Ruling May Affect Tobacco Suit, Analysts Say

A federal appeals court ruling Friday rejecting a proposed $1.2-billion settlement of asbestos liability claims makes it less likely that the biggest suit facing the cigarette industry will survive as a class action, lawyers and analysts said.

A three-judge panel of the U.S. 3rd Circuit Court of Appeals in Philadelphia threw out the proposed settlement of 100,000 claims. The proposed settlement would have allowed 20 makers of asbestos products to cap much of their liability.

The Philadelphia judges cited some of the same concerns that attorneys for Philip Morris Cos., RJR Nabisco Holdings Corp. and other tobacco companies have raised in their appeal of a New Orleans class action filed on behalf of about 50 million nicotine-addicted smokers and their heirs.

“It may be a harbinger for Castano,” said Skadden, Arps, Slate, Meagher & Flom class-action lawyer Sheila Birnbaum, referring to the tobacco case named for lead plaintiff Dianne Castano, a smoker’s widow.

The 3rd Circuit panel said the interests of the settlement class were too diverse and could not properly be lumped into “an amalgamation of factually and legally different plaintiffs.” In particular, it said the interests of those who have been exposed to asbestos but are not sick may be different from the interests of those who have been injured.

The settlement fund, which was supported by the asbestos industry, had been designed to pay both past and future claims.

The ruling, which the industry pledged to appeal, is not binding on the 5th Circuit in New Orleans, which is expected to rule this summer on whether the Castano case can proceed as a class action.

But the asbestos ruling comes after several similar ones elsewhere. Class cases, which carry with them the potential for massive damage awards, have also been rejected recently for plaintiffs with penile implants and for those who contracted the AIDS virus from blood products for hemophiliacs.

“There are things going on that are very damaging to the legal system. The federal court system at the circuit level and the Supreme Court level realizes it,” said Oppenheimer & Co. tobacco analyst Roy Burry, who believes the Castano case will be overturned as a class action.

Burry and Birnbaum said the Castano case is even more likely to be dismantled on appeal than the asbestos case was. That’s because the tobacco industry, with the exception of Brooke Group Ltd., does not recognize the suit as a class action. Brooke, the smallest of the five publicly traded firms, has offered to settle by paying a percentage of its future profits. The Castano case must also deal with the differing liability laws of the 50 states.

“Castano seems to me much easier to reverse,” Birnbaum said. If the Castano case survives as a class action and the plaintiffs convince a jury that the big tobacco firms are liable for suppressing information about nicotine, separate follow-up trials would be required to establish damages owed to individual smokers.

Burry added that the 5th Circuit panel’s members, Republicans all, are unlikely to choose to be the ones going against the grain if the Supreme Court is later to decide the issue.

John Coale, a plaintiffs’ lawyer in the Castano case, agreed that the trend in federal appeals courts is against class actions, but he said he thinks the Castano team will get to trial one way or another. “We will have these guys in the courtroom, whether it’s in federal court in New Orleans or in 50 state courtrooms,” Coale said.