Court Gives Big Tobacco a Break

Reuters

SAN FRANCISCO, (Reuters) - The California Supreme Court ruled on Monday that tobacco makers can have limited protection from smoker lawsuits, sending shares of major tobacco companies higher in New York Stock Exchange trading. But the California court also ruled that the companies can still be sued by smokers whose illnesses were diagnosed before the state in 1998 repealed a law that protected the industry.

Plaintiffs' lawyers said the decision could clear the way for increased cigarette litigation in California but tobacco makers and investors cheered the ruling because it granted some protection for conduct between 1988 and 1998.

Lawyers said that plaintiffs in order to sue would now have to show that their illnesses stemmed from before 1988, the year the protections for the industry came into effect.

The court ruling Monday stemmed from two cases brought against R.J. Reynolds Tobacco Holdings Inc. (RJR) and Philip Morris Cos. (MO) by smokers whose lawsuits were thrown out in lower court.

Shares of both companies rose on the news with R.J Reynolds stock up 3.42 percent to $56.47 and Philip Morris up 5.8 percent to $47.83 in afternoon trading.

"In Myers we hold that because the repeal was not retroactive, the immunity statute continues to provide an immunity for tobacco companies in product liability actions, but only for conduct they engaged in during the 10-year period when the immunity statute was in effect," the court ruled in one of two related decisions.

"The liability of tobacco companies based on their conduct outside the 10-year period is governed by general tort principles," it added.

Representatives of No. 2 tobacco firm R.J. Reynolds were not immediately available for comment but New York-based Philip Morris said the decision could provide additional grounds to overturn three recent verdicts against it in smoking cases.

"We will now review those cases to determine how the Court's new decision affects those appeals -- including, for example, what evidence should have been excluded at trial based on today's decision," said William Ohlemeyer, vice president and associate general counsel for Philip Morris.

While investors saw the decision as a victory for the tobacco industry, plaintiff's lawyer Daniel Smith said the Supreme Court reaffirmed the right to go after cigarette makers.

He also acknowledged smokers will now have to show that they became ill before 1988 but said that would not be a big obstacle to pursuing lawsuits against tobacco companies.

"As a practical matter it is probably not going to have much of an effect because people who get diseases have smoked for 30 or 40 years," Smith said. "It is not a significant protection. The green light the legislature enacted in 1998 is in place."