Preemption still shielding tobacco companies from liability.

The Department of Justice sued Philip Morris and other major tobacco companies in federal court in the late 1990s for violating the RICO statute by intentionally defrauding the American public through their marketing practices. The government alleged that the companies had sold cigarettes as "light," "ultra light," "low tar," and "natural," all the while knowing that these cigarettes pose no less risk of adverse health effects than do full-flavored cigarettes.

The tobacco companies contested their liability, arguing that the Federal Trade Commission (FTC) had sanctioned the use of descriptors such as "light" and "low tar," and that because they were "authorized" to use these terms, they could not be held liable for deceptive marketing practices under RICO.

The court rejected these arguments. Federal Judge Gladys Kessler found that no FTC regulation or federal statute had expressly sanctioned the tobacco companies' use of these descriptors. In August 2006, Kessler held that the tobacco industry had engaged in a decades-long conspiracy to defraud smokers and that the companies had violated RICO. (1)

Tobacco companies currently face similar suits filed by plaintiffs under state consumer protection statutes. In Holmes v. Philip Morris, a class of Marlboro Lights smokers alleges that Philip Morris violated Delaware consumer protection laws in marketing these cigarettes as lights when, in fact, they have been proved to be neither safer nor lower in tar and nicotine than other cigarettes.

Philip Morris moved to dismiss the suit on preemption grounds. Despite the absence of any formal FTC regulation or rule sanctioning the use of the terms "light" and "low tar," the company contends that informal FTC actions, such as press statements, consent orders, and the use of the Cambridge Method (a widely criticized laboratory test voluntarily administered by tobacco companies that measures nicotine and tar yields in cigarettes smoked by a machine), authorize Philip Morris to market Marlboro Lights as "lowered in tar and nicotine" even though they are not lower in tar or nicotine when smoked. (2)

Kessler rejected this argument in United States v. Philip Morris, but it may prevail in Holmes and other similar suits given the Illinois Supreme Court's recent decision in Price v. Philip Morris, which the U.S. Supreme Court refused to hear on appeal.

In Price, lights smokers sued Philip Morris under an Illinois consumer protection law. The Illinois law is modeled after the Federal Trade Commission Act, which empowers the commission to, among other things, prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce, and seek monetary redress and other relief for conduct injurious to consumers. (3) The Illinois statute also mirrors consumer protection statutes throughout the country in that it bars plaintiffs from suing an entity for marketing practices that have been "specifically authorized" by a state or federal agency.

Acknowledging that the FTC had never adopted a rule or regulation governing the use of these descriptors in cigarette ads, the Price court interpreted the phrase "specifically authorized" to include informal actions by the FTC that can be construed as condoning the marketing of light cigarettes.

The Price court reversed a $10.1 billion judgment against Philip Morris. It determined that a 1971 consent order between the FTC and American Brands, and a 1995 consent order between the FTC and American Tobacco, authorized all U.S. tobacco companies, including Philip Morris (which wasn't a party to either consent order), to use on cigarette packaging the words "'low,' 'lower,' 'reduced,'" or similar terms "such as 'light' so long as the descriptive terms are accompanied by a clear and conspicuous disclosure of the 'tar' and nicotine content in milligrams." (4)

The Price plaintiffs unsuccessfully sought review in the U.S. Supreme Court, questioning whether, as a matter of federal law, an FTC consent order can immunize a nonparty from liability under an otherwise applicable state deceptive-practices statute. Whether a consent order has a legal effect on a nonparty is important not only for the Price and Holmes plaintiffs, but also for those involved in similar cases against the tobacco industry and other regulated-industry defendants throughout the country.

If an FTC consent order is held to have the legal effect that the Illinois Supreme Court and other courts following Price have accorded it, any type of deceptive trade practices claim alleged under a state consumer protection statute could be barred on grounds that the challenged conduct was authorized by the FTC if the commission had entered into a consent order with any market participant concerning similar conduct. (5)

The Supreme Court, in declining to hear Price, opted not to decide this issue, leaving the Price plaintiffs without a remedy. But the Court recently decided to hear Watson v. Philip Morris Cos., which will resolve whether Philip Morris may remove a "light" tobacco consumer fraud suit to federal court under the federal office removal statute. (6) Philip Morris successfully argued in federal district court and on appeal to the Eighth Circuit that Philip Morris was "acting under a federal officer" because in advertising cigarettes as "light" it was acting pursuant to FTC advertising regulations, including consent orders. Whether the decision in Watson will resolve the legal effect of consent orders remains to be seen, however, as the Court could decide the case on narrower grounds.

Notes

(1.) United States v. Philip Morris U.S.A., 449 F. Supp. 2d 1 (D.D.C. 2006).

(2.) Holmes v. Philip Morris, No. 03C-08-167 JEB (Del. Super. June 28, 2006). The Center for Constitutional Litigation is cocounsel representing the Holmes plaintiffs, who filed their complaint in August 2003.

(3.) 15 U.S.C. [subsection] 41-58 (2000).

(4.) 848 N.E.2d 1, 50 (Ill. 2005) (citing American Brands, 79 F.T.C. 255 (1971)).

(5.) Several courts have held, contrary to Price, that FTC consent orders do not constitute binding legal authority on nonparties, including Trans Union Corp. v. FTC, 245 F.3d 809, 817, denial of reh'g, 267 F.3d 1138 (D.C. Cir. 2001); Intergraph Corp. v. Intel Corp., 253 F.3d 695, 698 (Fed. Cir. 2001); Sakon v. Pepsico, 553 So. 2d 163, 166 (Fla. 1989) (per curiam); Whitinsville Plaza v. Kotseas, 390 N.E.2d 243, 252 (Mass. 1979); Beatrice Foods Co. v. FTC, 540 F.2d 303, 312 (7th Cir. 1976).

(6.) 2007 WL 80665, cert. granted (U.S. Jan. 12, 2007).

Both FRANCINE A. HOCHBERG and ANDRE MURA are associate litigation counsel at the Center for Constitutional Litigation in Washington, D. C.