November 13, 2006
By Neil Rothstein—Founder of the Worldwide Tree Group
(800) 610-4998, (619) 251-0997
Distributed by Worldwide Free Release Press™
The Supreme Court Heard Phillip Morris on Punitive Damages; TCJ Has a Solution in Determining Cap: Leave it to the Officers of NYSE:MO
“Many of the things you can count don’t count. Many of the things you can’t count really count.” -Albert Einstein
In a lawsuit I remember from when I was a young attorney, a company decided to settle its cases rather than reveal a product defect to the public. After the company did an economic analysis, it determined that it was cheaper to settle these cases rather than to fix the problem, thus profit margins took precedent over ethics. In the course of my practice, I have seen the worst. What is the worst? The worst is a death that could have been avoided had the truth been told publicly.
Philip Morris v. Williams is one of the key cases the United States Supreme Court will rule on this term. In the original trial, the jury decided against the Altria Group’s subsidiary, Phillip Morris (NYSE: MO) and in favor of the estate of Jesse Williams, who died of lung cancer. The jury then awarded his estate both compensatory and punitive damages. Compensatory damages are actual damages that were suffered: hospital bills, lost income, etc. These damages are tangible and are quantified in dollars. Punitive damages are awarded if the jury believes that the defendant needs to be taught a lesson or, for the sake of society, be punished.
In 2003 the Supreme Court basically held that punitive damages should not exceed ten times the plaintiff’s actual damages. Does this random multiplier translate into a logical punitive award that will serve its purpose? Will justice be served and will the message of corporate governance prevail? Does the number 10 make the intangible concrete? Why not institute a cap on punitive damages that is based on figures relevant to those who perpetrated the injury or loss?
The jury system has been in place since the birth of our nation and it is our fellow citizens who are best in tune with what is going on in the real world. If Philip Morris kept a secret or knowingly lied, then only those who heard the testimony are in a position to decide how egregious the behavior of the defendant was and if the horrific, fraudulent and/or grossly negligent acts committed warranted a significant punitive damage award.
So, what is reasonable? As opposed to coming up with a random figure, let’s initiate a logical standard for determining punitive damage awards. The top four officers at Philip Morris (The Altria Group) made about $71 million in salary and the exercising of stock option sales last year. Adding in the other officers and directors, the total in compensation to these “top dogs” was well above the $79.8 million awarded to the plaintiff (This does not include perks, benefits, bonuses, etc.). If these officers and directors can compensate themselves so well, they certainly should have no concern with a punitive award beneath their salaries for one year of work. So here’s the solution: set the cap for punitive damages at the aggregated annual compensation of the top officers. If they collect $300 million in total compensation in 2006, then the cap on punitive damages will be $300 million. The beauty of this model is that companies can determine their own cap as to such damage awards. For the case in point, these top four officers had received total compensation of $71 million. If instead, for example, these four accepted total compensation of $10 million, $8 million, $6 million and $4 million in 2005 then the cap on punitive damages for the Williams case would have been $28 million – not $71 million.
On November 28, 2005, director Carlos Slim Helu sold about $56
million in stock, $73 million on the 29th and $65 million on the 30th.
That totals $194 million, which far exceeds the punitive damages award to the estate in question. Now add in $71 million. That takes us to a cap of $265 million. The average compensation among the 24 officers and directors of the Altria Group would be $11 million if they just split these five individuals partial compensation. Is that enough to live off of? Can it be justified for someone to receive $194 million over a three day period, while, due to the company’s gross negligence and fraud, someone lays at home needing 24-hour medical care or who has died? If Mr. Helu paid this case’s award off himself, he would still have about $110 million to show for his three days of selling.
President Bush signed into law the Sarbanes-Oxley Act, which has come under attack by many special interest groups. Companies believe that it is much too expensive to comply with, and shareholders believe that it has caused an unprecedented rise in executive compensation and fails to provide the needed corporate governance oversight. Yet, if this model for punitive damages is put into place, many positive changes should occur. Insurance companies will pressure directors and officers to reduce their total compensation to a reasonable figure, thus appeasing many and bolstering a law that may actually be working. It will put a valid cap on punitive damages that is wholly decided by the directors and officers of a public company. When the average yearly aggregate compensation package is reduced from let us say $75 million for each director and officer to $15 million—and suppose there are ten people in the aggregate—the total compensation would go from $750 million to $150 million. The $600 million left on the table would be useful for the company to fund its workers’ retirement plan and comply with the Pension Protection Act of 2006, which was recently signed into law by President Bush. This system would help to resolve three or four problems in our economy and it would be proof that certain laws enacted under this administration really can and do work.
Insurance companies and others should not seek redress by offending plaintiffs, jurors or attorneys. Perhaps if the Supreme Court adopted this well-reasoned theory, we wouldn’t have over 100 companies being investigated for the backdating of stock options. Furthermore, The Altria Group has a market capitalization of over $170 billion dollars. Hence, this punitive damage award equates to about .047 percent of the entire company, or 4 one-hundredths of a penny. Imagine this, divide a penny into 100 pieces and give the plaintiff four pieces. Is that too much for taking someone’s life? Why is Phillip Morris wasting our tax dollars to argue over four slivers of a penny? How much did this appeal cost the company’s shareholders in relation to four slivers of a penny? Should shareholders and consumers suffer financial and physical pain while the officers and directors, under the enunciated methodology, create punitive damages caps at hundreds of millions of dollars? Let the cap be set by them based on their own greed.
Give us your opinion. Would corporate officers and directors be
willing to reduce their compensation to a realistic and just amount in order to reduce the company’s cap on potential punitive damages awards? Let us know. Call 1/800-610-4998 or email us at [email protected]
About Truth in Corporate Justice LLP
Truth in Corporate Justice LLP (www.worldwidetree.org) is a limited liability partnership under the umbrella of the Worldwide Tree Group that scrutinizes, supports, and endorses law firms that adhere to and are dedicated to the highest ethical, competency and zealous advocacy in order to maintain integrity in our legal system. It has started the practice of “L.E.O.” or Litigation Ethics Oversight. The group consists of TCJ, the Global Governance Center LLC, and Class in Action LLC—WWT’s law center. Additionally, the Group will begin growing its unique Worldwide Tree Multimedia LLC. You may contact Truth in Corporate Justice LLP at (310) 459-2560 or (800) 610-4998 or Neil Rothstein ([email protected]) directly at (619) 251-0887. TCJ is a limited liability company that will scrutinize, support, and endorse those law firms that adhere to TCJ’s ethical and competency standards in order to maintain the integrity of the legal system within the United States. TCJ seeks to empower anyone facing problems in our ever-changing world through education, access, guidance, networking, representation, and more.
TCJ also sponsors the website www.halliburtonsecuritieslitigation.com which is dedicated to updating the public on the ongoing securities litigation against Halliburton Corporation. Mr. Rothstein currently serves as Special Counsel to the Lead Plaintiff in the landmark case where it was proven that one lone voice can make a difference.
The Worldwide Tree Group is non-partisan with no political, religious or other affiliation except to bring together differing philosophies, views and backgrounds in order to find solutions to the many critical challenges that people are facing today. Any organization or person may join and take part in the offerings of the various companies within the WWT except those who or which supports or advocates violence or terrorism.