After 25 years of heavy smoking, she was able to quit smoking with the help of the nicotine patch. She is wheelchair bound by severe emphysema and needs 24-hour oxygen.
Ms. Naugle’s lawsuit is one of the thousands of Engle Progeny cases, individual actions that emerged when the Florida Supreme Court overturned a $145 billion verdict and decertified the class in Engle v. R.J. Reynolds Tobacco Co. in 2006.
Expert Testimony: In this case, Mr. Johnson was retained to testify regarding two elements of damages, compensatory and punitive. Mr. Johnson first testified as to Ms. Naugle’s future home care services and medical expenses. Mr. Johnson calculated the present cash value of Ms. Naugle’s future home care and medical services which was $1.8 million, $2.5 million and $3.6 million for life expectancies of 10 years, 15 years and to 84.4 (normal).
Mr. Johnson’s next assignment was to testify as to the economic health, wealth and economic status of Philip Morris USA (PMUSA), formerly Philip Morris, Inc., a wholly owned subsidiary of the Altria Group, Inc. Mr. Johnson reviewed financial reports filed with the SEC for the Altria Group, Inc. He was able to convey that PMUSA it is an extremely strong company with sales of $18.8 billion in 2008 ($51.5 million per day) and $3.1 billion in net income in 2008 ($8.4 million per day). He also concluded that PMUSA had a net worth of $692 million and had paid its parent company, Altria Group, Inc., $2.875 billion in dividends in 2009 through September. In fact, PMUSA actually paid $17.5 billion in dividends from 2007 through September 2009.
It is estimated that PMUSA’s estimated market value to be $25 to $38.2 billion based on Net Revenues, Operation Income and Net Earnings as a percentage of Altria Group, Inc.’s totals for those categories for 2008, multiplied by Altria’s market capitalization.
Since PMUSA stipulated to net worth, operating income and net earnings, Mr. Johnson was not allowed to testify to the financials above. However, he was allowed to testify conceptually as to why revenue and net income were more important than net worth.
There is a lot of emphasis on net worth being the key financial indicator of how to value a company. However, PMUSA along with other major corporations can easily manipulate this financial indicator. For example, PMUSA in 2007 had a net worth of $7.6 billion. In the subsequent years, the net worth figure dropped considerably to $298 million in 2008 and $692 million in 2009. This was done primarily by PMUSA rolling up dividends of $5.1 billion in 2007 and $9.6 billion in 2008 to their parent Altria Group, Inc.
Result: Ms. Naugle admitted fault to the jury, but the PMUSA never conceded any wrongdoing. After a three-week trial, the jury came back with a $300 million verdict against PMUSA within hours of closing arguments.
The verdict consisted of $56.6 million in past and future medical expenses as well as for Ms. Naugle’s pain and suffering. It also consisted of $244 million in punitive damages to punish the company for its misconduct. The jury also found that Ms. Naugle was 10% responsible because of her decision to start smoking.