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The Journal on tobacco, cont'd

The Journal's editorial this morning also references its report yesterday (subscription required) that 30 states have established appeal bond caps -- largely in response to fears that large tobacco verdicts might jeopardize the cash flowing from cigarette manufacturers. One such scenario was realized last spring in the infamous magic jurisdiction of Madison County, Illinois, after a jury there issued a $10 billion verdict against Philip Morris for allegedly marketing its "light" cigarettes as "safer" alternatives. The AGs fought to lower appeal bond requirements, much as they had done earlier after Florida's Engle verdict. The events were chronicled at the time on overlawyered.com:

"Once again the business end of an otherwise outlandish mega-verdict turns out to be the requirement that a defendant post a bond before it can appeal: Philip Morris says it is unable to put up the requisite $12 billion needed to appeal the recent Madison County, Ill, verdict against it (see Mar. 24). Officials of the fifty states are running around in near-hysteria: they're bothered not by the possible injustice or community-and-investor disruption involved in bankrupting the giant company, whose holdings include Kraft Foods and Oscar Mayer, but instead by the prospect that an insolvency will jeopardize the flow of billions of dollars into their own coffers under the tobacco settlement. So the AGs, supposedly second to none in their loathing of the tobacco companies, are making noises about intervening to try to get the appeals bond requirement lowered. This is the second time around (at least) for this issue: state governments also mobilized after the Engle tobacco case in Florida threatened bonding requirements high enough to destroy the industry."

Indeed, according to the Journal's report yesterday, eleven of the state's appeal bond reductions apply only to cigarette manufacturers -- showing just how much the tobacco industry's and states' interests have become enmeshed in the wake of the multistate tobacco settlement.

That special-interest legislation aside, there is a compelling case overall for more general appeal bond reforms. When posting a bond prior to an appeal is such a sizable outlay that it effectively denies a defendant a right to appeal, it violates fundamental due process. The purpose of an appeal bond -- to ensure that money is set aside for the victorious plaintiffs -- can be met more fairly by providing alternative procedural safeguards against the diversion or sale of corporate resources.

The American Legislative Exchange Council has proposed model legislation called the Appeal Bond Waiver Act, which would permit waiver of any appeal bond exceeding $1 million ($100,000 for a small business) while retaining such procedural protections against hiding or dissolving assets. In summary, the Act would:

"combat the recent advent of multi-million and ´┐Żbillion dollar verdicts against defendants, by requiring that the necessary appeal bond not exceed $1,000,000 if the defendant found liable seeks a stay of enforcement of the judgement. The waiver would not exceed $100,000 if the party seeking the appeal is a small business. To protect the plaintiff against purposeful dissipation or diversion of assets by defendant, this legislation calls for the complete reinstatement of the full bond requirement if a preponderance of evidence shows that dissipation or diversion is taking place. The intent of this legislation is to restore the right to appeal a verdict, to defendants who are finding themselves more and more financially unable to do so, while still providing assurance that the defendant´┐Żs funds will be available to satisfy the judgment after appeal."

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.