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It’s the quiet “tort reform.” It doesn’t pack the decibel power of other reform initiatives, like medical negligence, or class actions or the asbestos fund. But softly, unobtrusively, it has swept through 25 states in the last four years. At least a dozen more are considering action. It is state laws that cap the bond that must be posted to appeal a civil judgment. The issue briefly commanded center stage last March, after Philip Morris was socked with a $10.1 billion verdict in a “light” cigarette consumer fraud class action. The Illinois judge who decided the case set the appeal bond at $12 billion, including projected costs and interest. The tobacco company issued a warning to the state attorneys general with whom it had negotiated the $246 billion Master Settlement Agreement. Owing to the size of the bond, it might not be able to pay the $2.5 billion installment due to the states the following month, Philip Morris announced. It invited the AGs to join in lobbying the Illinois Legislature to pass “reasonable bond cap legislation,” which many AGs did, but the Legislature didn’t comply. Still, it was quite a year for bond cap proponents. Ten states passed laws last year, and South Dakota adopted a judicial rule, joining Mississippi as the two states that have capped appeal bonds through courts rather than legislatures. At least seven states are contemplating joining them, according to Kristin Armshaw, director of the American Legislative Exchange Council’s Civil Justice Task Force. Armshaw, whose organization brings together legislators and members from the private sector, said the issue has been a priority since 1999, when the council launched its “Disorder in the Court” project. Legislation is also pending in five states, Armshaw said, and another five don’t require it, since they don’t require appeal bonds. “This was such a necessity,” she said of the reform. “The right to appeal is fundamental. Most legislators agree, and the public does as well. On top of that, there’s a large financial stake,” she said, referring to the Master Settlement Agreement. “It’s a good combination.” Eyes on Illinois The right to appeal figured prominently in the highly publicized aftermath of Price v. Philip Morris, No. 00-L-112 (Madison Co., Ill., Cir. Ct.). And that battle is far from over. Immediately after the bond was set, editorialists at the Wall Street Journal, the Chicago Tribune and the St. Louis Post-Dispatch, among others, attacked it as unfair. The New York Times called it “the kind of ruling that erodes the credibility of our legal system.” Not everyone was sympathetic. Plaintiffs’ lawyer Michael Piuze of the Law Offices of Michael Piuze in Los Angeles was scathing then and, if anything, was even more so in a recent interview. “Appeal bond caps are a direct result of tobacco litigation and nothing else,” said the lawyer who won two multibillion-dollar tobacco verdicts in California. “There is no other industry in this country whose behavior is so disgusting that it needs appeal bond caps.” The Illinois trial judge was persuaded to slash the bond to $6.8 billion. But a state appellate court overruled him, reinstating his initial order until the Illinois Supreme Court stepped in and reversed the appellate court. The state Supreme Court also agreed to hear the appeal. Predating this judicial pingpong, the Supreme Court’s rules committee had already been working on a proposal to change the rule. It began in August 2002, when lawyers representing the tobacco industry first raised the issue. The rules committee designated a subcommittee to look into it, and they decided to draft their own proposal, which they began working on that November. Then, after the Price dustup, the industry came back with another proposal. Committee member Hugh Griffin, who heads the appellate practice group at Chicago’s Lord, Bissell & Brook, took the lead drafting the rule, he said. The primary aim was to allow judges discretion in setting appeal bonds. At the trial court level, judges appeared to have none, he explained. The problem with the industry proposal was twofold, he continued. It struck Griffin and his colleagues as too narrow, since it applied only to punitive damages and class actions. And it locked in hard caps. Bond would be the lower of: the judgment plus interest and costs; 10% of the debtor’s net worth; or $100,000,000. The committee was particularly leery of caps, knowing that in 1997 the Illinois Supreme Court had struck down a tort reform law largely because it imposed caps on damages for noneconomic injuries. Best v. Taylor Machine Works, 179 Ill. 2d 367. And the committee favored a rule that would apply equally to all, not just to one industry facing a billion-dollar bond. Late last year, the committee finally presented the court with its recommendation. The court’s response was to request a public hearing at which both proposals would be aired. The hearing was held in Chicago on Jan. 26. Fifteen individuals spoke, and only one was a lawyer representing the tobacco industry. That was no coincidence. Mark Berlind, the legislative counsel for Altria Group (Philip Morris’ parent company) was not in Chicago, but he tracks this issue for his company. He freely acknowledges that the states’ interest in bond appeals is largely driven by their financial interest in the Master Settlement Agreement. Many states have invested or securitized their future tobacco revenue-money they will have to replace if tobacco companies go bust. But he also insists that there’s an important fairness issue involved, and that a broad coalition of business groups-not just tobacco-supports caps. And, indeed, among the speakers in Chicago were in-house lawyers from Sears, Roebuck and Co.; Caterpillar Inc.; and International Truck and Engine Corp. Predictably, most of the speakers were representatives of bar associations. No one suggested, as Piuze does, that tobacco companies deserve to be bankrupted. The only direct criticism of the industry came from the last speaker, a professor of public health nursing at Loyola University, who spoke on behalf of the American Lung Association and the Campaign for Tobacco Free Kids. The lawyer who represented the big tobacco companies, Keith Teel of Washington’s Covington & Burling, did acknowledge the industry’s involvement in the reform campaign. “I’ll tell you straightly,” Teel told the committee, “we’re behind this to some degree. We feel that because of the MSA, we need something like this in every state. If we lose a judgment in-you pick a state-it could have an effect on our ability to meet our obligations to every state.” ‘Engle’ spurred action Though the Price case has garnered all the attention, it was actually an earlier case that prompted the initiative, Teel said. Last May, Florida’s 3d District Court of Appeal reversed a $145 billion punitive verdict in a class action against the big tobacco companies. Liggett Group v. Engle, No. 3D00-3400. The companies were only able to appeal, Teel said, because a few weeks before the verdict, they persuaded the Florida Legislature to cap bonds at $100,000,000. If it weren’t for that, he said, they might not have been able to secure the reversal. The result would have been unjust, and it would have ended payments to the states, he added. Later in the session, Ann Spillane responded. Spillane is Illinois Attorney General Lisa Madigan’s chief of staff. Though 36 state attorneys general joined to ask the judge in the Price case to reduce the bond, Madigan was not one of them. “[M]uch was said by Mr. Teel about the Master Settlement Agreement . . . ” Spillane said. “ [W]hile . . . it’s very important to the state of Illinois . . . it was never designed to be a shield that the tobacco companies could use in perpetuity to protect them from suits by plaintiffs who may have been injured in other ways.” Her office supported the committee’s approach, she said. The only speaker who rejected both proposals was Michael Schostok, president of the Illinois Trial Lawyers Association (and a partner at Waukegan, Ill.’s, Salvi, Schostok & Pritchard). The old rule has worked well, he said, and they were loath to change it as a result of one case. Even the committee’s proposal “goes way too far,” he said. He worried that judges might apply discretion to “every run-of-the-mill case.” He also expressed concern that neither proposal adequately protects plaintiffs from the possibility that the defendant will dissipate assets after a limited bond is secured. Particularly under the tobacco industry’s proposal, he noted, the burden would fall on plaintiffs to prove this is happening before the court is directed to stop it. Steven Pflaum, representing the Chicago Bar Association, suggested that a new rule should clarify whether reviewing courts have authority under the rule to adjust the bond. He also criticized the tobacco proposal for allowing a court to issue an order preventing dissipation of assets only after it’s already occurred. Arguing for the tobacco proposal, Patrick Lysaught echoed several speakers when he pleaded for predictability. “If you don’t know what the potential bonding requirements are on appeal,” said Lysaught, a board member of the Defense Research Institute, “you can’t even make the fundamental decision to take the case to trial.” A partner at Kansas City, Mo.’s Baker Sterchi Cowden & Rice, Lysaught said in an interview that he hasn’t represented tobacco companies. The issue first hit his radar screen five or six years ago, when he represented a pharmaceutical company in a nationwide class action. He favors hard caps, but he can live with the alternative proposal. “It’s better than nothing at all,” he said. Lord Bissell’s Griffin expects the rules committee to forward its revised recommendation by the end of this month. Hechler’s e-mail address is [email protected]

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