Philip Morris Wins Reversal of Verdict

Philip Morris USA won a resounding legal victory Thursday when a divided Illinois Supreme Court overturned a $10.1-billion verdict over claims that the company deceptively marketed “light� cigarettes.

In reversing the class-action award, the court did not absolve Philip Morris of the central allegation against it: that Philip Morris had consciously deterred smokers from quitting by falsely promoting “light,� or low-tar, cigarettes as safer than regular brands.

Instead, the court ruled 4 to 2 that the company’s marketing practices, having been allowed by the Federal Trade Commission, could not be challenged under Illinois’ consumer fraud act.

The closely watched decision in Price vs. Philip Morris lofted shares of Altria Group Inc., parent of Philip Morris, and of its two main rivals to record highs. And it moved Altria a step closer to a planned spinoff of Kraft Foods Inc., of which it owns 86.5%.

Altria Chairman Louis C. Camilleri has said the breakup would require resolution of three big legal threats, including the Price case.

Big cigarette makers face nearly 40 similar suits in 22 states over the marketing of light cigarettes, including several that have been granted class-action status.

The Price ruling might have some influence in those cases but is not binding on other courts, except for cases pending in Illinois against R.J. Reynolds Tobacco Co. and Brown & Williamson Tobacco that are expected to be dismissed as a result of the Price ruling. Those companies merged last year to form Reynolds American Inc., which is defending both cases.

Philip Morris said in a brief statement that it was gratified by the decision and declined to comment further.

Plaintiffs’ attorney Stephen Tillery said that he was “terribly disappointed� and that his team was reviewing its options -- including a possible petition for rehearing or an appeal to the U.S. Supreme Court.

“The consumers are the ones who will suffer,� Tillery said.

The case, named for class representative Sharon Price, involved the marketing of Marlboro Lights, the country’s top-selling brand, and of Cambridge Lights cigarettes. The plaintiffs did not seek damages for health injuries but instead demanded reimbursement for products that they said failed to deliver on a promise of lower risks.

Capping a two-month trial in Madison County, Ill., Circuit Judge Nicholas Byron ruled in March 2003 that Philip Morris consciously sought to mislead smokers into thinking that a switch to a light brand would reduce the risk of disease.

He ordered the company to pay $7.1 billion in compensatory damages to an estimated 1.14 million smokers -- or nearly $7,000 per class member, less attorneys’ fees. Byron also awarded $3 billion in punitive damages, which would have gone to the state. Within days of the verdict, Philip Morris announced that it was stripping the phrase “lowered tar and nicotine� from Marlboro Lights packs.

Light brands -- those with tar yields of 15 milligrams or less -- have steadily grown in popularity, and now constitute nearly 90% of U.S. cigarette sales.

Experts say that lights could be safer if smoked the same way as full-flavor brands -- but that this rarely happens. To get a satisfying dose of nicotine, smokers of light brands tend to consume more cigarettes, inhale more deeply, and even cover ventilation holes with their fingers -- a phenomenon known as “compensation� that negates the presumed health benefits.

Indeed, plaintiffs introduced evidence that smoke from Marlboro Lights, in one type of test, was more toxic than smoke from full-flavor cigarettes.

Philip Morris argued that the case should never have been tried as a class action, because smokers differ widely in their reasons for choosing brands. The company denied that it promoted lights as safer, noting that the cigarettes always carried the same federally mandated warning as other brands.

But the court majority, in its narrow ruling Thursday, largely sidestepped those issues. Quoting from the Illinois consumer fraud act, the court said the act did not apply to conduct “specifically authorized by laws administered by any regulatory body ... of this state or the United States.�

The FTC -- which had refused to prohibit reduced-tar claims despite complaints that they were misleading -- essentially had authorized their use, the court said.

“We share the concerns expressed by plaintiffs ... about the devastating health effects of smoking,� wrote Justice Rita B. Garman in the majority opinion. “Our resolution of the present case is in no way an expression of approval of [the company’s] alleged misconduct.�

But in a dissent, justices Charles E. Freeman and Thomas L. Kilbride blasted what they called an “irresponsible interpretation of our Consumer Fraud Act,� which “is to be interpreted so as to give full protection to the citizens of this state against the fraudulent conduct of others.�

Referring to the court’s recent reversal of a $1.05-billion verdict against insurance giant State Farm, they said the Price decision marked “the second time in just six months that this court has completely reversed a multibillion-dollar verdict in favor of a corporate defendant.... A majority of this court has become increasingly desensitized to the interest of the average Illinois consumer.�

The decision also drew angry blasts from health and anti-smoking groups.

“A ruling such as this really harks back to the days when snake-oil salesmen could make any outrageous product claim without fear of being held accountable,� said Richard Daynard, associate dean of Northeastern University School of Law and chairman of the Tobacco Products Liability Project, which promotes lawsuits against the industry.

Richard Samp, chief counsel of the Washington Legal Foundation, one of several pro-business groups that backed Philip Morris’ appeal in friend-of-the-court briefs, applauded the ruling.

He described the suit as “yet another effort by plaintiffs’ lawyers to seek out friendly rural judges to hand them huge class-action awards in cases in which no one suffered any injury. The Illinois Supreme Court appropriately ruled that such efforts will no longer be tolerated,� he said.

The American Medical Assn. and about 30 other groups had filed briefs in support of the plaintiffs.

The American Tort Reform Assn., a group of major business interests, has lambasted Madison County, near St. Louis, as one of its “judicial hellholes� -- a venue where the organization says corporate defendants can’t get a fair shake.

In a case of unusual bedfellows, state attorneys general who had filed multibillion-dollar claims against the tobacco industry intervened after the verdict on the side of Philip Morris as it sought relief from a requirement to post a $12-billion appeal bond.

The company said it could face bankruptcy if forced to post the bond and make a payment to the states under the landmark tobacco settlement of 1998. The bond ultimately was cut to $6.8 billion.

Last year, in what has been called the most expensive judicial race in U.S. history, Republican Lloyd Karmeier defeated Democrat Gordon Maag. Karmeier was supported by doctors, insurance companies and other corporate interests. Maag’s backers included labor unions and trial lawyers. More than $9 million was spent by the campaigns.

Karmeier sided with the majority in Price.

Along with the Illinois case, Altria has been awaiting resolution of the Justice Department’s racketeering case against the tobacco industry and of a huge Florida class action before proceeding with a spinoff of Kraft.

The government lawsuit is awaiting a ruling by federal Judge Gladys Kessler in U.S. District Court in Washington, D.C.

The Florida class action, known as the Engle case, resulted in a record $144.8-billion verdict against cigarette makers that a state appeals court reversed in 2003. The plaintiffs have appealed to the Florida Supreme Court to reinstate the award.

Tuesday’s ruling sent Altria shares surging $2.89, or 3.9%, to an all-time high of $76.62.

Reynolds American gained 55 cents to $97.40, also a record, while Carolina Group, a tracking stock for Lorillard Tobacco, rose 52 cents to a new high of $43.52.