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Tobacco suit given class status

A judge says evidence from "light" cigarette smokers can proceed to a jury. Tobacco companies plan to appeal.

By ASSOCIATED PRESS
Published September 26, 2006

NEW YORK - In a blow to the tobacco industry, a federal judge ruled Monday that a jury should decide whether tobacco companies must pay tens of millions of smokers up to $200-billion for allegedly duping them into buying light cigarettes over the past three decades.

The cigarettemakers said they would appeal, but their shares sank on Wall Street as the ruling granting class-action status to the case clouded what had appeared to be an improving legal environment for the industry.

Altria Group Inc., the parent of the nation's largest cigarettemaker, Philip Morris USA Inc., said the ruling would delay its long-awaited restructuring plan, which includes a divestiture of its controlling stake in Kraft Foods Inc.

In a conference call Monday afternoon, a top Altria attorney, William S. Ohlemeyer, said that a prerequisite to pursuing the company's restructuring plan is clarity in the overall litigation environment. "Today's decision is not a step toward clarity. It is a step back of sorts," he said.

His comments came only hours after U.S. District Judge Jack Weinstein granted class-action status to a lawsuit against Marlboro maker Philip Morris USA, its biggest U.S. rival, R.J. Reynolds Tobacco Co., and other cigarette manufacturers.

"The plaintiffs are entitled to the chance to prove their allegations," Weinstein said. The judge set a trial date of Jan. 22.

The tobacco companies prefer trying each case on its own, saying circumstances vary widely from one person to another.

"We obviously disagree with the ruling - strongly," said Theodore Grossman, an attorney for Reynolds American Inc.'s R.J. Reynolds Tobacco division. "The law doesn't support class certification."

Ohlemeyer, vice president and associate general counsel for Altria Group, said manufacturers would "seek a stay of all trial court proceedings pending a decision by the appellate court."

The suit, filed in 2004, alleges the tobacco companies responded to consumers' mounting health concerns with a marketing scheme to promote light cigarettes as a lower-risk alternative to regular cigarettes, even though their own internal documents showed they knew the risks were about the same.

Smokers' attorney Michael D. Hausfeld said the decision could clear the way for one of the largest class-action cases ever, both in number of plaintiffs and amount of damages. He estimated the class - consisting of anyone who purchased cigarettes that were labeled "light" or "lights" after they were put on the market in the early 1970s - could number up to 60-million.

In Monday's lengthy ruling, Weinstein said the class certification was necessary because "no individual can afford to prosecute the case alone." Any flaws in the case, he added, were outweighed by the need to put it before a jury.

"The case comes down to the role of the jury: Should it be permitted to decide a vexing private litigation on the basis of somewhat dubious arguments and questionable proofs when the decision has so many important overtones, or should the judges themselves decide by holding that the matter is beyond the ken of a reasonable jury?" he wrote. "Here, the fundamentals of the constitution provide the answer."

The judge also said he would "entertain a motion to extend the class ... to encompass smokers of all 'low-tar' brands rather than 'lights' alone."

An analysis by plaintiffs' expert witnesses concluded more than 90 percent of the smokers in the potential class purchased light cigarettes over the past three decades based on health concerns, as opposed to taste or other factors. A separate study found that smokers who had known the truth about the health risks would have expected discounts of 50 to 80 percent per pack. That finding was part of the basis for a demand for between $120-billion and $200-billion in damages, Hausfeld said.

Shares of Altria Group sank $5.26, or 6.4 percent, to close at $77.06 on the New York Stock Exchange Monday. Shares of Reynolds American fell $2.27, or 3.7 percent, to end at $59.75, and shares of Carolina Group, which is the tracking stock for Loews Corp.'s Lorillard Tobacco unit, fell 68 cents, or 1.2 percent, to $55.20 on the NYSE.

[Last modified September 25, 2006, 23:11:15]