Judge Grants Class Action Status to ‘Light Cigarette’ Smokers
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NEW YORK (AP) – In a blow to Big Tobacco, a federal judge on Monday granted class action status to tens of millions of “light cigarette” smokers for a potential $200 billion lawsuit against cigarette makers.
U.S. District Judge Jack Weinstein in Brooklyn made the ruling on a 2004 lawsuit that alleges Philip Morris, R.J. Reynolds Tobacco, Lorillard Tobacco Co. and other defendants duped smokers, and responded to consumers’ mounting health concerns with a campaign of deception designed to preserve revenue.
The class is anyone who purchased cigarettes that were labeled “light” or “lights” after they were put on the market, beginning in the early 1970s. The judge set a trial date of Jan. 22, 2007.
The nation’s two biggest cigarette makers, Philip Morris USA Inc. and R.J. Reynolds Tobacco Co., said they plan top appeal.
Marlboro maker Philip Morris, a unit of Altria Group Inc., said the ruling “runs counter to the overwhelming weight of federal and state case law regarding class actions in smokers’ litigation and must be reversed.”
Nonetheless, the judge’s decision drove tobacco stock prices lower.
In arguing last week for the class certification, smokers’ attorney Michael D. Hausfeld said the manufacturers used a marketing strategy that promoted 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.
“They understood that they were selling death,” he said. The question, he added, was “how to disguise it. … They put on ‘lights.'”
Mr. Hausfeld told the judge that 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, had they known the truth about the health risks, would have expected discounts of 50 to 80 percent per pack, part of the basis for a demand for between $120 billion and $200 billion in damages, he said.
Tobacco company attorneys argued that the lawsuit relied on flawed data and should not be certified as a class action. They also said that without surveying each smoker in the suit, it would be impossible to determine their motives for buying light cigarettes.
In his ruling Monday, Judge Weinstein wrote that class action certification was “critical to plaintiffs’ case.”
“No other method of aggregation of tens of millions of smokers’ claims is practicable. The small amount of possible recovery for each smoker could not justify the expensive and time-consuming pretrial and trial procedures required,” he wrote.
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.”
David Howard, a spokesman for R.J. Reynolds Tobacco, a unit of Winston-Salem, N.C.-based Reynolds American Inc., said Reynolds plans to appeal. “There are too many individual factors in this type of case that it would be impossible to certify it as a class,” he said.
A message seeking comment from Greensboro, N.C.-based Lorillard Tobacco was not immediately returned.
Altria shares sank $3.09, or 3.8 percent, to $79.23 in midday trading on the New York Stock Exchange. Shares of Reynolds American fell $1.48, or 2.4 percent, to $60.54, while shares of Carolina Group, which is the tracking stock for Loews Corp.’s Lorillard unit, fell 87 cents, or 1.6 percent, to $55.01 on the NYSE.
Analysts had expected downward pressure on tobacco shares if the class was certified, but still saw reason for optimism.
“We would expect the stock to trade down further as a result, but believe this would create a very attractive buying opportunity for investors,” analyst Michael Smith of JPMorgan wrote.
It was not immediately clear how the ruling would affect Altria Group’s plans to divest its controlling stake in Kraft Foods Inc. which had seemed to edge nearer after several recent legal rulings seen as favorable to tobacco companies.
But Smith said he expects Altria will announce the spin-off at an Oct. 25 board meeting despite Monday’s ruling.
“The board is likely to view the risk from the case as manageable, due to the very high probability of any initial class certification being overturned on immediate appeal to the Second Circuit Court of Appeals, and an overall litigation environment that is far better than in the past,” he said.