“The plaintiffs are entitled to the chance to prove their allegations,” U.S. District Judge Jack Weinstein said in granting class-action status to a lawsuit against Philip Morris USA Inc., R.J. Reynolds Tobacco Co., Lorillard Tobacco Co. and other cigarette manufacturers.
The suit, filed in 2004, alleges the tobacco companies responded to consumers’ mounting health concerns with a marketing scheme to promote 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.
Smokers’ attorney Michael D. Hausfeld said the decision could clear the way for one of the largest class-action cases ever, both in number of plaintiffs and amount of damages. He estimated the class — consisting of anyone who purchased cigarettes that were labeled “light” or “lights” after they were put on the market in the early 1970s — could number up to 60 million.
“It’s an extremely significant ruling,” he said.
Lawyers for the tobacco companies said they would appeal.
“We obviously disagree with the ruling — strongly,” said Theodore Grossman, an attorney for R.J. Reynolds. “The law doesn’t support class certification.”
William S. Ohlemeyer, Philip Morris USA’s vice president and associate general counsel, said in a statement that manufacturers would “seek a stay of all trial court proceedings pending a decision by the appellate court.”
Last year, the U.S. 2nd Circuit Court of Appeals threw out Weinstein’s decision in a 2002 case in which he certified the first-ever, nationwide class-action against tobacco companies. The panel ruled he had stretched the boundaries of the law by allowing the plaintiffs to seek only punitive damages.
In the 540-page ruling, Weinstein said the class certification was necessary because “no individual can afford to prosecute the case alone.” Any flaws in the case, he added, were outweighed by the need to put it before a jury.
“The case comes down to the role of the jury: Should it be permitted to decide a vexing private litigation on the basis of somewhat dubious arguments and questionable proofs when the decision has so many important overtones, or should the judges themselves decide by holding that the matter is beyond the ken of a reasonable jury?” he wrote. “Here, the fundamentals of the constitution provide the answer.”
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, 예천출장안마 Hausfeld said.
Because the suit was filed under civil provisions of the Racketeer Influenced and Corrupt Organizations Act, those damages could be automatically tripled, up to a staggering $600 billion.
Defense attorneys argued that the lawsuit relied on flawed data. Without surveying each smoker in the suit, it would be impossible to determine their motives for buying light cigarettes, they said.
The judge set a trial date of Jan. 22, 2007.
Shares of Altria Group Inc., owner of the Marlboro maker Philip Morris USA Inc., sank $4.08, or 5 percent, to $78.24 in morning trading on the New York Stock Exchange. Shares of Reynolds American Inc., owner of R.J. Reynolds Tobacco Co. and the second biggest U.S. cigarette company after Altria, fell $1.65, or 2.7 percent, to $60.37.
Shares of Carolina Group, which is the tracking stock for Loews Corp. and its Lorillard unit, fell $1.47, or 2.6 percent, to $54.41 on the New York Stock Exchange.
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.By Tom HaysBy Tom Hays