ALAS, YE SCHWABBIES (UPDATE)

September 15, 2006 9:37 am by Gene Borio

No recording devices are allowed, and the courtroom acoustics were terrible, so please accept that all quotes are inherently not verbatim. But pretty close.

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This is one spectacular, brand-new (2002), 14-story federal courthouse, filled with large airy spaces, rich marbleoid floors that made even mens’ shoes ring out like high heels, and gleaming marble walls. The ground floor even boasted two facing oval staircases.

Judge Weinstein’s courtroom is on the 10th floor. The wide hallway here stretches from one side of the building to the other, and opens on each side to an even wider foyer with floor-to-ceiling glass panels that offer spectacular views of 1) the Brooklyn and Manhattan Bridges , the East River and downtown Manhattan on one side, and 2) a bunch of bigger buildings on the other.

B&W’s David Bernick was attending today. He said he had been brought in by Philip Morris to help work on the case, but wouldn’t be arguing–unless, of course, Schwab was certified and moved on to a full trial; he seemed unconcerned that such an eventuality would ever come to pass. I noticed that during the hearing, he offered occasional advice to the Defense lawyers, Theodore M. Grossman and Murray R. Garnick, during their presentations.

I met plaintiff’s lawyer Michael Hausfeld in the hallway. Compact, lean, well-dressed and well-tanned, with large eyes both alert and soulful, his is a gently elegant, personable and tidy package. It was reconfirmed for me since I first met him during the DOJ trial in DC, that he is extremely likable. However, that gracious confidence he exuded last year seemed missing today. He emphasized that if they lost the case here it was all over. Not great words before the hearing even began. I got worried.

Judge Weinstein’s courtroom is almost exactly the same size as Courtroom #19. The ceiling is not as high–only about 20′–but the sides have similar blonde wood paneling and the setup is basically the same. A fairly large bank of windows are inset high on the West wall, through which one could see the sky–unless you are in the jury box, which wisely has been placed directly below them. On the opposite wall, the video screen has been planned-for, and yet–dangling awkwardly from that discreet slot in the ceiling next to the wall hangs the same old wrinkly, black-bordered, tatty and too-dull movie screen that A-V Departments have been trotting out to classrooms for the last 60 years.

I first knew I wasn’t in Kessler’s any more, Toto, when I saw the judge’s bench was literally covered with stacks of document boxes and piles of file folders. Judge Weinstein explained that they were there in case they had to be retrieved; the need never arose.

Also, unlike the rigmarole I had to go through to be able to use a computer in #19, here I was told by a very nice court employee, “You got that through security?? I can’t believe it. Well, if they let you this far . . . ”

In the back rows of the packed gallery, the young financial analysts chatted amiably, at one point striking upon the subject of ex-RJR lawyer Charles Blixt’s new job at Krispy Kreme (”from one morass to another!”).

Suddenly, forsaking any court clerk’s “All rise,” Judge Weinstein simply entered from a door in the back wall, and people stood. “Good morning. . . sit down,” he said with a deprecating wave of his hand, as he took a seat at a table below the bench..

85 and big-boned, with a craggy skull which seems to boast more hair on his eyebrows than on the fringes of his pate, he certainly looked as if he could be a tough customer. But his abnegation of formality, the kindliness in his rough voice, his earnest attentiveness and easy demeanor soon put such a conjecture to rest.

He apparently has a reputation, and he certainly isn’t afraid to think outside the box, but there was no hint of a loose cannon here. Dedicated? During the hearing he mentioned almost off-handedly that he had read Judge Kessler’s 1762-page judgement(!) At one point he asked a tobacco lawyer for something “interesting for me to read at 3 in the morning.” A brief light discussion ensued of things one might prefer to do at 3 in the morning, which Judge Weinstein closed with, “that’s our difference in ages.”

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The first part of the day may be read here: http://www.tobacco-on-trial.com/archives/2006/09/13/hausfeld-pitches-lights-deception-to-weinstein

I’d only add what some wire services led with: Hausfeld’s $100-200 Billion damage estimate, before a RICO-allowed trebling ($600B max after). Considering the difficulties facing any judgement at all, it had not really registered as that important to me–it was simply too far away to be seriously considered. Certainly if the class is certified it will be very important. But here is the exchange:

Hausfeld was arguing that, based on value, surveys and Dr. Hauser’s conjoined analysis:

“What would the market price have been if defendants had disclosed the truth about their 3-bedroom house?” (This was pursuant to the loss of value argument, where a house was advertised as a 3 bedroom, but wasn’t.)
H: On the basis of value and those surveys and conjoined analysis, either way, people are not willing to pay the same price for a light cigarette.

W: What is your estimated value issue? . . . What range?

H: I believe 100 billion to 200 billion over time.

W: From when?

H: 1971.

. . .

W: What per-pack range?

H: Somewhere between 50% less in California up to 80% less in direct interviews…. That’s what marketing experts found would need to be the discount in those cigarettes, for consumers to buy, knowing those cigarettes are NOT less harmful.

Thus, Hausfeld’s vision of the market is that Lights would have become akin to a no-brand/generic category, the bottom-feeders of the market.)

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After lunch, the 2 Defense lawyers gave fairly effective rebuttals to the Hausfeld case. Tobacco lawyers are brilliant at presenting what seems to be a watertight argument, framing it in a universe in which it seems theirs is the only rational viewpoint. Yet several times listening to their argumentation, I thought, we-e-e-e-e-ll, yeah, but that’s not quite a full, accurate portrayal of the issue. But it sure can seem so at the time. This was an aspect of the trial that you could trust Judge Kessler to see clearly, but it’s uncertain if Judge Weinstein–as closely as he listened, even to the point of correcting slight misstatements–was performing the same mental acrobatics.

And another reason any prospective plalintiff’s lawyer MUST see these people in action.

The two arguing tobacco lawyers were quite similar. Of average heights and average looks, Grossman had dark hair slightly combed-over, and Garnick had grey hair. Both were placid, their personalities seemingly lost in the argument at hand, their very beings almost studiously unremarkable.

Grossman started off by saying that here we are, a year to the day (Sept. 12, 2005) in this courtroom from the last hearing, and we are in the same place–plaintiff still hasn’t presented Judge Weinstein with what he asked of him: a quantification of damages

He brought up a number of difficulties with the case, ie, that Plaintiffs haven’t shown that the misrepresentation caused economic loss, or that smokers didn’t get what they were promised. He cited Benowitz’s testimony that found some smokers didn’t compensate at all, while some may compensate as much as 200%. In the case of the smokers who didn’t compensate at all, then they would have gotten their money’s worth, they would have lower risk.

Garnick in his turn posited the necessary elements that the Plaintiffs had to prove (quite impossibly, of course):

that each individucal beleived the products were safer

that each individucal failed to receive what was promised

that each individucal suffered injury to their business or property

that each individucal’s claim falls within the statute of limitations.

He claimed that the light cigarette market does not seem to change with knowledge, ie, Benowitz’ 1983 study that found smokers of low-yield cigarettes do not receive less nicotine–”and all that publicity” did not change the light cigarette market. Nor did the release of Monograph 13. Grossman showed that the 1983 study received coverage from the 3 major netowrks and the New York Times. We even saw the full CBS report from Dan Rather. These news items were held up to show that everybody had to have heard of the issue. But what if you missed the news that day? Burson-Marsteller, et. al., undoubtedly have studies and data on how long and hard you have to fight to get an idea to finally “take” in the public’s mind, especially on scientific issues. My guess is that it would require 5-10 years of near-constant effort in all sorts of venues. That’s total conjecture, but I do know that just one day’s reporting, with no “legs” whatsoever, will sink in as deeply as the 1938 Pearl study did, ie, it will disappear without a ripple. And science itself doesn’t move based on one study.

Garnick, intriguingly, posited that there was a critical difference among compensation techniques–ie, simply smoking more cigarettes can’t be cited as behavior stemming from a fraud. This technique, he said, is qualitatively different from covering ventilation holes, breathing in more deeply, etc. A person who buys low-cal food but eats 2 packages instead of one, must be consciously aware they are, on their own behalf, diminishing the low-cal effect. Garnick asserted that people know how much they smoke, how much they spend on cigarettes, and would be consciously aware they are diminishing the low-yield effect.

(While the tobacco lawyers challenge everything, I’ve noted they are fairly cavalier about presenting theoretical scenarios just as if they were common-sense fact, documentation not needed or wanted.)

Judge Weinstein said he had never considered this aspect and didn’t know of any experts who differentiated compensation techniques this way. He asked Garnick if Defendants had made this argument in DOJ. Garnick said no, but in a case last year they did. “I’ll have to think about it,” Weinstein said.

Certainly teasing out this data would be yet another impossible task.

Garnick presented flaws in the reports and testimonies of Drs. David Burns, Jeffrey Harris, Michael Thune, John C. Beyer and John R. Hauser, the sum of which indicated an inability to establish a scientifically valid link between the alleged fraud and an actual injury.

He said RICO loss had to be an “injury to business or property,” and that loss of value in the transaction does not fill this bill.

Finally, at the very end of Defendants’ presentation, Garnick seemed to be asking for, and certainly said the term, “summary judgement.”

(I’ve been told that here, in this modern, tastefully slick new courthouse, not only are the native acoustics terrible, but nobody here can–or will–use their microphones properly. Plus, while all the DOJ lawyers were proud of how they could speak loudly enough to match any situation in the courtroom–and they certainly didn’t want the reporters back in the gallery to miss a word of their deathless argumentation– Hausfeld, Grossman and Garnick were all extremely soft-soken, in a way that put the the plaintivess in “plea”– and we in the back pews missed _a lot_. It must be said that for the tobacco lawyers, this respectful pleading never seemed to vary, even when insulting scientists–no arch-irony here!)

So here we were near the end of the day, and Defendants had presented a strong case for there being no way to determine class and damages–and therefore, no way the case could go forward. And whereas Judge Weinstein had listened to Hausfeld often with a classically downturned mouth, forming an almost perfectly inverted U, he seemed to attend the tobacco lawyers’ remarks with a half-smile.

This was it. Judge Weinstein asked Hausfeld if he would like to respond to Defense’s arguments.

Hausfeld then made an unusual request–could he have a half-hour? Judge Weinsein granted him that– but emphasized that what he really needed from Hausfeld was a clean, clear scientific method for quantifying damages.

Judge Weinstein gave Hausfeld and his staff use of the jury room in back of the courtroom, and we took a break that stretched close to 45 minutes.

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NOW, I thought, NOW we’ll here a plan for scientifically determining the number of smokers in the class, and how to calculate their damages..

So it was a bit disheartening to hear Hausfeld begin by talking about fraud and dissembling dating back to the 50s; he showed a video of then-Philip Morris CEO James Morgan; he brought up yet another quote from Judge Kessler excoriating tobacco officers’ statements. He–

“That’s not the issue you are to address,” Judge Weinstein broke in. “We assume that you can show fraud. . . . That is condeded for this discussion, that they committed fraud. How many were defrauded, and how do you get damages?”

It was certainly distressing not to hear Judge Weinstein’s needs being addressed–needs which apparently have not been addressed to his satisfaction for a full year now. Judge Weinstein seemed to give Hausfeld an abundance of time and space here, tolerating some seeming digressions. (But certainly Judge Kessler would not have brooked for an instant the snickering from some of the back-seats analysts. Let’s remember, tobacco analysts are mostly on tobacco’s side, for them its all finance, period. After all, Judge Kessler’s verdict finding massive fraud and deceit leading to millions dead and untold societal costs was greeted by the analysts with, basically, “break out the champaign.”)

Hausfeld said the defrauded class was the entire lights market, as it grew precisely because lights smokers relied on the health message the industry promoted. “Grossman and Garnick said we need observations. Why do they ignore their own data?” he asked, citing again some of the secret documents he had shown earlier. “By buying a light,” he said, “you automatically are doing it based on health.”

Judge Weinstein asked about damages. “Lets assume the market was people who believed lights were healthier. What’s their damage? . . . Assume they were defrauded. These people bought cigarettees. If you can say that had they known, they would not have started, or if started would have stopped, that the whole lights share would have dropped to zero…. Possibly you could say they are entitled to 100% of what they paid.”

H: “Thats the lost market theory. . . this market wouldn’t have existed at all, because otherwise, they would have quit.

JW: What portion?

H: In DOJ, there was at least survey evidence to show a minimum of 50% who have quit.

JW: So 50% of people who boght would be entitled to 100% of what they paid?

Hausfeld read from the relevant section of Judge Kessler’s judgement:

Defendants knew that by providing worried smokers with health reassurance, they could keep them buying and smoking cigarettes.16 Defendants’ efforts have been successful. Even though low tar smokers have a greater desire to quit, their misconception that low tar cigarettes are less harmful dissuades them from doing so. Current research demonstrates that approximately 50% of all smokers of lower tar cigarettes chose such products because they perceive them to be a “healthier” cigarette and a potential step toward quitting.

JW: Hm. That doesn’t say what I thought.

H: It’s hard to go cold turkey.

JW: I know, that’s the problem. But what have they lost?

H: . . . In regards to the product I bought, did I overpay because it did not have the value as represented? They lost what they would have paid for the cigarettes if told the truth.

JW: It’s the same price as regular… If they shifted from lights to regular, they would have paid the same price. And lights and unlights are both contaminated.

H: Exactly, when I bought lights, I paid for a product not AS contaminated. The fraud is a comparative one.

JW: Read me the Kessler conclusion again.

H:

Defendants knew that by providing worried smokers with health reassurance, they could keep them buying and smoking cigarettes.16 Defendants’ efforts have been successful. Even though low tar smokers have a greater desire to quit, their misconception that low tar cigarettes are less harmful dissuades them from doing so. Current research demonstrates that approximately 50% of all smokers of lower tar cigarettes chose such products because they perceive them to be a “healthier” cigarette and a potential step toward quitting.

JW: I read her opinion, I’ll go over it again.

H: The industry looked at [smokers with health concerns] as a potential removal from the market. Rather than going back to regulars, they wanted to quit. Documents showed that every lights smoker was a potential quitter. . . . The loss is what they paid opposed to the value of the cigarette if the truth had been disclosed.

JW: The question is, will a jury have the required scientific proof to predict the total amount of damages to the class. We can’t allow a jury to grab a number out of the air, we must have some baisis rooted in reality.

H: The number won’t be out of thin air for the jury. The jury wil be presented with the fact of fraud; and the percent of those who relied on the fraud, and the amount of money lost, will be elements subject to challenge at trial.

JW: I can try the case, the question is, do I have enough to go to the jury?

H: I can’t think of a better time to sit down.

Weinstein in his final remarks said a curious thing to Hausfeld, the kind of compliment which, in my experience, is the merciful, tender kiss of death: “Well, I always enjoy your presentations.”

The day was over.

“I will thoroughly examine the issues before me,” Judge Weinstein said.

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Strangely, Collateral Estoppel, which was on the agenda, didn’t seem to get a formal debate. Judge Weinstein mentioned that there were “a variety of reasons” in the Defendants’ Sept. 8 brief–especially Liggett’s(!)–for not giving such estoppel to the DOJ ruling. Although the number of times Hausfeld referenced them seemed to indicate he felt Judge Kessler’s findings should be accepted as fact by Judge Weinstein.

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Any lawyer thinking of suing the industry really needs to see them in action. This can’t be gleaned from trial transcripts. It’s just astonishing.

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One observer felt this judge decides very quickly, and that the decision could come within a week or two. A wire service report estimated by the end of the yearl

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I had an enjoyable discussion with an South African analyst who works with a South Carolina asset management firm. So seldom in this field do you find someone who knows–much less cares about–these issues. Poor fellow, he covered the DOJ trial, but regretted that he never saw a single day of it. I pointed out the only vestige of it here in the courtroom (besides myself), David Bernick.

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It seems some parallel, some connection, some semi-ironic convergence should emerge from the fact that the last time I was in this neighborhood, it was the early evening of 9/11, and I was virtually at the very foot of this building, then under construction. After a day-long trek into ash-covered Brooklyn, I sat on a bus–the only way across the river–waiting to be land-ferried back home across the Manhattan Bridge.

And now, exactly 5 years and 2 days later, here I was, looking from the 10th floor to just where the towers had stood. Some have made the comparison between the lives taken by tobacco and the lives taken then by terrorists. But I didn’t today. It seemed just one of those random meetings with remarkable events that happen, even to flies on the wall in New York City.

One Response to “ALAS, YE SCHWABBIES (UPDATE)”

  1. Dorothy St, George Says:

    I have smoked Salem lights all my life. I have been unable to quit and as a result I have lung damage. Can I participate in the Schwab class action?

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