Courts Breathing New Life into Consumer-Oriented Tobacco Claims

In recent years, while many favorable outcomes had been reported in personal injury cases stemming from smoking-related ailments, e.g., Boeken v. Philip Morris Inc.,  127 Cal. App. 4th 1640, 26 Cal. Rptr. 3d 638 (2d Dist. 2005) (award of $5.5 million compensatory damages and $50 million punitive damages to smoker who developed lung cancer that metastasized to […]

July 29, 2009

In recent years, while many favorable outcomes had been reported in personal injury cases stemming from smoking-related ailments, e.g., Boeken v. Philip Morris Inc.,  127 Cal. App. 4th 1640, 26 Cal. Rptr. 3d 638 (2d Dist. 2005) (award of $5.5 million compensatory damages and $50 million punitive damages to smoker who developed lung cancer that metastasized to his brain), consumer fraud claims against “Big Tobacco” had experienced rough sledding in both the federal and state courts.  By “consumer fraud,” we can broadly categorize those claims that don’t entail personal injuries for smoking-related ailments.

In particular, a number of courts had reversed class certification orders in consumer fraud cases brought against cigarette makers, holding that the individualized nature of claims (whether under state consumer fraud law or under the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”)) and the need to apply the law of class members’ respective states to their claims rather than a single state’s law to all of the members of a proposed multistate class, made the claims unsuitable for class action treatment.  Other courts had held that claims relating to the marketing of cigarettes were preempted by the Federal Cigarette Labeling and Advertising Act (“Cigarette Labeling Act”).  Some notable adverse rulings included Castano v. American Tobacco Co., 84 F.3d 734 (5th Cir. 1996); Barnes v. American Tobacco Co., 161 F.3d 127 (3d Cir. 1998); McLaughlin v. American Tobacco, 522 F.3d 215 (2d Cir. 2008); and In re Tobacco Cases II, 20 Cal. Rptr. 3d 693 (Cal. Ct. App. 4th Dist 2004).

Recently, however, a spate of major rulings from both federal and state courts, including the U.S. Supreme Court, suggest that a shift in momentum in favor of plaintiffs in consumer fraud litigation against cigarette makers is underway.

First, last December, in Altria Group, Inc. v. Good, 129 S. Ct. 538 (2008), the Supreme Court rejected cigarette manufacturers’ arguments that the Cigarette Labeling Act preempted a state law consumer fraud claim (in that case, under the Maine Unfair Trade Practices Act) relating to the deceptive marketing of “light” cigarettes.  The Court distinguished traditional state claims concerning fraudulent marketing (specifically, that the descriptor “light” deceives buyers of light cigarettes by fraudulently advertising the “light” cigarettes as delivering less tar and nicotine than regular brands) from the failure-to-warn-based common law claims that the Court had held in Cipollone v. Liggett Group, Inc., 505 U.S. 504 (1992), to be preempted.  The Court concluded that a consumer fraud claim based on the fraudulent promotion of “light” cigarettes wasn’t a “warning neutralization” claim that imposes a duty to provide specific warnings about the product and usurps federal regulation of cigarette warning labels.  Were it so, it would run afoul of Section 5(b) of the Cigarette Labeling Act, which provides that “[n]o requirement or prohibition based on smoking and health shall be imposed under State law with respect to the advertising or promotion of any cigarettes the packages of which are labeled in conformity with the provisions of this chapter.”  15 U.S.C. § 1334(b).  Rather, the Court held that such a claim is simply grounded in the state law “duty not to make fraudulent statements.”

In May, the California Supreme Court issued a long-awaited decision in In re Tobacco Cases II, 46 Cal. 4th 298, 207 P. 3d 20 (2009), in which it had been called upon to interpret an amendment to that state’s Unfair Competition Law (“UCL”) effected by Proposition 64, passed in 2004. As amended, the statute now imposes a standing requirement, requiring that a plaintiff be a “person who has suffered injury in fact and has lost money or property as a result of [such] unfair competition.”

The plaintiffs in Tobacco II Cases alleged that the tobacco industry defendants violated the UCL “by conducting a decades-long campaign of deceptive advertising and misleading statements about the addictive nature of nicotine and the relationship between tobacco use and disease.”  The trial court had certified a class of California resident cigarette smokers, but subsequently decertified the class based on Proposition 64 amendment of the UCL,

In a landmark ruling, however, the California Supreme Court held that in a proposed consumer fraud class action under the UCL, only the named plaintiff must prove actual reliance on the defendant’s alleged fraud.  Absent class members do not have to have actually relied on the alleged fraud.  Moreover, in cases involving false advertising – such as the tobacco litigation, which heavily centers on the defendants’ fraudulent marketing – in order to establish actual reliance, the plaintiff doesn’t have to prove that the false advertisement was the sole reason why he made the purchase at issue.  And in cases involving pervasive advertising over a long period of time – such as the decades-long cigarette advertising – the plaintiff doesn’t even have to point to a specific advertisement that he relied upon.  The California Supreme Court accordingly reversed the trial court’s class decertification order.

Also in May of this year, the U.S. Court of Appeals for the District of Columbia Circuit, in a 92-page per curiam opinion in United States v. Philip Morris USA, Inc., 566 F.3d 1099 (D.C. Cir. 2009), affirmed the material respects of the decision rendered by U.S. District Judge Gladys Kessler after a nine-month bench trial, in a Civil RICO action brought by the Government against cigarette manufacturers and their trade organizations.  That decision found liable the defendants liable for a decades-long conspiracy to deceive the public about the health effects of cigarette smoking by fraudulently denying that smoking causes cancer and emphysema, that secondhand smoke causes lung cancer and endangers children’s respiratory and auditory systems, that nicotine is an addictive drug and Defendants manipulated it to sustain addiction, that light and low tar cigarettes are not less harmful than full flavor cigarettes, and that Defendants intentionally marketed cigarettes to youth.

The D.C. Circuit – which had previously reversed Judge Kessler’s ruling that the Government was entitled to pursue a $280 billion disgorgement claim against the defendants, United States v. Philip Morris USA, Inc., 396 F.3d 1190 (D.C. Cir. 2005), holding that disgorgement is not an available remedy under the Civil RICO statute – held that there was substantial evidence to support Judge Kessler’s finding that defendants had engaged in predicate acts of mail and wire fraud, and rejected the defendants’ arguments that they had lacked specific intent to commit fraud, that their statements had not been material, that at least a portion of their statements had been protected by the First Amendment, and challenges to specific findings of fraud (such as to the marketing of “light” cigarettes,” the addictiveness of cigarettes, and the health effects of secondhand smoke), as well as numerous other arguments, such as whether certain elements of a RICO claim had been established, including the existence of an “enterprise” within the meaning of the RICO statute.

In addition, the D.C. Circuit sustained the district court’s finding that there was a reasonable likelihood that defendants would commit future RICO violations, thereby warranting injunctive relief.  The court rejected such arguments as defendants’ assertion that their current business practices and the 1998 Master Settlement Agreement that they had entered into with the Attorneys General of 46 states made future violations unlikely.

Finally, the court affirmed certain aspects of the program of corrective statement dissemination that Judge Kessler ordered as injunctive relief – such as the use of package “onserts” – while directing the district court to revisit certain another component of that remedy (the use of point-of-sale displays) because of that remedy’s impact on the rights of third-party retailers.

That these three decisions dealt blows to cigarette makers on an array of issues cigarettes – federal preemption, amenability of claims to class certification, and Civil RICO liability and scope of relief – and with those issues having broad implications for future litigation pertaining to their fraudulent advertising and promotion of suggests that we’re seeing a turning point, one that may also portend a retreat from the hostility that courts had been showing in recent years to proposed class action cases involving other types of consumer fraud and Civil RICO claims.

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