Philip Morris USA Seeks Reduction of $12 Billion Bond; Says Bond Impossible to Post and Violates Company's "Due Process Rights" Guaranteed by the Constitution

Company Also Petitions Separate Court; Asserts Illinois Has No Right to $3 Billion

Philip Morris USA today asked a Madison County state court to reduce the $12 billion bond required in order to appeal the $10.1 billion Price class action verdict (formerly known as the Miles case) and also petitioned another state court to halt any attempt by Illinois to collect $3 billion in punitive damages awarded to the state.

Philip Morris USA asked Madison County Circuit Court Judge Nicholas Byron to reduce the $12 billion bond to $1.2 billion, and no more than $1.5 billion, in order to allow its appeal to proceed in an orderly fashion.

“We are asking only to be given the opportunity guaranteed by the United States and Illinois constitutions to have our appeal heard without being forced to post a bankrupting bond. In order to accomplish that, it is imperative that the trial court lower the bond to an amount that the company can satisfy or, alternatively, extend the stay of execution pending appellate review,” said William S. Ohlemeyer, Philip Morris USA vice president and associate general counsel.

“This is a case where Judge Byron, at one point in the trial, observed he might have to flip a coin to decide the outcome. It’s clearly a case where the company deserves to have its appeal considered on the merits of the case.

“All we are seeking is the right guaranteed to any defendant who receives an adverse verdict to have that decision reviewed by appellate courts. Basic fairness, and the law, demands that we receive such an opportunity in this case,” Ohlemeyer said.

Posting a bond is necessary in order to prevent the plaintiffs from demanding payment of the $10.1 billion judgment issued March 21 by Judge Byron while it is being appealed.

Ohlemeyer said the bond reduction motion was filed under seal with the Court because the brief contains proprietary and competitively sensitive information. However, a summary of case law cited in support of the motion is attached to this release.

Under rules adopted by the Illinois Supreme Court, Judge Byron has the authority to reduce the amount of the bond that must be posted in order to stay execution of the judgment and allow the company to proceed with its appeal. The right to appeal an adverse verdict is guaranteed by the U.S. Constitution and the Illinois Constitution.

“Philip Morris USA is not the only one concerned about its constitutionally-guaranteed due process rights. Numerous other groups – including some of the nation’s most respected media – have questioned why the company should be required to post a potentially-bankrupting bond,” said Ohlemeyer.

In a related effort intended to reduce the amount of the bond, Philip Morris USA asked the Cook County Circuit Court to prevent the state from attempting to collect the $3 billion in punitive damages that Judge Byron directed be paid to the state.

“Our position is crystal clear and legally sound. The state of Illinois relinquished all claims to punitive damage awards when it entered into the Master Settlement Agreement with PM USA and other tobacco companies in 1998 to resolve its Attorney General’s lawsuit,” Ohlemeyer said.

“We are asking the Cook County Circuit Court, which has exclusive jurisdiction over such matters, to prevent the state from making any attempt to collect the punitive damages until this question is resolved,” he added.

Philip Morris USA also is continuing to encourage the state Legislature to pass a law capping the amount of the bond a defendant would be required to post in order to appeal a verdict. Thus far, the Legislature has declined to do so.

Ohlemeyer said that bonding sources believe that the largest surety bond PM USA may be able to obtain is in the amount of $1.2 billion, with the possibility of an additional $300 million, for a total surety bond of no more than $1.5 billion.

Having only determined specific damages for two class representatives, Ohlemeyer said the judgment cannot be considered final and even Judge Byron has acknowledged that the process of who will be entitled to damages is “complex” and cannot begin unless the judgment is affirmed on appeal.

Accordingly, PM USA said that it actually should only be required to post a bond of slightly more than $35,000, an amount that covers the damages awarded by Judge Byron to two class representatives, plus an additional 20 percent for interest and costs during an appeal.

If the Court refuses to reduce the $12 billion bond, Ohlemeyer said the company has asked that it be granted an additional 15 days stay after the Court’s final rulings on its post-trial motion in order “to pursue appellate relief on the bond issue free from the grave risk that immediate enforcement of the judgment in this case will force a bankruptcy.”

In its pleadings for Cook County court, the company asks that the “State of Illinois, and all those acting in concert with it, [be] hereby restrained and enjoined from enforcing any portion of the judgment in Price, including without limitation the punitive damages award of $3 billion made to it, until further Order of this Court.”

Ohlemeyer pointed out that “nothing in the Cook County request prevents the company from taking further legal action to have the $12 billion bond reduced by the trial or appellate courts or the verdict overturned. Those requests are part of a separate post-trial motion filed under seal today with the Madison County Circuit Court.”

Ohlemeyer said today’s motion does not address the merits of the lawsuit or the verdict and additional briefing challenging Judge Byron’s decision will be filed on April 21. “We believe this case was fatally flawed from the start when the trial Court decided that it should be tried as a class action. The resulting verdict ignored the law, facts and common sense.

“The Court awarded an outrageous amount of money to a group of smokers who claim no injury, smoked cigarettes that were always labeled with government health warnings and many of whom continue to purchase Marlboro Lights despite the claims in the case.

“We want to appeal the Court’s decision, as well as the class-certification order that preceded it, because both decisions are clearly wrong on the facts and the law,” Ohlemeyer said.

Ohlemeyer noted that federal and state courts have almost uniformly rejected class actions in cigarette cases. Since the landmark Castano decision in 1996, courts have rejected class actions in 27 separate decisions, while allowing only three cases to go to trial.

“The issues that the Madison County court attempted to decide are national in scope and governed by federal laws and regulations. It is not appropriate for a state judge to substitute his judgment on these issues for those of the Congress and the U.S. Federal Trade Commission,” he added.

In addition, the company expects to challenge Judge Byron’s ruling on a number of legal and factual grounds, including the fact that the Federal Cigarette Labeling and Advertising Act sets forth the precise warning that must be printed on each package of cigarettes sold in the United States, and in advertisements for those cigarettes. The Federal Trade Commission also regulates, and enforces, what may and may not be said in cigarette advertising.

Other courts, including the U.S. Supreme Court, have ruled that the federal labeling law prohibits states from requiring additional warnings, including those suggested by the plaintiffs in the Price (Miles) case.

“We believe that, once this case is reviewed by an appellate court, this verdict will be overturned because of the errors that occurred during trial,” Ohlemeyer said.

[Citations appended]

Philip Morris USA Asserts that a Reduction of Bond or Stay of Enforcement of Judgment is Necessary to Comply with Federal and State Constitutional Due Process Rights, and also to Comply with Federal and Illinois Case Law:

• A stay of enforcement based upon terms with which PM USA can comply is required by the due process clauses of the federal and state constitutions and the Illinois Constitution’s guarantee of the right to appeal a final judgment. [U.S. Const. amend. XIV; Ill. Const. art. I, § 2; Ill. Const. art. VI, § 6.]  PM-USA enjoys a right of appeal in connection with the judgment entered in this case, and the federal constitution prevents that right, once created, from being burdened to the extent that it becomes no more than a “meaningless ritual.”  See Texaco Inc. v. Pennzoil Co. 784 F.2d at 1154.
• Illinois, “[s]ections 5 and 7 of article VI of the constitution of 1870 and section 6 of article VI of the constitution of 1970 confer upon an aggrieved litigant a constitutional right to an appeal from all final judgments of the trial court.”  Hamilton Corp. v. Alexander, 53 Ill. 2d 175, 177, 290 N.E.2d 589, 590 (1972) (emphasis added) (citing Braden & Cohn, The Illinois Constitution, an Annotated and Comparative Analysis, at 346).  Therefore, under Illinois law, PM-USA possesses a substantive right to appellate review of the judgment in this case—a right that, as discussed below, may not be unduly burdened.
• Once a right to appeal has been created, the United States Constitution limits the ways in which that right may be abridged.  In short, the due process clause “impose[s] constitutional constraints on States when they choose to create appellate review.”  Smith v. Robbins, 528 U.S. 259, 270 (2000).  Having created a right to appeal, Illinois must “act in accord with the dictates of the Constitution—and in particular, in accord with the Due Process Clause”—so as to ensure that an appeal is not reduced to the status of a “meaningless ritual.”  Evitts v. Lucey, 469 U.S. 387, 393-94, 401 (1985).  Although a state-created right of appeal may, of course, be regulated by various procedural requirements, those “[p]rocedural limitations may not . . . irrationally or arbitrarily impede access to the courts.”  Carlson, Mandatory Supersedeas Bond Requirements – A Denial of Due Process Rights?, 39 Baylor L. Rev. 29, 31 (1987). 
• As recognized by the Second Circuit, the application of a bankrupting security requirement effectively “render[s] [the] right to appeal . . . an exercise in futility” and a “meaningless ritual . . . robbed of any effectiveness.”  Texaco, 784 F.2d at 1154; see also Lindsey v. Normet, 405 U.S. 56, 65 (1972) (otherwise valid security requirements might prove unconstitutional as “applied . . . in specific situations”).  Here, because the threatened “injury pending appeal” is “bankruptcy or liquidation, a reversal [on appeal] will not undo the injury, which cannot be measured in damages and would in no event be recoverable.”  Texaco, 784 F.2d at 1153.  “It is self-evident that an appeal would be futile if, by the time the appellate court considered [the] case, the appeal had by application of a bonding law been robbed of any effectiveness.”  Id. at 1154.
• Further, additional and entirely independent due process principles are implicated insofar as the judgment at issue includes a punitive damages component.  As a result of plaintiffs’ punitive award, PM-USA enjoys an independent right to appellate review arising under federal law.  Because punitive damages “pose an acute danger of arbitrary deprivations of property,” the United States Supreme Court has held that due process demands meaningful “judicial review” of punitive awards prior to a deprivation of property.  Honda Motor Co., Ltd. v. Oberg, 512 U.S. 415, 432 (1992).  Just as it would unduly burden PM-USA’s rights under state law, a refusal to stay enforcement would also place an undue burden on PM-USA’s constitutional right to judicial review of the punitive damages award.  See Armstrong v. Manzo 380 U.S. 545, 552 (1965) (due process requires that an opportunity to be heard be satisfied by a hearing conducted “at a meaningful time and in a meaningful manner”).  Given that the punitive damages award here presents a risk of bankruptcy, that award is inherently suspect under Illinois law and clearly warrants meaningful review.  See Hazelwood v. Illinois Central Gulf Railroad, 114 Ill. App. 3d at 713, 450 N.E.2d at 1207 (punitive damages “award which bankrupts the defendant is excessive”).

Illinois Rule and Case Law Allowing Discretionary Bond Reductions:

• Rule 305(b) reflects the fact that Illinois “[c]ourts have inherent power to grant a stay pending appeal, and whether to do so is a discretionary act.”  Stacke v. Bates, 138 Ill. 2d 295, 302, 562 N.E.2d 192, 195 (1990) (affirming a discretionary stay of enforcement concerning an obligation to pay money).  Such a stay, “suspends enforcement of the judgment, and is intended to preserve the status quo pending the appeal and to preserve the fruits of a meritorious appeal where they might otherwise be lost.”  Id.  Thus, Rule 305(b) provides this Court with the discretion to issue a stay of enforcement based upon the giving of an appeal bond in an amount that differs from that required to obtain an automatic stay under Rule 305(a).
• In Stacke, the Supreme Court concluded that a court has “a wide degree of latitude when exercising its discretion” under Rule 305(b).  Stacke, 138 Ill. 2d at 305, 562 N.E.2d at 196.  The court recognized that “[t]here are numerous different factors which may be relevant when the court makes its determination and, by necessity, these factors will vary depending on the facts of the case.”  Id.  
• This case presents the same three factors (and more) that were expressly held to justify the stay of enforcement at issue in Stacke: (1) “a stay is necessary to secure the fruits of the appeal in the event [PM-USA] is successful” (Stacke, 138 Ill. 2d at 305, 562 N.E.2d at 196); (2) there is very little “likelihood that the [plaintiffs] will suffer hardship” as a result of the stay (id., 138 Ill. 2d at 307, 562 N.E.2d at 197), and; (3) PM-USA presents a “substantial case” on the merits of its appeal (id., 138 Ill. 2d at 309, 562 N.E.2d at 198). 
• In discussing the showing necessary to demonstrate an adequate likelihood of success, the court in Stacke explained that a defendant is “not required to show a probability of success on the merits.”  Stacke, 138 Ill. 2d at 309, 562 N.E.2d at 198(emphasis added); see also id., 138 Ill. 2d at 304, 562 N.E.2d at 196 (concluding that a showing of “probable cause for reversing the judgment . . . is too restrictive a standard”). Rather, to warrant an exercise of discretion under Rule 305(b), a defendant need only “present a substantial case.”  Stacke, 138 Ill. 2d at 309, 562 N.E.2d at 198.  As the Fifth Circuit noted in Ruiz v. Estelle, 650 F.2d 555 (5th Cir. 1981), a decision cited favorably in Stacke (138 Ill. 2d at 309, 562 N.E.2d at 198), this requirement can be satisfied “even though [the court’s] own approach may be contrary to movant's view of the merits.” Ruiz, 650 F.2d at 565.  The likelihood-of-success element is amply satisfied here.
• The judgment in this case is difficult—if not impossible—to reconcile with the decision of the Supreme Court of Illinois in Oliveira v. Amoco Oil Co., 201 Ill. 2d 134, 776 N.E.2d 151 (Ill. 2002).  In Oliviera—a decision that was rendered subsequent to this Court’s order of class certification—the Supreme Court held that actual deception and causation (i.e., proximate cause) are elements of a private action under the ICFA.  Oliveira, 201 Ill. 2d at 139-40, 776 N.E.2d at 155 (holding that “section 10a(a) [of the ICFA] imposes an obligation upon a private individual seeking actual damages under the Act to ‘demonstrate that the fraud complained of proximately caused’ those damages in order to recover for his injury”) (quoting Zekman v. Direct American Marketers, Inc., 182 Ill. 2d 359, 373, 695 N.E.2d 853 (1998)).  Yet the trial of this matter did not purport to resolve the issues of deception and causation on behalf of more than a few individuals before PM-USA was found liable to all members of the class.  And even as to those few individuals, there were critical failures of proof.  As evidenced by PM-USA’s motion for judgment as a matter of law, PM-USA presents a “substantial case” that the manner in which plaintiffs established liability to the class was improper under Illinois law.

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