The three biggest US tobacco companies have tentatively agreed to pay $100 million to resolve 400 Engle progeny lawsuits pending against them in the Florida federal court. Final approval of the deal is subject to an agreement to participate by all the plaintiffs.
Under the terms of the agreement, Philip Morris USA and R.J. Reynolds Tobacco Co will each pay $42.5 million and Lorillard will pay $15.0 million.
“This agreement presented a unique opportunity to essentially close out the federal docket, and we are pleased to put the federal Engle litigation behind us,” said Jeff Raborn, vice president and assistant general counsel for R.J. Reynolds. “With respect to the cases pending in state court, we will continue to defend them vigorously, which includes appealing adverse verdicts.”
PM USA and Lorillard said that they too would continue to defend Engle progeny cases not covered by the agreement and appeal adverse verdicts.
In announcing the tentative agreement in a note on the Altria website, Philip Morris USA said the Engle case, which was originally filed in 1994, had attempted to certify a national class action of smokers. ‘The class was subsequently limited to Florida residents and ultimately decertified in 2006 by the Florida Supreme Court,’ explained PM USA. ‘In doing so, the Florida Supreme Court also ruled that former class members could file their own lawsuits and use certain general findings from the class action trial. The court gave former class members until January 2008 to file their lawsuits, which are commonly referred to as Engle progeny cases. Plaintiffs filed their suits in U.S. District Court and various state courts throughout Florida.’
A Fitch Ratings report said that the cases subject to the tentative agreement involved only those cases pending in federal court, which totaled about 700 at the end of 2014, but did not address the state actions that collectively numbered more than 3,000 cases.
‘Significant litigation risk, which includes product liability, consumer fraud and health recovery cases totaling in the thousands, will weigh on the industry for years to come, the Fitch report said. ‘Fitch sees the highest litigation risk for the industry stemming from the Engle Progeny legal actions in Florida, which currently consist of nearly 3,900 state and federal cases.
While welcoming the agreement, Bonnie Herzog, managing director Beverage, Tobacco & Convenience Store Research at Wells Fargo Securities, said there was a low probability that a similar agreement could be reached in respect of the outstanding 3,000 plus state cases.
Nevertheless, she said this was a favorable conclusion for all three companies to a substantial outstanding legal battle.
‘While no individual Engle case posed any significant financial risk to any of the three manufacturers, we do believe the elimination of the aggregate financial risk from all federal cases and the headline risk of any individual case will be viewed favorably by the market,’ she added.