Gary Black: Florida Ruling Has Broad Implications -- Widdick, Engle, Washington. Outperforms MO, RN, UST


Gary Black (212) 756-4197
Jon Rooney (212) 756-4504

June 23, 1998

HIGHLIGHTS

  1. Yesterday's Florida appellate court ruling reversing the 1996 Carter verdict suggests that Wilner's recent $1.0 million Widdick verdict could also be overturned by the same appellate court. Two of the evidentiary errors cited in yesterday's ruling appear to have been repeated in Widdick (e.g., allowing B&W documents in against ATC, and privileged Yeoman memo in under crime-fraud exception).
  2. Ruling puts Florida judges -- particularly Judge Kaye, who will preside over Engle class action trial that begins July 6th -- on notice that there are not a set of courtroom practices to be applied against the tobacco industry, and another set of rules for all other industries. This ruling should also put a damper on plaintiff attorneys’ zeal to try the other 400 or so claims in Florida (total U.S claims outstanding 800). This ruling came from Florida’s 1st Circuit (North Florida); Engle is in Florida’s Third Circuit (Miami)
  3. We believe Washington will shrug off yesterday's Carter ruling, as it did the Widdick verdict. However, this ruling, combined with the expectation that the same fate may await Widdick verdict (appeal 6-12 months) should give the industry a big psychological boost in its efforts to bring about a new national settlement, since it allows the industry to present itself as less desperate for a deal.
  4. We expect tobacco stocks to move higher as investors again reduce bankruptcy discounts to reflect the restored faith that state courts will do the right thing, and the new fallback position that adverse verdicts -- rare to begin with -- can be successfully challenged. This should alleviate fears surrounding the upcoming Engle trial, where many investors expect the industry to lose at least the first round.
  5. Investors continue to ignore the very positive developments unfolding in Washington. We believe Clinton will throw his weight behind industry legal protections to get a comprehensive deal, rather than use the defeat of the McCain bill as a political issue. This would give political cover to Republicans reluctant to embrace the Hatch bill, which has protections similar to the June 20 accord.
  6. We reiterate outperform ratings on MO, RN, UST. Anxiety about Engle trial and optimism about Hatch bill remain two key factors.

DETAILS

Yesterday, in a unanimous opinion, a panel of three judges from Florida’s First District Court of Appeals (North Florida), including the court’s chief judge, reversed the $750,000 Carter verdict rendered in August 1996. The specific points used by the court were as follows:

  • Statute of limitations. The ruling’s main provision, which effectively ends Carter’s claim, was that Florida’s four year statute of limitations had expired. The court said the statute began running between January 29 and February 4, 1991, when Grady Carter stopped smoking after coughing up blood, and was told of an abnormality on his lung. Carter had argued that the statue started to run on February 14, 1991 when he was first told by his doctor that he had lung cancer. Carter filed his claim on February 10, 1995.
  • Evidence from an unplead claim. The panel ruled that the trial court erred in allowing in as evidence internal documents dating back to 1963 from B&W, when Carter’s claims involved American Tobacco -- which was not acquired by B&W until some 30 years later. While Carter suggested that B&W’s knowledge during the 1960s went to "state of the art" -- what one company knew, others should have known -- the appellate panel disagreed. This will likewise be a problem for Wilner when the court reviews the Widdick verdict.
  • Preemption. The appeals court found that Dr. Feingold’s testimony about a proposed package insert warning of smoking’s dangers violated the federal preemption doctrine spelled out in the 1992 U.S. Supreme Court Cipollone ruling that no additional warnings -- other than what is on the package or in the company’s advertising and promotion materials -- is necessary. Wilner did not repeat this mistake in Widdick -- although he did insinuate in closing that a skull and crossbones would have made for a more effective warning.
  • Attorney-client privilege. This panel said that the trial court should not have allowed in as evidence the 1963 B&W Yeoman memo, which the lower court said showed evidence of crime or fraud, and thus, was not protected by attorney-client privilege. The panel found "absolutely no evidence of criminal or fraudulent intent in the content of this memo." The Yeoman memo was in Widdick.


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