'Light' cigarette smokers win class-action status

…the manufacturers used a marketing strategy that promoted light cigarettes as a lower-risk alternative to regular cigarettes, even though their own internal documents indicated they knew the risks were about the same.

The Globe and Mail
September 26, 2006

'Light' cigarette smokers win class-action status
U.S. judge deals blow to Big Tobacco in certifying $200-billion (U.S.) lawsuit
Tom Hays, Associated Press

NEW YORK — In a blow to Big Tobacco, a U.S. federal judge yesterday granted class-action status to tens of millions of "light cigarette" smokers for a potential $200-billion (U.S.) lawsuit against cigarette makers.

U.S. District Judge Jack Weinstein in Brooklyn made the ruling on a 2004 lawsuit that alleges Philip Morris USA Inc., R.J. Reynolds Tobacco Co., 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 includes anyone who purchased cigarettes that were labelled "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 two biggest U.S. cigarette makers, Philip Morris and R.J. Reynolds, said they plan to appeal.

Marlboro maker Philip Morris, a unit of New York-based 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' lawyer Michael 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 indicated 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 per cent 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 if smokers had known the true health risks, they would have expected discounts of 50 to 80 per cent a pack, part of the basis for a demand for between $120-billion and $200-billion in damages, he said.

Tobacco company lawyers 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, Judge Weinstein wrote that class-action certification is 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 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, 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.

In trading on the New York Stock Exchange yesterday, shares of Altria fell $5.26 or 6.4 per cent to $77.06, Reynolds American dipped $2.27 or 3.7 per cent to $59.75, while shares of Greensboro, N.C.-based Carolina Group, a tracking stock for Lorillard, lost 68 cents or 1.2 per cent to $55.20. New York-based Loews Corp. established Carolina Group in 2002 as a tracking stock for its tobacco holdings, but now owns less than a 50-per-cent stake.

Analysts had expected tobacco stock prices to slide 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," wrote analyst Michael Smith of JPMorgan Chase & Co.


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