LEGAL NEWSLINE

SALEM, Ore. (Legal Newsline) - Cigarette maker Philip Morris USA Inc. must pay the state of Oregon 60 percent of a $79.5 million punitive damages award, plus interest, in a 14-year-old case against the company.

In 1999, a jury awarded Jesse Williams' estate compensatory damages and $79.5 million in punitive damages for Philip Morris' fraud and negligence leading to Williams' death. He died from lung cancer.

Under Oregon's split recovery statute, the state is entitled to 60 percent of any punitive damages award.

Philip Morris has since paid the compensatory damages and part of the punitive damages to the Williams estate, but has refused to pay the 60 percent of the jury's punitive damages award.

The state and the Williams estate have sought to force the company to pay that 60 percent share, either to the state, as the statute directs, or to the estate itself.

However, Philip Morris argues that the state released any right to collect the award when it signed the Master Settlement Agreement with tobacco companies in 1998.

A trial court agreed. It also ruled that the Williams estate had no right to the portion of the punitive damages award.

The State and the estate appealed the lower court's ruling to the Oregon Court of Appeals, which certified the appeal to the state's high court.

Chief Justice Paul J. De Muniz authored the Court's opinion, filed Friday.

The Court reversed the trial court's judgment, determining that the state's statutory right to a share of punitive damages is not a "released claim" as defined in the MSA, and therefore the State did not release its right to pursue payment of its statutory interest in the 60 percent of the damages award when it settled the other action.

"As we already have explained, the State's interest in the 60 percent share arises by operation of law," De Muniz wrote. "If Philip Morris continues to refuse to pay the 60 percent it owes the crime victims' fund under ORS 31.735, the State may have to take steps to execute on the judgment to force Philip Morris to pay it, but that claim will be to enforce the statute, not to recover damages for Philip Morris's tobacco-related conduct.

"And while it could be said that the state's interest in a share of the Williams punitive damages award is indirectly related in some way to the Williams case, its effort to secure payment under the statute is not related in any way to that case."

The fact that there is a "but-for casual connection" between the Williams case and the state's entitlement to part of the punitive damages award does not change the legal nature of the state's interest in its share of that award, the Court explained.

"The state's interest in the punitive damages award arises out of a statute that is indifferent to the factual basis of the underlying litigation," De Muniz wrote. "The state's entitlement to the statutory share is not, even indirectly, related to or dependent on the tobacco-related conduct that is described in the MSA."

A spokesman for the company called the high court's decision "grossly unfair" and "contrary to the language and spirit" of the MSA.

"We believe that the Oregon Supreme Court misapplied the law and reached an erroneous result," Murray Garnick, Altria Client Services senior vice president and associate general counsel, said in a statement. "As the lower court recognized, the state released its claims to any punitive damages when it signed the Master Settlement Agreement."

In 1998, the nation's leading cigarette manufacturers signed the Master Settlement Agreement with 46 states, five U.S. territories and the District of Columbia.

Only Minnesota, Florida, Texas and Mississippi did not join in the MSA, each reaching their own agreements.

Under the MSA, the states settled their Medicaid lawsuits against the tobacco industry for recovery of their tobacco-related health care costs, and exempted the companies from private tort liability regarding harm caused by tobacco use.

In return, the companies agreed to stop certain marketing practices and to make payments to the states to compensate them for some of the medical costs of caring for those with smoking-related illnesses.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.