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From Antitrust Law Daily, April 30, 2014

$10 billion judgment for advertising “light” and “low tar” cigarettes reinstated

By Jody Coultas, J.D.

A trial court’s denial of cigarette consumers’ petition for relief from judgment was reversed by an Illinois appellate court, effectively reinstating a $10.1 billion verdict against Philip Morris for advertising “light” and “low tar” cigarettes in violation of the Illinois Consumer Fraud Act (Price v. Philip Morris, Incorporated, April 29, 2014, Chapman, M.).

In 2000, the consumers filed a class action lawsuit, alleging that Philip Morris’s advertising of its cigarettes as "light" or "low tar" violated the Illinois Consumer Fraud Act (CFA) because it knew that the light and low tar cigarettes were no healthier than regular cigarettes. Philip Morris argued that Section 10b(1) exclusions to the CFA applied because the FTC specifically authorized use of the terms "light" and "low tar" in consent decrees entered in enforcement actions involving other cigarette manufacturers.

The trial court entered a $10.1 billion judgment in favor of the consumers, but the Illinois Supreme Court reversed that judgment, finding that section 10b(1) of the CFA barred the claims. The trial court then entered an order dismissing the action with prejudice.

The consumers filed a section 2-1401 petition for relief from judgment, alleging that they were originally unable to present evidence of the FTC's position with respect to the use of descriptors such as "light" or "low tar." The trial court held that the consumers had a meritorious claim, and acted with due diligence in attempting to present that claim and filing the petition. However, the court held that the Illinois Supreme Court would have reversed on other grounds had it ruled differently on the question of section 10b(1).

On December 8, 2008, the FTC issued a rescission of guidance concerning representations of tar and nicotine content that cigarette manufacturers could make in advertising and cigarette packaging. The previous guidance did not address the use of descriptors such as "light" or "low tar." In the 2008 rescission of guidance, the FTC stated that the agency "has neither defined those terms, nor provided guidance or authorization as to the use of descriptors."

The trial court correctly found that the consumers exercised due diligence in attempting to present their claim to the trial court in the original trial, according to the court. The consumers originally argued that the FTC never authorized the use of the terms "light" and "low tar" in cigarette advertising by the cigarette industry, but were not able to present the evidence of the FTC's stated position that it never authorized use of the terms. Philip Morris argued that the consumers did not act diligently in attempting to present the FTC's own statement of its position in the original litigation in this matter. However, it defied logic to suggest that due diligence required litigants in a state court proceeding to seek the input of a federal agency.

The evidence at issue was properly before the court in the petition for relief from judgment, according to the court. Although the evidence at issue did not exist at the time of the original trial, the factual matter the consumers needed to prove did exist. Generally, relief is not available on the basis of matters that arose subsequent to the challenged judgment. Philip Morris argued that the FTC changed its position regarding light cigarette advertising and that the consumers’ evidence did not exist at that time of the original filing. However, the FTC's position on the use of the descriptors "light" and "low tar" in cigarette advertising was available prior to the complaint being filed. Although the rescission of guidance represented a change in the FTC's policy regarding a somewhat related matter, it did not change its position regarding the use of descriptors such as "light" or "low tar."

The trial court erred by exceeding the scope of section 2-1401 review when it discussed what the Illinois Supreme Court would have ruled on the issue of damages, according to the court. Section 2-1401 petitions are denied where courts find that the unavailable evidence would not have changed the outcome of the original actions. Due to the unique procedural history of the case, there were few cases analogous to the matter at hand. The cases presented by Philip Morris did not support its argument that the trial court's determination of whether the FTC's explicit statements regarding its approach to descriptors would have changed the outcome. The trial court exceeded the scope of section 2-1401 review when it attempted to predict how the state supreme court would rule on the question of damages.

The Illinois Supreme Court concluded that Philip Morris was exempt from liability under the CFA because it was "specifically authorized to use the disputed terms without fear of the FTC challenging them as deceptive or unfair." This analysis would have been changed based on the 2008 rescission of guidance, which contained direct statements that the FTC never intended to authorize use of the terms and that use of the terms was subject to the requirement that it not be deceptive. However, the Illinois Supreme Court did not analyze whether the consumers offered sufficient proof of the damages they alleged. It was unclear whether the court disagreed with the calculation of the amount of damages awarded or the finding that the consumers proved they sustained damages at all.

The court’s granting of relief from judgment had the effect of reinstating the trial court’s original verdict, according to the court. Philip Morris argued that only the supreme court had the authority to reinstate the verdict against it, while the consumers argued that reinstating the verdict was a "common sense solution" that would return the proceedings "as close as they possibly can be [returned] to the status quo ante." The effect of vacating the dismissal order was to reinstate the verdict because the supreme court never reached the merits of the underlying claims, and only reversed the trial court's decision to deny the defendant's motion for summary judgment on the basis of section 10b(1) of the CFA.

The case is No. 5-13-0017.

Attorneys: Stephen M. Tillery (Korein Tillery LLC) for Sharon Price and Michael Fruth. George C. Lombardi (Winston & Strawn LLP) for Philip Morris Incorporated.

Companies: Philip Morris, Incorporated

MainStory: TopStory Advertising StateUnfairTradePractices IllinoisNews

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