State legal horizon changing for tobacco makers

Rob Luke Dec. 1, 2006, 3:57am

Oregon Supreme Court

America's cigarette industry breathed a sigh of relief last week after the U.S. Supreme Court refused to reconsider the Illinois Supreme Court ruling that threw a high-profile class action case against Philip Morris out of court.

Especially since the ruling appears to be another setback to the strategy of mounting large, state-based class action lawsuits as a way of holding companies accountable for perceived wrongdoing.

The Supreme Court decided Nov. 27 to leave intact an Illinois State Supreme Court decision that threw out a successful circuit court class action lawsuit against cigarette maker Philip Morris (now part of the Altria Group) based on the marketing of "light" cigarettes. The original decision in the Madison County Circuit Court awarded punitive damages against Philip Morris of $10.1 billion.

The suit was brought on behalf of more than one million smokers of Marlboro Lights and Cambridge Lights over a 30-year period. The plaintiffs claimed that Philip Morris designed its "light" cigarettes to deliver the maximum amount of nicotine to consumers while still registering as "light" via the machine tests of the FTC.

The U.S. Supreme Court ruling is considered to indicate a further legal shift away from consumer-focused class action lawsuits and towards a more business-focused tort reform agenda, according to some legal scholars.

Steve Beckett, professor of law at the University of Illinois College of Law, says recent legislation on tort reform in medical malpractice and class action cases has reduced such anti-corporate lawsuits over the past year or two.

"The legal economy drives class action suits," he said. "If Congress puts up roadblocks like federalizing some [legal] issues, then there will naturally be less of them."

Looking up

The immediate future looks rosier for Philip Morris's parent company, Altria.

About the only case still on the docket against the company is a U.S. Supreme Court class action case sent from the Oregon Supreme Court (the Williams case). There the state Supreme Court let stand punitive damages some 79 times higher than the original plaintiff-damages award.

And although a decision on the Williams case is not expected until early next year, recent trends and oral arguments indicate that the case is likely to be bounced back to the Oregon Supreme Court on a technical issue of clarification.

Plus, the U.S. Supreme Court ruled three years ago that punitive damages exceeding the personal award by 10 times or more may be unconstitutional.

Altria analysts like David Adelman of Morgan Stanley and Bonnie Herzog of Citigroup have both hailed the recent supreme court decision as a positive for Altria and the tobacco industry.

Adelman recently wrote that the decision reflects "a remarkable multi-year reduction in the U.S. tobacco industry's aggregate legal risk" and concludes "it is becoming increasingly clear that the U.S. tobacco industry's legal risk is similar to that faced by other similarly sized U.S. industries".

Herzog also was bullish on the decision's ramifications for the tobacco industry.

"Overall, we believe this is great news for the industry as it reinforces our belief that lights class actions create a lot of headlines," she wrote in a recent note to clients, "but all lead to being a dead end for the plaintiffs."

Trending down

Although the ruling indicated that class action lawsuits on the "light cigarette" issue appear to be dead, Beckett warns tort reform advocates not to read too much into the Supreme Court refusal, or "circuit denial," to hear the Philip Morris case.

"The denial essentially means that four people didn't want to hear the case," he explained. "The press tends to portray circuit denial as affirmation [of the lower court decision], but one must be wary."

Nontheless, Beckett agrees that the decision represents a general trend of turning away from class action lawsuits at the state level. He says pevious abuses of such lawsuits that resulted in massive fees for plaintiff legal firms have contributed to the trend.

"Setting up legal roadblocks to class action lawsuits feeds off itself," Beckett said. "They make [class action specialist] law firms more cautious about filing because they want to either win or settle."

He expects class action suits against corporations to continue to decline and then stabilize at lower levels than currently exist.

From Altria's point of view, the recent U.S. Supreme Court decision has "positioned the industry in its strongest legal position in at least the last decade," according to Adelman.

This position has been reinforced with better legal defense, a declining overall caseload, no new legal threat, broad-based success in "lights" consumer protection class actions and structural legal reforms.

Want to get notified whenever we write about any of these organizations ?
Next time we write about any of these organizations, we'll email you a link to the story. You may edit your settings or unsubscribe at any time.

Organizations in this Story

U.S. Supreme Court
1 First St NE
Washington, DC 20543

Morgan Stanley
1585 Broadway, New York, NY 10036, United States
New York, NY 10036

Citibank Building, New York, NY, United States
New York, NY 10022

More News