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Schwab v. Phillip Morris-Class Action Defense Cases: New York Federal Court Certifies Class Action Against Tobacco Companies For Selling “Light” Cigarettes

Smokers Duped Into Believing that “Light” Cigarettes were Less Harmful New York Court Holds

As anticipated, Judge Jack Weinstein of the United States District Court for the Eastern District of New York issued his ruling this morning on the plaintiffs’ motion to certify a class action against Philip Morris USA, R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp., Lorillard Tobacco Co., Ligget Group, American Tobacco Co., Altria Group, and British American Tobacco, in a case that alleged the tobacco companies duped smokers into believing that “light” cigarettes were less harmful to them. Schwab v. Phillip Morris USA, Inc., 449 F.Supp.2d 992 (E.D.N.Y. 2006). The court summarized the theory of the case at page 1018 as follows:

Tobacco has been woven into the fabric of American history and society since the 1620’s when, as the first cash crop, it saved the colony of Virginia and then, together with cotton, established the economic base for slavery. Edmund S. Morgan, American Slavery, American Freedom, The Ordeal of Colonial Virginia 112, 310 (Francis Parkman Prize Ed., 2005).

In more recent times, through cigarettes—produced and allegedly fraudulently merchandised on a massive scale—it has become the basis for a pandemic, causing the premature deaths of tens of millions of Americans. This case represents one event in this long narrative: the alleged successful effort of defendants to cozen smokers into continuing to buy their products by convincing them that smoking “light” cigarettes was safer for their health.

It is plaintiffs’ view that this campaign caused smokers to buy “light” cigarettes, in large amounts, at a price greater than they would have paid had the truth been acknowledged by defendants. Defendants’ acts, plaintiffs contend, constituted a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961 ff, warranting trebled money damages. 18 U.S.C. § 1964(c). Class action status is sought to bring to bear, on a consolidated basis, the weight of all United States smokers’ claims.

It is charged—with substantial evidence to support the contention—that plaintiff smokers bought cigarettes characterized as “light,” on the suggestion of defendants—the major cigarette manufacturers—that they were less harmful than “regular” cigarettes, when in fact they were at least as dangerous and defendants knew of their dangers. The claim is that the carcinogenic and other adverse effects smokers sought to avoid were not reduced by smoking “light” rather than other cigarettes; that defendants knew this was the case; that they concealed this fact; that they urged plaintiffs—through advertising and other public statements—to smoke these “lights” knowing smokers were being misled; and that they defrauded purchasers of billions of dollars spent for light cigarettes worth less than their purchase price.

According to plaintiffs’ lawyers, virtually all smokers in the class purchased “light” cigarettes for health reasons rather than for taste, and class members would not have paid as much for “light” cigarettes had they known that, in fact, they were just as harmful as regular cigarettes. On the other hand, according to defense attorneys, the court would be required to inquire into each smoker’s reasons for choosing “light” cigarettes. The district court was critical of both sides, explaining at page 1021:

Whether plaintiffs can overcome the defendants’ objections to their proof is subject to trial by jury. There is enough merit to both plaintiffs’ and defendants’ contentions to permit the litigation to go forward. If, as contended by plaintiffs, a huge fraud was perpetrated on tens of millions of people causing them billions of dollars in loss—measured largely by the difference between the value people were led to believe they were getting when they bought “light” cigarettes for safety, and what they received, a non-safe product—recovery dependent on proof should be allowed. The extensive evidence introduced on preliminary motions supports certification of the class and denial of defendants’ motions for summary judgment.

While evidence of fraud on the class appears to be quite strong—and defendants have been less than candid in insisting that there was no fraud—evidence of the percentage of the class which was defrauded and the amount of economic damages it suffered appears to be quite weak—and plaintiffs have been less than candid in failing to acknowledge that deficiency in their proof.

The class certified by the district court is defined at page 1278 as follows:

All United States residents who purchased in the United States, not for resale, cigarettes labeled as “Lights” and/or “Light” (collectively “light cigarettes”) that were manufactured and/or sold by Defendants during the period commencing on the first date that Defendants began selling light cigarettes until the date trial commences (the “Class Period”), and who are not, as of the date of trial, members of a certified state class seeking economic damages stemming from their purchases of light cigarettes or having obtained an award of, or a denial of, such damages. Excluded from the Class are individuals who are directors and officers of the Defendants’ corporations, their parents, subsidiaries and/or affiliates.

NOTE: The federal court noted that it would be amenable to making the class even larger, stating at page 1278 that “the court will entertain a motion to extend the class to, for example, encompass smokers of all ‘low tar’ brands rather than ‘lights’ alone, if that would assist the parties in negotiating a global settlement of all excess price claims.”