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Should Florida help Big Tobacco?

A panel recommends ways for the state to ensure that tobacco companies don't go bankrupt.

By JO BECKER and SCOTT BARANCIK

© St. Petersburg Times, published April 20, 2000


TALLAHASSEE -- Florida should follow the lead of other states and take steps to protect tobacco companies from a potentially crippling class action lawsuit brought on behalf of sick Florida smokers, a special panel recommended Wednesday.

The panel's recommendations to the full Senate included setting a cap on the amount tobacco companies and other class action defendants must post in a bond in order to pursue an appeal. Instead of having to put aside the entire amount of a punitive damage award, each defendant would have to post bonds of up to $100-million or 10 percent of their net worth, whichever is less.

Lawmakers are concerned that the Miami class action lawsuit could jeopardize the state's own settlement with the four largest tobacco companies, worth $17.4-billion during the next 30 years.

A jury earlier this month awarded $12.7-million in compensatory damages to three representative smokers and is scheduled on May 15 to begin the next phase of the trial -- awarding punitive damages for as many as 500,000 Floridians.

The fear is that the award could near $300-billion, potentially bankrupting tobacco companies and stopping payments to the state.

Current law allows a judge to force a company to post a bond of up to 120 percent of the punitive damage award. The bond ensures that plaintiffs will get paid if they prevail.

Georgia, Kentucky, Virginia and North Carolina have all capped the amount that tobacco companies must post in order to appeal awards for damages. Like Florida, Kentucky set a $100-million cap. The rest set $25-million caps.

But the panel recommended that Florida go one step further to protect the state's interest. It proposed a wholesale tax on cigarettes, to be paid by companies that are not part of Florida's settlement or companies that are a part of the settlement but fail to make their scheduled payments.

The idea is to keep tobacco companies from filing for bankruptcy protection as a way to get out of paying the state. But with House Speaker John Thrasher and Gov. Jeb Bush both opposing the plan, it is unlikely to go far.

The House and Bush are instead pursuing an option that would allow the state to sell off a portion of the state's future tobacco revenues at a discount to investors. The investors would assume the risk that the tobacco companies would continue to make payments. But experts said the deal will cost the state more than $800-million.

Bush spokeswoman Elizabeth Hirst did not comment on the specifics of the Senate proposal. But she said the governor is pleased that lawmakers are taking the state's risk seriously.

Stanley Rosenblatt, the attorney who represents the sick Florida smokers, called the plan "staggering and utterly disgraceful" in a letter to Senate President Toni Jennings.

Anti-smoking groups also attacked the plan.

"I find it interesting that lawmakers spent hours and hours looking at ways to protect the tobacco industry, but spent no time at all studying ways to protect kids from the dangers of smoking," said Brian Gilpin, a spokesman for the American Heart Association.

The Senate panel also proposed a constitutional amendment to prevent future lawmakers from dipping willy-nilly into the principal of the money the state receives from tobacco. Interest from early installments is used to pay for health programs for the disabled, the elderly and children.

Wednesday's news pleased both the industry and Wall Street.

"We think it's good not just for our business but for any business that may find themselves in the position of being sued," said Peggy Roberts, spokesperson for Philip Morris Companies Inc.

Stock market observers said the proposal is good news for tobacco companies.

"I think tobacco stocks will be up modestly," said David J. Adelman, an analyst with Morgan Stanley Dean Witter."This doesn't eliminate the risk, but it would be helpful."

"The market's going to remain skeptical until anything's enacted," he added.

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