Top Court Lets Smokers Sue for Fraud

Marketers of “light” cigarettes may be sued, the court ruled. Ashley Gilbertson for The New York Time

WASHINGTON – Tobacco companies that marketed “light” cigarettes may be sued for fraud, the Supreme Court ruled on Monday in a 5-to-4 decision that will bolster dozens of lawsuits claiming billions of dollars in damages.

The case was brought by three smokers from Maine as a proposed class action. They sued Altria and its Philip Morris USA unit, alleging fraud under Maine’s Unfair Trade Practices Act and saying they had been injured by what they called the false statements of the companies.

They sought compensation for economic rather than medical harm. They claimed, in other words, that they had overpaid for cigarettes based on deceptive advertisements suggesting that “light” cigarettes were safer than regular ones; they did not seek money for injuries caused by smoking itself.

It is undisputed that brands like Marlboro Lights, made by Philip Morris, register lower levels of tar and nicotine than ordinary cigarettes when smoked by machines under a standard method authorized by the Federal Trade Commission. But many smokers compensate by puffing harder, smoking more cigarettes or inhaling deeper.

The question before the court was not whether use of the term “light” amounted to fraud. It was, rather, whether plaintiffs should be allowed to sue at all given the federal Cigarette Labeling and Advertising Act, which required tobacco companies to place rotating warnings on their packaging and advertising.

The law also said that “no requirement or prohibition based on smoking and health shall be imposed under state law with respect to the advertising or promotion” of cigarettes so long as the law’s labeling requirements were followed.

Sixteen years ago, in a decision that produced no majority opinion, a four-justice plurality said the phrase “based on smoking and health” in the labeling law did not apply to pre-empt suits under state laws based on the “general duty not to make fraudulent statements.” Justice John Paul Stevens, joined by three justices no longer on the court, wrote the plurality opinion in the case, Cipollone v. Liggett Group Inc. He conceded that the distinction he drew lacked “theoretical elegance.”

Indeed, the lower courts have struggled to make sense of that fractured decision. At the argument of the Altria case in October, its lawyer, Theodore B. Olson, called the plurality opinion in Cipollone “baffling, confusing, litigation-generating.”

Justice Stevens asked Mr. Olson whether the court would need to “reject the fraud analysis in Cipollone” for Altria to win. Mr. Olson said yes.

But Justice Stevens, writing for the majority on Monday, instead reaffirmed his plurality opinion in Cipollone and turned it into binding law. He was joined by Justices Anthony M. Kennedy, David H. Souter, Ruth Bader Ginsburg and Stephen G. Breyer.

Alan E. Untereiner, the author of a book on the pre-emption defense and a lawyer who often represents business groups and companies arguing for pre-emption, said Monday’s decision was “a step backward in the recent trend of making pre-emption law more coherent. I can’t remember the last time the court took a plurality opinion that caused this much confusion and bewilderment in the lower courts, and elevated it into a majority opinion.”

The majority also rejected Altria’s backup argument, that the Federal Trade Commission’s policies and actions had pre-empted the plaintiffs’ claims by implication. Altria argued that the commission had authorized the use of words and phrases like “light” and “low tar.” The majority flatly rejected that assertion, in language that may be helpful to the Justice Department in a separate racketeering suit against the tobacco industry pending in the federal appeals court in Washington.

“It seems particularly inappropriate,” Justice Stevens wrote, “to read a policy of authorization into the F.T.C’s inaction” given tobacco companies’ failure to tell the commission about studies concerning how “consumers of ‘light’ cigarettes actually inhale.”

The plaintiffs in the case, Altria Group Inc. v. Good, No. 07-562, were supported on the implied pre-emption argument by the federal government, which took no position on whether the labeling law pre-empted the Maine statute in so many words.

David C. Frederick, who represented the plaintiffs, said the tobacco industry should view the decision as an opportunity. “It would be appropriate for the tobacco companies to take a very hard look at how they market their products, because they have for decades been making deceptive claims about their products.”

“When people buy ‘light yogurt,’ ” Mr. Frederick added, by way of example, “they expect they’re getting less fat.”

Justice Clarence Thomas dissented Monday in an opinion joined by Chief Justice John G. Roberts Jr. and Justices Antonin Scalia and Samuel A. Alito Jr. “The court’s fidelity to Cipollone is unwise and unnecessary,” he wrote, noting that five members of the court that decided the case found the distinctions drawn by it unprincipled.

“The alleged misrepresentation here – that ‘light’ and ‘low tar’ cigarettes are not as healthy as advertised – is actionable only because of the effect that smoking light and low-tar cigarettes had” on the plaintiffs’ health, Justice Thomas wrote.

The essence of the plaintiffs’ claim, Justice Thomas said, was that they had been misled into buying cigarettes they believed were safer than regular ones, meaning their claims fell squarely within the labeling law’s ban on state suits concerning “smoking and health.”

Justice Thomas said that some kinds of fraud claims against cigarette makers may go forward, just not those concerning “smoking and health.”

“Thus,” he wrote, “if cigarette manufacturers were to falsely advertise their products as ‘American-made’ or ‘the official cigarette of Major League Baseball,’ state-law claims arising from that wrongful behavior would not be pre-empted.”

Forbidding lawsuits based on health claims, Justice Thomas said, would not mean consumers lack protection, as tobacco marketing is subject to regulatory oversight.

The suits affected by Monday’s decision still face significant hurdles. They typically claim damages based on overpayment for a product less valuable than that advertised, meaning the sums of money involved in individual suits are not particularly large. But fraud claims, which generally require proof of reliance by the each plaintiff, are not ideally suited to class-action treatment.

By ADAM LIPTAK
Published: December 15, 2008

Source: The New York Times