April 3 (Bloomberg) -- Altria Group Inc. and other tobacco companies won a decision blocking an $800 billion racketeering class-action lawsuit by U.S. smokers who claimed they were misled into thinking ``light'' cigarettes are safer than regular ones.

The ruling today by a federal appeals court in New York eliminates the biggest single litigation threat against the tobacco industry. Cigarette makers faced the possibility of paying as much as $800 billion under federal law that allows the judge to impose triple damages in racketeering cases.

``While redressing injuries caused by the cigarette industry is `one of the most troubling problems facing our nation today,' not every wrong can have a legal remedy,'' U.S. Circuit Judge John Walker wrote for a unanimous three-judge panel, quoting a 2000 U.S. Supreme Court decision.

The opinion reversed a 540-page ruling in 2006 by U.S. District Judge Jack Weinstein in Brooklyn, New York, granting class-action status to the case, which is known as the Schwab case after lead plaintiff Barbara Schwab.

Class status gives plaintiffs the possibility of recovering huge damages at trial and may enable them to force bigger settlements. The appeals court, in decertifying the class, ruled there are too many differences among individual smokers to allow such a group lawsuit.

As a result, most smokers, whose individual damage claims are relatively small, likely won't sue on their own.

Expected Ruling

Analysts including Goldman Sachs Group Inc.'s Judy Hong anticipated a ruling favoring the industry. She has a buy recommendation on the stock.

Altria fell 7 cents to $22.01 in New York Stock Exchange composite trading.

Former Chief Executive Officer Louis Camilleri told analysts last year that litigation risk was waning after decisions in class-action suits in Florida and Illinois went in the company's favor. He was so confident that the industry would win the Schwab appeal that he proceeded with plans to spin off the company's international division last week even before today's ruling.

The plaintiffs may seek a rehearing by the same panel or a larger group of judges on the U.S. Court of Appeals for the Second Circuit. They may also appeal to the U.S. Supreme Court.

Michael Hausfeld, a lawyer for the smokers, didn't return calls seeking comment.

`Cannot be Tried'

``Numerous courts across the country have held that claims such as these simply cannot be tried as class actions,'' said Martin Holton III, general counsel for R.J. Reynolds Tobacco, in a statement.

Filed in 2004 under the Racketeer Influenced and Corrupt Organizations Act, or RICO, the suit claimed cigarette makers defrauded smokers of ``light'' and ``low-tar'' cigarettes by knowingly marketing them as safer than other brands.

The smokers targeted industry revenue from the sale of light cigarettes, beginning with Philip Morris's introduction of the first light cigarette, Marlboro Lights, in 1971.

In 2006, a federal judge in Washington decided that cigarette makers violated civil racketeering laws, ruling that they must stop using the words ``light'' and ``low-tar'' on their products. That decision, in a suit filed by the U.S. government, is on appeal.

More Defendants

In addition to Altria's Philip Morris USA, the defendants in the Schwab case include Reynolds American Inc.'s R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp., Loews Corp.'s Lorillard Tobacco Co., BAT Industries Plc, British American Tobacco (Investments) Ltd. and Vector Group Ltd.'s Liggett Group Inc.

``The court came to the right conclusion,'' Murray Garnick, an associate general counsel for Altria, said in a statement. British American Tobacco spokeswoman Kate Matrunola called the ruling a ``sensible decision.''

Liggett spokeswoman Carrie Bloom declined to comment. Lorillard General Counsel Ron Milstein didn't return a call seeking comment.

Reynolds rose 29 cents to $60 in New York Stock Exchange composite trading.

The case is Schwab v. Philip Morris USA, 06-4666, U.S. Court of Appeals for the Second Circuit (Manhattan).

To contact the reporter on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net.

Last Updated: April 3, 2008 17:21 EDT