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Heavy ruling in ‘light’ cigarette case

Rachel Dornhelm Sep 25, 2006

KAI RYSSDAL: Objectively, it seems pretty straightforward. Cigarettes are cigarettes are cigarettes. And they’re bad for you. But to people hooked on nicotine, “light” smokes offered some hope. Especially when the ads implied “light” or “low tar” meant they were actually safer. A federal judge ruled today millions, maybe tens of millions, of people can join a class-action suit over those ads. Rachel Dornhelm reports.

RACHEL DORNHELM: The lawyers successfully argued for class-action status. They said millions bought light cigarettes because of false industry claims that “lights” were healthier. The consumer fraud case is a perfect storm for the tobacco industry, says law professor Jonathan Turley.

JONATHAN TURLEY:“You have, first, the litigation of light cigarettes which remains an area of considerable vulnerability for the industry. You have the use of class actions which presents the threat of hundreds of billions of dollars in damages.”

And, Turley says, the presiding judge favors large remedies against whole industries.

While you could be a part of the class if you’ve ever bought light cigarettes, don’t spend that money just yet. The companies will appeal today’s ruling. And Victor Schwartz, general counsel of the American Tort Reform Association, says the industry has a good argument. There’s no way every person in that class bought “lights” just because they thought they were healthier.

VICTOR SCHWARTZ:“The word light is used in a lot of contexts. If you go in the supermarket, it means all sorts of stuff — light beer, light cheese. Many of them may have thought that it meant healthier, but they have to have been deceived.”

The companies’ appeal could be settled in a few months. But the case is likely to last a decade. And portfolio manager Thomas Russo is optimistic about the industry’s outlook.

THOMAS RUSSO: I think there’s a short term impact of uncertainty that will impact share prices more than business prospects.

Russo says the threat of litigation actually makes the sector a good buying opportunity.

I’m Rachel Dornhelm for Marketplace.

RYSSDAL: Philip Morris and Reynolds were about five percent cheaper at the close than when the opening bell rang this morning.

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