Monday, September 25, 2006

A federal judge yesterday granted class-action status to a lawsuit filed by smokers of “light” cigarettes who say the four major tobacco makers deceived them into thinking the cigarettes were safer than regular cigarettes.

The 1,500-page decision by U.S. Federal Judge Jack B. Weinstein sets the stage for the largest class-action lawsuit in U.S. history, with 50 million plaintiffs, and puts Big Tobacco at risk for at least $200 billion.

Phillip Morris USA said it would will appeal Judge Weinstein’s decision.

In addition to Phillip Morris, the defendants include R.J. Reynolds, Brown and Williamson Tobacco Corp., Loewes Corp’s Lorillard Tobacco Co., Vector Group Ltd.’s Liggett Group Inc. and British American Tobacco Ltd. The case is filed under the federal Racketeer Influenced Corrupt Organizations Act, or RICO, which allows plaintiffs to triple the amount in damages.

“This is the first major defeat and exposure of the tobacco industry’s fraudulent marketing practices, which deceived consumers to buy products that they otherwise would not have bought at prices they would not have paid,” said Michael Hausfeld, a partner at Cohen, Milstein, Hausfeld and Troll, the lead attorney for the plaintiffs.

The lawsuit, filed in 2004, says the tobacco companies misled smokers of light cigarettes to believe they were smoking a safer cigarette than the regular products. The lawsuit is open to people who smoked light cigarettes since 1970. The number of plaintiffs is increasing as people learn about the lawsuit.

The number of plaintiffs could jump if the scope of the lawsuit is expanded to include makers of low-tar cigarette brands. Mr. Hausfeld said he is considering doing that, which would raise the amount of potential damages.

The tobacco companies appear optimistic the case will not hold up in federal court and told investors yesterday that the plaintiffs’ case for $200 billion is shaky.

“The company believes that the appellate court will find today’s certification decision runs counter to the overwhelming weight of federal and state case law regarding class actions in smokers’ litigation and must be reversed,” said William S. Ohlemeyer, Phillip Morris USA’s vice president and associate general counsel.

“Weinstein conceded that the damages claim was greatly conceded,” Mr. Ohlemeyer told investors. “In a case with a lot of weak links, certainly the damages model is one of them. These people continue to smoke and it’s hard to argue they didn’t get what they paid for and they didn’t pay more.”

Mr. Ohlemeyer added that if the case goes to trial it should not be decided by a jury, which could award more than a judge.

“A number of courts across the country have ruled claims like these against the tobacco industry cannot be tried as class actions. Judge Weinstein himself said that every smoker of light cigarettes chooses their cigarette for a different reason. For these reasons we believe the case cannot be sustained under the law,” said R.J. Reynolds spokesman David Howard.

In May 2005, the federal court in New York threw out a class-action case certified by Judge Weinstein that involved smokers suing the tobacco industry. The judge was nominated by President Lyndon B. Johnson to the U.S. District Court, Eastern District of New York in 1967.

John Banzhaf, a law professor at Georgetown University and a legal consultant to states during the 1998 settlement negotiations with the tobacco companies, said the ruling is a significant victory for the plaintiffs.

“This is a tremendous help to the plaintiffs because suing on an individual basis can be extremely costly and is more difficult to prove,” Mr. Banzhaf said. “Assuming this goes to trial, the defendants will face a roll of the dice for hundreds of billions of dollars rather than fighting one case at a time for much less.”

The tobacco companies had to pay out nearly $250 billion to 46 states in the 1998 settlement.

As a result of yesterday’s ruling, Mr. Hausfeld said he is filing with all 50 state corporate commissions on behalf of nongovernmental organizations, to consider revoking the business licenses of the tobacco companies involved in the lawsuit.

The current lawsuit follows an opinion issued last month by Judge Gladys Kessler in the U.S. District Court for the District of Columbia that criticized tobacco companies for misleading consumers about the health risks associated with smoking. However, the tobacco companies avoided monetary penalties in the case because the judge said she did not have the authority to force the tobacco companies to pay the $10 billion in damages the plaintiffs were seeking. R.J. Reynolds and Lorillard Tobacco Co., were also involved in that case.

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