California Supreme Court Grants Review of $9 Million Punitive Award in Henley Case.

Business Editors

NEW YORK--(BUSINESS WIRE)--April 28, 2004

The California Supreme Court today agreed to review a lower appellate court's decision ordering Philip Morris USA to pay a smoker who contracted cancer $9 million in punitive damages in addition to $1.5 million in compensatory damages.

The Court, in granting the review, deferred further briefing and argument on the Henley case until it rules on at least one other appeal, the Simon case, currently pending. Both cases involve the application of the U.S. Supreme Court's decision last year in State Farm v. Campbell regarding punitive damages.

"Philip Morris USA looks forward to an opportunity to persuade the California Supreme Court as to why the Henley verdict should be reversed and the case sent back to San Francisco Superior Court for a new trial," said William S. Ohlemeyer, Philip Morris USA vice president and associate general counsel.

"The California Supreme Court's decision to grant review makes sense based on the legal principles outlined by the U.S. Supreme Court," said Ohlemeyer.

In 1999, a San Francisco jury awarded Patricia Henley $1.5 million in compensatory damages and an additional $50 million in punitive damages. The trial court subsequently reduced the punitive damage award to $25 million, an amount that initially was upheld by the California Court of Appeal.

In June 2003, the California Supreme Court vacated the Court of Appeal's decision, directing the intermediate court to reconsider whether the $25 million punitive award in Henley was constitutionally excessive in light of the U.S. Supreme Court ruling in State Farm. As a result, the appellate court reduced the award to $9 million. In January 2004, Philip Morris USA then appealed the case to the California Supreme Court.

Ohlemeyer said that, "in light of State Farm, the punitive damages remain excessive. However, there are several other reasons why this verdict should be reversed and the case retried."

"As a result of recent California Supreme Court rulings, and consistent with the Court of Appeal's decision earlier this month in the Whiteley case granting Philip Morris USA a new trial, it is clear that the Henley jury was improperly allowed to consider conduct that occurred during a 10-year period when tobacco suits were not permitted in the state."

On April 7, 2004, the Court of Appeal in the Whiteley case reversed a $20 million punitive damage award returned by a San Francisco jury in March 2000. The Court of Appeal concluded that Philip Morris USA and R.J. Reynolds Tobacco Company were entitled to a new trial on account of the trial court's failure to properly instruct the jury that the tobacco companies could not be held liable for conduct occurring during the 10-year period.

"As the Court of Appeal in the Whiteley case correctly concluded, when a jury is improperly instructed on important points of law, the appropriate remedy is to order a new trial. The trial court in this case committed the same error in allowing the jury to hear evidence from the 10-year immunity period," Ohlemeyer added.

Philip Morris USA will also contend that the punitive damage award in Henley - even as reduced - runs afoul of the constitutional principles set forth in State Farm.

In particular, the U.S. Supreme Court's State Farm decision establishes that, in cases with substantial compensatory damages, punitive awards should generally not exceed the amount of compensatory damages. In the Henley case, the punitive damages as reduced by the appellate court are six times greater than the substantial $1.5 million in compensatory damages awarded.

In addition, Philip Morris USA's position is that the punitive damages award in Henley failed to comply with other basic constitutional requirements set forth in the State Farm decision, including that punitive damages cannot be based on allegations of harm to persons other than the plaintiff, conduct that occurred outside of the state in which the case was tried, or a defendant's wealth.

"We remain optimistic that the punitive damage award in Henley will ultimately be set aside and that the appellate courts will provide appropriate guidance to the trial courts to ensure all parties receive a fair trial in this and future cases," Ohlemeyer said.