Judge Slashes Bond Against Phillip Morris

Judge Slashes Bond Against Phillip Morris

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EDWARDSVILLE, Ill. (AP) -- A judge has slashed by half a $12 billion bond originally levied against Philip Morris USA, clearing the way for Utah and 45 other states to receive their next payments from the cigarette maker that help fund everything from children's health to basic government services.

Madison County Judge Nicholas Byron ordered the nation's largest tobacco company to put $6 billion into an escrow account to partially cover a judgment in a $10.1 billion class-action lawsuit.

Officials from 33 states, including Utah, signed a friend-of-the-court brief asking Byron to reduce the bond from $12 billion, after Philip Morris officials said paying the full amount would drive the company to bankruptcy and force it to default on its share of the $206 billion promised over 25 years under the 1998 tobacco settlement.

"We're very pleased," said Charles Price, spokesman for Oklahoma Attorney General Drew Edmondson, president of the National Association of Attorneys General. "This is good news for the states."

Utah Attorney General Mark Shurtleff said, "By standing firm in demanding payment and informing the Illinois court of the need, we have ensured that tens of millions of dollars will continue to come to the state."

The case was triggered after Byron awarded $10.1 billion in the class-action lawsuit alleging Philip Morris misled smokers into believing "light" cigarettes are less harmful.

The judge ruled that Philip Morris must post a $12 billion bond before it can appeal the judgment -- equal to the amount of the award plus $2 billion in legal fees. The cigarette maker wanted the bond lowered to between $1.2 and $1.5 billion.

The $6 billion will come as a loan from Philip Morris' corporate parent, Altria Group, according to the court order. Philip Morris will then pay an additional $800 million over the next year toward the appeal bond, plus $420 million per year for however long the appeals in the case take, the order said.

Washington Attorney General Christine Gregoire said attorneys general from the states involved in the tobacco settlement plan to meet soon to discuss protecting their settlement money as Philip Morris and other cigarette makers continue to be hammered by smokers' lawsuits.

Philip Morris officials said that unless states pass laws limiting such appeal bonds, the firm could be forced to default on the billions it owes states under the 1998 agreement.

"This is an issue that could arise again if states aren't a little more interested in passing the kinds of laws ... that cap the bonds that need to be posted to appeal," said William Ohlemeyer, the company's vice president and general counsel.

Philip Morris has lobbied in several states, including Illinois, for caps on appeal bonds. It is currently defending itself against lawsuits in several states, each of which could cost billions in damages if plaintiffs prevail.

The uncertainty over the national settlement payments disrupted some state budget calculations. New York, Virginia and California, for example, postponed plans to sell bonds backed by money from the tobacco settlement.

Dozens of smaller programs across the country feared the impact.

Kentucky uses settlement money to diversify its tobacco-based agricultural economy, while Kansas puts the money into an education trust fund. Indiana earmarks the money for children's health insurance, prescription drugs for poor seniors and anti-smoking programs.

(Copyright 2003 by The Associated Press. All Rights Reserved.)

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