BULLOCK v. PHILIP MORRIS USA, INC

Filed 1/30/08 - opinion on remand from Supreme Court

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION THREE

APPEALS from a judgment and order of the Superior Court of Los Angeles County, Warren L. Ettinger, Judge. (Retired judge of the former Mun. Ct. for the Pasadena Jud. Dist., assigned by the Chief Justice pursuant to art. VI, 6 of the Cal. Const.) Judgment affirmed in part and reversed in part with directions; order reversed.

Law Offices of Michael J. Piuze, Michael J. Piuze and Geraldine Weiss for Plaintiff and Appellant.

Law Offices of Jeffrey K. Winikow, Jeffrey K. Winikow; Law Office of Barry Wolf, Barry Wolf; Pine and Pine and Norman Pine for California Employment Lawyers Association as Amicus Curiae on behalf of Plaintiff and Appellant.

Center for Constitutional Litigation, Robert S. Peck, Louis M. Bograd and Valerie Nannery for Robert S. Peck as Amicus Curiae on behalf of Plaintiff and Appellant.

Law Offices of Holly L. Hostrop and Holly L. Hostrop for Tobacco Trial Lawyers Association as Amicus Curiae on behalf of Plaintiff and Appellant.

Arnold & Porter, Ronald C. Redcay and Murray R. Garnick for Defendant and Appellant.

Dunn Koes, Pamela E. Dunn and Daniel J. Koes for Association of Southern California Defense Counsel as Amicus Curiae on behalf Defendant and Appellant.

OMelveny & Myers, Charles C. Lifland and Marc S. Williams for California Manufacturers & Technology Association as Amicus Curiae on behalf of Defendant and Appellant.

Gibson, Dunn & Crutcher, Theodore J. Boutrous, Jr., William E. Thomson and Dominic Lanza for Chamber of Commerce of the United States of America as Amicus Curiae on behalf of Defendant and Appellant.

Haight, Brown & Bonesteel, Rita Gunasekaran, Maureen Haight Gee; Law Offices of Michael J. Piuze, Michael J. Piuze and Geraldine Weiss for Objector and Appellant.

Fred J. Hiestand for Civil Justice Association of California as Amicus Curiae.

Pillsbury & Levinson, Arnold R. Levinson; Altshuler Berzon, James Finberg; Lieff, Cabraser, Heimann & Bernstein and Robert J. Nelson for Consumer Attorneys of California, Arnold R. Levinson and Robert J. Nelson as Amici Curiae.

Deborah J. La Fetra and Timothy Sandefur for Pacific Legal Foundation as Amicus Curiae.

_______________________________________

Philip Morris USA, Inc. (Philip Morris), a cigarette manufacturer, appeals a judgment in favor of Betty Bullock awarding her compensatory and punitive damages after a jury trial. Philip Morris challenges the findings of liability on several counts based on products liability and fraud, the admission of evidence, the refusal of proposed jury instructions relating to liability and punitive damages, and the amount of the punitive damages award. Jodie Bullock, Betty Bullocks successor in interest, also appeals, challenging a conditional new trial order that reduced the amount of punitive damages by way of remittitur.[1] Bullocks attorney, Michael J. Piuze, appeals an order awarding attorney fees against him as a sanction.

We conclude that Philip Morris has shown no error with respect to its liability for fraud and products liability, but that the refusal of Philip Morriss proposed instruction not to impose punishment for harm caused to nonparties to the litigation was error. We therefore affirm the judgment as to the finding of liability, the award of compensatory damages, and the finding that Philip Morris was guilty of oppression, fraud, or malice, and reverse the judgment as to the amount of punitive damages, with directions to conduct a new trial limited to determining that issue. We also hold that the court had no authority to award attorney fees as a sanction against Piuze and reverse the sanctions order.

FACTUAL AND PROCEDURAL BACKGROUND

1. Factual Background[2]

Bullock smoked cigarettes manufactured by Philip Morris for 45 years from 1956, when she was 17 years old, until she was diagnosed with lung cancer in 2001. She smoked Philip Morriss Marlboro brand of cigarettes until 1966, and then switched to its Benson & Hedges brand.

Scientific and medical professionals in the United States and worldwide generally agreed by the late 1950s that cigarette smoking caused lung cancer, after several epidemiological studies reached that conclusion. Philip Morris and other cigarette manufacturers sought to cast doubt on the increasing body of knowledge supporting the conclusion that smoking caused lung cancer and sought to assuage smokers concerns. To that end, Philip Morris and other cigarette manufacturers issued a full-page announcement in newspapers throughout the United States in January 1954 entitled A Frank Statement to Cigarette Smokers. The announcement stated, Recent reports on experiments with mice have given wide publicity to a theory that cigarette smoking is in some way linked with lung cancer in human beings, and stated, [d]istinguished authorities point[ed] out that there was no proof that cigarette smoking caused cancer and that numerous scientists questioned the validity of the statistics themselves.

That announcement also stated, We accept an interest in peoples health as a basic responsibility, paramount to every other consideration in our business. [] We believe the products we make are not injurious to health. [] We always have and always will cooperate closely with those whose task it is to safeguard the public health. It announced the formation of the Tobacco Industry Research Committee and stated, We are pledging aid and assistance to the research effort into all phases of tobacco use and health. This joint financial aid will of course be in addition to what is already being contributed by individual companies. [] . . . [] In charge of the research activities of the Committee will be a scientist of unimpeachable integrity and national repute. In addition there will be an Advisory Board of scientists disinterested in the cigarette industry. A group of distinguished men from medicine, science, and education will be invited to serve on this Board. These scientists will advise the Committee on its research activities. In the years that followed, the Tobacco Industry Research Committee and its publicists disseminated the message that there was no proof that cigarette smoking was a cause of lung cancer and other diseases through news releases, distribution of research and editorial materials favorable to the tobacco industry, personal contacts with editors, journalists, and producers, and other means.

Philip Morris for many years publicly continued to insist that there was no consensus in the scientific community that cigarette smoking was a cause of lung cancer and that Philip Morris was actively pursuing scientific research to resolve the purported controversy, while privately acknowledging that there was no true controversy, that its true goal was to discredit reports that linked smoking with lung cancer, and that Philip Morris had no intention of funding research that would reveal the health hazards of smoking. The Tobacco Institute, a trade organization funded by Philip Morris and other cigarette manufacturers, issued a press release in 1961 discrediting a recent article and stating that the views that smoking caused cancer are a subject of much disagreement in the scientific world and the cause or causes of lung cancer continue to be unknown. The Tobacco Institute stated in a press release in 1963 that the tobacco industry was vitally interested in getting the facts that will provide answers to questions about smoking and health, and described the industrys research efforts as a crusade for research in the agricultural stations, the scientific laboratories, and the great hospitals and medical centers of the nation. It stated, the industry does not know the causes of the diseases in question.

A cigarette company executive appearing before Congress in 1965 on behalf of several cigarette manufacturers, including Philip Morris, stated that [n]early everyone familiar with these difficult problems will agree . . . that there is a very high degree of uncertainty whether smoking causes cancer or any other disease. Later that year, the Tobacco Institute issued a press release stating, Research to date has not established whether smoking is or is not causally involved in such diseases as lung cancer and heart disease, despite efforts to make it seem otherwise. The matter remains an open question--for resolution by scientists. The press release stated, we are earnestly trying to find the answers, and, If there is something in tobacco that is causally related to cancer or any other disease, the tobacco industry wants to find out what it is, and the sooner the better. If it is something in tobacco or the smoke, I am sure this can be remedied by the scientists.

Philip Morriss chief executive officer and chairman of the Executive Committee of the Tobacco Institute, Joseph Cullman III, stated on the television news program Face the Nation (CBS, Jan. 3, 1971), if any ingredient in cigarette smoke is identified as being injurious to human health, we are confident that we can eliminate that ingredient. He stated further, We do not believe that cigarettes are hazardous; we dont accept that. The Tobacco Institute issued a report in 1979 entitled Smoking and Health 1969-1979: the Continuing Controversy, stating, Scientists have not proven that cigarette smoke or any of the thousands of its constituents as found in cigarette smoke cause human disease. The Tobacco Institute issued a report in 1984 entitled The Cigarette Controversy: Why More Research is Needed, stating, it is not known whether smoking has a role in the development of various diseases . . . a great deal more research is needed to uncover the causes and the mechanisms involved in their onset. The 1984 report stated that the theory that cigarette smoking causes various diseases is just that, a theory and stated, There were basic flaws in the methods used in the major epidemiological surveys that cast doubts on the accuracy of the claimed correlations.

Contrary to its repeated public pronouncements, the evidence shows that Philip Morris privately acknowledged the link between cigarette smoking and lung cancer and other diseases and sought to avoid promoting any research that would reveal that link. An internal document prepared by Philip Morris in 1961 for purposes of research and development stated, Carcinogens are found in practically every class of compounds in smoke, and provided a partial list of 40 carcinogens in cigarette smoke.

A 1970 memorandum from a Philip Morris research scientist to its president stated of the Council for Tobacco Research, the successor of the Tobacco Industry Research Committee: It has been stated that CTR is a program to find out the truth about smoking and health. What is truth to one is false to another. CTR and the Industry have publicly and frequently denied what others find as truth. Lets face it. We are interested in evidence which we believe denies the allegation that cigarette smoking causes disease. Notes from a 1978 meeting of cigarette company executives and legal counsel stated that the Tobacco Industry Research Committee was set up as an industry shield  and that the Council for Tobacco Research has acted as a front. 

Dr. William Farone, a chemist employed by Philip Morris as a scientific researcher beginning in 1976 and as Director of Applied Research from 1977 to 1984, testified at trial that his superiors informed him that cigarette smoking caused cancer and was addictive when he first began to work for the company. Dr. Farone testified that during his years at Philip Morris there was no controversy among its scientists as to whether smoking caused diseases, and that public statements that it was not known whether smoking played a role in the development of various diseases and that a great deal more research was needed to identify the causes of the diseases were false. He testified that another public statement challenging the epidemiological research as inconclusive was a misleading half-truth, and that Philip Morriss scientists knew that cigarette smoke contained carcinogens and that the carcinogens caused cancer.

Dr. Farone testified that Dr. Thomas Osdene, Philip Morriss Director of Research, and others told him on several occasions that Dr. Osdenes real job and the job of scientists working under him was to maintain the appearance of a scientific controversy concerning smoking and health. Moreover, Dr. Farone testified that Philip Morris performed no animal toxicity studies of cigarettes in the United States, pursuant to a gentlemans agreement with other cigarette manufacturers, but arranged for a company in Germany to perform toxicity tests on animals there. Other Philip Morris scientists explained to Dr. Farone that the reason for testing cigarettes abroad was so the results would not be available by subpoena in the United States. The test results were sent to Dr. Osdene, usually at his home, who would report the results to other Philip Morris scientists verbally and destroy the written records.

Philip Morris conducted animal research in the United States on the addictive effects of nicotine in the early 1980s. It sought to develop a substitute for nicotine that would produce the same addictive effects but without the adverse cardiovascular effects of nicotine. Philip Morris closely guarded the results of its research and threatened to sue its former scientists who proposed publication of an article. Philip Morris successfully developed nicotine analogs and had the ability to remove nicotine from cigarettes, but did not do so. Moreover, Philip Morris added urea to cigarettes, which becomes ammonia when heated, to enhance the effect of nicotine. Philip Morris added approximately 250 different substances to tobacco in cigarettes to enhance the flavor and for other purposes. A former Philip Morris research scientist who worked for the company in the early 1980s testified, Never once in my whole time at the company did I hear any concern for the customer, other than one scientist[] who was complaining that he was repeatedly--repeatedly having his research changed in direction any time he came upon some hot research.

Philip Morris heavily advertised its cigarettes on television in the 1950s and 1960s, until the federal government banned cigarette advertising on television in 1970. Television advertising had a particularly strong influence on youths under the age of 18, for whom there was a positive correlation between television viewing time and the incidence of smoking. Philip Morriss print advertisements for Marlboro and other cigarette brands in 1956, when Bullock began smoking at the age of 17, and generally in the years from 1954 to 1969, depicted handsome men and glamorous young women. Some advertisements featured slogans such as Loved for Gentleness and The gentlest cigarette you can smoke. 

Philip Morris and other cigarette manufacturers entered into a Master Settlement Agreement (MSA) with 46 states, including California, in 1998 settling civil litigation by the states against the manufacturers. The manufacturers denied the allegations of wrongdoing and admitted no liability, but agreed to several restrictions on the advertising and promotion of cigarettes. They also agreed to dissolve the Tobacco Institute, the Council for Tobacco Research, and the Council for Indoor Air Research, and agreed not to target youths as smokers or potential smokers, suppress research on the health hazards of smoking, or make any misrepresentation of fact concerning the health consequences of smoking. The participating cigarette manufacturers also agreed to pay several billion dollars per year to the states, with each manufacturer responsible for a portion of the total payment according to its market share.

Philip Morris issued a statement on its Internet site in December 1999 acknowledging for the first time: There is an overwhelming medical and scientific consensus that cigarette smoking causes lung cancer, heart disease, emphysema and other serious diseases in smokers. Smokers are far more likely to develop serious diseases, like lung cancer, than non-smokers. There is no safe cigarette. These are and have been the messages of public health authorities worldwide. The statement also acknowledged that cigarette smoking is addictive.

2. Trial Court Proceedings

Bullock sued Philip Morris in April 2001 seeking to recover damages for personal injuries based on products liability and fraud, among other counts. The jury trial commenced on August 20, 2002. The jury returned a special verdict in September 2002 finding that there was a defect in the design of the cigarettes and that they were negligently designed; that Philip Morris failed to adequately warn Bullock of the dangers of smoking before July 1, 1969; that it intentionally and negligently misrepresented material facts and made a false promise; that it intentionally concealed material facts before July 1, 1969; and that each of those acts of misconduct was a cause of Bullocks injury. The jury found that Philip Morris was guilty of oppression, fraud, or malice with respect to each count. The jury awarded Bullock $850,000 in compensatory damages, including $100,000 in noneconomic damages for pain and suffering, and later awarded her $28 billion in punitive damages. The court entered a judgment on the jury verdicts.

The court denied Philip Morriss motion for judgment notwithstanding the verdict and denied in part its motion for a new trial, but granted the new trial motion as to excessive damages, with the condition that the court would deny the new trial motion if Bullock consented to reduce the punitive damages award to $28 million. Bullock consented to the reduction. The court entered an amended judgment in January 2003 awarding a total of $28,850,000 in compensatory and punitive damages. Philip Morris appealed the amended judgment and the order denying its motion for judgment notwithstanding the verdict. Bullock filed a notice of appeal from the Order . . . granting a new trial on the issue of punitive damages.[3] Bullock died in February 2003.

Piuze filed judgment liens in California, Virginia, and New York. The parties later stipulated that Philip Morris could deposit United States treasury bills in lieu of a bond to stay enforcement of the judgment pending appeal, and that the stay would become effective upon receipt of the deposit by the court clerk. After learning of the judgment liens, Philip Morris applied ex parte for an order staying enforcement of the judgment. The court granted the ex parte application on April 17, 2003, and entered an order temporarily staying enforcement of the judgment and directing Bullock to withdraw the liens. The court signed an order approving the stipulation on the deposit the same day.

Philip Morris filed a motion on April 29, 2003, for an award of sanctions against Piuze and Bullock under Code of Civil Procedure sections 128.6 and 177.5, arguing that they failed to withdraw the judgment liens as ordered by the court and engaged in other bad faith, frivolous conduct. The court granted the motion against Piuze in June 2003, awarding Philip Morris $45,809.48 in attorney fees payable by Piuze, under Code of Civil Procedure section 128.6. Piuze appealed the sanctions order.

CONTENTIONS

Philip Morris contends (1) the evidence failed to establish a design defect under the risk-benefit test because there is no substantial evidence that a safer alternative cigarette design was available, that the failure to use a safer design was a cause of Bullocks lung cancer, or that Bullock would have smoked a safer cigarette if it were available; (2) the evidence failed to establish a design defect under the consumer expectations test or liability based on a failure to warn because there is no substantial evidence that the ordinary consumer was unaware of the dangers of cigarette smoking; (3) the evidence failed to establish that Bullock heard and actually relied on a false statement by Philip Morris; (4) the failure to instruct the jury that Philip Morris had a duty to disclose only if the information was not readily accessible to Bullock was error; (5) information that smoking causes lung cancer was readily accessible to Bullock, so Philip Morris had no duty to disclose that fact and cannot be liable for fraudulent concealment; (6) federal law preempts certain state law liability based on the advertising or promotion of cigarettes after July 1, 1969, and the court erred by admitting evidence of advertising and by failing to instruct the jury that certain liability cannot be based on that evidence; (7) the $28 billion punitive damages award was excessive under California law, the jury acted out of passion and prejudice, and the only appropriate remedy is a new trial; (8) Bullocks counsel improperly appealed to the jurors passion and prejudice, emphasized Philip Morriss wealth, and urged the jury to disregard the requirement that the amount of punitive damages must be reasonably related to the amount of compensatory damages; (9) the refusal of Philip Morriss proposed instructions on punitive damages was error; (10) the court improperly instructed the jury to award punitive damages in an amount that would have a deterrent effect in light of Philip Morriss financial condition; (11) the evidence of Philip Morriss financial condition was unreliable and did not accurately reflect its ability to pay; (12) the $28 million punitive damages award after remittitur is unconstitutionally excessive; and (13) if we find error in the punitive damages award, a new trial should encompass liability as well as punitive damages.

Bullock contends the punitive damages award by the jury followed a fair trial, was presumptively correct, and should not have been reduced by remittitur because there was no compelling basis to do so. Piuze contends there was no statutory basis for the attorney fee award against him and also challenges the award on other grounds.

Story continues as Part II .

Publication courtesy of California pro bono legal advice.

Analysis and review provided by La Mesa Property line Lawyers.

[1] We ordered the substitution of Jodie Bullock in the place of Betty Bullock in this appeal after the death of Betty Bullock (Code Civ. Proc.,  377.31; Cal. Rules of Court, rule 8.36(a)). We use the name Bullock to refer to either Jodie Bullock or Betty Bullock, as appropriate in context.

[2] Our recitation of the facts is based on the evidence presented at trial viewed in a light most favorable to Bullock, the successful plaintiff. (Whiteley v. Philip Morris, Inc. (2004) 117 Cal.App.4th 635, 642, fn. 3.)

[3] We construe Bullocks notice of appeal as an appeal from the previously entered amended judgment encompassing the remittitur. It is reasonably clear that Bullock intended to challenge the amended judgment, and Philip Morris was not misled or prejudiced in this regard. (Cal. Rules of Court, rule 8.100(a)(2); Walker v. Los Angeles County Metropolitan Transportation Authority (2005) 35 Cal.4th 15, 22.)