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Current issue Features

America's New controversial export: Tobacco Lawsuits
By Scott Herron and Glenn A. John
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    Give an inch, take a yard. The old cliché applies to the opponents of America's tobacco business. In November 1998, in what is known as the Master Settlement Agreement (MSA), the four largest cigarette manufacturers - Philip Morris, R.J. Reynolds, Brown & Williamson, and Lorillard - reached agreement with eight American participating State Attorneys General to pay a total of $206.3 billion over 26 years to settle all 40 Medicaid suits that had been filed, as well as cases that had yet to be filed.
    While the multi-billion dollar MSA was a high price to pay, "it has lifted a tremendous burden from the industry," said BAT's chairman Martin Broughton. That burden: depressed share prices as financial markets factor in the costs of uncertain legal costs.
Now the United States Justice Department is considering launching a lawsuit against the tobacco industry, in the mode of the State's MSA seeking to wrench further billions of dollars from the industry. In February, a California court awarded US$51.5 million to an individual suing Philip Morris in what is by far the largest personal tobacco lawsuit.
    If that is not enough, the besieged American tobacco companies face new lawsuits from outside the borders of the U.S., and within the U.S. on behalf of foreign countries posing added concerns for U.S. tobacco.
    Late last year, a Marshall Islands court, hearing the first case filed by a foreign nation against U.S. cigarette companies, ruled that the American manufacturers would have to stand trial in these small Pacific Islands. In January, a number of lawsuits were filed against U.S. tobacco companies by U.S. based lawyers representing Latin American countries including Guatemala, Bolivia, Venezuela, Nicaragua, and Panama.
    Guatemala, suing 11 defendants including Philip Morris and Brown & Williamson, charges that tobacco manufacturers conspired to hide the dangers of smoking. Based on those "misrepresentations," Guatemala says it delayed action to institute programs to reduce smoking by its citizens, and now wants to sue for damages. Philip Morris argues that the government was not directly injured by smoking cigarettes and thus cannot recover injury costs.
    Many courts threw out substantial portions of the state attorneys general lawsuits when there was no specific state law authorizing those claims, according to a legal spokesperson for Philip Morris. Guatemala, he argues, does not have any such authority. Attorneys who have represented foreign plaintiffs in U.S. courts believe that Guatemala has a heavy burden to show that the U.S. courts are the appropriate forum to adjudicate alleged wrongs.
    Bolivia, seeking to recover health costs inexplicably filed its tobacco case in Brazoria County, Texas. The judge there ruled that the case be thrown out and recommended a transfer to Washington D.C. "While the court does not therefrom profess to understand all of the political subtleties of the geographical transmogrifications ongoing in Eastern Europe," said the Judge, "the court is virtually certain that Bolivia is not within the four counties over which this court presides."
    By filing its case in a remote Texas court, the Bolivia action illustrates the growing understanding that cases such as these may have not much hope for survival outside the U.S. Bolivia's gambit points out that a court case filed in the U.S. no matter how far from where the "crime" was committed, stands far better chance of being heard than in their home country.
    "These copycat lawsuits will be vigorously defended because they have little merit," said Timothy J. Lindon of Philip Morris. He believes that Bolivia's lawyers are more interested in using the U.S. courts to generate legal fees than to represent the country's purported desire to recover health care costs. Lindon said that such claims by foreign governments face insurmountable legal obstacles in the United States and that foreign governments and their citizens will not benefit from these lawsuits.
    A key issue in the Latin American cases, according to legal experts, will be whether judges allow foreign governments to press their claims in U.S. courts rather than dismissing them on grounds that the foreign country is the more appropriate forum. Courts historically have been reluctant to sustain foreign actions, according to legal experts. For instance, when the Indian government sued a subsidiary of Union Carbide in federal court in New York for the chemical disaster that killed more than 2,000 people in Bhopal, a federal appellate court sent the case back to India.
    Last year a federal appeals court in New York ruled that a case filed by Ecuador against Texaco Inc. should be dismissed, but only if the company agreed to submit to jurisdiction in Ecuadorian courts.
    France's Caisse Primaire d' Assurance Maladie (CPAM), a branch of the State run health insurance program announced in February that it will sue cigarette manufacturers in the country for "damages." Defendants named include Philip Morris, Rothmans, and R.J. Reynolds. Perhaps unsurprisingly, fellow state-owned tobacco group SEITA, which holds the dominant cigarette market share, was not named in the suit.
    The United Kingdom dropped a case against Gallaher and Imperial Tobacco recently after lawyers representing 46 plaintiffs decided the likelihood of victory was too slight to justify the action. "The outcome of this case is recognition that nobody smokes without being aware of the risks, and that smokers make informed, adult choices for themselves," said a Gallaher representative. The judge dismissed eight of the plaintiff's cases on statute of limitation grounds, and it was clear that the suits of 32 others were similarly jeopardized.
    The case has been closely monitored, as a ruling in favor of the plaintiffs could have signaled more support international for domestic versions of U.S. -style health suits. Consequently, Britain's National Health Service may decide to abandon a legal action currently under consideration.
    In the first known case in Asia, a Philippine widow sued Philip Morris and British American Tobacco seeking US$7.8.million. This case may signal the beginning of several similar cases filed in the Philippines.
    "There is technically a long way to go before the Philippines case can proceed, with various legal hurdles that need to be jumped and they are big hurdles," said a source at BAT. The insider feels that these "lawsuits" against the tobacco industry are uniquely American, due to the nature of the litigation system there. "The Philippines case may be proceeding perhaps because of the Philippines similar political structure and its shared history with America," said the source.
    Nevertheless, most analysts see it as unlikely that lawsuits will spread further in Asia.
    "Perhaps we might see some suits from the middle class segment of Thai society as more of these people smoke cigarette brands produced by American tobacco companies," said John Sobell, a lawyer practicing with Advance Adjusting Associates in Bangkok. Yet, it is unlikely that lawsuits based in Thailand could proceed without involving the Thailand Tobacco Monopoly (TTM), which holds 95% of the market, an unlikely scenario given that TTM is 100% owned and operated by the Thai government.
    Australian government attorneys announced that they would likely file a Federal class action suit against W.D. & H.O. Wills, Philip Morris, and Rothmans. The suit will be filed on behalf of individual Australians with alleged smoking-related illnesses, rather than the governments who have paid medical costs. The suit has been inspired by the success of America's MSA settlement in recovering health costs. The government is still exploring its options with the legal plausibility of the case still in question.
With the possibility of more lawsuits coming from outside the United States, it seems the tobacco companies are no longer immune to litigation anywhere, anymore. Still, in many areas of Asia, the industry has not been unfairly vilified to the extent that has in the west. Also in Asia, lawsuits are unusual as individuals generally enjoy fewer individual rights anyway. In addition, legal systems in Asia are difficult to penetrate and less accessible for the average citizen, when compared to the American legal system.
    So, cash-strapped governments around the world have seen quite a bit of money flowing out from U.S. tobacco companies and into the U.S. government's pockets, and they wouldn't mind sharing in some of it, thank you very much. Therefore, some foreign governments and their litigious U.S. lawyers may flock to America's more accommodating court system where there is at least a legal mechanism to file such suits, and a chance, however remote, of recovering damages.