Suit Against Tobacco Industry Dismissed Judge’s Decision Lights Up Companies’ Stocks

In a major victory for the beleaguered tobacco industry, a federal appeals panel in New Orleans unanimously dismissed a giant class-action lawsuit brought against the nation’s cigarette-makers on behalf of millions of smokers.

The three judges’ ruling overturned a 1995 decision that would have permitted almost any cigarette smoker in the United States to join a suit that could have cost the tobacco industry billions of dollars in claims.

The lawsuit, which would have been the largest class-action case in American history, accused tobacco companies of concealing evidence that smoking is addictive and of manipulating nicotine levels in cigarettes.

The long-awaited appeals court decision, which agreed with industry arguments that such a case would be too unwieldy to manage, sent the stocks of tobacco companies soaring. The largest cigarette maker in the country, the Philip Morris Cos., alone gained $5.4 billion in value in little more than than an hour of trading.

“This is a landmark decision for the tobacco industry that mutes the risk of national class actions,” said Diana K. Temple, a securities analyst for Salomon Brothers.

But a consortium of nearly 60 plaintiffs’ lawyers vowed to continue the battle against the nation’s tobacco companies by filing new class-action lawsuits in all 50 states.

And the tobacco companies still face the threat of lawsuits to recoup tobacco-related Medicaid costs in eight states, as well as an effort by the Food and Drug Administration to regulate the nicotine in tobacco as an addictive drug.

“This is definitely an important precedent for attempts to file other national class actions, and the ruling will be the precedent for many other mass-tort cases as well,” said Linda Mullenix, a professor of law at the University of Texas Law School. She filed a brief opposing the class action on behalf of the National Association of Manufacturers.

The lawsuit, known as the Castano case, was filed in 1994 against RJR Nabisco Holdings Corp., American Tobacco Co., a unit of Brown and Williamson Tobacco Corp., which was also a defendant, Philip Morris Cos. Inc., Lorillard Corp., owned by Loews Corp., United States Tobacco, Liggett Group Inc., a unit of Brooke Group Ltd., as well as the industry’s lobbying arm, the Tobacco Institute.

Last March, Liggett, the smallest of five major cigarette companies, broke ranks with the industry and settled with the Castano plaintiffs.