Tobacco Giant Faces Fraud Suit in Georgia
Still reeling from a massive $10.1-billion fraud judgment last month in Illinois, cigarette maker Philip Morris Inc. now faces a similar suit in Georgia's Fulton State Court.
Taking a cue from a Madison County, Ill., judge's finding that the company deceived smokers into believing that light cigarettes were safer than other brands, the Atlanta firm of Chitwood & Harley sued New York-headquartered Philip Morris last week.
The Fulton suit alleges that the company "intentionally and falsely conveyed a clear message to consumers that 'Light,' 'Ultra-light' and 'low-tar' cigarettes posed a decreased health risk" when they actually deliver higher tar and nicotine levels than their regular counterparts.
The suit accuses Philip Morris of fraudulent concealment and fraud for allegedly preying on health-conscious consumers who hoped to minimize the risk of smoking-related disease.
The complaint seeks to certify a class of Georgia smokers of the company's light or low-tar cigarettes, a group that, according to the suit, consists of up to hundreds of thousands of people.
The plaintiffs are not alleging they suffered any personal injury from smoking but seek damages of no more than $74,999 apiece for Philip Morris' alleged fraud.
Chitwood & Harley is a small Atlanta firm that specializes in class actions, particularly securities litigation. In the past year, the firm has handled a consolidated securities fraud case against Atlanta-based Mirant Corp. and shareholder suits against CryoLife Inc., AOL Time Warner Inc. and BellSouth Corp.
Principal Martin D. Chitwood did not return a call for comment. Philip Morris did not respond to a request for comment.
Allegations of fraud are the subject of at least 10 class actions around the country. The Illinois case is the only one to have gone to trial. After hearing more than six weeks of evidence, Circuit Judge Nicholas G. Byron, on March 21, ordered Philip Morris to pay compensatory damages of $7.1 billion and punitive damages of $3 billion for violations of the Illinois Consumer Fraud Act and the Uniform Deceptive Trade Practices Act. Price v. Philip Morris, No. 00-L-112 (Third Judicial Cir. Ct. March 21, 2003).
In a press release responding to the ruling, a company spokesman said Byron's ruling ignored the law, the facts and common sense to award "an outrageous amount of money to a group of smokers who claim no injury, smoked cigarettes that were always labeled with government health warnings and continue to purchase" Philip Morris' light cigarettes.
The cigarette maker is appealing the decision.
The Fulton suit claims Philip Morris designed its light brands so they would record lower machine measurements of tar and nicotine, although the company knew smokers unconsciously would compensate for the lower levels by inhaling deeper or taking larger or more frequent puffs, thereby getting the same amount of the dangerous ingredients.
"Having fostered and encouraged consumer misperception, Defendant brazenly capitalized" on health-conscious smokers' belief that smoking light brands equated to lower delivery of tar and nicotine, the suit says. "Predictably, consumers flocked to these brands, unaware that the products they were purchasing were not what Defendant purported to be selling."
Plaintiffs' lawyers Chitwood, Craig G. Harley and William T. Lacy Jr. attached the Illinois judge's 51-page order to their complaint. In that order, Byron found that Philip Morris intentionally marketed Marlboro Lights and Cambridge Lights as less harmful products than regular cigarettes, as "health reassurance cigarettes in that they expressly and impliedly conveyed the notion of a positive health attribute" through the use of the terms light and lowered tar. The evidence, however, established that the cigarette maker knew they were just as dangerous, if not more so, the judge concluded.
Byron wrote that he discounted the company's contention that some smokers bought the light brands because they liked the taste. Instead, the judge found, the association of light smokes with improved health was "at least one of the determinative reasons for every Class Member to purchase" them. "The evidence at trial demonstrates not only that Marlboro Lights and Cambridge Lights are just as harmful as their regular counterparts," Byron wrote, "but that these products are actually more harmful and more hazardous than their regular counterparts."
The judge said the measure of damages should be the difference between the price the consumer-plaintiffs paid for the cigarettes and the value of the "misrepresented" cigarettes they bought, an amount a plaintiffs' expert set at 92.3 percent of the amount the smokers paid. Byron calculated compensatory damages to be $7.1 billion.
Byron then added $3 billion in punitives, writing that "the course of conduct by Philip Morris related to its fraud in this case is outrageous, both because Philip Morris' motive was evil and the acts showed a reckless disregard for the consumers' rights."
The punitive award goes to the state of Illinois, but last week, a Cook County, Ill., judge ruled that the state wasn't entitled to the $3 billion because it had released claims against Philip Morris and other tobacco companies in the 1998 master settlement.
Philip Morris' Web site now says that it does not imply in its marketing and smokers should not assume that light brands are safe or safer than full-flavor brands. The Web site also advises consumers to read a 2001 National Cancer Institute report that found that such brands do not lower the health risks of smoking.