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Philip Morris loses $28B suit
California jury orders No. 1 cigarette maker to pay record punitive damages.
October 4, 2002: 4:13 PM EDT

NEW YORK (CNN/Money) - Philip Morris Cos., the No. 1 cigarette maker, was ordered Friday to pay a record $28 billion to a 64-year-old woman with lung cancer who blamed her tobacco addiction on the company's failure to warn her of the risks of smoking.

Philip Morris vowed to appeal after a Los Angeles jury awarded Betty Bullock of Newport Beach, Calif., what the company said was the largest single judgment against it.

Higher before the news, shares of Philip Morris (MO: Research, Estimates) tumbled more than 7 percent Friday. The $28 billion would amount to 38 percent of the company's $72.9 billion in revenue last year.

"I think it will be reduced; $28 billion is a bit much," said Mary Aronson, a tobacco analyst at Aronson Washington Research. Still, Aronson suspects the award may encourage suits beyond California, where juries have appeared more willing to favor plaintiffs in tobacco cases.

"The industry keeps saying that this is a West Coast phenomenon," Aronson said. "I don't think we know it's just the West Coast. I think this industry has some rocky roads ahead."

Philip Morris is no stranger to smoking-related legal fights. In September, Bullock won $850,000 in compensatory damages. Friday's award was intended to punish the company.

Before this, in a separate case, Philip Morris faced a $3 billion punitive judgment, which was later reduced to $100 million.

Bullock started smoking at age 17 and was diagnosed last year with lung cancer that since has spread to her liver, the Associated Press reported.

During Bullock's trial, Philip Morris did not try to defend its past actions. Instead, the company turned the spotlight on Bullock and her decision to smoke. The strategy was a major shift from previous defense efforts.

"If she had stopped smoking ... even in the 1980s, she would not have lung cancer today," Peter Bleakley, the attorney representing Philip Morris, told jurors at the start of the trial in August.

Bullock's lawyer, Michael Piuze, argued that Philip Morris concealed the dangers of cigarettes with a widespread misinformation campaign that began in the 1950s.

William Ohlemeyer, a lawyer for New York-based Philip Morris, told CNNfn's The Money Gang that he is confident an appeals court will reverse the damages.

"This is another example of the jury ignoring the law and doing what they are not supposed to do," Ohlemeyer said.

Philip Morris said the jury's punitive damage award was nearly 33,000 times greater than its compensatory damage award, "well in excess of the four-to-one ratio the U.S. Supreme Court has suggested approaches the constitutional limit of such awards."

The company said that Bullock's testimony showed that she was aware of the health risks of smoking and was warned repeatedly of those risks by her doctors over four decades.

The jury award comes two weeks after Philip Morris slashed its 2002 profit forecast, saying it expects earnings-per-share growth of as little 3 percent this year because of sluggish sales and higher spending on promotions.

Philip Morris said that if the verdict is not set aside, the company will ask the court to reduce the amount of punitive damages awarded.

If the request for a new trial is denied, the company intends to appeal to the California Court of Appeals.

Stock losses spread to Philip Morris rival R.J. Reynolds (RJR: down $3.36 to $35.10, Research, Estimates), which sank nearly 9 percent.

"At this point, it's really open season on the industry," Richard Daynard, a law professor at Northeastern University in Boston and chairman of the Tobacco Products Liability Project, told the Associated Press.

"Juries all around the country are sending a message that this conduct was not only totally inexcusable but that it was so outrageous, there is no amount of money that would be enough to punish the people who perpetrated it."  Top of page

-- from staff and wire reports

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