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Philip Morris Threatens to Cut Off State Settlement Payments In Effort to Get Special Protection in Illinois Court Case

Statement of Matthew L. Myers President, Campaign for Tobacco-Free Kids
March 29, 2003

Washington, D.C. — One week ago, an Illinois court found Philip Morris guilty of fraud and deception with regard to its marketing of light cigarettes. The court ordered Philip Morris to pay $10.1 billion in punitive and compensatory damages and set the bond Philip Morris is required to pay during the appeal at $12 billion (the judgment plus interest). Philip Morris has now written to the state Attorneys General claiming that it is not 'financially able' to post the bond and that, if the bond is not reduced, it is 'presently uncertain' whether it will make its next payment to the states under the 1998 state tobacco settlement. The next payment is due April 15.

It is highly inappropriate for Philip Morris to use the denial of payments to the states as a blackmail threat to try to get special treatment from the courts and the Illinois Legislature. The court should treat Philip Morris as it would any other defendant under Illinois law. And the Illinois Legislature should reject pending legislation to cap the amount that Philip Morris or any other tobacco company would be required to post as an appeal bond in this or any other case. Philip Morris has only itself to blame for its current difficulties, and it should not receive special protection from the legal consequences of the massive fraud the court found it has perpetuated.

Philip Morris USA and its parent company, Altria Group Inc. (formerly Philip Morris Companies Inc.), are among the wealthiest, most cash-rich companies in the world. Any court should treat their threats with skepticism and review the record with the utmost care. According to its December 31, 2002, report to the Securities and Exchange Commission, Philip Morris and its parent company reported that it had unused credit available of $14.6 billion, paid dividends of $5.1 billion in 2002, and spent $6.3 billion to buy back shares of its own stock. The parent company reported annual operating income of $16.6 billion, while Philip Morris USA reported annual operating income of more than $5 billion.

While Philip Morris is claiming that it is unable to both post bond and make its settlement payments, there is no indication that the company is curtailing its multi-billion dollar annual expenditures to market and promote its products, including the products that were the subject of this case. There is also no evidence that Philip Morris has curtailed its dividend payments to shareholders or its massive spending on lobbying and political contributions aimed at thwarting governmental action to reduce tobacco use and its harms. And Altria has not curtailed its multi-million dollar advertising campaign to convince the American public that it is a responsible corporate citizen.

In essence, Philip Morris is trying to hold the states hostage even as it conducts business as usual. We would hope that the court would take all of these factors into account as it considers Philip Morris' plea of poverty.

The real issue in this case is not whether Philip Morris faces a threat of bankruptcy, but whether it will be held accountable for its wrongdoing. As the court found, and as a November 2001 report by the National Cancer Institute documented, Philip Morris for decades has deceptively marketed light cigarettes as reducing smokers' health risks despite knowing from its own research that this was not the case. The court also found that Philip Morris intentionally designed its light cigarettes to produce less tar when smoked by government testing machines, but not when smoked by actual smokers who changed their smoking habits to maintain nicotine levels. The Court also found that Philip Morris' Marlboro Lights and Cambridge Lights cigarettes are actually more hazardous than their regular counterparts because of changes in the chemistry of the smoke, and that Philip Morris knew this. The judge concluded that 'Philip Morris' motive was evil and the acts showed a reckless disregard for the consumers' rights.' Philip Morris actions have exacted a tremendous toll in health, lives and money, and it is appropriate that the company be ordered to pay a penalty that reflects the magnitude of this harm.

If anyone believed Philip Morris' rhetoric that it has changed, this latest gambit shows that nothing has changed. While Philip Morris likes to talk about the personal responsibility of smokers, it refuses to be held responsible for its own wrongdoing and it is asking for relief without making any changes to the harmful practices that led to this judgment.