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Court rejects $10b ruling against tobacco company

Suit alleged fraud over 'light' cigarettes

CHARLOTTE, N.C. -- The Illinois Supreme Court handed the tobacco industry a significant victory yesterday by tossing out a $10.1 billion fraud judgment against Philip Morris USA over the marketing of its ''light" cigarettes.

Shares of parent company Altria Group Inc. soared after the news, but industry critics warned that the Illinois decision does not insulate US cigarette companies from future lawsuits. At least 40 similar suits are pending against such companies as Philip Morris and Reynolds American, any of which could result in awards of billions of dollars, tobacco opponents said.

''They need to keep their legal teams ready," said Richard Daynard, a longtime critic of the tobacco industry who is president of the Boston-based Tobacco Control Resource Center.

Philip Morris USA, which makes the Marlboro brand and controls about half the US cigarette market, issued a terse statement saying the Richmond-based company was ''gratified" by Illinois court's decision.

Investors were more openly enthusiastic. Shares of Altria Group rose sharply after the court's ruling; by the end of trading, the share price hit $76.62, up $2.89 or 3.9 percent, on the New York Stock Exchange.

The Illinois high court's ruling in Price v. Philip Morris addressed whether the tobacco company acted fraudulently when it labeled some cigarettes as ''light" or ''low tar and nicotine."

By a 4-to-2 vote, the court found that the Federal Trade Commission had authorized such characterizations.

''If the FTC has specifically authorized the use of the terms . . . [Philip Morris] may not be held liable under the Consumer Fraud Act, even if the terms might be deemed false, deceptive, or misleading," Justice Rita Garman wrote for the majority.

''I think they [Philip Morris] can take some comfort from this victory," said Carl Tobias, a law professor at the University of Richmond who follows tobacco litigation. ''It does seem like this could dissuade individuals from pursuing them vigorously in other states."

However, Mark Gottlieb, executive director of the Tobacco Products Liability Project at Northeastern University, said the fight over ''light" cigarettes is far from over. He estimated damages from similar pending suits around the country could go as high as ''tens of billions of dollars."

But a Citigroup analyst expects other courts to follow the lead of the Illinois Supreme Court. Yesterday's ruling ''will set precedent for other similar 'lights' class actions," tobacco analyst Bonnie Herzog wrote in a note to investors.

The case came to the state's high court from Madison County Judge Nicholas Byron, who had ordered the company to pay $10.1 billion -- $5 billion in compensatory damages, $3 billion in punitive damages, and $2.1 billion in interest.

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