“Light” cigarette suit certified as U.S. class action
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A U.S. federal judge gave class-action status on Monday to a lawsuit filed by “light” cigarette smokers who accuse tobacco companies of fraud and are seeking a verdict of as much as $200 billion.
The 540-page ruling sent tobacco company shares lower. The Dow Jones U.S. Tobacco index was down 4 percent.
“I think a lot of people weren’t expecting this, because the judge a few weeks ago questioned whether the smokers could prove the damages or how,” said Charles Norton, co-portfolio manager of the Vice Fund, which holds 36,000 Altria Group Inc. shares. Altria is parent of defendant Philip Morris USA, maker of Marlboro cigarettes and other brands.
The ruling by U.S. Senior District Judge Jack B. Weinstein, who sits in the Eastern District of New York, certifies the largest class action in U.S. history, lawyers for the smokers said. The plaintiffs contend that the tobacco industry’s marketing intended to shift buyers to light cigarettes because of growing health concerns about smoking.
Philip Morris USA and Reynolds American Inc.‘s R.J. Reynolds Tobacco Co. unit immediately said they would appeal the ruling.
“Judge Weinstein has repeatedly entertained claims against the tobacco industry that have been rejected by all federal courts and his previous certification of classes against the tobacco industry have been reversed by the Second Circuit Court of Appeals,” said David Howard, a spokesman for Reynolds.
‘PANDEMIC’
Weinstein, during a September 13 hearing, raised questions about whether there was a valid way to determine damages for such a large and varied group of smokers if he certified the class and allowed the lawsuit, which accuses the tobacco companies of racketeering, as a class action.
But Weinstein said in his ruling that cigarettes are “the basis for a pandemic, causing premature deaths of tens of millions of Americans.”
“Where a cigarette smoker can demonstrate that he or a group of smokers has been damaged by the cigarette industry, the help of the court in resolving the claim and defenses is mandatory,” Weinstein wrote.
The ruling could delay Altria’s plans to spin off its Kraft Foods Inc. business, Norton said.
Altria has said it wanted the U.S. legal landscape to improve before spinning off Kraft, but three decisions in its favor in major cases in the past year led some analysts to believe the spinoff announcement was imminent.
RACKETEERING CHARGED
Lawyers for the plaintiffs argued that tobacco companies reaped between $120 billion to $200 billion in extra sales through the “light” cigarettes deception. The case was filed under federal racketeering law and if the companies are found to have violated that law, damages would be tripled.
The tobacco companies’s lawyers argued that in order to be awarded damages, plaintiffs would have to prove how many smokers relied on the word “light” when they decided which cigarettes to buy.
They also said there are 65 cigarette brands represented in the case that approached consumers in different ways.
The judge conceded in his opinion that appellate courts have not ruled favorably for plaintiffs on large class action cases against the cigarette industry.
Altria shares were down $3.24, or 3.9 percent, on Monday on the New York Stock Exchange and Reynolds American was down $1.52, or 2.4 percent.
Other defendants in the case include Loews Corp.‘s Lorillard Tobacco unit, whose tracking stock, Carolina Group, was down 80 cents, or 1.4 percent, at $55.08.
Shares of Vector Group Ltd., parent of defendant Liggett Group, were down 23 cents at $16.49; and shares of British American Tobacco Plc, parent of British American Tobacco (Investments) Ltd, closed down about 1 percent in London.
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