"Light" cigarette suit gets class-action status

[stu]

By Brad Dorfman

Mon Sep 25, 5:10 PM ET

 

 

 

CHICAGO (Reuters) - A U.S. judge gave class-action status on Monday to a lawsuit filed by "light" cigarette smokers who accuse tobacco companies of defrauding smokers into thinking "light" cigarettes were safer than regular smokes, reaping as much as $200 billion in extra sales.

 

The decision will delay Altria Group Inc.'s (NYSE:MO - news) plan to spin off its Kraft Foods Inc. (NYSE:KFT - news) unit, an attorney for Altria said, and Altria shares posted their largest single-day percentage loss in more than two years. The Dow Jones U.S. Tobacco index (^DJUSTB - news) fell more than 5 percent.

 

"It inevitably creates some delay," William Ohlemeyer, said of the 540-page ruling's impact on Altria's planned spinoff of Kraft, during a conference call with analysts and reporters.

 

Altria, whose Philip Morris USA unit is a defendant in the case, has repeatedly said it was seeking clarity in the U.S. litigation environment before spinning of Kraft. Analysts note Altria wants to make sure that tobacco plaintiffs cannot come after Kraft's assets once it is an independent company.

 

Kraft shares rose $1.05, or 3 percent, to $35.30 Monday as the decision also gives that company's new CEO time to prepare Kraft to be an independent company.

 

The ruling caught some analysts and investors by surprise due to comments by U.S. Senior District Judge Jack Weinstein during a hearing in the case less than two weeks ago.

 

"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," said Charles Norton, co-portfolio manager of the Vice Fund, which holds 36,000 Altria shares.

 

The ruling certifies the largest class action in U.S. history, lawyers for the smokers said. The plaintiffs contend the 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 (NYSE:RAI - news) 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 group of smokers if he certified the class.

 

But Weinstein, who sits in the Eastern District of New York, 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.

 

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 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 closed down $5.26, or 6.4 percent, on Monday on the New York Stock Exchange and Reynolds American was down $2.27, or 3.7 percent.

 

Other defendants in the case include Loews Corp.'s (NYSE:LTR - news) Lorillard Tobacco unit, whose tracking stock, Carolina Group (NYSE:CG - news), fell 68 cents, or 1.2 percent, at $55.20.

 

Shares of Vector Group Ltd. (NYSE:VGR - news), parent of defendant Liggett Group, were down 17 cents at $16.55. And the shares of British American Tobacco Plc (BATS.L), parent of British American Tobacco (Investments) Ltd, closed down about 1 percent in London.