Investors get go-ahead to sue Philip Morris
Thursday 10 April 1997
In the lawsuit, the plaintiffs argue that Philip Morris, America's number one cigarette manufacturer, artificially inflated the value of its stock price by actively misleading the investing public "through their statements that nicotine is not addictive and that smoking is entirely a matter of choice".
A securities class-action of this kind represents a new and potentially potent angle of attack against Philip Morris, which, in common with the rest of the industry, is already facing multiple legal and legislative problems, including lawsuits against it by 22 US states.
The lawsuit was originally dismissed by US District Judge Michael Mukasey in 1995 on the grounds that there was little chance it could succeed. Yesterday, however, he conceded that the flood of fresh evidence against Philip Morris demanded a change of mind.
Two years ago, the shareholders' most potent weapons in the case amounted only to a few vaguely defined charts and some memos. For that reason the judge granted a motion by Philip Morris for dismissal of the suit.
This time, the judge noted, the plaintiffs were in possession of nine briefs or reports from Philip Morris researchers that directly discussed the addictiveness of nicotine and strategies for manipulating nicotine levels in its cigarettes.
"This new documentary evidence is of enough potential importance and volume that I probably would not have granted the defendant's motion to dismiss had it been described in the initial complaint," the judge said.
Judge Mukasey drew attention to a 1974 report by Philip Morris scientists that stated that consumers "smoke to achieve [their] habitual quota of the pharmacologically active components of smoke" and that giving up smoking produces "reactions ... not unlike those to be observed upon withdrawal from any number of habituating pharmacological agents".
Last month, the Liggett Group, the smallest of the US tobacco companies, stunned the industry by reaching a settlement with the 22 states. In doing so, it publicly admitted that smoking was dangerous and potentially lethal to humans and that it had deliberately marketed cigarettes to minors.
The Liggett action threw the spotlight on to sworn testimony that was given by senior executives of all the main companies, including Liggett, to the US Congress in 1993 when each said they did not consider nicotine addictive.
The shareholders' lawsuit was unlikely to reach trial for many months, legal experts said. Its central claim is that had Philip Morris been honest about the health risks associated with smoking its stock price would not have risen as far as it did - and not fallen so far in its current legal troubles.
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