Tobacco stocks dive as US court mulls $145bn award case

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The Independent Online

Florida's high court last night said it would consider reinstating a record $145bn judgment against cigarette makers, sending shares in tobacco stocks plummeting on Wall Street.

Florida's high court last night said it would consider reinstating a record $145bn judgment against cigarette makers, sending shares in tobacco stocks plummeting on Wall Street.

The ruling reawakened litigation concerns that had eased after an appeal court threw out the record damages award a year ago.

Shares in Altria, the parent to the number one US cigarette producer Philip Morris USA dropped almost 7 per cent while RJ Reynolds Tobacco fell 6 per cent.

The ruling is expected to affect shares in British American Tobacco, another defendant in the class action, when the London market reopens today. More than one-third of the UK tobacco group's sales come from North America, although BAT is attempting to spin off its US unit, Brown & Williamson, into a joint venture with RJ Reynolds.

The $145bn (£82bn) punitive damages were awarded to sick Florida smokers in 2000 after a jury ruled that major cigarette companies had deceived the public about the health dangers of cigarettes. An estimated 300,000 to 700,000 sick smokers stood to benefit from the ruling.

The case was named Engle after the pediatrician who first filed a decade ago, and was the first smokers' lawsuit to be certified as a class action. An appeal court overturned the ruling in May 2003 and decertified the class action, meaning that plantiffs would have to sue individually. It ruled that the legal proceedings that produced the verdict were "irretrievably tainted" and said the award could violate Florida law by bankrupting the cigarette makers.

Analysts warned that the renewed uncertainty was likely to weigh on tobacco stocks. Judy Hong, at Goldman Sachs, said: "We expect the tobacco stocks to trade down in the near term, adding that it was not clear what parts of the earlier ruling the high court would review.

The Florida high court said that it would hear arguments in October.

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