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States cap amounts of appeal bonds.

What happens when lawsuit damages of millions and even billions of dollars are awarded? Sometimes bankruptcy on the part of the defendant who wants to appeal the case and must post an "appeal bond" before proceeding.

That was nearly the case earlier this year when Philip Morris was ordered to post a bond of $12 billion before it could appeal the decision in a class action lawsuit involving its advertising of "light" cigarettes. Company officials said paying the bond would bankrupt the company and force it to default on its share of the $206 billion promised to states over 25 years under the 1998 tobacco settlement.

Illinois Judge Nicholas Byron had awarded $10.1 billion in a class-action lawsuit alleging the tobacco company misled smokers into believing "light" cigarettes were less harmful. The judge ruled that Philip Morris had to post a $12 billion bond before it could appeal the judgment--equal to the amount of the award plus $2 billion in legal fees.

After the company informed states participating in the tobacco settlement that it would not be able to make its April payment, attorneys general from 33 states signed a friend-of-the court brief asking Byron to reduce the bond. Which he did to $6.8 billion.

Most states set appeal bonds of 100 percent of the judgment, plus costs

and interest. This keeps the winner of the suit from collecting the judgment during the appeals process. If a company can't afford a bond, it can appeal, but its assets can be taken by the plaintiff despite the appeal in progress.

To stem that potential loss, defendants can declare Chapter 11 bankruptcy, which carries an automatic stay on the obligation to pay.

Although 18 states have enacted limits on the size of appeal bonds in the last three years, Louisiana, Nevada, Oklahoma and West Virginia have specifically limited the size of appeal bonds that would affect companies that signed the master tobacco settlement.
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Title Annotation:On First Reading
Publication:State Legislatures
Article Type:Brief Article
Geographic Code:1USA
Date:Dec 1, 2003
Words:323
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