Fifth Circuit Dismisses Class-Action Suit Against Tobacco Companies

TOBACCO SUMMER 1996

On May 23 a three-judge panel of the 5th U.S. Circuit Court of Appeals in New Orleans unanimously rejected a massive class-action law suit brought against the tobacco industry. In a 39-page decision the judges ruled that there were too many differences in the individual plaintiffs' circumstances and too many differences in state laws that would make the case unmanageable. The suit was filed on behalf of millions of smokers across the country allegedly addicted to nicotine (Castano v. The American Tobacco Co., 84 F.3d 734 (1996); Milo Geyelin and Suein L. Hwang, "Appeals Court Throws Out Tobacco Class-Action Suit," Wall Street Journal, May 24, 1996, p. A3; Alan Sayre, Associated Press, "Appeals court rejects class-action lawsuit against cigarette manufacturers," Buffalo News, May 24, 1996, p. A7; Henry Weinstein, "Court victory can't shield cigarette makers from new challenges," Buffalo News, May 26, 1996, p. A4; "A Classy Ruling," Wall Street Journal, May 24, 1996, p. A10).

The court also rejected the case because of its unprecedented size and novel threat. One judge wrote, "The collective wisdom of individual juries is necessary before this court commits the fate of an entire industry or, indeed, the fate of a class of millions to a single jury." The court also said, "Our specific concern is that a class-action cannot be properly certified without a prior track record of trials."

Known as the Castano lawsuit, the case would have been the largest class-action in history, exposing the $50 billion a year tobacco industry to billions of dollars in claims. Sixty of the nation's leading law firms represented an estimated 90 million Americans smokers who were suing to recoup costs of their alleged addiction. The class-action, filed in 1994, accused the tobacco industry of manipulating nicotine levels to keep smokers addicted and concealing their knowledge that nicotine is addictive. Defendants in the suit included R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp., American Tobacco Co., United States Tobacco, Philip Morris USA, Lorillard Corp., the Liggett Group and the Tobacco Institute, the industry's lobbying group.

In March, the Liggett Group agreed to settle, but reserved the right to withdraw from a deal if the class action was nullified. Liggett, under the parent company Brooke Group, LTD., agreed to dedicate some of its total income over the next 25 years to pay for stop-smoking programs. After the decertification of the class-action, a Brooke Group spokesman said, "We continue to believe that responsible compromise is in the best interests of Liggett and the entire tobacco industry." For more information about the Liggett settlement, see the April 1996 issue of NewsBriefs.

Plaintiffs pledged to continue their fight, promising to file cases in state courts immediately. "We would have liked to have won this decision, but we're not going to go away," said John Coale, a lawyer acting as spokesman for the Castano Plaintiffs Legal Committee.

The victory for the tobacco industry came 13 days after a major asbestos-related class-action suit was rejected by an appeals court in Philadelphia. Brown & Williamson declared the Castano ruling as "a strong message to class-action plaintiffs' lawyers to stop the insanity in our nation's courts." The spokesman also said, "The judicial system was not designed as a lawyer-enrichment device, which is becoming the typical result of today's class-action lawsuits."

The decision was greeted with cheers on Wall Street, which had been predicting decertification of Castano. Stocks in major tobacco companies soared when the decision was announced. Tobacco analysts said the ruling marked a change in investors' attitude about the tobacco industry. However, Harvard Law Professor Laurence Tribe said that though the decision was a major setback for the plaintiffs, he thought Wall Street had overreacted to the Castano decision by "giving tobacco stocks a $5 billion bump." He added, "The Castano decision has no real significance on the state suits or the FDA regulations. If anything, it increases the pressure on the government to be quite aggressive in pursuing the industry, since the industry has succeeded again in fighting off a legal assault." The tobacco industry has never lost a smoking-related lawsuit.

Formidable legal and regulatory challenges still face the industry. The FDA is trying to regulate cigarettes as a drug on the ground that cigarettes are engineered to deliver nicotine. Eight states have suits pending against the industry in an attempt to recoup the enormous costs of treating Medicaid recipients with smoking-related illnesses. In addition, the industry faces the prospect of up to fifty new class-action suits in state courts. "Now it's going to go from one global war to 50 local wars," said John Coffee, a Columbia University law professor.