May 13th, 2016
By Edward L. Sweda, Jr.
When Reynolds American International (RAI) President and CEO Susan M. Cameron told the company’s 2016 annual shareholders meeting that it is “always a pleasure to report good news,” this shareholder was reminded of a similar message: “Alive with Pleasure.” That ubiquitous advertising slogan for Newport cigarettes – which RAI acquired
in 2015 when it purchased Lorillard Tobacco Company – emphasized the short-term, pleasurable qualities of the deadliest consumer product while ignoring the long-term consequences of using that product.
Ms. Cameron listed the examples of “good news” from 2015: shareholder return of 49%; an increase of 7.5% in dividends; a 2 for 1 stock split. Integration with the Newport brand has “done well,” she said. Vuse, RAI’s leading brand of “digital vapor cigarettes”, was the most successful new product in convenience stores.
There was no mention of the enormity of cigarettes’ 2015 death toll during the course of the 80-minute shareholders meeting. Nor was there any mention of litigation against R.J. Reynolds Tobacco Co. until Agenda Item #10, the Question & Answer session. My question to RAI Chairman of the Board Thomas C. Wajnert was as follows:
“Just within the past two months, the following developments have occurred:
“On March 17, the Florida Supreme Court ruled in the Soffer case that the widow of a smoker who died of lung cancer can seek punitive damages against RJR on strict liability and negligence claims.
“On March 24, the Florida Supreme Court in the Ciccone case ruled that a smoker did not need an official diagnosis before the cutoff date for membership in the original Engle class.
“On April 21 and 22, a Florida jury returned verdicts in the Turner case totaling $13 million for the children of a heavy smoker who died of lung cancer, finding that RJR hid the dangers of cigarettes from her until she was hopelessly addicted.
“And just last week, on April 25, the Connecticut Supreme Court in the Izzarelli case ruled that the “good tobacco” language of the Restatement 2nd of Torts does not shield tobacco companies from product liability lawsuits.(see news coverage) This is similar to a ruling in Massachusetts.
“Why shouldn’t RAI shareholders and investors be very concerned about these negative litigation developments for the company?”
For a response, Mr. Wajnert turned to Mark Holton, RAI’s executive vice president, and general counsel. While acknowledging the litigation developments I had just cited, Mr. Holton advised that shareholders and investors should consider the company’s overal
l litigation strategy, that has been used for many years, rather than a string of setbacks that had occurred since mid-March. He also mentioned that there had been some recent defense verdicts during that time span and, as to the Izzarelli case, he noted that RJR still had other legal grounds for its appeal of the jury’s $28 million verdict. On that case, Mr. Holton congratulated me on the ruling by the Connecticut Supreme Court and noted that I had submitted an amicus curiae brief for the Public Health Advocacy Institute (PHAI) on behalf of Ms. Izzarelli.
The day before the RAI Annual Shareholders Meeting, the Associated Press reported that several growers who sell tobacco to R.J. Reynolds Tobacco Co. had children under the age of 13 working in their fields, despite RAI’s pledge to prohibit the hiring of children of that age. A news release by the Farmworkers Labor Organizing Committee (FLOC) commented that the “presence of child labor, which the company has denied for years, confirms what the farmworkers’ union, FLOC, has been telling the company since 2007: the tobacco industry is guilty of turning a blind eye to child labor, dangerous working conditions, and many other abuses for far too long.” That news was consistent with the findings of a December 2015 report by Human Rights Watch, entitled, “Teens of the Tobacco Fields: Child Labor in Unites States Tobacco Farming.”
During the question & answer session, several speakers raised the issue of working conditions for farm workers. Hillary Laslo, a FLOC member from Toledo, OH, spoke of abusive conditions on the farm and the fear of retaliation. Julie Taylor, the ex-Director of the National Farm Worker Ministry, visited farm labor camps and saw “terrible housing” conditions. A 20-year-old FLOC member described many problems working in the fields, including not getting necessary breaks while working in the fields, especially on brutally hot days.
Fred Romero, a 14-year-old high school freshman who had worked in the fields for the last 2 to 3 years, described how he had gotten ripped off, being paid even less than the $7.25 per hour minimum wage. He noted how his mother struggles hard to pay the family’s bills; he asked Mr. Wajnert whether RAI will sign an agreement to get a livable wage paid for those who work on farms that provide the tobacco for RAI. Mr. Wajnert answered that the company would not do so.
After the meeting concluded at 10:20 A.M., more than 100 FLOC supported demonstrated in the rain against RAI for its refusal to do more to improve working conditions for farm workers and to end child labor in tobacco fields.
Just a week after the meeting, RAI suffered yet another courtroom loss when a Florida jury in the Dion case returned a $12 million verdict to the widower of a woman who died of lung cancer after smoking for decades.