Smokers Win Class-Action Suit Against Tobacco Concerns

Updated from 3:04 p.m. EDT

A Florida jury decided Friday that Philip Morris Companies (MO Quote - Cramer on MO - Stock Picks) and other tobacco companies caused cancer for three smokers who sued the industry in a class-action lawsuit.

The companies must pay $12.7 million to the plaintiffs.

"This was not unexpected news," said Daniel Peris, an analyst at Argus Research.

That figure is very close to the $13.2 million in compensatory damages requested by the three plaintiffs -- Frank Amodeo, Mary Farnan and the survivors of Angie Della Vecchia, who died after the trial began.

Even though it awarded Amodeo $5.8 million in damages, the jury ruled that he should not be allowed to collect the money because of the four-year statute of limitations had expired.

The awards open the way for the next stage in the case, the assessment of punitive damages for hundreds of thousands of Florida smokers included in the class action against the tobacco industry, the first such case to go to trial. A decision against the industry could lead to an award totaling hundreds of billions of dollars and bankrupt the tobacco companies if they are forced to post a huge bond while they appeal.

Although the jury is likely to award punitive damages, the situation has become murkier, with the Florida Legislature inserting itself into the trial process. Currently, political leaders in Tallahassee, Fla., are considering four or five proposals to mitigate any threats to the money that Florida expects to receive from the tobacco industry's $246 billion settlement with the states in 1998. Florida's share is $13 billion; it has already received nearly $2 billion.

"This news brings the process up one notch closer to the appellate level," Peris said. "At that point, the tobacco companies will be on firmer ground."

He rates Philip Morris a 12-month buy because he believes that the legal challenges against the industry will diminish in that period and the shares will then appreciate. His firm does no underwriting.

Responding to the verdict, R.J. Reynolds Tobacco Holdings(RJR Quote - Cramer on RJR - Stock Picks), another defendant, said in a statement: "The company is disappointed with the jury's verdicts in favor of two plaintiffs. The errors committed by the trial judge during this trial are too numerous to mention, but all of them will be raised during our appeal of the two adverse verdicts."

Shares of Philip Morris were unchanged at the close at 22 15/16 on the news, while R.J. Reynolds closed down 1/16 to 20.

The other defendants include Lorillard Tobacco, a unit of Loews Corp. (LTR Quote - Cramer on LTR - Stock Picks) which was unchanged at 51 13/16; Brown & Williamson, a unit of British American Tobacco (BTI Quote - Cramer on BTI - Stock Picks), which closed down 7/16, or 4%, to 10 3/16; Brooke Group (BGL Quote - Cramer on BGL - Stock Picks), which was flat at 12 5/8, and industry trade groups.