California Appellate Court Reaffirms Henley Verdict: Philip Morris USA Will Appeal; Decision, However, Has No Precedential Value.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 20, 2003

Philip Morris USA will ask the California Supreme Court to review yesterday's Henley decision by the California Court of Appeals. In its ruling, which was made available today, the appellate court reaffirmed its earlier decision approving a San Francisco jury's 1999 verdict and $26.5 million judgment in favor of a smoker, Patricia Henley.

The appellate court designated its 55-page opinion "not for publication." Under California law, that means that the opinion has no precedential value and cannot be relied on - or even cited - in other cases.

Last October, the state Supreme Court, after handing down a pair of landmark decisions addressing how state product liability laws should be applied in cases involving tobacco, ordered the Court of Appeals to vacate and reconsider its earlier decision upholding the Henley award. Specifically, the California Supreme Court asked the appellate court to consider the impact of those two decisions - known as Myers and Naegele - which held that a 1998 statute repealing an earlier state law was not intended to create liability for conduct that occurred during the ten-year period from 1988-1997 that the statute was on the books.

Instead of reconsidering the merits of its prior decision, the Court of Appeals rejected on procedural grounds Philip Morris' arguments based on the new legal precedents.

"The appellate court's refusal to apply these new cases to Philip Morris' appeal ignores the Supreme Court's decision," said William S. Ohlemeyer, Vice President and Associate General Counsel, Philip Morris USA. "Surely the Supreme Court expected more from the appellate court in this case."

"We are hopeful that the California Supreme Court will recognize and correct the appellate court's total failure to apply the new law," Ohlemeyer added.

Philip Morris USA had argued that Naegele and Myers required the appellate court to grant the company a new trial because the cases made clear that the trial court had improperly denied all claims of immunity and had expressly allowed the jury to hold the Company liable for conduct during the ten-year immunity period.

In its arguments before the trial court, Philip Morris had argued that the statute was intended to prevent product liability claims based on all conduct occurring prior to the statute's repeal in 1998 -- including, by definition, the ten-year period.

Yesterday's appellate court decision refused to consider Philip Morris' argument that the application of Naegele and Myers required a new trial. Instead, the court illogically concluded that Philip Morris could not seek review of the immunity period issues because at trial it had sought a broader ruling that encompassed, but was not limited strictly to, the ten-year immunity period that the Supreme Court later endorsed in Naegele and Myers.

"It defies law, logic and fairness to say that Philip Morris USA should have known during the Henley trial exactly how the Supreme Court would rule on two separate cases three years after the trial," said Ohlemeyer.

"No one involved in the Henley case foresaw or predicted how the Supreme Court would rule in the Naegele and Myers appeals - not the trial court, not the plaintiff's lawyer and certainly not Philip Morris. We believe the Supreme Court would agree that the law does not allow a party to be punished because it did not predict the unpredictable," Ohlemeyer added.

"Yesterday's decision by the appellate court improperly avoids the central issue that the Supreme Court asked it to consider - whether the Naegele and Myers decisions require the retrial of the Henley case. We believe the answer is clearly yes," he said.

During the Henley trial, the plaintiff was permitted to present evidence and argue that Philip Morris USA should not only be held liable, but also punished based on evidence and conduct that occurred during the ten-year immunity period - evidence and conduct the Supreme Court now says cannot be considered for such purposes.

"We hope the California Supreme Court will recognize the unfairness of the Court of Appeals' decision and send the case back to the trial court for a new trial, this time before a jury that will be permitted to consider only legally appropriate evidence," Ohlemeyer said.