Federal Court Rejects Giant Class-Action Tobacco Suit

In a major victory for the tobacco industry, a federal appeals court in New Orleans on Thursday dismissed the largest class-action lawsuit ever filed against cigarette makers, concurring with industry lawyers that the suit was so huge that it was unmanageable.

The unanimous decision sparked big increases in tobacco stocks on Wall Street and some financial analysts confidently predicted that the biggest legal threat to the industry was now over.

But plaintiffs lawyers vowed to fight on in other forums and some independent legal analysts said the battle is likely to spread to federal courtrooms across the country.

Three judges of the U.S. 5th Circuit Court of Appeal in New Orleans ordered a lower-court judge to dismiss the complaint filed on behalf of Dianne Castano and an estimated 50 million other smokers and their survivors.

The case accused Philip Morris Cos., RJR Nabisco Holdings Corp., Brooke Group Ltd., B.A.T. Industries PLC’s Brown & Williamson Tobacco Corp. and Loews Corp.’s Lorillard Inc. of conspiring to hide information about nicotine’s addictive nature and manipulating nicotine levels to keep smokers hooked.

The appeals court said the thrust of the plaintiffs’ complaint “is the novel and wholly untested theory that the defendants fraudulently failed to inform consumers that nicotine is addictive and manipulated the level of nicotine in cigarettes to sustain their addictive nature.”

In a 36-page ruling, the appeals court said that a class-action suit was not appropriate because no individual had ever won damages from the tobacco industry in 40 years of litigation.

“The collective wisdom of individual juries is necessary before this court commits the fate of an entire industry or the fate of a class of millions to a single jury,” said Circuit Judge Jerry E. Smith, a Ronald Reagan appointee, in his decision. Judge John M. Duhe Jr., also a Reagan appointee, and Judge Harold R. DeMoss, a George Bush appointee, joined in the ruling.

The appeals court decision overturned a lower court’s ruling in 1995 permitting the case to go forward as a class-action suit. The decision Thursday directs a federal trial judge in New Orleans to decertify the case as a class action, effectively ending it.

Gary Black, a tobacco analyst with Sanford C. Bernstein & Co. in New York, said Thursday’s decision means “the class-action risk is gone” for the industry. “We believe the litigation environment has turned again and people should be buying the stocks,” he added.

And buy people did. Industry titan Philip Morris rose $6.25 to $103.87 1/2 on trading of 7.5 million shares, more than double its three-month daily average of 3.2 million. RJR rose $2.125 to $33.25, Brooke Group rose 75 cents to $6.875, Loews jumped $3.50 to $82.125 and chewing tobacco maker UST Inc. gained $1.875 to $34.50.

Cigarette companies and their attorneys issued statements expressing delight.

“We are pleased and gratified with the court of appeals’ decision today,” said Washington, D.C., attorney Kenneth W. Starr, himself a former federal appeals court judge, who presented the oral argument for the defendants.

The ruling “vindicates fully the industry’s position that a class action is entirely inappropriate as a method for testing these novel claims,” Starr added.

Starr is also the independent counsel in the Whitewater investigation.

“We are pleased that the 5th Circuit has decided to decertify the class,” said Charles Wall, deputy general counsel for Philip Morris. “We have full and compelling defenses to each of the assertions the plaintiffs have made, and we are prepared to present them in court.”

Wall and other industry lawyers stressed that the 5th Circuit ruling is the fourth decision recently rejecting the viability of class actions in mass tort cases.

“Today’s ruling . . . sends a strong message to class-action plaintiff’s lawyers to stop the insanity in our nation’s court,” said Brown & Williamson spokesman Joe Helewciz.

Although the decision was a major setback to a team of about 60 law firms representing plaintiffs, they indicated they will file cases seeking class-action status on behalf of smokers in every state, the District of Columbia and Puerto Rico.

Washington, D.C., attorney John Coale, one of the lead lawyers, said that the suits would be filed within eight weeks.

Veteran plaintiffs lawyer Ronald Motley predicted that a number of those cases would succeed. “The court did not say that a case seeking damages for addiction was not valid,” he said.

However, Motley added that he differed with some of his colleagues about how many cases ought to be filed. “You won’t find my name on any case filed in Kentucky, North Carolina or Virginia,” Motley said, referring to three states where tobacco companies have headquarters or major manufacturing operations.

Motley also stressed that the decision would have no impact on eight cases filed by state attorneys general seeking to recover money expended by those states to treat health problems of Medicaid recipients who were smokers.

Columbia University law professor John Coffee, a class-action expert, said the 5th Circuit ruling was predictable and focused on two key issues.

The three-judge panel held that the trial judge who first considered the case failed to consider the considerable differences in laws among the 50 states.

The judges also said that the late U.S. District Judge Okla Jones failed to address the manageability of a massive, lengthy trial. “Each of these defects mandates reversal,” the judges ruled.

However, Coffee stressed that “nothing in this opinion strikes me as precluding state-by-state class actions in federal court.”

He said plaintiffs’ lawyers certainly “will want to bring class actions in the big-ticket states--California, New York, Texas, Florida . . . where there are millions of smokers and by the plaintiff’s definition at least half of them are nicotine dependent.”

Thus far, only one tobacco-related suit--in Florida state court--has been certified for a class action and that decision is under appeal.

Still, he said “the industry has dodged a bullet. Had the industry lost on the certification issue, that would have given tremendous leverage to the plaintiffs. If this had been certified, I don’t know how the defendants would have resisted a settlement.”

He said the companies will now have their traditional advantage of fighting litigation on several fronts, which will make it much more expensive for the plaintiffs. “The defendants have the advantage when they can raise the costs. They are much better capitalized. The tobacco industry can pay for this litigation out of one day’s sales,” Coffee said.

Northeastern University law professor Richard A. Daynard, a longtime anti-tobacco activist who tried to put the best-possible spin on the decision, said he thought the ruling was “a pyrrhic victory for the tobacco industry.”

He said that litigating in several places will eliminate the plaintiffs’ problem of “putting all their eggs in one basket in a conservative state in a conservative circuit.”

Daynard said the plaintiffs lawyers had learned a tremendous amount about the industry in the last two years and that millions of pages of internal industry documents that have come to the surface in that period provide a strong case for liability.

* TEEN SMOKING RISES: The CDC finds cigarette use among youths increasing. A12