Caveat Fumator

By Janice Castro

Tobacco industry officials have had little to cheer about of late, but they raised huzzahs last week -- and watched the value of their corporate shares climb -- in the wake of two important court cases. In Boston, a federal appeals court ruled that the Surgeon General's warning labels on every package of U.S. cigarettes shielded Liggett & Myers, based in Durham, N.C., in a $3 million lawsuit filed by the heirs of a lung cancer victim. Just four days earlier in Atlanta, another appeals court had made a similar ruling in favor of American Brands of Old Greenwich, Conn., the maker of, among other things, Pall Mall cigarettes.

, The Boston case concerned Joseph C. Palmer, of Newton, Mass., who smoked L& M cigarettes for 23 years. After he died of lung cancer in 1980 at age 64, Palmer's wife Ann and his mother jointly sued Liggett & Myers, charging that the company had failed to provide adequate warnings about the dangers of cigarette smoking. A U.S. district court judge ruled that the company could be held liable under Massachusetts state laws; that decision was overturned last week.

For its part, American Brands (1986 net sales: $8.5 billion) was sued on grounds similar to those in the Palmer case by Verna Stephen, a Pensacola, Fla., resident. Her husband Andrew died in 1984 of pulmonary heart disease and cancer at age 64, after smoking Pall Malls for 54 years. Before the case could get under way, a U.S. district judge ruled on a pretrial motion that American Brands could argue that it is not liable under state consumer laws. On appeal, the Atlanta court upheld that ruling.

In both cases, the tobacco companies prevailed because the courts ruled that federal statutes held primacy over state laws. Specifically, the appeals courts declared that the federal disclosure law mandating cigarette package warnings, in effect since January 1966, takes precedence over the state laws on which the product liability cases were based. The federal warning provides uniform labeling of cigarettes, the courts reasoned, and was intended to balance concerns about the health of smokers against the economic benefits derived from domestic commerce in tobacco products. Said Judge John Brown for the first U.S. Circuit Court of Appeals on Palmer vs. Liggett & Myers: "It is inconceivable that Congress intended to have that carefully wrought balance of national interests superseded by the views of a single state, perhaps of a single jury in a single state."

Tobacco stocks surged after the decisions. On the day of the Boston ruling, American Brands climbed by 2 1/8, to close at 56 5/8. Shares of Philip Morris, the largest U.S. cigarette firm, which makes the Marlboro and Merit brands, rose 6 3/4, to 119 7/8. (Shares of Liggett & Myers are not publicly traded.) The cases, however, may still be appealed to the Supreme Court. Meanwhile, a host of similar cases are hanging fire; Liggett & Myers alone is the target of about 30. Of the estimated 125 product-liability cases pending against all tobacco companies, RJR Nabisco, manufacturer of Winston and Salem cigarettes, is facing 86.

With reporting by Joelle Attinger/Boston and Joseph J. Kane/Atlanta