Second Circuit Decertifies "Light Cigarette" Class Action

April 16, 2008
Client Alert Newsletter May 2008

In McLaughlin v. Philip Morris USA Inc., the U.S. Court of Appeals for the Second Circuit decertified a class of "light cigarette" smokers, who were seeking to maintain a class action to recover damages for fraudulent claims that "light" cigarettes were healthier than "full-flavored" cigarettes. In concluding that the case could not proceed as a class action, the court performed a standard analysis applied in most federal class actions. This analysis focused on the defendants' principal argument that trial of the action would involve individual issues that predominate over any issues common among the class. Plaintiffs argued that the same allegedly fraudulent representations were made to all class members pursuant to a national marketing campaign representing that light cigarettes were a healthier alternative to full-flavored cigarettes. However, to prevail on a fraud claim, plaintiffs would also be required to prove that members of the class purchased light cigarettes in reliance on these fraudulent misrepresentations, and the court concluded that such an inquiry would require individualized proof. The court reasoned that individualized proof of the buying habits of each class member would be necessary because some class members, for example, may have purchased light cigarettes because they preferred the taste, and not because light cigarettes represented a "healthier alternative."

Plaintiffs attempted to overcome the need for this individualized proof by arguing a "fraud on the market" theory accepted in securities class action litigation, claiming that the fraudulent representations were factored into the price of light cigarettes, and that "reliance" on the misrepresentations could be presumed by reliance on the market to properly reflect the price of a light cigarette. The court refused to extend the "fraud on the market" theory, however, reasoning that consumer markets are inefficient and unresponsive to new information. The court's willingness to apply traditional class action analysis to "one of the most troubling problems facing our nation"—redressing injury caused by the cigarette industry—shows that even difficult class actions, including toxic tort claims, can be successfully defended.