Posts Tagged ‘Reynolds’
R.J. Reynolds’ Shareholder’s Report from Winston-Salem: A “Good Year,” a Proposal to Merge and a Death Toll that Must Not Be Acknowledged
Monday, May 18th, 2015
By Edward L. Sweda, Jr.
Like clockwork, the 2015 Reynolds American (RAI) Annual Shareholders Meeting started precisely at 9:00 A.M. on Thursday May 7, 2015 at the company’s headquarters in Winston-Salem, North
Carolina. Seventy-five minutes later, the meeting was adjourned.
Before I could attend the meeting, I had to proceed through intense security, with machines provided by Security Detection, empty my pockets and hand over my camera to the RAI staff.
The meeting was held again in the company’s main auditorium that seats around 200 people. On the dais were the following representatives of RAI management: Thomas C. Wajnert, the Non-Executive Chairman of the Board, who ran the meeting; Dara Folan, Senior Vice President, Deputy General Counsel and Secretary; Mark Holton, Executive Vice President and General Counsel; Andrew Gilchrist, the Chief Financial Officer and Executive Vice President; and Susan M. Cameron, RAI’s President and Chief Executive Officer. After announcing the rules of conduct for the meeting and potential penalty for violation of the rules, Mr. Wajnert turned to Ms. Cameron for an overview of the company’s business performance for 2014. Curiously, Ms. Cameron began by noting that 2014, while being a “good year” for RAI, “seems a long time ago.” She cited some specifics of RAI’s 2014 performance, including Camel’s high market share and VUSE’s “successful national expansion.” She described RAI’s plans to acquire Lorillard Tobacco Company as the “Right Decision at the Right Time” that is still awaiting regulatory approval by the U.S. Federal Trade Commission. She also called on the U.S. Food and Drug Administration to adopt different regulations for e-cigarettes than for combustible cigarettes. Ms. Cameron made no mention of any of the company’s customers who died during 2014 from smoking-caused diseases.
Much of the remainder of the meeting dealt with farm labor issues. Many members of FLOC (the Farm Labor Organizing Committee of the AFL-CIO) were in the audience; they dominated the 30-minute question-and-answer session. While Mr. Wajnert admitted that “bad conditions exist” on tobacco farms in North Carolina, he claimed that “we are working with our growers” to try to remedy those conditions. FLOC representatives cited ongoing violations of child labor laws in the tobacco fields and emphasized that many of the farm workers were doing extremely hard and dangerous work for a minimum wage salary of $7.25 per hour. Another major grievance was the fact that RAI, despite its claims of transparency, continues to refuse to provide FLOC with a list of tobacco growers with which RAI has contracts to provide it the tobacco for its cigarettes.
During the question-and-answer session, I asked the following question on ongoing tobacco litigation.
“During last month’s RAI First Quarter Earnings Conference Call, Chief Financial Officer and Executive VP Andrew Gilchrist said that ‘a significant portion of our legal budget at this point is being spent on Engle.’ The Engle verdicts in Florida keep on coming. Just last week, a Florida jury returned a verdict of over $6 million for a plaintiff. Meanwhile the Boston Globe last month reported on an upsurge in tobacco product liability lawsuits being filed in Massachusetts – an upsurge that was spurred on by a recent state supreme court ruling that is favorable to plaintiffs.
“I have a two-part question. Would you clarify that when Mr. Gilchrist or other executives refer to the company’s legal budget, that it includes not just salaries of company lawyers and payments to local counsel but also the payment of judgments in cases where plaintiff verdicts have survived all appeals?
“Secondly, instead of using broad adjectives like ‘significant,’ would you give shareholders the specific dollar amount of the company’s legal budget and a breakdown by category of cases?”
In response, Mr. Holton said that the amount paid in judgments is not included in the “legal budget” category. He also said that the company provides overall amounts for the legal budget, though not broken down by category of cases, to the U.S. Securities and Exchange Commission.
Two shareholder resolutions were defeated. The first, supported by the North Carolina AFL-CIO, called on RAI’s Board of Directors to prepare a report “on the steps the Company has taken to reduce the risk of acute nicotine poisoning (‘Green Tobacco Sickness’) for farmworkers in the Company’s supply chain for tobacco. The report should include a quantitative summary of the results of the Company’s inspections of its suppliers.” The supporters of the resolution noted that children “who are under age 18 work as tobacco farmworkers in the United States and are exposed to Green Tobacco Sickness as an occupational risk. A 2014 Human Rights Watch report described symptoms of Green Tobacco Sickness in nearly three-quarters of 141 child tobacco workers, ages 7 to 17, who were interviewed and worked in North Carolina, Kentucky, Tennessee and Virginia in 2012 or 2013.”
The second resolution, which dealt with issue of forced labor in tobacco fields, was sponsored by the Province of St. Joseph of the Capuchin Order in Milwaukee, Wisconsin. Specifically, the proposal noted that, “with U.S. immigration reform stymied, undocumented workers (often the main workforce in many agricultural areas) can be exploited. In their country of origin they often must pay contract labor brokers thousands of dollars to cross our borders; once here, they often are under the control of other labor contractors in order to work on U.S. farms. This practice results in forms of forced and compulsory labor on many, if not most, U.S. farms, including tobacco farms.”
The proposal called on RAI’s Board of Directors to “create a policy that all its suppliers throughout its tobacco procurement supply chain verify (with independent monitoring) their commitment and compliance regarding non-employment, directly or indirectly, of laborers who have had to pay to cross the U.S. border to work or, once here, to work on U.S. farms.”
Father Michael Crosby presented the proposal and noted that currently RAI is financially benefitting from forced labor. That is a fundamental moral issue that must be addressed, he added.
In seconding this resolution, I noted that RAI’s opposition statement that the issue of forced labor is “an issue that should be addressed in a comprehensive manner as part of immigration reforms and policies at the national level” was technically true but amounted to an excuse to pass the buck since there is no likelihood that the current Congress will allow a comprehensive immigration reform bill to be voted upon, given the track record of the House majority in the last Congress.
So, in this regard as in so many other aspects of Reynolds American’s business, the status quo continues.
The Reynolds American, Inc. 2014 Annual Shareholders Meeting: Change of CEO, change of demeanor, “Transformation” to the status quo.
Tuesday, June 24th, 2014
By Edward Sweda
As I entered the Reynolds American Corporate Offices (photo) at 401 North Main Street in Winston-Salem, North Carolina just after 8 A.M. on Thursday, May 8, the company’s “Welcome Shareholders” sign was perched directly above the building’s main entrance. Having cleared through the metal detector, I proceeded to the registration table, where I received my admission ticket to the 2014 Annual Shareholders Meeting of Reynolds American, Inc. (RAI).
Since the doors to the meeting room would not be opened until 8:30, I had a few minutes to observe my surroundings inside RAI headquarters.
Banners touting Camel, Pall Mall, American Spirit, Grizzly Long Cut, and ZONNIC (the company’s nicotine gum).
Another banner with the alliterative slogan “Transforming Tobacco,”
One more banner, entitled “Living Our Core Values,” with four adjectives: principled, creative, dynamic and passionate.”
As I proceeded toward the men’s room, I encountered RAI’s cafeteria, which is named the “Golden Leaf Cafe” and contains black plastic chairs. The back of each of those chairs has a cutout in the shape of a camel. Prominently positioned in the lobby was a large portrait of Richard Joshua Reynolds (whose statue can be found a few blocks south on Main Street — see photo), the company’s founder.
I entered the meeting room just after 8:30 and sat in an aisle seat near one of two microphones. After having been personally greeted by several RAI employees, I got a chance to read a two-sided blue handout entitled “Rules of the Annual Meeting.” The closing part of the tenth of the twelve rules caught my attention: “Failure to observe the rules is cause for expulsion from the meeting. Shareholders and their representatives who refuse to leave the meeting upon request could be arrested and charged with criminal trespassing.” I remembered my experience at the 2013 RAI Annual Shareholders Meeting.
The 2014 meeting started precisely at 9:00 A.M. and featured the return of Susan Cameron as CEO. Tom Wajnert, the Non-Executive Chairman of the Board, began by citing his desire for a “productive and orderly meeting” and his opposition to disruptions under the “guise of points of information.” He then turned to Tom Adams, Executive Vice President and Chief Financial Officer, for a report on business. Mr. Adams noted that 2014 marks the tenth anniversary of RAI and that the company had made “much progress since 2004.” Key phrases from his report included: “leading the transformation of the tobacco industry”; “Stronger than ever”; “shareholder return of 27%”; “record profits”; “brand milestones”; and “highest market share for Camel since 1967.” Mr. Adams made no mention of any developments in tobacco litigation over the past decade (see, e.g., http://www.phaionline.org/2010/02/19/all-parties-seek-supreme-court-review-of-racketeering-trial-us-v-philip-morris/ and http://www.phaionline.org/2012/03/26/supreme-court-rejects-key-tobacco-industry-appeal-leaving-massive-liability-with-no-end-in-sight/ ). The premature deaths of millions of the company’s customers and bystanders to the use of the company’s tobacco products were once again excluded from RAI’s business presentation.
The Question and Answer session’s allotted time was increased slightly from the 25 minutes at the 2013 meeting to 30 minutes. As it turned out, Mr. Wajnert twice extended the period for shareholders’ questions and everyone who had lined up at the microphones had the opportunity to ask a question. The Q&A session lasted 45 minutes, from 9:40 to 10:25.
My question, which dealt with the ongoing Engle Progeny litigation in Florida, drew the meeting’s only mention of tobacco litigation from RAI. I called attention to the fact that, in February 2014, the website Law360.com reported that a leading litigation finance company — Law Finance Group — “has decided to throw its weight behind the plaintiffs in what experts say is the latest sign that the scales may be tipping toward eventual settlement.” Law Finance Group is offering appeal funding in Engle Progeny cases and advancing payment to plaintiffs of an appealed award. In October 2013, the U.S. Supreme Court declined to consider ( http://www.phaionline.org/2013/10/07/us-supreme-court-deals-devastating-blow-to-the-cigarette-industry-and-settlement-value-of-nearly-8000-pending-engle-cases-rises-dramatically/ ) the tobacco companies’ appeal of the Florida Supreme Court’s March 2013 ruling in the Douglas case ( http://www.phaionline.org/2013/03/18/big-victory-at-florida-supreme-court-is-bad-news-for-cigarette-manufacturers/ ). This development was a significant factor in Law Finance Group’s decision to support the Engle Progeny plaintiffs. My question to the RAI Board was: “What, if anything, has management done to inform its shareholders about this important new development regarding the Engle Progeny litigation?”
In response, Mr. Wajnert turned to Martin L. “Mark” Holton III, Executive Vice President, General Counsel and Assistant Secretary. Mr. Holton chose not to address whether RAI had ever informed shareholders of the Law Finance Group’s decision. Instead, he declared that he and the company are “comfortable” with RAI’s litigation position, including at the appellate level, with regard to these cases in Florida. [Just a month later, the U.S. Supreme Court gave RAI another major setback when it refused to consider the company’s appeal of several plaintiff verdicts in the Engle Progeny litigation in Florida.
Dr. Sharon Brown, who had been ejected from the 2013 RAI Annual Shareholders Meeting, noted that RAI had resumed cigarette advertising in certain magazines, including Glamour, and expressed additional concern that a Spanish-language version of the company’s “Right Decisions, Right Now” program could help introduce Spanish-speaking youth to RAI’s tobacco products.
Many of the questions dealt with farm labor issues, especially the working conditions of workers who toil for companies that supply tobacco to RAI. Mr. Wajnert refused to answer a direct question as to whether he believed a farm worker’s minimum wage of $7.25 per hour is a fair wage. Many supporters of the Farm Labor Organizing Council, AFL-CIO (FLOC) (see http://www.floc.com/wordpress/ ) attended the meeting while others demonstrated outside company headquarters. (photo courtesy of Dr. Sharon Brown).
Two shareholder resolutions were defeated. The first, calling for more transparent reporting to shareholders of the company’s lobbying expenditures, received 47.7 million “Yes” votes compared to 393.9 million “No’ votes. The second resolution, calling for an end to virtually all animal testing, received 3.3 million “Yes” votes and 433.8 million “No” votes.
US Supreme Court deals devastating blow to the cigarette industry and settlement value of nearly 8,000 pending Engle cases rises dramatically
Monday, October 7th, 2013
For seven years, cigarette companies have repeatedly claimed that the Florida Supreme Court’s decision in Engle v. Liggett, which relieved about 8,000 Florida cases of the need to prove general liability or that cigarette smoking causes disease, violated the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution. They repeatedly represented to industry analysts and shareholders that these key procedural advantages, which have helped plaintiffs in the trials held to date obtain verdicts against the cigarette manufacturers in two out of every three cases, ultimately would be wiped out as unconstitutional.
The original ruling was based on the long-established notion of res judicata, meaning that the matter had already been judged. The issues that the defendants wanted to re-litigate were already determined in a year-long class action trial in 1999.
Twice now, the cigarette companies have failed to get these important procedural advantages overturned by the U.S. Supreme Court and it appear that, for all intents and purposes, the industry’s uphill legal battle has just become considerably steeper in Florida.
Last November, the U.S. Supreme Court declined to review an appeal of another Engle progeny case, Clay v. RJ Reynolds Tobacco, which raised similar Due Process issues.
Today, about seven months after the Florida Supreme Court issued a decision upholding its 2006 Engle ruling in Philip Morris v. Douglas, the industry was again rebuffed by the nation’s highest court and may have exhausted ways of arguing that its Constitutional rights to due process have been denied in Florida.
Mark Gottlieb, Director of the Public Health Advocacy Institute, at Northeastern University School of Law in Boston noted that, “the cigarette companies have two choices left in Florida: either spend the next century continuing to lose around 65-70% of its cases or working to fairly settle them and bring some closure to those 8,000 or so victims who have been waiting more than 15 years for their day in court.”
Public Health Advocacy Institute’s Senior Attorney, Ed Sweda, said,”the tobacco companies’ long-repeated claim that the procedure for trying Engle Progeny cases violates their Due Process rights is now legally dead. The rights of the victims of these companies have been vindicated.”
Monday, July 8th, 2013
On February 21, 2011, Lorillard Tobacco Company and R.J. Reynolds Tobacco Company filed a complaint against the FDA in the United States District Court for the District of Columbia challenging the composition of the Tobacco Products Scientific Advisory Committee (“TPSAC”) and alleging that TPSAC failed to comply with the Federal Advisory Committee Act (“FACA”). TPSAC was formed immediately following the passage of the Family Smoking Prevention and Tobacco Control Act (“Tobacco Act”). TPSAC was charged with researching the health effects of menthol in cigarettes and reported to the FDA that mentholated cigarettes adversely affected public health, and that their removal from the market would benefit public health.
In their complaint, the tobacco companies allege that three members of TPSAC have financial and appearance conflicts of interest stemming from their continued service as paid expert witnesses in anti-tobacco litigation, as well as their continued employment for pharmaceutical companies that manufacture smoking-cessation products. The tobacco companies argue that this creates an unbalanced committee representing only one set of viewpoints that are against smokeless tobacco products and menthol in cigarettes.
Lorillard and R.J. Reynolds alleged injuries include disclosure of confidential information to conflicted committee members who could use it to testify for parties adverse to them, that the conflicted members have the ability to shape the TPSAC report to help with their work as expert witnesses, that Lorillard lost 2 billion in shareholder value, and that their procedural right to fair decision making was violated. The companies are seeking declaratory relief that the three committee members violated FACA, as well as an injunction preventing the FDA from receiving or considering any suggestions from TPSAC pending the result of this litigation.
On April 29, 2011, the FDA moved to dismiss the suit for lack of subject matter jurisdiction and failure to state a claim. The FDA argued that the tobacco companies lacked standing to challenge the committee’s composition because their alleged injuries were speculative, not traceable to the FDA, and were unlikely to be redressed by the court.[7 Furthermore, the FDA argued that any conflicts of interest are within FDA discretion and are not subject to judicial review.
On August 1, 2012, the U.S. District Court for the District of Columbia denied the FDA’s motion in its entirety. The court held that Lorillard and R.J. Reynolds pled sufficient injuries and that the conflicts of interest are justiciable by the court. Due to the limited number of viewpoints regarding tobacco issues and the scientific, rather than political, nature of the issues, the court determined they are equipped with sufficient standards against which it can assess the committee’s objectiveness. With the denial of the FDA’s motion to dismiss, the tobacco companies are able to proceed with their suit.
On July 21, 2014, Judge Richard Leon granted Lorillard’s Motion for Summary Judgment to bar the Committee’s menthol report from consideration and orders the agency to reconstitute the Committee. The judge found that the, “the Committee’s findings and recommendations, including reports such as the Menthol Report, are, at a minimum, suspect, and, at worst, untrustworthy.” The FDA has not yet announced whether it would appeal the ruling.
Summary by Katelyn Blaney
Online Copy of Initial Complaint: http://www.hpm.com/pdf/LORILLARD%20Adv%20Cmte%20-%20Complaint.pdf.
 The Tobacco Products Scientific Advisory Committee, Menthol Cigarettes and Public Health: Review of the Scientific Evidence and Recommendations, Chapter 8, p. 220 (March, 2011).
 2d Amended Complaint at ¶ 2, Lorillard, Inc. v. U.S. Food & Drug Admin., No. 11-440 (RJL), 2012 WL 3542228 (D.D.C. 2012).
 Id. at ¶ 3.
 Lorillard, Inc v. United States Food & Drug Admin., No. 11-440 (RJL), 2012 WL 3542228, at *2 (D.D.C. 2012).
 Id. at ¶ 4.
 Lorillard, No. 11-440 (RJL), 2012 WL 3542228, at *2 (D.D.C. 2012).
 Id. at *1.
 Id. at *2.
 Id. at *2.
 Lorillard Inc v. United States Food and Drug Administration, Civil Action No. 2011-0440 (D.C. 2014) District Court, District of Columbia.
Monday, July 8th, 2013
In August, 2009, tobacco manufacturers and sellers brought suit in the United States District Court for the Western District of Kentucky against the FDA, challenging provisions of the Family Smoking Prevention and Tobacco Control Act (“Tobacco Act”). In a case previously known as Commonwealth Brands, Inc v. United States, plaintiffs challenged the following requirements as violations of their First Amendment free speech protections, and sought a preliminary injunction barring the FDA from enforcing them, as well as a judgment declaring the provisions unconstitutional:
Graphic Warning Requirement: Tobacco manufacturers must reserve a portion of tobacco packaging for health warnings and graphic images
- Restrictions on commercial marketing of “modified risk” tobacco products
- Ban of statements that express or imply tobacco products are safer due to FDA regulation
- Ban the distribution of free samples of tobacco products, brand-name tobacco sponsorship of anything non-tobacco related, brand-name merchandising of non-tobacco products, and distribution of free items in consideration of a tobacco purchase (“continuity programs”)
- Tobacco advertisements can only consist of black text on a white background
In Commonwealth Brands, the District Court granted partial summary judgment in favor of the tobacco industry, holding both the color restrictions on their advertisements and the ban on safer product claims due to FDA regulation to be unconstitutional violations of the First Amendment. The District Court granted summary judgment in favor of the United States for every other challenged provision holding them to be constitutional. Both parties appealed this judgment to the Sixth Circuit Court of Appeals.
On March 29, 2012 a three-judge panel for the Sixth Circuit Court of Appeals upheld every contested provision of the Tobacco Act as constitutional, except for the restriction on the colors used in tobacco advertisements and the ban on continuity programs.
Graphic Warning Requirement: In a 2-1 decision, the Court of Appeals held the graphic warning requirement to be constitutional. Arriving at this decision, the court distinguished between the Zauderer and Central Hudson standards of review for infringements on commercial speech, asserting that the former is reserved for disclosure requirements and the latter for prohibitions on speech. The court viewed the graphic warnings as disclosures of factual information about the health risks of tobacco and, as such, evaluated them against Zauderer. The Zauderer standard permits disclosure requirements as an infringement on commercial speech if they are reasonably related to the government’s interest in preventing consumer deception. The court held that the graphic warning requirement was reasonably related to the FDA’s interest in preventing consumers from being mislead about the health risks of tobacco. The court noted the tobacco industry’s history of deceiving consumers about the health risks and addictiveness of tobacco, as well as the ineffectiveness of the current warnings on cigarette packaging, to hold that the graphic warnings are reasonably related to preventing consumer deception.
The Court viewed the remaining provisions of the Act as prohibitions on speech and measured them against the Central Hudson standard. In order for restrictions on commercial speech to pass Central Hudson and be deemed permissible under the First Amendment, the government must assert a substantial interest in limiting the speech and the means by which they limit it must be narrowly tailored, meaning the government must use the least restrictive methods to further their interest.
Restrictions on marketing “modified risk” tobacco products and the ban on implying tobacco product safety due to FDA regulation: Similar to the graphic warning requirement, the Court of Appeals found the government’s interest in preventing the tobacco industry from making fraudulent claims about the health effects of cigarettes to be substantial enough to satisfy the first prong of Central Hudson. Under the Tobacco Act, in order for tobacco companies to market a product as “modified risk,” the FDA must first determine that the product will actually reduce the harm and risk of tobacco-related disease, taking into account first and second-hand smoke. The court found the pre-approval of “modified risk” health claims to be sufficiently narrowly tailored to further the government’s interest in preventing consumer deception. The Court of Appeals also held that the prohibition of claims that a tobacco product is safer, or less harmful, due to FDA regulation is narrowly tailored to prevent consumer deception. The Appellate Court, reversing the District Court on this count, saw this as a narrow infringement on the tobacco industry’s commercial speech that would otherwise mislead consumers into thinking the FDA endorses cigarettes and tobacco related products.
Ban on free samples of tobacco products and the ban on brand-name sponsorship and merchandising for non-tobacco related products: For these provisions of the Tobacco Act, the Court of Appeals found the government’s interest in curbing juvenile tobacco use to be substantial enough to limit the commercial speech of the tobacco industry. The FDA produced considerable evidence showing that these specific marketing techniques reached an overwhelming number of juveniles. Based on this evidence, the Court found the ban on free samples of tobacco products, as well as the ban on any brand-name tobacco sponsorship of anything non-tobacco related, to be narrowly tailored to prevent juvenile tobacco use.
Color restrictions in tobacco advertisements and the ban on continuity programs: Although the court decided that the government’s interest in protecting consumer deception was substantial, the court held that color restrictions of tobacco advertisements were too overbroad to further that interest. The court stated that the government could have chosen less restrictive means to limit deceptive advertising, such as prohibiting specific images or phrases, rather than limiting them to black text on a white background.
Furthermore, the court held that the tobacco industry’s continuity programs, in which companies offer benefits to existing customers, did not narrowly fit the government’s substantial interest of limiting juvenile tobacco use. The Appellate Court, reversing the District Court, relied on evidence which showed that most existing tobacco users are adults, thus, limiting the continuity programs would not have a material effect on curbing juvenile tobacco use.
After the ruling in this case the tobacco industry petitioned for a Writ of Certiorari asking the Supreme Court to review the ruling (American Snuff Co v. United States). The Plaintiff’s Writ of Certiorari was denied on April 22, 2013.
 Discount Tobacco City & Lottery, Inc., Lorillard Tobacco Company, National Tobacco Company, L.P., R.J. Reynolds Tobacco Company, Commonwealth Brands, Inc., & American Snuff Company, LLC.
 Copy of Initial Complaint: http://www.fdalawblog.net/files/tobacco-lawsuit-v-fda-august-2009.pdf.
 District Court Decision: http://www.fdalawblog.net/files/commonwealth—dist-ct-sj-decision.pdf.
 Disc. Tobacco City & Lottery, Inc. v. United States, 674 F.3d 509, 518 (6th Cir. 2012).
 Id. at 552.
 Id. at 558.
 Id. at 555.
 Id. at 562-63.
 Id. at 534.
 Id. 534-36.
 Id. at 531.
 Id. at 536-37.
 Id. at 551.
 Id. at 541.
 Id. at 541-43.
 Id. at 548.
 Id. at 544.
The 2013 Reynolds American, Inc. Annual Shareholders Meeting: orders, points of order, “out of order” and ordered out!
Tuesday, May 14th, 2013
By Edward L. Sweda, J.D.
As the hour of 9:00 A.M. approached on May 9, 2013, the date of Reynolds American, Inc.’s (RAI) Annual Shareholders Meeting in Winston-Salem, North Carolina, the atmosphere seemed more contentious than in previous years. In addition to the tight security that included the wanding of shareholders for anything metallic in their possession, the removal of suit jackets and the emptying of all pockets, Reynolds American management had arranged for the presence of four uniformed Winston-Salem police officers inside the meeting room. That contingent of police supplemented several officers stationed outside the Reynolds American building at 401 North Main Street.
Running the meeting was the Chairman of RAI’s Board of Directors, Tom Wajnert, who pleasantly wished the audience a good morning and commented on the beautiful, sunny weather outside. Mr. Wajnert’s pleasant demeanor lasted less than a minute when, after addressing “points of information” by two shareholders who asked about the tardiness of the company’s response to written questions submitted at the 2012 Annual Shareholders Meeting, he declared that a third shareholder who began to raise a point of information was engaging in “silliness’ and was “out of order.”
After Mr. Wajnert proclaimed from the podium that he would “not tolerate disruptive behavior,” he turned the forum over to RAI President and Chief Executive Officer Daan Delen, who provided a report on the company’s activities in 2012. Delen trumpeted his company’s increasing endeavors in the field of tobacco harm reduction and boasted about RAI’s “innovation,” noting that Camel snus has 80% of the snus market. Delen also touted Zonnic, a nicotine gum, and Vuse, a brand of e-cigarettes whose distribution will be expanded in 2013.
In the presence of many shareholders who are concerned about the deplorable conditions under which migrant farm workers toil in tobacco growing fields, Delen praised the audit of North Carolina farms his company conducted since the 2012 Annual Shareholders Meeting and R.J. Reynolds’ “Good Manufacturing Practices” program, as well as its health and safety training DVDs. [Members of the Farm Labor Organizing Committee (FLOC) demonstrated outside the building throughout the morning.
Finally, Delen, mentioned the increased transparency of the company’s disclosure of its political contributions on its website. This decision had followed the submission by the Province of St. Joseph of the Capuchin Order in Milwaukee and Rev. Michael Crosby, of a proposed shareholder resolution calling on the company to do so. That proposal was withdrawn by the sponsor following RAI’s disclosure.
What Mr. Delen did not give shareholders – for the first time in this author’s lengthy history of attending tobacco company annual shareholders meetings – was any comment about any aspect of tobacco litigation. Delen’s silence on this issue came less than two months after the Florida Supreme Court resoundingly rejected the tobacco industry’s legal argument that the way Engle Progeny trials have been conducted since 2009 violates the industry’s due process rights.
During Senior Vice President Dara Folan’s report on an advisory vote for compensation to board members, a shareholder from the audience attempted to make a point of order. Mr. Wajnert immediately declared that shareholders should “stop playing a stand-up game,” and, without knowing the issue the shareholder was trying to raise, determined that person to be “out of order” and declared that he “won’t tolerate interruptions.”
After a supporter and a seconder of an AFL-CIO-backed shareholder resolution calling for the annual election of board members to replace the current three-year staggered terms made their presentations (the resolution was defeated), the next order of business was the question-and-answer session.
In its agenda distributed to attendees, RAI informed the audience that it had allotted all of 25 minutes to consider questions from shareholders. As soon as the meeting’s Q&A session was declared open, Dr. Sharon Brown, a grandmother and a shareholder from Pennsylvania, who was seated second from the aisle where the company’s sole microphone for audience members was situated, stood up and attempted to get to the microphone. Sitting to her right was a male employee of RAI who neither rose to allow Dr. Brown to get by, nor moved his legs sufficiently to allow her by. This author, who had been seated immediately to Dr. Brown’s left and was intending to follow her to the microphone, instead saw Dr. Brown fall to the floor after she attempted to get by the RAI employee. By the time Dr. Brown was able – without any assistance whatsoever from the RAI employee who was at the microphone or from the RAI employee who had been sitting to her right – to get back onto her feet, approximately fifteen people had formed a line leading to the lone microphone. The RAI employee at the microphone ordered Dr. Brown to go to the end of the line.
After the allotted 25 minutes had expired and with eleven people still standing in line to ask a question, Mr. Wajnert announced that he would take two final questions. After those two final questions had been asked and answered, Dr. Brown went to the microphone and, noting that the day before she had attended the Philip Morris International Annual Shareholders Meeting in New York City, a meeting where more than an hour was allotted for questions, asked that more time be allowed for shareholders’ questions.
Mr. Wajnert emphatically denied that request. When Dr. Brown then noted that she had been tripped while attempting to approach the microphone and that she had been similarly tripped at the company’s 2011 Annual Shareholders Meeting, Mr. Wajnert’s response was to call on security, including the Winston-Salem police officers, to remove her from the meeting room on the grounds that she was “out of order.”
The meeting was adjourned several minutes after the ejection of Dr. Sharon Brown.
Monday, March 18th, 2013
Florida smokers and their families who are suing tobacco companies won a resounding victory on March 14, 2013 when the Supreme Court of Florida upheld its landmark 2006 ruling in Engle v. Liggett Group, Inc., 945 So.2d 1246 (Fla. 2006).
By a vote of 6 to 1, Florida’s highest court ruled in favor of the plaintiff in Philip Morris USA, Inc., et al. v. Douglas, 2013 Fla. LEXIS 440, upholding a $2.5 million award in the death of Charlotte Douglas and explicitly rejecting industry arguments that the Florida Supreme Court’s ruling seven years ago violated the Due Process rights of the companies.
The Engle case originated as a class action and went to trial before a jury; that jury in Phase I of the trial found the defendant companies strictly liable, in that the cigarettes that the defendants manufactured and placed on the market “were defective in many ways including the fact that the cigarettes contained many carcinogens, nitrosamines, and other deleterious compounds such as carbon monoxide.” While the case ultimately was not allowed to proceed as a class action, the Supreme Court of Florida ruled in 2006 that the members of the class could file their own individual cases (so-called “Engle Progeny” cases) and proceed with those cases relying upon the jury’s Phase I findings of liability, including that smoking caused a variety of specific diseases, that nicotine in cigarettes is addictive, that the tobacco defendants placed cigarettes on the market that were defective and unreasonably dangerous and that all of the Engle defendants were negligent.
The tobacco companies have argued that, despite the fact that they vigorously presented a defense to these claims during the original Engle trial, applying the Phase I findings to the Engle Progeny trials violates their due process rights. Even though the R.J. Reynolds Tobacco Co. relied on this argument unsuccessfully in the Martin case a year ago, (see http://www.phaionline.org/2012/03/26/supreme-court-rejects-key-tobacco-industry-appeal-leaving-massive-liability-with-no-end-in-sight/ ), the companies tried again in Douglas. Commenting on the original Engle trial, the six-member majority in Douglas said: “As illustrated by hundreds of witnesses, thousands of documents and exhibits and tens of thousands of pages of testimony, the Engle defendants had notice and the opportunity to defend against all theories of liability for each of the class’s claims in the yearlong Phase I trial.”
That six-member majority also noted that the tobacco defendants “argue that the Phase I findings establish, at most, that some of their cigarette were defective for some unspecified reason and that they engaged in some, unspecified tortious conduct. This, they claim, requires reversal of the verdict for the plaintiff based on strict liability because the Douglas jury was not instructed (and did not find) a causal connection between a specific defect in the defendants’ cigarettes and the injuries alleged. We disagree and decline the defendants’ invitation to revisit our decision in Engle.”
The majority clearly recognized and emphatically rejected the industry’s fundamental argument. “At its core, the defendants’ due process argument is an attack on our decision in Engle to give the Phase I findings res judicata – as opposed to issue preclusion – effect in class members’ individual damages actions. However, res judicata is the proper term, and we decline the defendants’ invitation to rewrite Engle.”
The decision was bad news for the tobacco industry and its friends on Wall Street. Pro-industry analyst David J. Adelman of Morgan Stanley admitted that the ruling “was even more pro-plaintiff than we expected and will make it more difficult for the industry to successfully defend these claims.”
After the decision was released, Philip Morris USA announced that “it plans to seek further review” of the Douglas decision. That means yet another attempt to persuade the Supreme Court of the United States to consider the industry’s appeal that Engle Progeny trials that result in plaintiff verdicts somehow violate the companies’ due process rights. If the Supreme Court of the United States makes the same decision it made a year ago about an almost identical appeal (Martin), the answer to the tobacco companies will be a final “No.”
-Edward L. Sweda, Senior Attorney for the Tobacco Products Liability Project
Friday, August 24th, 2012
For Immediate Release
Mark Gottlieb, executive director of the Public Health Advocacy Institute at Northeastern University School of Law in Boston states:
“Today’s ruling leaves the FDA in a very difficult position as it seeks to execute the intent of Congress which specifically called for large graphic warnings on cigarette packs. By this Court’s logic, the small Surgeon General textual warnings might also violate the cigarette companies’ rights to commercial free speech because there is inadequate scientific proof that those labels reduce smoking rates. Surely a product that addicts and kills nearly a half million Americans each year is one that demands warnings that garner serous attention by consumers. Todays’ decision is an improper imposition of the Court’s judgment in public health matters over that of the FDA’s evidence-based approach. Ultimately, an appeal to the U.S. Supreme Court, although risky, seems inevitable. “
The case is R.J. Reynolds Tobacco Company, et al. v. Food & Drug Administration, et al. (No. 11-5332).
Download the decision here.
U.S. Court of Appeals for DC Circuit deals painful blow to FDA, public health and consumers
Today the U.S. Court of Appeals for the D.C. Circuit, in a 2-1 ruling, affirmed the February 29, 2012 ruling of Judge Richard Leon that stopped the U.S. Food and Drug Administration (FDA) from implementing regulations to require large graphic warnings on cigarette packs and on all cigarette advertising. The Court ruled that requiring the five cigarette companies bringing the lawsuit to include the 9 graphic images selected by the FDA violated their First Amendment rights.
Questions about the how much the government can limit the speech of corporations and, in this case, how much the government can compel speech by corporations, evolved over time through decisions issued the U.S. Supreme Court. Different standards apply depending on the circumstances. At issue in this case is which standard is appropriate.
The District Court applied a standard known as strict scrutiny which is the most stringent standard. It is generally used when state action affects fundamental Constitutional right is threatened. Here, the Court of Appeals used the Central Hudson Intermediate Scrutiny Standard. This standard requires the government to show that: a) it has a important interest in the issue at hand; b) that the regulation directly advances that interest; and c) that the restriction on speech is no more extensive than required to achieve its purpose. The Court of Appeals found that the FDA failed to demonstrate adequately that the graphic warnings would achieve its interest in reducing smoking rates through scientific evidence. It also found that an alternative government interest in effectively communicating health information to consumers is too vague to qualify as a substantial government interest.
The alternative standard that could have applied is known as the Zauderer standard. This standard allows disclosures to be required so long as they are reasonably related to the government’s interest in preventing consumer deception. The Court of Appeals today relied on decisions that held that without such disclosures there is a serious risk that consumers will be misled. Then the Court notes that in the legislation that gave the FDA authority of cigarettes (the Family Smoking Prevention and Tobacco Control Act of 2009) several provisions were included to protect consumers from deception such as prohibiting cigarette makers from using descriptors such as “light” or “mild.” Because Congress included those provisions and said nothing about cigarette packaging or advertising being inherently deceptive, it ruled that the Zauderer standard did not apply. The majority opinion was written by Judge Janice Rogers Brown who was joined by Senior Circuit Judge A. Raymond Randolph.
In a vigorous dissent written by Judge Judith W. Rogers, it is argued that the Court should have applied the Zauderer standard because the warnings are provided to address misleading commercial speech. She cites to the landmark decision U.S. v. Philip Morris that found the industry liable for violating federal racketeering law and states that it is “beyond dispute that the tobacco companies have engaged in a decades-long campaign to deceive consumers . . .” The government must only show that the targeted speech creates a possibility of deception where misleading commercial speech is involved and the Zauderer standard of review, which FDA would be able to meet, should apply.
The result is that the regulations for implementing the graphic warnings are rendered void and the matter is referred back to the FDA. The agency can now appeal this decision and seek an en banc review by the full D.C. Circuit Court of Appeals, appeal to the U.S. Supreme Court, or accept the ruling. Were it to appeal the ruling, it could result in a reversal which would allow the warnings to go forward or it could result in a Supreme Court decision that could limit the ability of government to require disclosures or warnings that go well beyond cigarettes and expand the boundaries of commercial free speech.
Conceivably, FDA could begin the rulemaking process again and try to state the government interest in a manner that would not require the precise type of scientific evidence of effectiveness that the Court deemed necessary in today’s ruling. Some of the graphic images could be replaced with others that might be more in keeping with the Court’s requirement for communication information rather than “ideology,” which was referred to in its opinion. Those rules would inevitably result in new litigation by the plaintiffs in this action but could yield a better result. However, today’s decision, which goes against the best practices internationally in public health approaches to tobacco and creates an extremely onerous standard of review for warnings might be just bad enough to justify the risk of an appeal.
Reynolds American Inc. in 2012: “Progress” in tobacco litigation is alleged five weeks after U.S. Supreme Court leaves the company with “massive liability…with no end in sight.”
Friday, May 25th, 2012
By Edward L. Sweda, Jr.
Three key issues were taken up at the 2012 Reynolds American Inc. (RAI) Annual Shareholders Meeting in Winston-Salem, North Carolina on May 3rd.
First, the issue drawing the most public attention was the company’s dealings with groups representing farm workers who toil under dangerous conditions and provide the tobacco that brings prosperity to the company and its key executives. At least 20 individuals who attended the meeting dominated the question-and-answer session, urging the company to meet directly with the Farm Labor Organizing Committee (FLOC) after many years of failing to achieve such a meeting. Reynolds American CEO Daniel M. Delen publicly pledged that he would be willing to participate in such a meeting. Dozens of protestors outside the building underscored the message of the supporters of the human rights of tobacco farm workers.
Delen also touted an April 2012 “multilateral” meeting in Raleigh as a first step in addressing issues of inadequate worker safety in the tobacco fields of North Carolina. [See Oxfam America’s report: “A State of Fear: Human Rights Abuses in North Carolina’s Tobacco Industry”]
A second issue was contained in the shareholder resolution that called on RAI to establish a special ethics committee to examine the company’s marketing practices. The purpose of this special committee is “to ensure shareholders that its products and product promotions, as far as is possible, not undermine efforts of governments at any level to adopt laws and practices that will free Americans from the negative consequences of use of our tobacco products.”
In addition to commenting on the text of the resolution, Father Michael Crosby denounced RAI’s heavy-handed campaign to oppose California’s Proposition 29, which would raise that state’s cigarette excise tax by $1 per pack and increase taxes on cigars and pipe tobacco from 31.73 percent to 54.89 percent. If passed by the voters, the proposal would raise about $735 million annually, most of which would go toward cancer research.
Fr. Crosby also cited the company’s support of the right-wing political organization ALEC, the American Legislative Exchange Council, whose stealth activities have come under increased scrutiny following public disclosures of ALEC’s drafting of and advocacy for Florida “Stand Your Ground” law and several states’ anti-immigrant legislation.
The shareholder resolution was defeated, according to the preliminary tally reported at the meeting, with 6.4 million shares in favor, 418 million shares opposed and 6.3 shares abstaining.
The third key issue was litigation, specifically RAI’s “litigation progress” – or lack thereof – in dealing with the Engle Progeny cases in Florida. During the business presentation by Mr. Delen, RAI’s CEO stated that, since 2010, RAI had been “successful” in two-thirds of the Engle Progeny trials. Such “successes” included not only defense verdicts but also – for the first time publicy stated in this author’s memory at any tobacco company’s shareholders meeting – mistrials (such as when a jury is deadlocked without being able to reach a verdict).
In 2009, a Florida jury awarded $3.3 million in compensatory damages and $25 million in punitive damages against Reynolds American in a case involving the death of Benny Ray Martin, the husband of Mathilde Martin. Her case is one of thousands of “Engle Progeny” lawsuits in Florida, cases that followed the landmark 2006 ruling by the Florida Supreme court in Engle v. Liggett Group, Inc., 945 So. 2d 1246 (Fla. 2006). After losing on appeal at every stage in the Florida’s state court system, RAI filed a petition for certiorari with the Supreme Court of the United States.
In arguing in December 2011 that its petition for a writ of certiorari should be granted, Reynolds’ attorneys (Paul D. Clement of Bancroft PLLC, Gregory G. Katsas of Jones Day and Eric E. Murphy of Jones Day) claimed that in “their conduct of Engle progeny litigation, the Florida state courts are engaged in serial due-process violations that threaten the defendants with literally billions of dollars of liability.” (emphasis added) Moreover, “the massive liability imposed on the Engle defendants – which currently stands at over $375 million in adverse judgments – will… steadily increase as Engle progeny trials continue with no end in sight.” (emphasis added).
RAI’s attorneys’ description of doomsday for the company became reality on March 26, 2012 when the Supreme Court announced that it would not consider RAI’s appeal in the Martin case. As I described at the time, “At long last, Reynolds American and the other major tobacco companies will be held accountable for their massive and reprehensible misconduct that harmed thousands of Florida smokers. As Reynolds’ own lawyers have concluded, denial of its cert petition is a very big deal indeed.”
Citing the question I asked at the 2011 Reynolds American Shareholders Meeting about the Martin case, the response I received from Mark Holton, RAI’s Executive Vice President and General Counsel, that he was “confident that the Engle process violates due process” and that the company’s legal arguments were strong and would ultimately prevail, and the fact that on March 26, 2012 the U.S. Supreme Court refused to consider RAI’s appeal of the $28 million verdict, this RAI shareholder from Massachusetts asked the following question:
“Given how Mr. Holton got it wrong last year about this important case, why shouldn’t investors and shareholders be skeptical when they hear pronouncements by Reynolds American management about tobacco litigation?”
In response, Mr. Holton acknowledged what the Supreme Court had done regarding the Martin case, but cited what he called “encouraging” developments with two appeals of plaintiff verdicts in the state court system in Florida. This included a March 30th ruling by Florida’s Second District Court of Appeal affirming a $2.5 million wrongful death verdict against Reynolds American and Philip Morris USA. In that appeal of the Douglas case, the Court of Appeal also certified the following question to the Supreme Court of Florida: “Does accepting as res judicata the eight Phase I findings approved in Engle v. Liggett Group, Inc., 945 So. 2d 1246 (Fla. 2006) violate the tobacco companies’ due process rights guaranteed by the Fourteenth Amendment of the United States Constitution?”
Mr. Holton notably did not address the doomsday scenario outlined by his company’s attorneys who filed the writ for certiorari. So, in a span of just five months, this RAI shareholder received from the company diametrically polar opposite predictions concerning the future of tobacco litigation, depending on which side of the Reynolds American corporate mouth was talking.
Supreme Court Rejects Key Tobacco Industry Appeal Leaving “Massive Liability . . . with no End in Sight.”
Monday, March 26th, 2012
FOR IMMEDIATE RELEASE
Contact: Edward L. Sweda 617-373-8462
Tobacco companies face the prospect of having to pay billions of dollars in liability to Florida smokers after the U.S. Supreme Court today denied Reynolds American’s petition for certiorari in the case of R.J. Reynolds Tobacco Co. v. Mathilde Martin, No. 11-754.
The company had appealed a $28.3 million judgment against Reynolds for the death of Benny Ray Martin, the husband of Mathilde Martin. Her case is one of thousands of “Engle Progeny” lawsuits in Florida, cases that followed the landmark 2006 ruling by the Florida Supreme court in Engle v. Liggett Group, Inc., 945 So. 2d 1246 (Fla. 2006).
Edward L. Sweda, Jr., Senior Attorney for the Tobacco Products Liability Project (a project of the Public Health Advocacy Institute based at Northeastern University School of Law in Boston) was ecstatic to learn of the denial of Reynolds’ cert petition. “At long last, Reynolds and the other major tobacco companies will be held accountable for their massive and reprehensible misconduct that harmed thousands of Florida smokers. As Reynolds’ own lawyers have concluded, denial of its cert petition is a very big deal indeed,” Sweda said.
In arguing in December 2011 that its petition should be granted, Reynolds’ attorneys (Paul D. Clement of Bancroft PLLC, Gregory G. Katsas of Jones Day and Eric E. Murphy of Jones Day) claimed that in “their conduct of Engle progeny litigation, the Florida state courts are engaged in serial due-process violations that threaten the defendants with literally billions of dollars of liability.” (emphasis added) Moreover, “the massive liability imposed on the Engle defendants – which currently stands at over $375 million in adverse judgments – will… steadily increase as Engle progeny trials continue with no end in sight.” (emphasis added).
TPLP Director, Mark Gottlieb, noted that, “while cigarette companies’ statements are often thought to be disingenuous, in the case of Reynold’s Petition to the Court, it is absolutely true that the Engle cases create ‘massive liability’ with ‘no end in sight.'” Gottlieb added: “But the industry’s liability is not limited to these cases. Verdicts like the Evans case in Boston ($81 million) and Schwarz in Oregon ($25 million) can and should become more commonplace beyond the Sunshine State.”
Currently, of the 61 Engle Progeny cases that have reached a verdict (not counting mistrials), 41 have been plaintiff verdicts (one of which was overturned on appeal on statute of limitations grounds and is being further appealed) and 20 have been defense verdicts, with thousands of cases awaiting trial. “Today is a great day for thousands of Florida residents who turned to the American judicial system to seek justice,” Sweda concluded.