Monday, April 07, 2008

“Light” Cigarette Purchasers Cannot Pursue RICO Class Action

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

In a case asserting that tobacco companies' marketing and branding deceived smokers into believing that “light” cigarettes were healthier than “full-flavored” cigarettes, certification of a class of light cigarette purchasers was reversed by the U.S. Court of Appeals of New York City. Individual issues of reliance, injury, damages, and timeliness outweighed issues susceptible to common proof, according to the court.

Allegedly Healthier Cigarettes

The smokers sought $800 billion in treble damages on the theory that the companies’ implicit representation that lights were healthier led them to buy lights in greater quantity than they otherwise would have and at an artificially high price, resulting in overpayment for cigarettes.

The Federal Trade Commission in 1955 adopted the Cigarette Advertising Guides, which proscribed any implicit or explicit health claims in cigarette advertising except claims that a cigarette was substantially lower in nicotine or tar. The FTC's Cambridge Filter Method—introduced in 1967—relied upon a machine to test the tar and nicotine content of cigarettes.

The FTC method was quite unreliable, the court noted, because most light smokers obtained just as much tar and nicotine as they would if they smoked full-flavored cigarettes, principally by “compensating”—either inhaling more smoke per cigarette or buying more cigarettes. The tobacco companies apparently had been aware of this phenomenon for some time, the court observed.

The National Cancer Institute, in a monograph published in 2001, concluded that there was no convincing evidence that changes in cigarette design between 1950 and the mid-1980s had resulted in an important decrease in the disease burden caused by cigarette use.

Injury, Reliance

The injury causation element of the smokers' RICO claims predicated on mail and wire fraud could be only half-satisfied by a widespread and uniform misrepresentation through a national marketing campaign. The other half—reliance on the misrepresentation—could not be the subject of general proof because in this case reliance was too individualized, the court determined.

The smokers contended that they should be entitled to a presumption of reliance in light of the market shift from nonfiltered to filtered to low tar cigarettes. However, given the lack of an appreciable drop in the demand for or the price of light cigarettes after the truth about them was revealed in the monograph, the smokers' argument that the companies' misrepresentation caused the market to shift and the price of lights to be inflated failed as a matter of law, the court held. Neither an actual, quantifiable injury to business or property nor collective damages were susceptible to proof on a class-wide basis.

Statute of Limitations

Finally, the smokers offered no reliable means of collectively determining how many class members' claims were barred by the four-year RICO statute of limitations, the court found. As the district court had noted, a troubling critical problem in the case (filed in May 2004) was that some members of the class almost certainly were aware long before 2000 that light cigarettes were not appreciably safer for them than regular cigarettes.

Two class representatives apparently understood the phenomenon of “compensation” and its attendant risks prior to May 2000, and the smokers offered no reliable means of collectively determining how many class members' claims were time-barred, the court said.

The April 3, 2008 decision in McLaughlin v. American Tobacco Co. will be reported at CCH RICO Business Disputes Guide ¶11,465.

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