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R.J. Reynolds hit with $23.6B in damages

  • Reynolds American's (NYSE:RAI) subsidiary, R.J. Reynolds, has been slammed with $23.6B in punitive damages and $16.8M in compensatory damages from a lawsuit filed by the widow of a longtime smoker who died of lung cancer.
  • The lawsuit was filed six years ago after a Florida Supreme Court ruling stated that smokers and their families need only prove that addiction and smoking caused their illnesses or deaths to be eligible for damage payments.
  • The record ruling was re-approved last year, making it easier for sick smokers and their survivors to sue tobacco companies, and triggered thousands of new court cases.
  • R.J. Reynolds VP and assistant general counsel J. Jeffery Raborn intends to fight the verdict, calling it grossly excessive and unconstitutional. "This verdict goes far beyond the realm of reasonableness and fairness, and is completely inconsistent with the evidence presented," says Raborn. "We plan to file post-trial motions with the trial court promptly, and are confident that the court will follow the law and not allow this runaway verdict to stand."
Comments (34)
  • DrP79
    , contributor
    Comments (1401) | Send Message
     
    more than 1,000 x the actual damages is excessive
    20 Jul, 10:00 AM Reply Like
  • frrizzo380
    , contributor
    Comments (803) | Send Message
     
    Does this mean the LO buyout is off the table?
    21 Jul, 09:22 AM Reply Like
  • Charles Moscoe
    , contributor
    Comments (1625) | Send Message
     
    Can't say I feel bad for RJ.
    20 Jul, 10:17 AM Reply Like
  • DrP79
    , contributor
    Comments (1401) | Send Message
     
    it is an abuse of the legal system and that affects us all
    20 Jul, 10:22 AM Reply Like
  • Charles Moscoe
    , contributor
    Comments (1625) | Send Message
     
    Makes me smile. RJ has more than abused enough people.
    20 Jul, 10:31 AM Reply Like
  • Brad Castro
    , contributor
    Comments (1351) | Send Message
     
    Well, technically, it doesn't affect people who don't smoke and it doesn't affect people who don't invest in Big Tobacco.

     

    Tobacco has historically been a tremendous investment and easy money - but the backdrop of litigation has always been the primary risk. And it's always been a known risk as well so I hope investors don't express too much outrage here.

     

    I seriously doubt the judgment will stand anyway.
    20 Jul, 10:37 AM Reply Like
  • DrP79
    , contributor
    Comments (1401) | Send Message
     
    folks better check their mutual funds and retirement accounts

     

    then note how much their tax revenues are supported by cigarette money. Three guesses who gets to make up the difference
    20 Jul, 10:40 AM Reply Like
  • Brad Castro
    , contributor
    Comments (1351) | Send Message
     
    Not to be too crass about it, but if you own mutual funds, you should already be used to mediocre results. Like the litigation risk with tobacco, underperformance and mutual funds go hand in hand.

     

    Re: your other point, are you saying that smoking actually ADDS economic value to society?
    20 Jul, 10:58 AM Reply Like
  • DrP79
    , contributor
    Comments (1401) | Send Message
     
    the abuse of the court system certainly SUBTRACTS form economic value to society
    20 Jul, 11:01 AM Reply Like
  • Charles Moscoe
    , contributor
    Comments (1625) | Send Message
     
    That can be said about anything. Some call it abuse, some call it retribution, some call it justice.
    20 Jul, 11:19 AM Reply Like
  • DrP79
    , contributor
    Comments (1401) | Send Message
     
    some are idiots too, but it is still bad for society
    20 Jul, 11:25 AM Reply Like
  • Brad Castro
    , contributor
    Comments (1351) | Send Message
     
    IMO, the difference between "justice" and a "frivolous lawsuit" depends on whether you agree with the verdict.

     

    I don't judge investors in Big Tobacco - really.

     

    But I'm not interested in hearing them complain either - these kind of headlines (which is likely all it's going to end up being at the end of the day) have to be expected if you're going to be an owner of the stocks.
    20 Jul, 11:29 AM Reply Like
  • DrP79
    , contributor
    Comments (1401) | Send Message
     
    no the excessive nature of the award itself is the determination

     

    that should be true REGARDLESS of who the defendant is
    20 Jul, 11:43 AM Reply Like
  • Charles Moscoe
    , contributor
    Comments (1625) | Send Message
     
    What you consider excessive, a judge somewhere considered fair.
    20 Jul, 12:21 PM Reply Like
  • DrP79
    , contributor
    Comments (1401) | Send Message
     
    In response to judges and juries which award high punitive damages verdicts, the Supreme Court of the United States has made several decisions which limit awards of punitive damages through the due process of law clauses of the Fifth and Fourteenth Amendments to the United States Constitution.

     

    In a number of cases, the Court has indicated that a 4:1 ratio between punitive and compensatory damages is high enough to lead to a finding of constitutional impropriety, and that any ratio of 10:1 or higher is almost certainly unconstitutional.

     

    However, the Supreme Court carved out a notable exception to this rule of proportionality in the case of TXO Production Corp. v. Alliance Resources Corp., where it affirmed an award of $10 million in punitive damages, despite the compensatory damages being only $19,000, a punitive-to-compensatory ratio of more than 526 to 1.

     

    In this case, the Supreme Court affirmed that disproportionate punitive damages were allowed for especially egregious conduct (the trial court in the same case purportedly said "What could be more egregious than the vice president of a company saying, well, testifying and saying that he knew all along that this property belonged to Tug Fork?")

     

    http://bit.ly/1rBB5Qy
    20 Jul, 12:26 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8701) | Send Message
     
    Tort Reform?

     

    C'mon...

     

    http://bit.ly/Wwav0V
    20 Jul, 02:56 PM Reply Like
  • jumpnjoey77
    , contributor
    Comments (603) | Send Message
     
    And how many more will file a lawsuit now...
    20 Jul, 10:59 AM Reply Like
  • dadzukes
    , contributor
    Comment (1) | Send Message
     
    Can we sue the federal gov't for pushing a low fat diet for the last 50 years now that we know they were wrong and that fat in the diet is good for us?
    20 Jul, 12:09 PM Reply Like
  • WmHilger1
    , contributor
    Comments (1159) | Send Message
     
    WOW, talk about your runaway judicial system! This judgment is more than ridiculously excessive.

     

    If smokers want to smoke and alcohol drinkers want to drink, and others want to eat to excess, why should I not invest in companies that profit from it? I am not my brother's keeper!. And a multi-billion dollar award to the heirs of a smoker is totally uncalled for! He made the choice, despite numerous warnings in the media and on the packages. Nobody forced him to do it!!!
    20 Jul, 01:09 PM Reply Like
  • Brad Castro
    , contributor
    Comments (1351) | Send Message
     
    "If smokers want to smoke and alcohol drinkers want to drink, and others want to eat to excess, why should I not invest in companies that profit from it?"

     

    I get what you're saying, but do you know any smokers who actually WANT to smoke? I only know smokers who can't stop, even though they know their longevity and quality of life are both suffering for it.

     

    (lol - in contrast, my *moderate* rum consumption is a conscious and personally rewarding choice.)

     

    In fact, I would argue that the litigation risk has been one of the reasons why tobacco has been one of the best - if not the best - investment over the last 40 years or so. You've got a high cash flow business trading at perpetual low valuations to that cash flow which result in the ability to reinvest/compound high dividends into more of the same.

     

    Arguably, tobacco investors should actually applaud these kind of headline situations (seriously, from the statement they released, it sounds like even the litigants aren't even expecting to see any of the money) because this is what keeps the valuations low.
    20 Jul, 01:37 PM Reply Like
  • WmHilger1
    , contributor
    Comments (1159) | Send Message
     
    Brad, it IS possible to quit smoking. It just takes a bit of self-control! I, and probably most people, know some who have, also several who have quit drinking, or over-eating. This man obviously didn't have much self-control and/or ignored the warnings because he wanted to continue. I have ZERO sympathy for him and certainly not for his avaricious wife who couldn't/didn't stop him and now wants to profit ENORMOUSLY from it.

     

    I am 83 years old and in great shape because I knew enough to never start smoking, quit drinking when I realized what it was doing to me, and never was an over-eater!
    20 Jul, 03:47 PM Reply Like
  • Brad Castro
    , contributor
    Comments (1351) | Send Message
     
    We agree more than we disagree re: personal responsibility, but I do have sympathy for smokers. I agree that it is possible to quit smoking, but it's probably one of the most difficult things in the world to actually do.

     

    (I'm not sure it's just about will power either - the most successful ex-smokers, it seems, are the ones that involve science and psychology into the process - I would be curious to hear their perspective if there are any following this conversation.)

     

    Again, the product kills - and I'm not making a value judgment here - but just pointing out that if you're going to be an investor in the industry, you have to expect this kind of pushback.

     

    The real negative here for RAI and other tobacco companies IMHO isn't the symbolic punitive judgment as much as it once again puts the spotlight back on the effects of smoking.
    20 Jul, 04:08 PM Reply Like
  • arthur_bishop1972
    , contributor
    Comments (2428) | Send Message
     
    <I get what you're saying, but do you know any smokers who actually WANT to smoke? I only know smokers who can't stop, even though they know their longevity and quality of life are both suffering for it.>

     

    How many (now) smokers WANTED to try/start smoking??? C'mon, who in America (and most of the world for that matter) can say they have NO KNOWLEDGE that smoking is bad for you??? Maybe the under 10 y.o. set, but...c'mon.
    21 Jul, 02:25 AM Reply Like
  • Brad Castro
    , contributor
    Comments (1351) | Send Message
     
    Sounds like you're not a big believer in the effectiveness of marketing.

     

    You have a background in psychology, Arthur, so you know that simple rationality is not how we humans go about making decisions (despite what we like to tell ourselves).

     

    Again, I'm not saying anyone shouldn't invest in tobacco companies - I'm saying you shouldn't be shocked when these kind of symbolic judgments hit the headlines.

     

    The product is highly addictive and it kills. That's a fact no one disputes. You legalize crack, you're going to have the same issues - more people will die or otherwise ruin their lives (although much more quickly) and there will be lawsuits and big symbolic judgments.
    21 Jul, 09:10 AM Reply Like
  • arthur_bishop1972
    , contributor
    Comments (2428) | Send Message
     
    Brad,

     

    Yes, i do know all those things.

     

    Actually, i was just saying that people who smoke wanted to at the beginning-they werent forced to-whether they admit it or not.
    21 Jul, 04:49 PM Reply Like
  • Roady26.2
    , contributor
    Comments (192) | Send Message
     
    Yeah better sue now and get that money before RAI uses the 27 billion to buy LO. This is pretty ridiculous
    20 Jul, 02:23 PM Reply Like
  • glf4mny
    , contributor
    Comments (312) | Send Message
     
    Most likely, the verdict came out of State court not Federal but the article doesn't mention that. There is a difference, particularly in the amount of compensatory and punitive damages. A Federal court judge would have cut the award to conform to national standards. A State court judge on the other hand would let the jury award stand in order to make the plaintiff's attorney look good since they are probably old cronies (maybe even prior law partners) and it assures more business for both of them. I don't know what the damages limitations are under current Florida law, but in all probability, the appellate court will vacate the trial court's verdict and remand the case back the trial court for correction. I can't imagine anyone, liberal or conservative, smiling about this type of civil damage award. At best, it represents an abuse of discretion by a judge in our judicial system.
    20 Jul, 02:47 PM Reply Like
  • sinned1951
    , contributor
    Comment (1) | Send Message
     
    I grew up in the 1950's and I still remember my grandmother, who only had a 4th grade education, telling us not to smoke; "it's bad for you." Capitalism will provide anything we ask for.
    20 Jul, 03:43 PM Reply Like
  • dkostek
    , contributor
    Comments (114) | Send Message
     
    How are they supposed to raise money to pay such damages; by selling more cigarettes?
    20 Jul, 03:55 PM Reply Like
  • psychological-dividends
    , contributor
    Comments (792) | Send Message
     
    This is insane. I can't believe people convince others they are so helpless they need huge settlements to be made "whole". No one's putting a gun to your head.
    20 Jul, 05:13 PM Reply Like
  • psychological-dividends
    , contributor
    Comments (792) | Send Message
     
    Every fat boy who pigged out on McDonalds should be awarded 100 billion!

     

    Because some jury said so!
    21 Jul, 12:05 PM Reply Like
  • kata
    , contributor
    Comments (603) | Send Message
     
    And if an addict for a painkiller sued a pharmaceutical company that made the drug that caused him to become addicted, could he get 23B as well?
    21 Jul, 12:53 AM Reply Like
  • Patent News
    , contributor
    Comments (1321) | Send Message
     
    judges do not award punitive damages, juries do!

     

    'no ones putting a gun to your head' it is has been proven that cigarettes are addictive and harmful. they make a defective product and must pay up for the damages caused, the actual amount is not set in stone. sorry shareholders but you got conned.
    21 Jul, 02:03 AM Reply Like
  • frrizzo380
    , contributor
    Comments (803) | Send Message
     
    RAI should pay a dollar a year for the next 23 billion years.
    21 Jul, 09:23 AM Reply Like
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