2.0.0.10 false Legal Proceedings 0214 - Disclosure - Legal Proceedings true false false false 1 usd $ false false Shares Standard http://www.xbrl.org/2003/instance shares xbrli 0 USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 USDEPS Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares xbrli 0 2 Legal Proceedings [Abstract] 0 lo_LegalProceedingsAbstract lo false na duration string Legal Proceedings. false false false false false true false false false false false false 1 false false false false 0 0 false false false Legal Proceedings. false 3 Legal Proceedings 1 us-gaap_CommitmentsAndContingenciesDisclosureTextBlock us-gaap true na duration string No definition available. false false false false false false false false false false false verboselabel false 1 false false false false 0 0   <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>14. Legal Proceedings</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b>Tobacco Related Product Liability Litigation</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     As of May 3, 2010, approximately 11,215 product liability cases are pending against cigarette manufacturers in the United States. Lorillard Tobacco is a defendant in approximately 10,250 of these cases. Lorillard, Inc. is a co-defendant in approximately 695 cases. Approximately 7,575 of these lawsuits are <i>Engle </i>Progeny Cases, described below, which include approximately 4,400 <i>Engle </i>Progeny claims initially asserted in a small number of multi-plaintiff actions that were severed into separate lawsuits by one Florida federal court during 2009. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The pending product liability cases are composed of the types of cases listed below. Pending cases are those in which Lorillard Tobacco or Lorillard, Inc. have been joined to the litigation by either receipt of service of process, or execution of a waiver thereof, and a dismissal order has not been entered with respect to Lorillard Tobacco or Lorillard, Inc. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Conventional Product Liability Cases. </i>Conventional Product Liability Cases are brought by individuals who allege cancer or other health effects caused by smoking cigarettes, by using smokeless tobacco products, by addiction to tobacco, or by exposure to environmental tobacco smoke. As of May 3, 2010, approximately 140 cases are pending against cigarette manufacturers, including approximately 30 cases against Lorillard Tobacco. Lorillard, Inc. is a co-defendant in three cases. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Engle Progeny Cases. Engle </i>Progeny Cases are brought by individuals who purport to be members of the decertified <i>Engle </i>class. These cases are pending in a number of Florida courts. Lorillard Tobacco is a defendant in approximately 7,575 <i>Engle </i>Progeny Cases. Lorillard, Inc. is a co-defendant in approximately 685 cases. Some of the cases have been filed on behalf of multiple class members. The time period for filing <i>Engle </i>Progeny Cases expired in January 2008 and no additional cases may be filed. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>West Virginia Individual Personal Injury Cases. </i>West Virginia Individual Personal Injury Cases are brought by individuals who allege cancer or other health effects caused by smoking cigarettes, by using smokeless tobacco products, or by addiction to cigarette smoking. The cases are pending in a single West Virginia court and have been consolidated for trial. Lorillard Tobacco is a defendant in approximately 50 of the 700 pending cases that are part of this proceeding. Lorillard, Inc. is not a defendant in any of these cases. The first phase of an anticipated three-phase trial of these consolidated cases is scheduled to begin on June 1, 2010. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Flight Attendant Cases. </i>Flight Attendant Cases are brought by non-smoking flight attendants alleging injury from exposure to environmental smoke in the cabins of aircraft. Plaintiffs in these cases may not seek punitive damages for injuries that arose prior to January 15, 1997. Lorillard Tobacco is a defendant in each of the approximately 2,600 pending Flight Attendant Cases. Lorillard, Inc. is not a defendant in any of these cases. The time for filing Flight Attendant Cases expired in 2000 and no additional cases in this category may be filed. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Class Action Cases. </i>Class Action Cases are purported to be brought on behalf of large numbers of individuals for damages allegedly caused by smoking. Six of these cases are pending against Lorillard Tobacco. Lorillard, Inc. is a co-defendant in two of these six cases. One of the six cases asserts claims on behalf of purchasers of “light” cigarettes. Lorillard, Inc. is not a defendant in this case. Neither Lorillard Tobacco nor Lorillard, Inc. is a defendant in the approximately 40 additional “lights” class actions that are pending against other cigarette manufacturers. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Reimbursement Cases. </i>Reimbursement Cases are brought by or on behalf of entities who seek reimbursement of expenses incurred in providing health care to individuals who allegedly were injured by smoking. Plaintiffs in these cases have included the U.S. federal government, U.S. state and local governments, foreign governmental entities, hospitals or hospital districts, American Indian tribes, labor unions, private companies and private citizens. Four such cases are pending against Lorillard Tobacco and other cigarette manufacturers in the United States and one such case is pending in Israel. Lorillard, Inc. is a co-defendant in two of the cases pending in the United States. Plaintiffs in the case in Israel have attempted to assert claims against Lorillard, Inc. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Included in this category is the suit filed by the federal government, <i>United States of America v. Philip Morris USA</i>, <i>Inc. (“Phillip Morris”)</i>, <i>et al.</i>, that sought return of profits and injunctive relief. In August 2006, the trial court issued its verdict and granted injunctive relief. The verdict did not award monetary damages. In May 2009, the verdict was largely affirmed by an appellate court. In February 2010, the parties petitioned the U.S. Supreme Court to review the case. See “Reimbursement Cases” below. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Filter Cases. </i>In addition to the above, Filter Cases are brought by individuals, including former employees of Lorillard Tobacco, who seek damages resulting from their alleged exposure to asbestos fibers that were incorporated into filter material used in one brand of cigarettes manufactured by Lorillard Tobacco for a limited period of time ending more than 50 years ago. Lorillard Tobacco is a defendant in 30 such cases, including two cases in which Lorillard, Inc. is a co-defendant. Lorillard, Inc. is also a defendant in two additional Filter Cases, in which Lorillard Tobacco is not a defendant. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In addition, Lorillard Tobacco and Lorillard, Inc. were named as defendants in one case in which it is alleged that a fire caused by a Lorillard cigarette led to an individual’s death. That matter was dismissed during February 2010. Plaintiff did not notice an appeal from the dismissal order and this matter is concluded. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Plaintiffs assert a broad range of legal theories in these cases, including, among others, theories of negligence, fraud, misrepresentation, strict liability, breach of warranty, enterprise liability (including claims asserted under the federal Racketeering Influenced and Corrupt Organizations Act (“RICO”)), civil conspiracy, intentional infliction of harm, injunctive relief, indemnity, restitution, unjust enrichment, public nuisance, claims based on antitrust laws and state consumer protection acts, and claims based on failure to warn of the harmful or addictive nature of tobacco products. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Plaintiffs in most of the cases seek unspecified amounts of compensatory damages and punitive damages that may range into the billions of dollars. Plaintiffs in some of the cases seek treble damages, statutory damages, disgorgement of profits, equitable and injunctive relief, and medical monitoring, among other damages. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt">     <b><i>Conventional Product Liability Cases</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     As of May 3, 2010, approximately 140 cases are pending against cigarette manufacturers in the United States. Lorillard Tobacco is a defendant in approximately 30 of these cases. Lorillard, Inc. is a co-defendant in three of the pending cases. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Since January 1, 2008, verdicts have been returned in three cases. Neither Lorillard Tobacco nor Lorillard, Inc. was a defendant in any of these trials. Juries found in favor of the plaintiffs in each of these three trials. In one of the trials, the jury awarded actual damages. The two other cases were re-trials ordered by appellate courts in which juries were permitted to consider only the amount of punitive damages to award. Both of these trials resulted in punitive damages verdicts that awarded the plaintiffs $1.5 million in one of the cases and $13.8 million in the other. Appeals are pending in the three matters. In rulings addressing cases tried in earlier years, some appellate courts have reversed verdicts returned in favor of the plaintiffs while other judgments that awarded damages to smokers have been affirmed on appeal. Manufacturers have exhausted their appeals and have been required to pay damages to plaintiffs in eleven individual cases in recent years. Punitive damages were paid to the smokers in five of the eleven cases. Neither Lorillard Tobacco nor Lorillard, Inc. was a party to these eleven matters. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     As of May 3, 2010, trial was underway in one Conventional Product Liability Case. Neither Lorillard Tobacco nor Lorillard, Inc. is a defendant in this case. Some cases are scheduled for trial in 2010, including some in which Lorillard Tobacco is a defendant. Trial dates are subject to change. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt">     <b><i>Engle Progeny Cases</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In 2006, the Florida Supreme Court issued a ruling in a case, <i>Engle v. R.J. Reynolds Tobacco Co</i>., <i>et al., </i>that had been certified as a class action on behalf of Florida residents, and survivors of Florida residents, who were injured or died from medical conditions allegedly caused by addiction to smoking. During a three-phase trial, a Florida jury awarded actual damages to three individuals and approximately $145 billion in punitive damages to the certified class. In its 2006 decision, the Florida Supreme Court vacated the punitive damages award, determined that the case could not proceed further as a class action and ordered decertification of the class. The Florida Supreme Court also reinstated the actual damages awards to two of the three individuals whose claims were heard during the first phase of the <i>Engle </i>trial. These two awards totaled $7 million, and both verdicts were paid in February 2008. Lorillard Tobacco’s payment to these two individuals, including interest, totaled approximately $3 million. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The Florida Supreme Court’s 2006 ruling also permitted <i>Engle </i>class members to file individual actions, including claims for punitive damages. The court further held that these individuals are entitled to rely on a number of the jury’s findings in favor of the plaintiffs in the first phase of the <i>Engle </i>trial. The time period for filing <i>Engle </i>Progeny Cases expired in January 2008 and no additional cases may be filed. In 2009, the Florida Supreme Court rejected a petition that sought to extend the time for purported class members to file an additional lawsuit. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Lorillard Tobacco is a defendant in approximately 7,575 cases filed by individuals who allege they or their decedents were members of the <i>Engle </i>class. Lorillard, Inc. is a co-defendant in approximately 685 of the pending cases. Some of the suits are on behalf of multiple plaintiffs. Various courts have entered orders severing the cases filed by multiple plaintiffs into separate actions. During 2009, one Florida federal court entered orders that severed the claims of approximately 4,400 <i>Engle </i>Progeny plaintiffs, initially asserted in a small number of multi-plaintiff actions, into separate lawsuits. In some cases, spouses of alleged former class members have also brought derivative claims. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The <i>Engle </i>Progeny Cases are pending in various Florida state and federal courts. Some of these courts have issued rulings that address whether these individuals are entitled to rely on a number of the jury’s findings in favor of the plaintiffs in the first phase of the <i>Engle </i>trial. Some of these decisions have led to pending petitions for appeal. The U.S. Court of Appeals for the Eleventh Circuit is reviewing trial court rulings determining how courts should apply the Florida Supreme Court’s ruling regarding the <i>Engle </i>jury’s first phase verdict. In another case, an intermediate appellate court denied a plaintiff’s request to immediately certify an appeal to the Florida Supreme Court. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Lorillard Tobacco is a defendant in several <i>Engle </i>Progeny Cases that have been placed on courts’ 2010 trial calendars or in which specific 2010 trial dates have been set. Lorillard, Inc. is a defendant in some of these cases. Trial schedules are subject to change and it is not possible to predict how many of the cases pending against Lorillard Tobacco or Lorillard, Inc. will be tried during 2010. It also is not possible to predict whether some courts will implement procedures that consolidate multiple <i>Engle </i>Progeny Cases for trial. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     As of May 3, 2010, trial was underway in three of the <i>Engle </i>Progeny Cases. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Verdicts have been returned in 18 <i>Engle </i>Progeny Cases since the Florida Supreme Court issued its 2006 ruling that permitted members of the <i>Engle </i>class to bring individual lawsuits. Juries awarded actual damages and punitive damages in nine of the trials. The nine punitive damages awards were $2 million, $5 million, $5 million, $12.5 million, $18 million, $20 million, $25 million, $80 million and $244 million. In six of the trials, juries’ awards were limited to actual damages. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In the three other trials, juries found in favor of the defendants that the plaintiffs were not former <i>Engle </i>class members. As of May 3, 2010, defendants were contesting, or were expected to contest, either by appeals or by post-trial motions, each of the 15 verdicts in which plaintiffs were awarded damages. None of the 15 <i>Engle </i>Progeny trials in which plaintiffs were awarded damages since the Florida Supreme Court’s 2006 decision had reached a final resolution as of May 3, 2010. Neither Lorillard Tobacco nor Lorillard, Inc. was a defendant in these 18 trials. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In a case tried prior to the Florida Supreme Court’s 2006 decision permitting members of the <i>Engle </i>class to bring individual lawsuits, one Florida court allowed the plaintiff to rely at trial on certain of the <i>Engle </i>jury’s findings. That trial resulted in a verdict for the plaintiffs in which they were awarded approximately $25 million in actual damages. Neither Lorillard Tobacco nor Lorillard, Inc. was a party to this case. During 2010, a Florida appellate court affirmed the jury’s verdict. As of May 3, 2010, defendants’ petitions for rehearing were pending. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In June 2009, Florida amended the security requirements for a stay of execution of any judgment during the pendency of appeal in <i>Engle </i>Progeny Cases. The amended statute provides for the amount of security for individual <i>Engle </i>Progeny Cases to vary within prescribed limits based on the number of adverse judgments that are pending on appeal at a given time. The required security decreases as the number of appeals increases to ensure that the total security posted or deposited does not exceed $200 million in the aggregate. This amended statute applies to all judgments entered on or after June 16, 2009 and expires on December 31, 2012. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt">     <b><i>West Virginia Individual Personal Injury Cases</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The proceeding known as “West Virginia Individual Personal Injury Cases” consolidates for trial in a single West Virginia court a number of cases that have been filed against cigarette manufacturers, including Lorillard Tobacco. The order that consolidated the cases, among other things, permitted only those cases filed by September 2000 to participate in the consolidated trial. As a result, no additional cases may be part of this proceeding. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Approximately 1,250 cases initially were part of this proceeding, and Lorillard Tobacco was named in all but a few of them. Lorillard, Inc. has not been a defendant in any of these cases. More than 500 of the cases have been dismissed in their entirety. Lorillard Tobacco has been dismissed from approximately 650 additional cases because those plaintiffs did not submit evidence that they had smoked a Lorillard Tobacco product. These 650 additional cases remain pending against other cigarette manufacturers and some or all the dismissals of Lorillard Tobacco could be contested in subsequent appeals noticed by the plaintiffs. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Approximately 700 cases are pending. Lorillard Tobacco is a defendant in approximately 50 of the pending cases. The court has entered a trial plan that calls for a multi-phase trial. The first phase of trial is scheduled to begin on June 1, 2010. Trial dates are subject to change. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt">     <b><i>Flight Attendant Cases</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Approximately 2,600 Flight Attendant Cases are pending. Lorillard Tobacco and three other cigarette manufacturers are the defendants in each of these matters. Lorillard, Inc. is not a defendant in any of these cases. These suits were filed as a result of a settlement agreement by the parties, including Lorillard Tobacco, in <i>Broin v. Philip Morris Companies</i>, <i>Inc.</i>, <i>et al.</i> (Circuit Court, Miami-Dade County, Florida, filed October 31, 1991), a class action brought on behalf of flight attendants claiming injury as a result of exposure to environmental tobacco smoke. The settlement agreement, among other things, permitted the plaintiff class members to file these individual suits. These individuals may not seek punitive damages for injuries that arose prior to January 15, 1997. The period for filing Flight Attendant Cases expired during 2000 and no additional cases in this category may be filed. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The judges that have presided over the cases that have been tried have relied upon an order entered in October 2000 by the Circuit Court of Miami-Dade County, Florida. The October 2000 order has been construed by these judges as holding that the flight attendants are not required to prove the substantive liability elements of their claims for negligence, strict liability and breach of implied warranty in order to recover damages. The court further ruled that the trials of these suits are to address whether the plaintiffs’ alleged injuries were caused by their exposure to environmental tobacco smoke and, if so, the amount of damages to be awarded. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Lorillard Tobacco was a defendant in each of the eight flight attendant cases in which verdicts have been returned. Defendants have prevailed in seven of the eight trials. In one of the seven cases in which a defense verdict was returned, the court granted plaintiff’s motion for a new trial and, following appeal, the case has been returned to the trial court for a second trial. The six remaining cases in which defense verdicts were returned are concluded. In the single trial decided for the plaintiff, <i>French v. Philip Morris Incorporated</i>, <i>et al.</i>, the jury awarded $5.5 million in damages. The court, however, reduced this award to $500,000. This verdict, as reduced by the trial court, was affirmed on appeal and the defendants have paid the award. Lorillard Tobacco’s share of the judgment in this matter, including interest, was approximately $60,000. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     As of May 3, 2010, none of the flight attendant cases are scheduled for trial. Trial dates are subject to change. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt">     <b><i>Class Action Cases</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Lorillard Tobacco is a defendant in six pending cases. Lorillard, Inc. is a co-defendant in two of these cases. In most of the pending cases, plaintiffs seek class certification on behalf of groups of cigarette smokers, or the estates of deceased cigarette smokers, who reside in the state in which the case was filed. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Cigarette manufacturers, including Lorillard Tobacco and Lorillard, Inc., have defeated motions for class certification in a total of 36 cases, 13 of which were in state court and 23 of which were in federal court. Motions for class certification have also been ruled upon in some of the “lights” cases or in other class actions to which neither Lorillard Tobacco nor Lorillard, Inc. was a party. In some of these cases, courts have denied class certification to the plaintiffs, while classes have been certified in other matters. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>The Scott Case</i><i>. </i>In one of the class actions pending against Lorillard Tobacco, <i>Scott v. The American Tobacco Company</i>, <i>et al. </i>(District Court, Orleans Parish, Louisiana, filed May 24, 1996), the Louisiana Court of Appeal, Fourth Circuit, issued a decision during April 2010 that modified the trial court’s 2008 amended final judgment. The Court of Appeal’s April 2010 decision reduced the judgment amount from approximately $264 million to approximately $242 million to fund a ten year, court-supervised smoking cessation program. The April 2010 decision also changed the date on which the award of post-judgment interest will accrue from June 2004 to July 2008. Interest awarded by the amended final judgment will continue to accrue from July 2008 until the judgment either is paid or is reversed on appeal. As of May 3, 2010, judicial interest totaled approximately $25.3 million. Lorillard, Inc., which was a party to the case in the past, is no longer a defendant. As of May 3, 2010, the deadline for the parties to seek further review of the Court of Appeal’s ruling had not expired. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In its April 2010 ruling, the Court of Appeal expressly preserved defendants’ right to assert claims on unspent or surplus funds, should any such funds be present, at the conclusion of the ten-year smoking cessation program. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     During 1997, <i>Scott </i>was certified a class action on behalf of certain cigarette smokers resident in the State of Louisiana who desire to participate in medical monitoring or smoking cessation programs and who began smoking prior to September 1, 1988, or who began smoking prior to May 24, 1996 and allege that defendants undermined compliance with the warnings on cigarette packages. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Trial in <i>Scott </i>was heard in two phases. At the conclusion of the first phase in July 2003, the jury rejected medical monitoring, the primary relief requested by plaintiffs, and returned sufficient findings in favor of the class to proceed to a Phase II trial on plaintiffs’ request for a statewide smoking cessation program. Phase II of the trial, which concluded in May 2004, resulted in an award of $591 million to fund cessation programs for Louisiana smokers. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In February 2007, the Louisiana Court of Appeal reduced the amount of the award by approximately $328 million; struck an award of prejudgment interest, which totaled approximately $440 million as of December 31, 2006; and limited class membership to individuals who began smoking by September 1, 1988, and whose claims accrued by September 1, 1988. In January 2008, the Louisiana Supreme Court denied plaintiffs’ and defendants’ separate petitions for review. In May 2008, U.S. Supreme Court denied defendants’ request that it review the case. The case was returned to the trial court, which subsequently entered an amended final judgment that ordered the defendants to pay approximately $264 million to fund the court-supervised smoking cessation program for the members of the certified class. The Court of Appeal’s April 2010 decision was an appeal from this judgment. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Should the amended final judgment be sustained on appeal, Lorillard Tobacco’s share of that judgment, including the award of post-judgment interest, has not been determined. In the fourth quarter of 2007, Lorillard, Inc. recorded a pretax provision of approximately $66 million for this matter which was included in selling, general and administrative expenses on the consolidated statements of income and in other liabilities on the consolidated balance sheets. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The parties filed a stipulation in the trial court agreeing that an article of Louisiana law required that the amount of the bond for the appeal be set at $50 million for all defendants collectively. The parties further agreed that the plaintiffs have full reservations of rights to contest in the trial court the sufficiency of the bond on any grounds. Defendants collectively posted a surety bond in the amount of $50 million, of which Lorillard Tobacco secured 25%, or $12.5 million, which is classified as restricted cash within other assets on the consolidated balance sheet. While Lorillard Tobacco believes the limitation on the appeal bond amount is valid as required by Louisiana law, in the event of a successful challenge the amount of the appeal bond could be set as high as 150% of the judgment and judicial interest combined. If such an event occurred, Lorillard Tobacco’s share of the appeal bond has not been determined. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Other Class Action Cases. </i>In one of the cases pending against Lorillard Tobacco, <i>Brown v. The American Tobacco Company</i>, <i>Inc.</i>, <i>et al. </i>(Superior Court, San Diego County, California, filed June 10, 1997), the court initially certified the case as a class action but it subsequently granted defendants’ motion for class decertification. During 2009, the California Supreme Court vacated the class decertification order and <i>Brown </i>has been returned to the trial court for further activity. While it is not possible to predict future developments in <i>Brown</i>, a new class certification order could be entered. The class previously certified in <i>Brown </i>was composed of residents of California who smoked at least one of defendants’ cigarettes between June 10, 1993 and April 23, 2001 and who were exposed to defendants’ marketing and advertising activities in California. During 2010, the court reversed a prior order and will permit plaintiffs to reassert claims regarding the allegedly fraudulent marketing of “light” or “ultra-light” cigarettes. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>“Lights” Class Actions. </i>Cigarette manufacturers are defendants in another group of cases in which plaintiffs’ claims are based on the allegedly fraudulent marketing of “light” or “ultra-light” cigarettes. Classes have been certified in some of these matters. In one of the pending “lights” cases, <i>Good v. Altria Group</i>, <i>Inc.</i>, <i>et al.</i>, the U.S. Supreme Court ruled that neither the Federal Cigarette Labeling and Advertising Act nor the Federal Trade Commission’s regulation of cigarettes’ tar and nicotine disclosures preempts (or bars) some of plaintiffs’ claims. Lorillard Tobacco is a defendant in one class action in which plaintiffs claims are limited to purchasers of “light” cigarettes, <i>Schwab v. Philip Morris USA, Inc., et al.</i>, which is discussed below. In another case, <i>Cleary v. Philip Morris Incorporated, et al.</i>, a court allowed plaintiffs to amend their complaint in an existing class action to assert claims on behalf of a subclass of individuals who purchased “light” cigarettes from the defendants, but it subsequently dismissed the “light” cigarettes claims asserted against Lorillard Tobacco. As of May 3, 2010, the deadline for plaintiffs to appeal this ruling had not expired. The court hearing the case of <i>Brown v. The American Tobacco Company, et al., </i>has permitted the plaintiffs to reassert claims regarding the allegedly fraudulent marketing of “light” or “ultra-light” cigarettes. Lorillard, Inc. is not a party to any of the purported “lights” class actions. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Approximately 40 additional purported “lights” class actions are pending against other cigarette manufacturers. During 2009, the Judicial Panel on Multidistrict Litigation consolidated various federal court “lights” class actions pending against Philip Morris USA or Altria Group and transferred those cases to the U.S. District Court of Maine. As of May 3, 2010, 13 cases were part of the consolidated proceeding. None of the cases pending against Lorillard Tobacco or Lorillard, Inc. are part of the consolidated proceeding. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>The Schwab Case. </i>In the case of <i>Schwab v. Philip Morris USA</i>, <i>Inc.</i>, <i>et al. </i>(U.S. District Court, Eastern District, New York, filed May 11, 2004), plaintiffs base their claims on defendants’ alleged violations of the RICO statute in the manufacture, marketing and sale of “light” cigarettes. Plaintiffs estimated damages to the class in the hundreds of billions of dollars. Any damages awarded to the plaintiffs based on defendants’ violation of the RICO statute would be trebled. In September 2006, the court granted plaintiffs’ motion for class certification and certified a nationwide class action on behalf of purchasers of “light” cigarettes. In March 2008, the Second Circuit Court of Appeals reversed the class certification order and ruled that the case may not proceed as a class action. <i>Schwab </i>has been returned to the U.S. District Court for the Eastern District of New York for further proceedings, but the future activity in this matter, if any, is not known. Lorillard, Inc. is not a party to this case. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt">     <b><i>Reimbursement Cases</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Lorillard Tobacco is a defendant in the four Reimbursement Cases that are pending in the U.S. and it has been named as a party to a case in Israel. Lorillard, Inc. is a co-defendant in two of the four cases pending in the U.S. Plaintiffs in the case in Israel have attempted to assert claims against Lorillard, Inc. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>U.S. Federal Government Action. </i>In August 2006, the U.S. District Court for the District of Columbia issued its final judgment and remedial order in the federal government’s reimbursement suit (<i>United States of America v. Philip Morris USA</i>, <i>Inc.</i>, <i>et al</i>., U.S. District Court, District of Columbia, filed September 22, 1999). The verdict concluded a bench trial that began in September 2004. Lorillard Tobacco, other cigarette manufacturers, two parent companies and two trade associations are defendants in this action. Lorillard, Inc. is not a party to this case. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In its 2006 verdict, the court determined that the defendants, including Lorillard Tobacco, violated certain provisions of the RICO statute, that there was a likelihood of present and future RICO violations, and that equitable relief was warranted. The government was not awarded monetary damages. The equitable relief included permanent injunctions that prohibit the defendants, including Lorillard Tobacco, from engaging in any act of racketeering, as defined under RICO; from making any material false or deceptive statements concerning cigarettes; from making any express or implied statement about health on cigarette packaging or promotional materials (these prohibitions include a ban on using such descriptors as “low tar,” “light,” “ultra-light,” “mild” or “natural”); and from making any statements that “low tar,” “light,” “ultra-light,” “mild” or “natural” or low-nicotine cigarettes may result in a reduced risk of disease. The final judgment and remedial order also requires the defendants, including Lorillard Tobacco, to make corrective statements on their websites, in certain media, in point-of-sale advertisements, and on cigarette package “inserts” concerning: the health effects of smoking; the addictiveness of smoking; that there are no significant health benefits to be gained by smoking “low tar,” “light,” “ultra-light,” “mild” or “natural” cigarettes; that cigarette design has been manipulated to ensure optimum nicotine delivery to smokers; and that there are adverse effects from exposure to secondhand smoke. If the final judgment and remedial order are not modified or vacated on appeal, the costs to Lorillard Tobacco for compliance could exceed $10 million. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Following trial, the defendants, the government and several intervenors noticed appeals to the Circuit Court of Appeals for the District of Columbia. Defendants received a stay of the judgment and remedial order from the Court of Appeals that remained in effect while the appeal was pending. In May 2009, a three judge panel upheld substantially all of the District Court’s final judgment and remedial order. In September 2009, the Court of Appeals denied defendants’ rehearing petitions as well as their motion to vacate those statements in the appellate ruling that address defendants’ marketing of “low tar” or “lights” cigarettes, to vacate those parts of the trial court’s judgment on that issue, and to remand the case with instructions to deny as moot the government’s allegations and requested relief regarding “lights” cigarettes. The Court of Appeals has stayed its order that formally relinquishes jurisdiction of defendants’ appeal pending the filing and disposition of the government’s and the defendants’ petitions for writ of certiorari to the U.S. Supreme Court. As of May 3, 2010, the U.S. Supreme Court has not announced whether it will grant review of any of the petitions for writ of certiorari that were filed on February 19, 2010 by Lorillard Tobacco, the other defendants, the federal government and the intervenors. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     While trial was underway, the Court of Appeals ruled that plaintiff may not seek to recover profits earned by the defendants. Prior to trial, the government had claimed that it was entitled to approximately $280 billion from the defendants for its claim to recover profits earned by the defendants. Recovery of profits may be considered by the U.S. Supreme Court in the pending appeal. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt">     <b><i>Settlement of State Reimbursement Litigation</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     On November 23, 1998, Lorillard Tobacco, Philip Morris Incorporated, Brown & Williamson Tobacco Corporation and R.J. Reynolds Tobacco Company (the “Original Participating Manufacturers”) entered into the Master Settlement Agreement (“MSA”) with 46 states, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa and the Commonwealth of the Northern Mariana Islands to settle the asserted and unasserted health care cost recovery and certain other claims of those states. These settling entities are generally referred to as the “Settling States.” The Original Participating Manufacturers had previously settled similar claims brought by Mississippi, Florida, Texas and Minnesota, which together with the MSA are referred to as the “State Settlement Agreements.” </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The State Settlement Agreements provide that the agreements are not admissions, concessions or evidence of any liability or wrongdoing on the part of any party, and were entered into by the Original Participating Manufacturers to avoid the further expense, inconvenience, burden and uncertainty of litigation. Lorillard recorded pretax charges for its obligations under the State Settlement Agreements of $276 million and $247 million for the three months ended March 2010 and 2009, respectively. Lorillard’s portion of ongoing adjusted settlement payments and legal fees is based on its share of domestic cigarette shipments in the year preceding that in which the payment is due. Accordingly, Lorillard records its portions of ongoing adjusted settlement payments as part of cost of manufactured products sold as the related sales occur. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The State Settlement Agreements require that the domestic tobacco industry make annual payments of $10.4 billion, subject to adjustment for several factors, including inflation, market share and industry volume. In addition, the domestic tobacco industry is required to pay settling plaintiffs’ attorneys’ fees, subject to an annual cap of $500 million, as well as an additional amount of up to $125 million in each year through 2008. These payment obligations are the several and not joint obligations of each settling defendant. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The State Settlement Agreements also include provisions relating to significant advertising and marketing restrictions, public disclosure of certain industry documents, limitations on challenges to tobacco control and underage use laws, and other provisions. Lorillard Tobacco and the other Original Participating Manufacturers have notified the States that they intend to seek an adjustment in the amount of payments made in 2003 pursuant to a provision in the MSA that permits such adjustment if the companies can prove that the MSA was a significant factor in their loss of market share to companies not participating in the MSA and that the States failed to diligently enforce certain statutes passed in connection with the MSA. If the Original Participating Manufacturers are ultimately successful, any adjustment would be reflected as a credit against future payments by the Original Participating Manufacturers under the agreement. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">     From time to time, lawsuits have been brought against Lorillard Tobacco and other participating manufacturers to the MSA, or against one or more of the states, challenging the validity of the MSA on certain grounds, including as a violation of the antitrust laws. See “— MSA-Related Antitrust Suit” below. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In addition, in connection with the MSA, the Original Participating Manufacturers entered into an agreement to establish a $5.2 billion trust fund payable between 1999 and 2010 to compensate the tobacco growing communities in 14 states (the “Trust”). Payments to the Trust will no longer be required as a result of an assessment imposed under a new federal law repealing the federal supply management program for tobacco growers. Under the new law, enacted in October 2004, tobacco quota holders and growers will be compensated with payments totaling $10.1 billion, funded by an assessment on tobacco manufacturers and importers. Payments to qualifying tobacco quota holders and growers commenced in 2005. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Lorillard believes that the State Settlement Agreements will materially adversely affect its cash flows and operating income in future years. The degree of the adverse impact will depend, among other things, on the rates of decline in domestic cigarette sales in the premium price and discount price segments, Lorillard’s share of the domestic premium price and discount price cigarette segments, and the effect of any resulting cost advantage of manufacturers not subject to significant payment obligations under the State Settlement Agreements. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt">     <b><i>Filter Cases</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In addition to the above, claims have been brought against Lorillard Tobacco and Lorillard, Inc. by individuals who seek damages resulting from their alleged exposure to asbestos fibers that were incorporated into filter material used in one brand of cigarettes manufactured by Lorillard Tobacco for a limited period of time ending more than 50 years ago. Lorillard Tobacco is a defendant in 30 such cases. Lorillard, Inc. is a defendant in four Filter Cases, including two that also name Lorillard Tobacco. Since January 1, 2008, Lorillard Tobacco has paid, or has reached agreement to pay, a total of approximately $14.3 million in settlements to finally resolve approximately 75 claims. The related expense was recorded in selling, general and administrative expenses on the consolidated statements of income. Since January 1, 2008, verdicts have been returned in two Filter Cases. During September 2008, a jury in the District Court of Bexar County, Texas, returned a verdict for Lorillard Tobacco in the case of <i>Young v. Lorillard Tobacco Company</i>. Plaintiffs in the <i>Young </i>case did not pursue an appeal and that matter is concluded. During January 2010, a jury in the Superior Court of California, Los Angeles County, returned a verdict for Lorillard Tobacco in the case of <i>Cox v. Asbestos Corporation, Ltd., et al. </i>In the case of <i>Cox</i>, the deadline for plaintiffs to pursue an appeal had not expired as of May 3, 2010. As of May 3, 2010, nine of the Filter Cases were scheduled for trial. Trial dates are subject to change. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Tobacco-Related Antitrust Cases</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Indirect Purchaser Suits. </i>Approximately 30 antitrust suits were filed in 2000 and 2001 on behalf of putative classes of consumers in various state courts against cigarette manufacturers, including Lorillard Tobacco. The suits all alleged that the defendants entered into agreements to fix the wholesale prices of cigarettes in violation of state antitrust laws which permit indirect purchasers, such as retailers and consumers, to sue under price fixing or consumer fraud statutes. More than 20 states permit such suits. Lorillard, Inc. was not named as a defendant in any of these cases. Lorillard Tobacco was a defendant in all but one of these indirect purchaser cases. Three indirect purchaser suits, in New York, Florida and Michigan, thereafter were dismissed by courts in those states, and the plaintiffs withdrew their appeals. The actions in all other states, except for New Mexico and Kansas, were voluntarily dismissed. The New Mexico suit was thereafter dismissed as to Lorillard Tobacco. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In the Kansas case, the District Court of Seward County certified a class of Kansas indirect purchasers in 2002. In July 2006, the Court issued an order confirming that fact discovery was closed, with the exception of privilege issues that the Court determined, based on a Special Master’s report, justified further fact discovery. In October 2007, the Court denied all of the defendants’ privilege claims, and the Kansas Supreme Court thereafter denied a petition seeking to overturn that ruling. Discovery currently is ongoing. No date has been set by the Court for dispositive motions and trial. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>MSA-Related Antitrust Suit. </i>In October 2008, Lorillard Tobacco was named as a defendant in an action filed in the Western District of Kentucky, <i>Vibo Corporation, Inc. d/b/a/ General Tobacco v. Conway, et al</i>. The suit alleges that the named defendants, which include 52 state and territorial attorneys general and 19 tobacco manufacturers, violated the federal Sherman Antitrust Act of 1890 (the “Sherman Act”) by entering into and participating in the MSA. The plaintiff alleges that MSA participants, like it, that were not in existence when the MSA was executed in 1998 but subsequently became participants, are unlawfully required to pay significantly more sums to the states than companies that joined the MSA within 90 days after its execution. In addition to the Sherman Act claim, plaintiff has raised a number of constitutional claims against the states. Plaintiff seeks a declaratory judgment in its favor on all claims, an injunction against the continued enforcement of the MSA, treble damages against the tobacco manufacturer defendants, including Lorillard Tobacco and other manufacturer defendants, and damages and injunctive relief against the states, including contract recession and restitution. In December 2008, the court dismissed the complaint against all defendants, including Lorillard Tobacco. The court entered its final judgment dismissing the suit on January 6, 2010. Thereafter, the plaintiff filed a notice of appeal to the federal Court of Appeals for the Sixth Circuit. To date, no further filings have been made. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Defenses</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Each of Lorillard Tobacco and Lorillard, Inc. believes that it has valid defenses to the cases pending against it as well as valid bases for appeal should any adverse verdicts be returned against either of them. As of May 3, 2010, Lorillard Tobacco was a defendant in approximately 10,250 pending product liability cases, and Lorillard, Inc. was a co-defendant in approximately 695 of these cases. While Lorillard Tobacco and Lorillard, Inc. intend to defend vigorously all tobacco products liability litigation, it is not possible to predict the outcome of any of this litigation. Litigation is subject to many uncertainties. Plaintiffs have prevailed in several cases, as noted above. It is possible that one or more of the pending actions could be decided unfavorably as to Lorillard Tobacco, Lorillard, Inc. or the other defendants. Lorillard Tobacco and Lorillard, Inc. may enter into discussions in an attempt to settle particular cases if either believe it is appropriate to do so. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Neither Lorillard Tobacco nor Lorillard, Inc. can predict the outcome of pending litigation. Some plaintiffs have been awarded damages from cigarette manufacturers at trial. While some of these awards have been overturned or reduced, other damages awards have been paid after the manufacturers have exhausted their appeals. These awards and other litigation activities against cigarette manufacturers continue to receive media attention. In addition, health issues related to tobacco products also continue to receive media attention. It is possible, for example, that the 2006 verdict in <i>United States of America v. Philip Morris USA, Inc.</i>, <i>et al.</i>, which made many adverse findings regarding the conduct of the defendants, including Lorillard Tobacco, could form the basis of allegations by other plaintiffs or additional judicial findings against cigarette manufacturers, including giving collateral estoppel effect to those adverse findings. In addition, the ruling in <i>Good v. Altria Group, Inc., et al. </i>could result in further “lights” litigation. Any such developments could have an adverse effect on the ability of Lorillard Tobacco or Lorillard, Inc. to prevail in smoking and health litigation and could influence the filing of new suits against Lorillard Tobacco or Lorillard, Inc. Lorillard Tobacco and Lorillard, Inc. also cannot predict the type or extent of litigation that could be brought against either of them, or against other cigarette manufacturers, in the future. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Lorillard records provisions in the consolidated financial statements for pending litigation when it determines that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Except for the impact of the State Settlement Agreements and <i>Scott </i>as described above, management is unable to make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome of material pending litigation and, therefore, no material provision has been made in the consolidated financial statements for any unfavorable outcome. It is possible that Lorillard’s results of operations or cash flows in a particular quarterly or annual period or its financial position could be materially adversely affected by an unfavorable outcome or settlement of certain pending litigation. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Indemnification Obligations</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In connection with the Separation Lorillard entered into a separation agreement with Loews (the “Separation Agreement”) and agreed to indemnify Loews and its officers, directors, employees and agents against all costs and expenses arising out of third party claims (including, without limitation, attorneys’ fees, interest, penalties and costs of investigation or preparation for defense), judgments, fines, losses, claims, damages, liabilities, taxes, demands, assessments and amounts paid in settlement based on, arising out of or resulting from, among other things, Loews’ ownership of or the operation of Lorillard and its assets and properties, and its operation or conduct of its businesses at any time prior to or following the Separation (including with respect to any product liability claims). </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Loews is a defendant in three pending product liability cases. One of these is a Reimbursement Case in Israel and two are purported Class Action Cases on file in U.S. courts. Lorillard Tobacco also is a defendant in each of the three product liability cases in which Loews is involved. Pursuant to the Separation Agreement, Lorillard will be required to indemnify Loews for the amount of any losses and any legal or other fees with respect to such cases. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Other Litigation</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Lorillard is also party to other litigation arising in the ordinary course of business. The outcome of this other litigation will not, in the opinion of management, materially affect Lorillard’s results of operations or equity. </div> </div>  <!-- Begin Block Tagged Note false false false Includes disclosure of commitments and contingencies. 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