• Second Circuit Snuffs Out 'Light' Cigarette Class Action
  • May 7, 2008
  • Law Firm: Manatt, Phelps & Phillips, LLP - Los Angeles Office
  • In a key win for tobacco companies, the U.S. Court of Appeals for the Second Circuit has “decertified” a class action alleging harm resulting from deceptive claims about the safety of light cigarettes.

    In McLaughlin v. American Tobacco Co., the Second Circuit reversed Eastern District Judge Jack Weinstein’s 540-page opinion which certified the class two years ago, finding it “suffers from an insurmountable deficit of collective legal or factual questions.”

    The complaint alleges violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). It claims tobacco companies marketed light cigarettes as a lower-risk substitute for regular cigarettes, although internal documents demonstrated the companies were aware that the risks were virtually the same. According to lawyers, the class could be as large as 60 million people.

    For a RICO class action, “each plaintiff must prove reliance, injury and damages,” the court observed. The lower court had found that the plaintiffs could prove all three on a class-wide basis. The Second Circuit found, to the contrary, that none of the elements could be satisfied.

    The Second Circuit agreed that the tobacco companies knew that light cigarettes had a health impact similar to regular cigarettes. “Most smokers who smoke Lights obtain just as much tar and nicotine as they would if they smoked full-flavored cigarettes, principally by ‘compensating’ – that is, either by inhaling more smoke per cigarette (e.g., by covering ventilation holes, drawing more deeply with each puff, etc.) or by buying more,” habits that cannot be tested by the Federal Trade Commission’s machine for measuring tar and nicotine content. “Cigarette manufacturers have apparently been aware of this phenomenon for some time,” the court said.

    Judge Weinstein found that the plaintiffs could prove on a class-wide basis that they relied on the companies’ misrepresentation concerning the relative safety of light cigarettes. The Second Circuit disagreed, ruling that “reliance on the misrepresentation cannot be the subject of general proof.”

    Smokers could have purchased light cigarettes for reasons other than health, such as taste preference or an expression of personal style, the court reasoned. Accordingly, each light cigarette smoker would have to prove whether he or she relied completely, in part, or not at all on deceptive marketing claims.

    The court also ruled that the issue of loss causation “cannot be resolved by way of generalized proof.” It reasoned that “[g]iven the lack of an appreciable drop in the demand or price of light cigarettes after the truth about Lights was revealed . . . plaintiffs’ argument that defendants’ misrepresentation caused the market to shift and the price of Lights to be inflated fails as a matter of law.”

    Finally, the court said that “out-of-pocket losses cannot be shown by common evidence because they constitute an inherently individual inquiry: individual smokers have incurred different losses depending on what they would have opted to do, but for defendants’ misrepresentation.” In so ruling, the court rejected the lower court’s finding that plaintiffs could prove collective damages on a class-wide basis and could individually claim shares in a damages fund.