Hours after the U.S. Supreme Court issued a complicated ruling on June 24 in a long-awaited cigarette-liability case, tobacco companies were claiming a big victory. But when the smoke finally clears, cigarette makers may find that the decision in the Cipollone vs. Liggett Group Inc. case leaves them far more vulnerable to antismoking activists.
At first glance, the 7-2 vote does appear to favor tobacco companies. The court ruled that warning labels exempt them from liability in cases where smokers charge they were not adequately warned of the risks of smoking after 1969, four years after labels were required. In addition, the court said plaintiffs can't base their suits on advertising or promotions published after 1969.
OPEN DOOR. But the justices left an important door wide open: Lawsuits may proceed in cases that allege tobacco companies misrepresented or fraudulently withheld information concerning smoking and health. "There's ample information that tobacco companies misrepresented themselves," says John F. Banzhaf III, executive director of Action on Smoking & Health, a Washington-based antismoking organization.
Not surprisingly, tobacco companies hotly deny the misrepresentation charges. They point out that they have never settled or lost a suit based on such claims. Says James V. Kearney, outside counsel for Liggett Group Inc. on the Cipollone case: "In the past, juries have consistently recognized that the public is not uninformed about the health risk of smoking."
Before the Cipollone case reached the high court, a federal jury in New Jersey had found that Rose Cipollone, a smoker for 40 years who sued three tobacco companies after a cancerous lung was removed, was 80% responsible for her illness. But the jury did award $400,000 in damages for the 18 years she smoked before warning labels were mandated. After Rose Cipollone died in 1984, her son, Thomas, appealed to the Supreme Court. In the end, the high court gave the Cipollone family the option of retrying the suit by alleging fraud and misrepresentation. An attorney for the family says it hasn't decided its next move.
Tobacco-company stock prices plunged on the news of the court ruling. But after most Wall Street analysts rushed out strong buy recommendations, prices steadied. At the end of trading on June 24, Philip Morris closed slightly higher, while RJR Nabisco fell just a hair.
`CONCEALMENT.' The market's relief may be short-lived. Antismoking groups and plaintiff's lawyers continue to uncover damaging information on tobacco companies. In a suit that may have far greater impact than Cipollone, a federal judge in New York City ruled in February that tobacco companies must hand over 1,500 pages of evidence concerning the Council for Tobacco Research, an industry trade group formed in 1954 to study the health risks of smoking.
Plaintiff Susan Haines, whose father died of lung cancer, is alleging that cigarette makers and the council withheld important research that showed the dangers of smoking. Worse, the industry's claim that it was sponsoring independent research was a fraud, the suit alleges--and the judge agreed. "The tobacco industry may be the king of concealment and disinformation," wrote federal District Judge H. Lee Sarokin in his ruling. Defendants in the case are appealing. The Haines case also has caught the eye of federal prosecutors, who are conducting a criminal probe of tobacco companies and the research council.
On a separate front, tobacco companies are feeling the heat as the second-hand-smoke controversy intensifies. In late June, the U.S. Environmental Protection Agency issued a draft report that reinforces earlier findings that environmental smoke is a known human carcinogen and is particularly dangerous to children. Antismoking lawyers predict that second-hand-smoke liability cases will proliferate if lawyers uncover evidence that cigarette makers knew about and concealed the dangers.
Finally, tobacco companies may face more government scrutiny. Committees in both the House and Senate are considering legislation that would for the first time subject cigarette makers to Food & Drug Administration scrutiny on health and safety issues. "The Supreme Court case will start knocking down some walls in the tobacco industry fortress," says Scott Ballin, a vice-president of the American Heart Assn. If he's right, tobacco companies will be fighting a lot more than the Cipollone case.
TOBACCO'S OTHER LEGAL HEADACHES SMOKERS' SUITS Some 50 other liability suits may get a boost from the Cipollone ruling. In one case, a federal judge ordered the industry to release 1,500 documents because prima facie evidence existed that the industry engaged in a pattern of fraud. Defendants are appealing FEDERAL PROBE The U.S. Attorney's office in Brooklyn is investigating the tobacco companies for mail and wire fraud CIVIL FRAUD CASE A suit brought in California claims the industry hid the dangers of smoking from the public. The suit wants defendants to air corrective ads and repay the state all fraudulently obtained money DATA: BW