators set up a limited amnesty for human rights violations in order to facilitate the historic transition from apartheid to democracy. It is doubtful that this is such an extraordinary occasion. However, before policymakers even consider immunizing from punishment an industry that has for more than 40 years recklessly caused millions of deaths, the industry should do three things: 1) admit its wrongdoing; 2) apologize for that wrongdoing; and 3) cease that wrongdoing. Unfortunately, the tobacco industry has not fulfilled these basic conditions.
1) Admission: People are normally not forgiven for deeds that they refuse to admit they have done. Unlike the 1997 Liggett settlement, in which CEO Bennett LeBow made a variety of crucial admissions, the tobacco industry signatories to the proposed Settlement make no admissions at all, though they accede to unconditional warnings on their product packages. Indeed, at the time of the Settlement the industry signatories issued a press release that included the following paragraph:
In order to achieve a resolution in the public interest, the tobacco companies have agreed to support, subject to approval by our boards of directors, a package which includes certain legislative and regulatory provisions with which we do not necessarily agree. Nevertheless, the companies are willing to accept legislation incorporating these provisions in the interest of reaching an overall resolution of the important issues facing the industry and the nation.
This press release simply underlines the absence of any admissions in the Settlement agreement itself, despite the impression a superficial reading of that agreement might produce. The companies obviously wish to remain free to continue to dispute the accuracy of the proposed label warnings, e.g. that "cigarettes are addictive" and that "tobacco smoke causes fatal lung disease in non-smokers." This is further demonstrated by the fact that, following the settlement, a tobacco industry attorney would not admit to a Congressional panel that cigarettes are addictive.
2) Apology: Forgiveness generally requires contrition. There is none here. "Forgive me, father, for Bennett LeBow has sinned," is no substitute.
3) Stop doing it: An absolute precondition for any amnesty program is that the party seeking forgiveness, or even just forgetting, has ceased and abandoned the behavior for which amnesty is sought. The behavior of the industry subsequent to the June 20 Settlement announcement indicates that it has not ceased and abandoned the behavior in question. For example, while R. J. Reynolds abandoned its "Joe Camel" campaign, it replaced it with a "heroin chic" model with a "come hither" look that is at least as appealing to adolescent males. The National Smokers Alliance, which was set up and funded by Philip Morris, intensified its vilification campaign against Dr. Stanton Glantz, a prominent tobacco control researcher, for the purpose of getting communities considering restaurant smoking bans to reject his finding in a 1994 study that local smoking bans do not decrease restaurant sales.
The industry’s attitude toward abstinence from misbehavior is epitomized by a story told me by a professor at another university, who had been hired to give congressional testimony by a tobacco industry attorney working at a Washington, D.C. law firm. The professor was initially reluctant, and asked the attorney, "Don’t you fellows ever worry about the Nuremberg trials?" The attorney responded that they did indeed think about Nuremberg, but that there was a difference: "By the time of Nuremberg, the Nazis had stopped doing it."
Moreover, even if the tobacco industry ceases its misconduct in the United States, it clearly intends to continue its business as usual around the rest of the globe. Its products will continue to hook millions of teenagers in Europe, Asia, and Africa, and eventually kill them. This nation cannot afford to embarrass itself before other countries by granting amnesty to an industry that continues to spread death and disease within their borders.
2) Barring Punitive Damages Hampers Adequate Compensation.
There are two reasons Title VIII's elimination of punitive damages for past misconduct will minimize the compensation victims receive. First, absent the possibility of punitive damages, few rational attorneys will invest large resources to bring individual cases against it.
Second, the removal of punitive damages weakens the plaintiff's negotiating strength considerably. This is a critical consideration since approximately ninety percent of civil cases are settled without a trial. Under the current civil justice system, the threat of double or treble damages might induce tobacco industry defendants to offer settlement amounts that approximate the actual injuries sustained by victims. However, without this threat, actual injuries will be discounted by the probability of success at trial, and victims will receive a mere fraction for their suffering.
There is no reason for Congress to meddle with the existing bargaining strength of private parties in litigation. Barring punitive damages significantly and unjustifiably shifts bargaining power to the industry.
B. The Annual Cap on Damages Destroys Deterrence and Denies Adequate Compensation.
1) Destruction of Deterrence.
Although the proposed Settlement technically permits punitive damages for actions based on future conduct, the cap on damages removes the deterrent value such damages normally hold. That is because Title VIII B.9 allows the industry to deduct 80 percent of any damages it pays from the amount it would otherwise owe under the Settlement.
Title VIII B. 9. caps the industry’s annual liability at an amount which begins at $2 billion and reaches $5 billion after nine years. However, given the 80 percent deduction, the industry's exposure to liability is initially only $400 million, and then eventually $1 billion. Thus, the cap guarantees that so long as they can obtain more than the present value of $1 billion annually in terms of benefits from a pattern of misdeeds, they need not take the future harm from their behavior into account.
Even worse, awards or settlements for actual damages might exceed the $2- to $5 billion annual caps. With actual damage awards exceeding total exposure to liability, the tobacco industry would have little reason to be deterred by the prospect of any additional punitive damages.
It is true that the damage caps are only for annual payment purposes, and that additional liability is rolled over into subsequent years. However, this roll-over does little to restore the deterrent effect of any punitive damages for future misconduct. Assuming annual caps are reached each year, the rolled-over liability is only paid out at a rate of $1 million per year (¶ B.9). Moreover, existing non-subrogation third-party payor plaintiffs are treated as one individual for purposes of the cap. (Id.) These conditions create a substantial possibility that the industry would not actually pay the punitive portion of any current damage award for a decade or more. This would provide no deterrent value, especially since "[e]xcess rolls over without interest." (Id.)
2) Reducing Compensation.
The graduated nature of the annual damages cap creates a potential bottleneck that would prevent adequate compensation for many victims. Due to the placement of warnings on cigarettes in 1969, plaintiffs who began smoking prior to that year have substantially stronger cases against the tobacco industry. The vast bulk of these plaintiffs are likely to file suit in the next few years because their actions could be otherwise barred by statutes of limitations. Placing a lower cap during the initial years is likely to delay compensation for a significant number of these plaintiffs.
3) No Justification for Proposed Caps.
Moreover, the proposed caps do not come close to the annual toll of death and disease wrought by tobacco products. The tobacco industry causes $50 billion/year in health care costs in the US, and another $50 billion in lost wages. While the industry could not produce that much money on an ongoing basis, Dr. Jeffrey Harris has estimated that, by raising prices about $2.25/pack, it could afford about $32 billion/year -- or about 32 cents on the dollar. By capping damages at $5 billion/year, the industry is paying a maximum of 5 cents on the dollar. There is no justification for denying victims compensation that the industry can afford to pay.
C. Eliminating the Most Innovative and Promising Procedures Would Return the Industry to its Previous Invulnerability and Violate Due Process.
1) Restoring Industry Invulnerability.
Title VIII B. contains many changes in the normal procedural rules currently applied by state courts in tobacco and other cases. These changes apply only to tobacco litigation, and all have the purpose and effect of making litigation against tobacco companies inordinately expensive and generally impractical. (Indeed, on the only litigation issue where public health advocates have sought Congress’ aid – correcting the Supreme Court’s misreading, in the 1992 Cipollone v. Liggett Group, Inc. case, of the legislative intent of the 1969 amendments to Federal Cigarette Labeling and Advertising Act, to find an intent to preempt some legal theories in tort litigation – paragraph B.3. of the agreement explicitly preserves this misreading.)
Paragraph B.2. requires "individual trials only." It expressly bars all of the procedural techniques which courts have developed over the past 20 years to make toxic torts cases triable at a reasonable cost and without interminable delays, and expressly bars all courts from developing any novel techniques for this purpose. The only possible purpose of this provision is to make it impossible for plaintiffs’ attorneys to bring, or state courts to process, cases in an efficient and cost-effective manner.
Paragraph B.2. specifically bars not only class actions but also "joinder, aggregations, consolidations, extrapolations, and other devices." Thus, if a judge has five cases against Philip Morris before her, and they all present similar issues, and it would save the parties and the taxpayers hundreds of thousands of dollars to try the cases together, she cannot do it, or the case will be removed from her court to federal court. This procedural barrier would permit the industry to return to its strategy of attrition a la General Patton. (See Part II, supra.)
Of course, this provision also bars class actions. A case like Broin, the flight attendant environmental tobacco smoke case currently in trial in Miami, could not as a practical matter be brought on an individual case basis: the plaintiff’s attorney would have to present most of the same witnesses, and prepare to depose, cross-examine, and rebut the same defendant’s witnesses, in an individual case as in the generic portion of a class action. Few if any lawyers with the talents necessary to win such a case would devote half a year’s time and hundreds of thousands of dollars for the eventual prospect of one-third of an individual recovery. Thus, the restaurant workers and bartenders, who will continue to be exposed to secondhand smoke under the ETS provisions of the proposed Settlement, would have no practical remedy.
Paragraph B.5.b., limiting permissible plaintiffs, bars new third-party payor (and similar) claims not based on subrogation. It is understood on all sides that these cases cannot practicably be brought if restricted to subrogation. Thus, there will be no more cases like the Minnesota Blue Cross/Blue Shield case, nor the union multi-employer health and welfare fund cases, nor cases on behalf of governmental bodies like cities and counties.
Together with paragraph 2, paragraph 5.b. destroys for all time most of the engines which brought the tobacco companies to the table. This, in turn, ruins the potential for adequate compensation, deterrence, and basic justice in tobacco litigation.
2) Implications for Procedural Justice.
Eliminating these innovative procedures also thwarts the central principles which currently guide the federal courts. Rule 1 of the Federal Rules of Civil Procedure provides that the rules "shall be construed to secure the just, speedy, and inexpensive determination of every action." The only possible reason for barring class actions, consolidations, and third-party payor claims is to eliminate the only efficient means for resolving tobacco litigation.
While Congress can override federal procedural rules, it cannot repeal the simple and universally accepted demands of procedural justice which underlie these rules. In fact, considerations of due process might bar Congress from banning class actions and consolidations in tobacco cases. True, Congress does have the constitutional power to make sweeping substantive changes, at least as long as it also provides an adequate substitute for relief (which is not even being proposed). This is what Congress did when it eliminated workplace injury torts and created the workers' compensation scheme. However, it does not follow from this that Congress may also alter procedure for the sole purpose of making access to justice for tobacco victims unnecessarily slow and expensive.
Moreover, the mere fact that Congress might be able to preempt all tort claims by tobacco victims under the commerce clause does not give it the "lesser" power to "preserve" these claims while imposing insurmountable procedural hurdles. Although the Constitution allows Congress to curtail litigants' substantive rights, the realities of the political process makes such alterations rare. In the current political climate, it is highly unlikely that Congress would ban all future substantive claims against the tobacco industry. Due process does not permit Congress to achieve the same result through subtle procedural alterations less subject to public scrutiny. For this and other reasons, litigants' rights to procedural due process are protected by stronger constitutional safeguards than for "substantive due process" claims. As the Supreme Court pointed out in Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532 (1985), "The categories of substance and procedure are distinct. Were the rule otherwise, the [Due Process] Clause would be reduced to a mere tautology."
D. Settling Claims of Parties Not Represented at the Negotiating Table.
Title VIII A. I. "legislatively settle[s]" all "[p]resent Attorney General actions (or similar actions brought by or on behalf of any governmental entity), parens patriae and class actions." However, some of the plaintiffs who have brought such claims were not included in the negotiations which produced the proposed Settlement. These include the 60,000 flight attendants whose class action is currently on trial in Florida, the class action on behalf of Florida's smokers who have contracted tobacco-caused diseases (scheduled for the Fall of 1997), the class actions that were filed on behalf of union multi-employer health and welfare funds after June 7, 1997, as well as the non-signatory attorneys general, and municipalities that had filed "similar actions." Under the proposed Settlement, their cases would be involuntarily "abated" or "aborted", and with no quid pro quo to boot. Congress may or may not have the raw constitutional power to do this depending on whether the Supreme Court would apply dicta from its earlier cases suggesting that a fair substitute remedy would be required. But doing so would be unprecedented . . . and unprincipled.
The Supreme Court recently addressed an analogous situation in Amchem Products, Inc. v. Windsor, 1997 U.S. LEXIS 4032; 138 L. Ed. 2d 689 (1997). In Amchem, the Supreme Court threw out a class action settlement which purported to bind all asbestos victims who had not yet filed suit. The class included exposed individuals who were asymptomatic, as well as those currently suffering from asbestosis or mesothelioma. The Court concluded that the diverse plaintiff interests involved required separate subclasses with separate representation. Justice Ginsburg stated, "The settling parties, in sum, achieved a global compromise with no structural assurance of fair and adequate representation for the diverse groups and individuals affected". (Slip opinion, p.25, June 25, 1997).
The Amchem decision does not restrict the powers of Congress, but its principle is universal: the structural assurance of adequate representation in the settlement of claims. Notwithstanding the influence of special interest money, Congress ordinarily operates in a manner that guarantees this structural assurance. Members of Congress independently assess the worthiness of legislation on its merits.
However, many proponents of the proposed Settlement are now insisting that Congress must enact Title VIII "as is" because it is part of a complete deal struck by private parties in litigation. But this rationale runs afoul of the representational principle raised in Amchem. Many categories of tobacco victims were not present at the table, and will get nothing from the proposed settlement (other than the public health benefits, such as they are, which they would share with all other citizens). These victims include dying smokers, families of sick, dying, or dead smokers, nonsmokers afflicted with ETS-caused diseases, smokers or nonsmokers burned in cigarette-caused fires, local governments, union health and welfare funds, and doubtless many more.
Policymakers should exercise independent judgment on all aspects of the proposed Settlement and determine for each class of tobacco victim whether justification exists for hobbling their right to judicial redress. There is no substantive or procedural justification for aborting the claims of certain classes of victims.
IV. THE CIVIL JUSTICE SYSTEM SHOULD NOT BE ON THE TABLE.
Even if all current parties were represented, changing the rules of the civil justice system would not be an appropriate topic for settlement negotiations between litigants. Nor is it fair for Congress to change those rules just as plaintiffs are on the verge of obtaining relief.
Moreover, changing the civil justice system for the exclusive benefit of the tobacco industry is nothing short of obscene. The fact that procedural changes for the primary benefit of any industry could enter the mainstream political discourse underscores the disturbing power of special interests in American politics.
Yet, in the context of tobacco, such considerations are doubly disturbing. The tobacco industry and its products kill more that 400,000 Americans, and hook 1,000,000 children and teenagers, each year. Furthermore, its pattern of lies and deceit are unparalleled in the annals of corporate misconduct. As one federal judge remarked, "despite some rising pretenders, the tobacco industry may be the king of concealment and disinformation." (Haines v. Liggett Group, Inc., 140 F.R.D. 681 (D.N.J. 1992). Moreover, it is not as if the tobacco industry needs special protection. As Dr. Harris' economic analysis indicates, the industry would survive liability at levels substantially beyond the limits set by the proposed Settlement.
If such an industry can demand and obtain congressional relief from legal accountability for its actions and for the effects of its products, every other industry will have a powerful case for similar relief.
Some have contended that the obscenity of such special interest procedural changes is somehow lessened by the regulatory proposals in other parts of the proposed Settlement. To the contrary: the notion that the tobacco industry can insist upon stripping away parts of the civil justice system in exchange for permitting "their" congressmen to support regulatory measures is an abhorrent standard for legislation in a civilized society.
CONCLUSION
The changes proposed in Title VIII of the tobacco Settlement run counter to the purposes of the civil justice system and ought to be rejected. Perhaps such changes would have been inconsequential in decades past since the tobacco industry appeared invulnerable to civil litigation. That is no longer the case. Class actions and third party payor suits, as well as the possibility of punitive damages have leveled the playing field, and now the civil justice system appears ready to deliver. Thus, if Congress enacts Title VIII, what will be lost are not mere abstract rights but the first real chance to achieve compensation, deterrence, and basic justice with respect to tobacco.
This conclusion is not without its practical considerations. Some observers have suggested that the proposed Settlement cannot pass through Congress without the provisions in Title VIII. Indeed, tobacco industry spokesmen have described removing its elimination of punitive damages as a deal-breaker. The question is whether Members of Congress will allow the tobacco industry to set the parameters of the debate, or exercise independent judgment on public policy.
However, even if the proposed settlement is rejected, indeed especially if the proposed settlement is rejected, the concessions which the attorneys general extracted from the industry constitute unique and probably irreversible contributions to the exponential curve of tobacco control achievements. Thus, the Mississippi settlement, which would probably not have happened without the financial framework provided by the proposed settlement, reverses a 40 year tobacco industry policy of never settling, and certainly never paying the plaintiffs' attorneys’ expenses. The $5 billion annual damages cap, misunderstood as a $5 billion damages fund, persuaded the California legislature to repeal the "napkin deal" which had barred individual tobacco litigation in that state. The concessions on package label warnings, as well as on other provisions, are likely to weaken the persuasive power of industry representatives as they oppose similar state and local regulations.
The paradox is that the settlement agreement itself may have helped
changed the nature of what is possible in tobacco control, so that what might have
appeared in the spring of 1997 to be an attractive deal seems quite unacceptable by the
summer.