Cigarette Makers Rejected by Top Court on $270 Million Award

The U.S. Supreme Court refused to question an order that requires the nation’s tobacco companies to spend more than $270 million on a Louisiana smoking cessation program.

Cigarette makers including Altria Group Inc. (MO)’s Philip Morris USA and Reynolds American Inc. (RAI)’s R.J. Reynolds contended that state courts violated the Constitution by letting the case go forward as a class action on behalf of all Louisiana smokers who want to participate in a cessation program. The companies said an individual smoker should have been required to show he or she was entitled to damages.

The question was whether state courts can “impose massive liability in a class action without a truly representative trial of individual claims,” the companies argued in their appeal.

Last week, the court threw out a nationwide gender-bias suit against Wal-Mart Stores Inc. (WMT) That ruling centered on the rules governing group suits in federal courts and in theory could be overridden by Congress.

The lead Louisiana plaintiff, Deania M. Jackson, urged the Supreme Court not to hear the case, contending she was suing under a state law that doesn’t require individualized proof. Jackson argued that no individual plaintiff would file a suit seeking smoking-cessation services valued at $153 a year.

“That Louisiana makes such a cause of action available as a class action without requiring proof of individualized reliance on misrepresentations does not implicate the due process clause,” Jackson argued.

Justice Scalia

In September, Justice Antonin Scalia issued a stay blocking the order until the nation’s highest court decided whether to get involved. In that order Scalia questioned the Louisiana state court decision that ordered the payments.

“The apparent consequence of the court of appeal’s holding is that individual plaintiffs who could not recover had they sued separately can recover only because their claims were aggregated with others’ through the procedural device of the class action,” Scalia wrote.

The Louisiana smokers claimed the cigarette makers hid the health risks of smoking and committed fraud. A 2004 jury verdict in the case was the first to require cigarette makers to pay to help smokers quit. The original award, $591 million, was reduced on appeal.

The current judgment requires the companies to pay $242 million, plus $37 million in interest.

Philip Morris said in a statement that it is responsible for a quarter of the judgment and that it has set aside about $30 million.

“Philip Morris USA is disappointed that the court declined to hear our arguments because we believe the decision in this case rests on a series of constitutional violations and is fundamentally unfair,” Murray Garnick, Altria Client Services senior vice president and associate general counsel, said in a statement.

The case is Philip Morris v. Jackson, 10-735.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net.

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net.

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