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(CNN) -- Anthony Sebok, a professor at Brooklyn School of Law, joined Law Chat on Wednesday, May 24, for a discussion on the tobacco litigation. Law Chat is presented by FindLaw. CNN.com provided a typist for Sebok. The following is an edited transcript of the chat:
Chat Moderator: What are the latest developments in the Florida smokers' litigation?
Anthony Sebok: The most important development is, as of Monday, the beginning of the final part of stage two of the litigation, which is the most important stage. That final part is the punitive damages part.
Last year, in stage one, a jury decided the question of liability, whether or not the tobacco companies did something wrong. This year, the same jury decides the question of damages for four class members. This follows naturally from the finding of liability.
But the question of the scale of the damages is probably as important as the finding of liability. And what we have now, beginning this week and continuing for a month or so, is the punitive damages part. Two months ago, the jury returned a calculation of compensatory damages, or how much it would take to cover the injuries suffered by the class members. That totaled about $13 million, which isn't a lot of money for the tobacco industry.
But now the jury will consider punitive damages, which aren't about compensating for injury, but handing out punishment. The punitive damage award that this jury can arrive at -- and they need not arrive at any, but they're more than likely going to come up with a number -- will be potentially very large. The judge in this case has decided that although the compensatory damages should be calculated for each individual smoker in the class, one by one, the punitive damages should be calculated all together for the entire class, at the beginning of calculating the compensatory damages.
And although we know that for four smokers, the industry should pay $13 million, for upwards of 500,000 smokers, how much punitive damages should they pay? Even if you take the rule of thumb that punitive damages, when awarded, are often three times the compensatory (a very rough rule of thumb), you can imagine that 500,000 times $4 million times three is a very large number. That is why the estimates for the punitive damage award, if the jury returns one, has involved numbers that are mind-bogglingly large. I've seen estimates of $50 billion to $100 billion. Lately those numbers have drifted downward to $10 billion, but still, those are huge numbers.
Question from Punk5: Isn't it true that tobacco companies don't force people to smoke and they have warning labels on their product, which many people ignore? If someone makes a choice, shouldn't they accept responsibility for that decision and not blame someone else for it?
Anthony Sebok: Certainly the question of assumption of risk was raised. In the case of the individual smokers who received damages, the jury concluded that the product itself might have been defective because of safety measures the tobacco companies did not choose to pursue.
But, the most important thing to understand about this litigation is that the claim against the tobacco companies has really shifted from one of product liability to claims about fraud. What you should understand is that even if smokers are aware of the dangers in general of smoking, in fraud, if the tobacco companies concealed and misrepresented the dangers of their product, the knowledge that smokers may have had about dangers in general, still may not immunize tobacco companies from liability, if it can be shown that the fraud and misrepresentation by the tobacco companies made a difference in anyone's decision to smoke.
Question from Rory-CNN: Can punitive damages be so great that they might jeopardize the financial health of the cigarette companies?
Anthony Sebok: Punitive damages, under Florida law, may not be so large as to bankrupt the defendant, but obviously, they can be very large to the point where they can compromise the health of that industry. However, there's a more important immediate problem for the tobacco industry. Even if the punitive damage amount is not so large as to bankrupt the industry, they were until recently in a position where they could not borrow enough money to post a bond to appeal the punitive damage decision. This would have forced them to settle the case before they could raise all of their defenses on appeal.
I point out that this was until recently, because the Florida legislature, in an unusual move, passed a law two weeks ago capping the amount of money that a defendant must put up as a bond at $100 million. This is really what has saved the tobacco industry's near-term prospects. Now they can pursue an appeal, if this law is upheld, without having to post more than $120 million in bond. They can raise this amount, but not anything like $10 billion. They would have been forced to settle this case, and I can tell you, they really don't want to do that now.
Question from Plimoth: If a warning label on cigarettes protects tobacco company from liability, couldn't manufacturers of all products put warning labels on all their products and protect themselves as well?
Anthony Sebok: Manufacturers do place warning labels on their products already. That's a fundamental principal of product liability law. The warning label issue in this litigation is frankly no longer an interesting issue. The arguments made regarding cautious fraud and misrepresentation overwhelm any defense the tobacco companies have raised through the warning label.
Question from Rory-CNN: Are juries trying to send a message about manufacturing cigarettes or about the tobacco executives withholding information from Congress?
Anthony Sebok: I believe that when the history of this litigation is written in the future, we will see that juries began to turn against the tobacco industry when they were presented with evidence of industry fraud and misrepresentation. Not only to Congress, but to the general public. Until documentation of an alleged, and I stress alleged, organized effort by the industry to conceal what they knew about their product was revealed in the early 1990s, juries generally accepted what earlier chat room questioners mentioned as the assumption of risk argument. But for a variety of legal and psychological reasons, when juries were informed of evidence alleging fraud and misrepresentation, they began to turn against the industry in court. That was the key change in this litigation.
Question from Punk5: If this case is won by the smokers, do you think it would set a precedent for people not having to take responsibility for their own actions? Wouldn't this be a great victory for the careless?
Anthony Sebok: No. I think it will set a precedent that will affect industries that produce products that customers need to be persuaded to use, in that what is hurting the tobacco company's defense is that they were not forthcoming about all the hazards associated with their product, namely, the connection with cancer and the addictiveness of the product.
They were not forthcoming with that information for a variety of reasons, on which I can only speculate. One of them, I believe, is that they knew their customers were ambivalent about how much they wanted to know about the products. If you want to know where the litigation goes next, you should look to products that share that feature... maybe alcohol; maybe foods in which there are some health risks associated with their consumption. And then, you have to assume that there will be evidence of fraud and misrepresentation discovered somewhere within that industry's files. On the other hand, there is a very different lesson that could be drawn from this litigation, which has nothing to do with consumer's carelessness, but has a lot to do with the power of class action suits.
One question we might want to ask is: Does this litigation teach us that if a group of lawyers can find an activity or a product which is connected in the public mind with a widespread harm, will it be profitable for those lawyers to bring such suits, knowing that ultimately the suits will be settled and never tried. That might be connected with products like tobacco where the consumer has some ambivalence, but it may be connected with products where there is simply widespread distribution, and some evidence of harm, such as pharmaceuticals or lead paint. This is an illustration of the incredible power of class actions to drive settlements without trials.
Question from Mango: Doesn't corporate America -- and Americans, in general -- need to be worried about the increase in anti-capitalism judicial activity of the Clinton/Gore administration against the tobacco companies, Microsoft, et cetera?
Anthony Sebok: I really can't comment on the Microsoft case. I do think Americans should not necessarily connect the tobacco litigation with any specific policy of the current administration. Certainly, this administration has indicated a greater sympathy toward trial lawyers than the Republican Party would have. However, the rules under which this litigation is being conducted are not extraordinary. They are in the end garden-variety state tort law. The real question is whether or not both Republicans and Democrats have decided to let the tort law serve as a substitute for regulation.
In other countries, the question of whether or not tobacco companies should pass on the cost of smoking to smokers -- which is what will happen with these settlements -- is decided in parliament, and it's called a tax. In our country, it's decided in a courtroom, and called a verdict, or decided in a boardroom, and called a settlement. In the end, what occurs is the same. The cost of a dangerous activity is distributed broadly. When it's done by government, there is a possibility of a public debate. When it happens in boardrooms, the only discussion is in chat rooms like this.
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