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CHICAGO -- The Illinois Supreme Court threw out a $10 billion class-action lawsuit against Philip Morris USA, ruling that the company did not defraud customers in its marketing of "light" cigarettes, reported BusinessWeek online.
A divided state Supreme Court ruled that the Federal Trade Commission specifically allowed companies to characterize their cigarettes as "light" and "low tar," so Altria Group Inc.'s Philip Morris unit did not improperly mislead customers about the health impacts of its cigarettes, according to the report.
The court reversed the verdict and sent the case back to Madison County court with instruction to dismiss the matter.
"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, BusinessWeek online reported.
Altria Group shares climbed $4.12, or 5.6 percent, to $77.85 in late morning trading on the New York Stock Exchange, well above its previous 52-week high of $75.60.
The cigarette maker, which accounts for about half of the U.S. cigarette market, argued the case should never have been declared a class action on behalf of some 1.1 million light cigarette smokers, according to the report.
The smokers did not accuse the company of harming their health. They claimed Philip Morris knew when it introduced light cigarettes in 1971 that they were no healthier than regular cigarettes, but hid that information and the fact that light cigarettes actually had a more toxic form of tar, BusinessWeek online reported.
Madison County Judge Nicholas Byron had agreed that Philip Morris misled customers into believing they were buying a less harmful cigarette. In March 2003, he ordered the company to pay $10.1 billion -- $5 billion in compensatory damages, $3 billion in punitive damages and $2.1 billion in interest.
Two of the court's seven justices filed written dissents, and another, Chief Justice Robert Thomas, took no part in the case because he had a professional relationship with an attorney in the case, according to the report.
"The court's action today is predicated upon an erroneous and irresponsible interpretation of our Consumer Fraud Act," Justice Charles Freeman wrote in his dissent, arguing the ruling weakens state protections in favor of federal regulation, according to the report.
Philip Morris appealed directly to the state Supreme Court two years ago, arguing the trial court's decision was flawed in several ways.
It insisted its cigarettes performed as advertised. Those advertisements met federal guidelines and never promised lights were less hazardous than other cigarettes, the company said.
According to the report, Philip Morris argued the case's class-action status should not have been granted because each person smoked differently and chose particular brands of cigarettes for different reasons. It said the plaintiffs failed to prove each customer covered in the class was defrauded.
The plaintiffs argued that requiring individual proof for every person would essentially eliminate class-action cases under state law, according to BusinessWeek online.