Philip Morris told to pay $6 billion in legal matter

EDWARDSVILLE, Ill. -- Philip Morris USA got a break Monday as an Illinois judge ordered it to pay only half of a $12 billion bond the cigarette maker said would force it into bankruptcy and end payments to 46 states under the national tobacco settlement.

The ruling came less than a month after Philip Morris was told to pay $10.1 billion in a class-action lawsuit for misleading smokers that "light" cigarettes are less harmful than regular brands.

The decision also clears the way for the company to pay $2.6 billion that is due today under the 1998 national settlement, Philip Morris spokesman David Tovar said.

Madison County Judge Nicholas Byron ordered the nation's largest tobacco company to put $6 billion into an escrow account to partially cover last month's judgment in his court.

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 through September 2004 toward the appeal bond, plus $420 million per year for however long the appeals in the case take, the order said.

Philip Morris will still have to pay the full $10.1 billion judgment plus costs and interest if it loses its appeal.

The reduced bond -- which plaintiffs attorney Stephen Tillery estimated will total about $9 billion over the course of a three or four-year appeal -- takes the place of the $12 billion bond Byron originally ordered. That amount was for the judgment, plus costs and interest accrued during the appeal, as required by state law.

Tillery said he will appeal Byron's order, contending that the company can afford to post the full bond.

After the hearing, Philip Morris issued a statement calling the ruling "an onerous but viable solution to this issue."

The reduced bond was cheered by states awaiting their share of Philip Morris' $2.6 billion payment. The 1998 settlement with tobacco companies was for states to recoup the cost of treating sick smokers.

"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."

Officials from 33 states signed a friend-of-the-court brief asking Judge Byron to reduce the bond, after Philip Morris officials said paying the full amount would drive the company to bankruptcy and force it to default on the national settlement. Several states had threatened to sue the company if it missed this week's payment.

Under the 1998 deal, several tobacco companies, including Philip Morris, agreed to pay 46 states $206 billion over 25 years. Philip Morris controls about half of the U.S. market for cigarettes.

But William Ohlemeyer, Philip Morris' vice president and general counsel, warned that although Tuesday's payment will be made on time, future payments under the 1998 agreement might be jeopardized if the company is again hit with what it considers an unpayable bill.

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.