Tobacco Stocks Shake Off Court Ruling : Reaction: Investors think the decision to let firms be sued for allegedly misrepresenting risks will have limited effect.
Tobacco stocks fell sharply Wednesday after the U.S. Supreme Court ruled that tobacco companies may be sued for allegedly misrepresenting the risks of smoking. But they rebounded as investors interpreted the ruling and concluded that its effect on litigation in the states will probably be limited.
Most observers said the complicated ruling may prompt plaintiff lawyers to file at least a few more suits and to devote more energy to the 50 or so cases pending nationwide.
But the ruling will have no effect in California because a 1987 law granted sweeping immunity to the industry, legal experts said. Attention to the issue may, however, lead some legislators to press for repeal.
The ruling “is good news for the people of Mississippi, New Jersey, Illinois, New York and everywhere else in the country,” remarked Assemblyman Byron Sher (D-Palo Alto), a Stanford law professor who has failed in three attempts to amend the state law. “I just don’t think it’s going to do Californians any good unless we change this law.”
Tobacco firms and anti-smoking groups each declared victory for their side. Wall Street leaned toward the ruling as a victory for the industry. Most stocks rose, or remained stable.
“The investment community took this as a win,” said Kurt Feuerman, an analyst for Morgan Stanley.
After an initial slide, Philip Morris, the world’s biggest cigarette company, saw its stock price rise to $73.75, up 62.5 cents.
“The tobacco companies are out there declaring victory, and this is anything but a victory,” said Calvert Crary, a managing director and litigation analyst for Martin Simpson & Co.
The Supreme Court found that the federal cigarette labeling act shields tobacco firms from claims that they should have provided better warnings on cigarette packs and advertising. However, the court found the federal law does not protect the companies from claims under state product liability laws that they deliberately concealed or misrepresented important health information.
Most important, plaintiffs will be able to base misrepresentation claims on conduct of the companies after the warning labels were placed on cigarettes in the 1960s.
California’s 1987 law, called the Civil Liability Reform Act, was approved by lawmakers over the objections of consumer groups. The law--which bars injury claims involving products that are “inherently unsafe and . . . known to be unsafe by the ordinary consumer”--specifically mentions sugar, castor oil, butter, alcohol and tobacco.
With about 30 lawsuits pending at the time, California then led the country in claims against tobacco firms. However, were dismissed following passage of the law.
Mark Pertschuk, a co-director of Berkeley-based Americans for Nonsmokers’ Rights, said the high court ruling shows “the Legislature prostituted itself 110%” on the ’87 law.
* MAIN STORY: A1
