Cloud over tobacco giants

David Usborne in New York asks whether the bell tolls for cigarette firms addicted to immunity from lawsuits

Among all the oversize advertising hoardings that line the freeway to one of New York's airports, one is especially eye-catching.

It features a plane wing, that juts partly beyond the billboard itself, and on it is a collection of life-size, three-dimensional figures. Some are sitting, some standing, all have a cigarette in their hands. "Have you noticed all the smoking flights have been cancelled?" the caption asks. "For a great smoke, just wing it".

The ad - for Benson & Hedges - is a cheeky rebuke aimed not just at the airlines but at the whole American anti-smoking movement: the city councils that are barring smoking in all public places, the restaurants that won't let you light up even if you are eating outside, and the federal regulators who are threatening to shackle the cigarette companies with new controls.

But is the public confidence of the tobacco industry against the tide of negative sentiment real or hollow?

Already last year, US cigarette companies had reason to be alarmed when evidence was produced at congressional hearings alleging that for years they had suppressed findings that cigarette-smoking was addictive and, worse, that they had manipulated nicotine levels in their products to ensure smokers became hooked.

And the chief of the Federal Drug Administration, David Kessler, at the same time made clear his intention to seek new limits on cigarette sales if not an actual ban.

The siege, although briefly dropped from the headlines, has not let up. Last week, Mr Kessler suggested at a public meeting at Columbia University in New York that the companies had for years been guilty of deliberately targeting young Americans as potential smokers, by, for instance, putting promotional materials in "the general vicinity of high schools". He warned: "Nicotine addiction begins as a pediatric disease. Yet our society has done little to discourage this addiction in our youth".

More threatening than the scoldings of Mr Kessler, however, is the burgeoning collection of legal challenges to the tobacco giants. Over 40 years of being targeted by a series of lawsuits, mostly from individuals claiming their health had been wrecked by their products, the manufacturers have not been forced to pay a single cent in compensation.

The suits coming forward now look altogether more potent, however. Their progress through the courts is throwing a darkening shadow across giants like Philip Morris and RJ Reynolds and substantially depressing the value of the share prices.

Most attention is being focused on a class action filed in a federal court in Lousiana by a consortium of 60 civil claims specialists on behalf of friends of a local resident, Peter Castano, who died last year of lung cancer.

At the end of last month, the judge in the case, Judge Okla Jones, cleared the way for the suit to go to court. Unless his decision is reversed by an appeal lodged last Wednesday by the seven tobacco companies that are named - including Reynolds and Morris - it could become the biggest class- action suit in American, if not world, history.

The numbers involved are staggering. The very fact of 60 tort lawyers burying their rivalries and joining for a single case is unprecedented. They have each agreed to contribute $100,000 towards fighting the case, to ensure an annual war-chest of $6m. Their hope, meanwhile, is to attract literally millions of current and former smokers to join the class action by advertising in 800 different newspapers around the US, in national magazines and even on bulletin boards on the Internet.

It is not a case that would be quickly resolved - some say it would take 10 years. But if even a fraction of the 90 million current and former smokers in the US are plaintiffs and were awarded even as little as $2,000 each in damages, the entire market capitalisations of Philip Morris and RJ Reynolds would be wiped out.

There is more. Also at the end of last month, Florida became the fourth US state, after Mississippi, Minnesota and West Virginia, to launch suits against the tobacco companies for damages to cover taxpayers' money spent on free medical care for the poor and elderly suffering from diseases linked to smoking, such as cancer and emphysema.

The tobacco giants are maintaining a serene face. Domestic US manufacturers last year saw pre-tax profits rise by 23 per cent to $6.1bn. International sales boomed - especially to the new market economies of Eastern Europe - and even in America cigarette consumption was level. Despite the advice of some that they should consider out-of-court settlements, they appear determined to fight the cases all the way.

"The tobacco industry has no history of settling lawsuits and I would be very shocked if we were to start now," commented Peggy Carter, a spokeswoman for RJ Reynolds.

Peter Schuck, a professor at Yale Law School, is amongst many outside observers who believe the apparent confidence of the companies may be misplaced. "I think they should be considerably worried," he said. "In the past they have been able to stonewall these suits very effectively, but there are danger signals on the horizon for them now".

He notes in particular the availability to plaintiffs of documents that surfaced at last year's congressional hearings that suggest deliberate deception on the part of the manufacturers on the issue of addiction. That is a new factor, he says.

The threat that litigation may one day finally snare the manufacturers has long depressed their stock values. They dipped a little further after Judge Jones' decision to let the Lousiania suit go forward, but recovered quite soon afterwards. Most if not all of the value of shares of the big combines like Morris and Reynolds are reflections of their other businesses, for instance in food and drinks.

"People are valuing tobacco at almost nothing and basically valuing the rest of the company," suggested John Rooney, who trades in Philip Morris stock for Sanford Bernstein on Wall Street. Mr Rooney admits that legal manoeuvres have kept tobacco stocks unrealistically low, but predicts that the Lousiana class action will be overturned.

At JW Seligman, portfolio manager Chip Smith meanwhile continues to hold tobacco positions, arguing that the litigation factor will always be there. "I don't consider the litigation risk as something that is going to go away, you just learn to live with it," he said. "I don't think anyone can predict how the courts are going to go".

Of course, if these new legal onslaughts were also to fizzle out, then anyone buying US tobacco stocks today may find themselves in clover.

PROMOTED VIDEO
News
A model of a Neanderthal man on display at the National Museum of Prehistory in Dordogne, France
science
News
Dawkins: 'There’s a very interesting reason why a prince could not turn into a frog – it's statistically too improbable'
newsThat's Richard Dawkins on babies with Down Syndrome
Sport
Malky Mackay salutes the Cardiff fans after the 3-1 defeat at Liverpool on Sunday
footballFormer Cardiff boss accused of sending homophobic, racist and messages
Sport
Rodgers showered praise on Balotelli last week, which led to speculation he could sign the AC Milan front man
transfers
Life and Style
life – it's not, says Rachel McKinnon
Arts and Entertainment
Eye of the beholder? 'Concrete lasagne' Preston bus station
architectureWhich monstrosities should be nominated for the Dead Prize?
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Test Lead (C#, Java, HTML, SQL) Kingston Finance

£40000 - £55000 per annum: Harrington Starr: A Global Financial Service Organi...

Access/Teradata Developer, Banking, Bristol £400pd

£375 - £400 per day: Orgtel: Access / Teradata Developer - Banking - Bristol -...

Quantitative Analyst (Financial Services, Graduate, SQL, VBA)

£45000 per annum: Harrington Starr: Quantitative Analyst (Financial Services, ...

Day In a Page

Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape
eBay's enduring appeal: Online auction site is still the UK's most popular e-commerce retailer

eBay's enduring appeal

The online auction site is still the UK's most popular e-commerce site
Culture Minister Ed Vaizey: ‘lack of ethnic minority and black faces on TV is weird’

'Lack of ethnic minority and black faces on TV is weird'

Culture Minister Ed Vaizey calls for immediate action to address the problem
Artist Olafur Eliasson's latest large-scale works are inspired by the paintings of JMW Turner

Magic circles: Artist Olafur Eliasson

Eliasson's works will go alongside a new exhibition of JMW Turner at Tate Britain. He tells Jay Merrick why the paintings of his hero are ripe for reinvention
Josephine Dickinson: 'A cochlear implant helped me to discover a new world of sound'

Josephine Dickinson: 'How I discovered a new world of sound'

After going deaf as a child, musician and poet Josephine Dickinson made do with a hearing aid for five decades. Then she had a cochlear implant - and everything changed
Greggs Google fail: Was the bakery's response to its logo mishap a stroke of marketing genius?

Greggs gives lesson in crisis management

After a mishap with their logo, high street staple Greggs went viral this week. But, as Simon Usborne discovers, their social media response was anything but half baked
Matthew McConaughey has been singing the praises of bumbags (shame he doesn't know how to wear one)

Matthew McConaughey sings the praises of bumbags

Shame he doesn't know how to wear one. Harriet Walker explains the dos and don'ts of fanny packs
7 best quadcopters and drones

Flying fun: 7 best quadcopters and drones

From state of the art devices with stabilised cameras to mini gadgets that can soar around the home, we take some flying objects for a spin
Joey Barton: ‘I’ve been guilty of getting a bit irate’

Joey Barton: ‘I’ve been guilty of getting a bit irate’

The midfielder returned to the Premier League after two years last weekend. The controversial character had much to discuss after his first game back
Andy Murray: I quit while I’m ahead too often

Andy Murray: I quit while I’m ahead too often

British No 1 knows his consistency as well as his fitness needs working on as he prepares for the US Open after a ‘very, very up and down’ year
Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home