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Manhattan Institute

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Lighting Up


Lighting Up

June 15, 2007
Legal ReformOther

On Monday, the United States Supreme Court unanimously ruled against Philip Morris in a case involving a class action lawsuit filed against the company in Arkansas.

The Court’s decision was narrow, procedural, and certainly correct, but the underlying cause of action is reason for serious concern, as it represents the plaintiffs’ bar’s newest form of lawsuit abuse.

Those who do not follow the world of litigation closely may have thought that cigarette lawsuits largely ceased after 46 state attorneys general signed the multi–billion dollar multi–state settlement agreement with the Big Four tobacco companies in 1998.

Instead, the private attorneys who pocketed billions in that deal have funneled money into yet more lawsuits, and aspiring newcomers have developed novel tobacco–suit schemes with the hopes of entering the upper echelons of the litigation industry.

The case considered by the Supreme Court, Watson v. Philip Morris, is one of several in just such a scheme—one that looks quite promising to the barons of Trial Lawyers, Inc. In essence, the suit, like others of its ilk, alleges that tobacco companies’ marketing of “light” cigarettes is an unfair and deceptive business practice under Arkansas state law.

Tobacco companies marketing “light” cigarettes have done so under a specific 1966 federal law in which Congress set standards for measuring and reporting tar and nicotine. Every labeling decision and every product test has fallen within these federal guidelines.

It should hardly come as a surprise, then, that tobacco companies are peeved about being subjected to potentially huge litigation exposure by state courts that disagree with the Congressional rule. Indeed, when each state can subject companies to different requirements, notwithstanding federal regulations to the contrary, we have a sort of anti–federalism contrary to our nation’s basic constitutional structure.

This new breed of lawsuits is particularly attractive to the trial bar because instead of relying on traditional tort law, these claims are based on state consumer protection acts, enacted during the 1960s and 1970s, which often lack basic procedural protections.

Historically, the law has required that a plaintiff must establish that he was injured, that the product in question caused the injury, and that the defendant was somehow at fault. For a common law fraud action, a plaintiff has to prove he relied on the defendant’s misrepresentation.

Under many state consumer protection acts, however, these basic requirements of law are not specified, and some state courts have allowed lawsuits to go forward with no alleged injury, causation, or reliance whatsoever. For lawyers trying to soak the tobacco companies, this relaxation of legal standards is a gold mine.

Courts generally have refused to allow individual plaintiffs to aggregate injury cases into class action suits when each plaintiff’s claim requires a fact–specific injury. Each tobacco injury case might vary, for instance, in how long or how much a person smoked, his general health and lifestyle, or how much he did or did not rely on a company’s advertising and packaging.

Under state consumer protection acts that do not require plaintiffs to show injury, however, attorneys can file “fraud” class action cases seeking statutory, and treble, damages without worrying about such niceties. And without having to show reliance, attorneys need not delve into a fact–specific inquiry as to whether all, or any, plaintiffs reasonably relied on the allegedly deceptive labeling.

That’s not to say that Philip Morris had a good argument in this case. The question was whether the case belonged in federal court, and whether Philip Morris had implausibly invoked a jurisdictional provision that applies to federal agents or those working under federal agents—typically government contractors. Even a company subject to the strictest of regulations is not a contractor for the government.

Still, the fact that Philip Morris was wrong in this case should not blind us to the dangers of class action lawsuits under state consumer protection acts, which threaten to subsume much of tort litigation. The potential damages of such massive claims are staggering: an Illinois decision against Philip Morris on a virtually identical theory went against the company for more than $10 billion before that state’s supreme court reversed the judgment under the particulars of Illinois law.

Last fall, a Brooklyn judge, Jack Weinstein, certified a similar federal class action—now on appeal at the Second Circuit—involving 50 million plaintiffs.

Those who hate the tobacco companies should not assume that state consumer protection acts only will be abused against the manufacturers of cigarettes. Unless legislators reform sloppy consumer protection laws, any company that markets its products could be subjected to similar suits.

For example, one case targeted the manufacturer of Listerine for claims about the product’s effectiveness in preventing gum disease—without a single plaintiff alleging a demonstrable injury. Makers of “fat–free” yogurt or “diet” soda, beware.