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Three weeks after an appellate court tossed out the Florida smokers’ class action, many observers are wondering what will happen to $710 million that tobacco companies paid as part of a deal with plaintiffs’ attorneys. Last month, the 3rd District Court of Appeal issued a stunning decision reversing the record $145 billion punitive damages verdict in Miami-Dade Circuit Court against the big tobacco companies. The ruling also decertified the plaintiff class of Florida smokers who allegedly were the victims of negligence, fraud and infliction of emotional distress. The $710 million agreement, which is separate from the overturned verdict, was struck by three of the defendant tobacco companies as part of a deal with class attorneys Stanley and Susan Rosenblatt of Miami. In May 2001, roughly one year after they won the gigantic judgment, the Rosenblatts cut a deal in which they agreed not to challenge a new state law, passed at the behest of the cigarette makers, capping appeals bonds at $100 million. In return, three defendants — Philip Morris, Lorillard and the Liggett Group — placed $710 million in an escrow account to be distributed to the class members after all appeals were exhausted in the case. When the deal was signed, it was expected that the money would be distributed no matter how the appeal turned out. But in light of the 3rd DCA ruling last month in Liggett Group Inc. v. Engle, there are many novel questions about what will happen to the hundreds of millions of dollars sitting in a New York escrow account. The 68-page opinion by the 3rd DCA provides no specific guidance. The May 2001 agreement says nothing about what would happen if the class were decertified. Under terms of the deal, if the tobacco companies succeeded in having the $145 billion verdict reduced to zero, they still would be obligated to pay out the $710 million to the class. The vexing question: How do you pay a class that does not exist? And how do you do it with a contract that says nothing about decertification? Of course, much depends on whether the 3rd DCA decides to rehear the case en banc, whether the Florida Supreme Court hears an appeal, or whether the case returns to the trial court. But, as things stand now, the fate of the $710 million is unclear. “What happens if the 3rd DCA opinion is eventually upheld nobody has the slightest idea,” said Richard A. Daynard, director of the Tobacco Liability Project at Northeastern University in Boston, who has followed the litigation closely over the years and who supports litigation against the tobacco companies. There are still more questions. Who were the members of the class in the first place? Will the money now be refunded to the defendants? And how much of the pot, if any, goes to the Rosenblatts as legal fees and costs? Lawyers on both sides of the case predict a fierce legal fight over the $710 million. Some attorneys for the plaintiffs argue that there is no question legally that the money should be divided among members of the plaintiff class — whoever they are. While the Rosenblatts have often said the class consisted of 700,000 Florida smokers, the members have never clearly been counted and identified. “The class keeps the money no matter what happens in the appeal — win, lose or draw,” said Mark Gottlieb, an attorney with the Tobacco Liability Project at Northeastern University, who has seen the contract. Even with decertification, he claims the court can create a procedure to distribute the funds. But other attorneys, including some representing individual class members, acknowledge that the issues surrounding the $710 million are murky. “The case has actually been dismissed. So what jurisdiction is there by the court? Or do the settling parties have a responsibility to administer the money,” said Philip Gerson, a partner at Gerson & Davis in Miami who represented the late John Lukacs in a lawsuit against Lorillard, Philip Morris, R.J. Reynolds and Brown & Williamson arising from the Engle case. Even though the tobacco companies’ appeal of the verdict was pending before the 3rd DCA, Lukacs was allowed to go ahead with his individual claim in Miami-Dade Circuit Court because he was dying. In June, a jury awarded him $37.5 million. Under the terms of the class action verdict, class members were required to try their cases individually to collect their piece of the $145 million judgment. The $710 million pot leaves open the possibility that the Rosenblatts could walk away with tens of millions in fees and costs — even though they lost their nine-year legal battle. If, for instance, the Rosenblatts asked the trial court, which has to approve attorney fees in any class action, for 5 percent of the escrow fund, they would pocket a tidy $35.5 million. The Rosenblatts did not return calls seeking comment. The three tobacco companies that signed the $710 million agreement either did not return calls for comment or declined to comment. But they said they are evaluating the escrow agreement. “All I can tell you is that the company is reviewing the agreement and reviewing what the options are,” said David Ross, a partner at Greenberg Traurig in Miami who is representing Lorillard. But the tobacco companies’ general argument is hardly in doubt: How can they distribute millions to a class not in existence, or abide by a contract that says nothing about decertification? HALTED CONSTITUTIONAL CHALLENGE The Engle class action case was originally filed in 1994 on behalf of smokers nationwide. But the case, led by pediatrician Howard Engle and five other lead plaintiffs, eventually was limited to Florida smokers. The plaintiffs alleged they were the victims of an industry fraud and conspiracy to cover up the health effects of smoking. As a result, they were unable to stop smoking because they were addicted to nicotine and developed medical problems ranging from cancer and heart disease. The defendants included Philip Morris, the Liggett Group, Brown & Williamson, Lorillard and R.J. Reynolds Co. The two-year trial, which was divided into three parts and which lasted from 1998 to 2000, ended in the $145 billion punitive damages award, the largest in U.S. history. Florida law required an appealing party to take out a bond equivalent to the total judgment. The defendants complained that posting a $145 billion bond would bankrupt them. In 2000, the tobacco companies successfully lobbied the Florida Legislature to cap bond appeals at $100 million per defendant. But fearing that Rosenblatts could mount a strong constitutional challenge to the law, the tobacco companies signed an agreement to put $710 million in escrow that would be paid to the class at the conclusion of the case. In exchange, the Rosenblatts agreed not to challenge the new law. “Knowing that you cannot have an ex post facto law, the [defendants] entered into the deal,” Weinstein said. The deal was negotiated by the Rosenblatts and Meyer G. Koplow, a partner at Wachtell, Lipton, Rosen & Katz in New York City. Koplow did not return calls for comment. The agreement said that the “Defendants enter into this stipulation for the purpose of preserving their ability to obtain review of the Judgment.” On the plaintiff side, it read, “the class enters into this stipulation for the purpose of better securing itself financially during that review … regardless of the outcome of that review.” The Rosenblatts have indicated that they will seek a rehearing of the case by the entire 3rd DCA. In a recent letter to fellow plaintiffs’ attorneys seeking their help, Stanley Rosenblatt called the May 21 decision a “horrendous” ruling that ends in a “harsh and unjust result.” If the full 3rd DCA affirms last month’s ruling by the three-judge panel, the Rosenblatts could seek review by the Florida Supreme Court and ultimately the U.S. Supreme Court. To date, the Florida Supreme Court has declined to review any issue in the case. If the case returns to Miami-Dade Circuit Court, it will be heard by Judge Roberto M. Pineiro, who has taken over the seat once held by Judge Robert Kaye, who retired. Kaye presided over the entire Engle litigation. Philip Gerson argues that the 3rd DCA did not say that individuals did not have a legitimate claim against the tobacco companies, and therefore the former class members retain a right to collect their piece of the $710 million. “These people are real and they have been harmed,” he said. “The court did not say they don’t exist, just that it is not proper to certify their claims as a class action.” But to distribute the money without class certification would require some unusual legal efforts. Daynard said the trial court would have to rely on a legal doctrine known as cy pres, from a French phrase, which requires that the intentions of parties be carried out as closely as possible despite the 3rd DCA ruling vacating the verdict and voiding the class. “The court will essentially look at precedents in cy pres and look as close as possible at how to distribute the money in a way that benefits the class in some way,” Daynard said. “I think a conscientious judge will do that.” But he acknowledged that there is no exact precedent for this case. REINTERPRETING AGREEMENTS Experts also say the tobacco companies can be expected to litigate aggressively to recover the $710 million — and that they have been known to reinterpret agreements they previously signed. For instance, in the Rosenblatts’ class action litigation against tobacco companies on behalf of flight attendants who claimed they were sickened by secondhand smoke exposure while working aboard commercial airliners, a settlement agreement reached in 1997 remains a matter of sharp dispute. That case currently is on appeal before the 3rd DCA. The agreement, which stopped Broin v. Philip Morris Cos. Inc., et al., in the middle of the trial, required each member of the plaintiff class to bring his or her case individually. And it arguably shifted the burden of proof for liability to the defendants and removed the statute of limitations. In addition, the tobacco companies agreed to pay $300 million to a research foundation and $46 million to the Rosenblatts. But now the tobacco companies argue that they never agreed to admit liability and to try only the issue of injury causation. “The plaintiff must prove its entire case, not the truncated process we have now,” attorney Kenneth J. Reilly said last year. Reilly, who is representing several tobacco companies in the flight attendant cases, is managing partner at Shook, Hardy & Bacon in Miami. Attorneys for the individual members of the plaintiff class argue that the defendants’ current interpretation of the agreement is unsupportable. “The trial was only stopped and the settlement agreed because they conceded liability,” said Joel Perwin, a partner at Podhurst Orseck Josefsberg Eaton Meadow Olin & Perwin in Miami, who is representing the flight attendants in the appeal. “Why would [the plaintiffs] agree to stop one trial in exchange for thousands more long trials on liability?” In the Engle case, Gerson said that if the 3rd DCA grants the Rosenblatts’ motion for a rehearing en banc, the court should address the issue of the $710 million escrow fund. “In last month’s opinion, they gave us no guidance at all on this,” he said. “That is a reason for an en banc hearing, to ask for some help in what happens here.”

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