AGs Reviewing Impact of Verdict Against Philip Morris

OLYMPIA -- Philip Morris USA has told the nation's Attorneys General that it is "presently uncertain" whether it will make $2.6 billion in tobacco settlement payments next month to state governments, Washington Attorney General Christine Gregoire said today.

In a letter to attorneys general, the nation's largest tobacco company warned their payments would not be made if Philip Morris is forced to post a $12 billion appeal bond as a result of a judgment in Illinois.

Recently in a class action lawsuit, a Madison County Illinois Circuit Judge awarded more than $10 billion to smokers who sued Philip Morris. Under Illinois court rules, in order to appeal the judgment Philip Morris must post a bond equal to the judgment plus costs and interest. The judge set the bond at $12 billion.

Under a settlement in 1998, tobacco companies agreed to pay the states more than $206 billion over the next 25 years. Currently Philip Morris pays a little over half of the annual payments. The April Philip Morris payment to Washington amounts to more than $60 million.

Gregoire emphasized she is still hopeful the Illinois court bond issue can be resolved without a default in state tobacco payments. "We would hope parties in Madison County can work this out, but if not, we plan to be ready to go to court."

She said she and other Attorneys General are considering filing motions to intervene in the Illinois case. "We would seek to intervene on the limited issue of the amount of the bond."

Gregoire said it is important to note that her legal action will not address the $10 billion judgment. "I'll let the courts decide this issue. If Philip Morris ultimately loses, the company should pay."

The key issue is the ability of Philip Morris to appeal, and the fallout of a high appeal bond on the states, she said. "A $12 billion bond could create a chilling effect on the ability of the defendant to appeal and, in this case, could deal a significant, unnecessary financial blow to the states."

The Attorneys General also are reviewing their legal options in event of a bankruptcy filing. The settlement agreement with tobacco companies was carefully written to protect the states, Gregoire said.

Gregoire also has been working on a variety of fronts - including discussions with Philip Morris and Illinois officials - to head off the chance of a default.

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