US judge to rule on 'light' cigarettes action
A US federal judge will on Monday rule on whether a tobacco lawsuit can proceed as a class action of tens of millions of smokers of "light" cigarettes. If certified, it could be the largest-ever class action case.
The Schwab claim, filed in 2004 under the federal Racketeer Influenced Corrupt Organizations Act (Rico), alleges big cigarette makers defrauded smokers into believing "light" cigarettes were safer than regular ones. Lawyers are seeking as much as $200bn in damages, which would automatically be tripled under Rico.
Tobacco investors are closely watching the suit as it is one of the industry's more important remaining legal risks. The ruling is key for Altria Group, parent of Philip Morris USA, as it is preparing to spin off its 88.1 per cent stake in Kraft Foods.
Monday's decision by District Judge Jack Weinstein will eliminate the legal uncertainty surrounding the case and provide Altria's board with clarity on the legal environment.
Some suspect it is waiting for the ruling before giving the spin-off the green light.
Paul Gallagher, a partner with Cohen, Milstein, Hausfeld & Toll, the firm representing the smokers, said the Schwab case "has the best practical and legal opportunity to hold the cigarette industry worldwide accountable".
"At the same time the industry was denying cigarettes were bad for you, they were offering lights as an alternative to quitting," he said.
During recent oral argument, Judge Weinstein – who has in the past allowed large-scale aggregated tobacco claims to proceed to trial – focused his questions on whether there was a way to determine the number of smokers that would be in the class and how damages would be calculated.
Judge Weinstein told the courtroom that without a satisfactory model for damages, even if he granted class certification, the claim could not go forward.
Following the hearing, industry watchers said there was a low probability the class would be certified as the plaintiffs had failed to address the four-year statute of limitations or come up with a sound damages model.
But Christine Farkas, analyst at Merrill Lynch, cautioned clients that given Judge Weinstein's "past record in tobacco claims?.?.?.?we would not be completely surprised if he certified the Schwab class while requiring further work from the plaintiffs on the damages model."
In addition to Philip Morris USA, the defendants include RJ Reynolds; Brown & Williamson (part of Reynolds American); Lorillard; British American Tobacco; and Liggett.
