TOBACCO SUIT DISMISSED.

Byline: Glenn Collins The New York Times

In a major victory for the beleaguered tobacco industry, a federal appeals panel in New Orleans unanimously dismissed a giant class-action lawsuit brought against the nation's cigarette-makers on behalf of millions of smokers.

The three judges' ruling overturned a 1995 decision that would have permitted almost any cigarette smoker in the United States to join a suit that could have cost the tobacco industry billions of dollars in claims. The lawsuit, which would have been the largest class-action case in American history, accused tobacco companies of concealing evidence that smoking is addictive and of manipulating nicotine levels in cigarettes.

The long-awaited appeals court decision, which agreed with industry arguments that such a case would be too unwieldy to manage, sent the stocks of tobacco companies soaring. The largest cigarette maker in the country, the Philip Morris Cos., alone gained $5.4 billion in value in little more than an hour of trading.

``This is a landmark decision for the tobacco industry that mutes the risk of national class actions,'' said Diana K. Temple, a securities analyst for Salomon Brothers.

But a consortium of nearly 60 plaintiffs' lawyers vowed to continue the battle against the nation's tobacco companies by filing new class-action lawsuits in all 50 states. And the tobacco companies still face the threat of lawsuits to recoup tobacco-related Medicaid costs in eight states, as well as an effort by the Food and Drug Administration to regulate the nicotine in tobacco as an addictive drug.

``This is definitely an important precedent for attempts to file other national class actions, and the ruling will be the precedent for many other mass-tort cases as well,'' said Linda Mullenix, a professor of law at the University of Texas Law School. She filed a brief opposing the class action on behalf of the National Association of Manufacturers.

The lawsuit, known as the Castano case, was filed in 1994 against RJR Nabisco Holdings Corp.; American Tobacco Co., a unit of Brown and Williamson Tobacco Corp., which was also a defendant; Philip Morris Cos. Inc.; Lorillard Corp., owned by Loews Corp.; United States Tobacco; Liggett Group Inc., a unit of Brooke Group Ltd.; as well as the industry's lobbying arm, the Tobacco Institute.

Last March, Liggett, the smallest of five major cigarette companies, broke ranks with the industry and settled with the Castano plaintiffs. That caused tobacco stocks to plummet and imparted to some tobacco makers a siege mentality. The New Orleans judges' ruling does not invalidate that settlement, according to a spokeswoman for the cigarette-maker's corporate parent. ``We remain committed to a negotiated resolution to tobacco litigation,'' she said.

Philip Morris hailed the judges' ruling and a Brown and Williamson spokesman said that the decision ``sends a strong message to class-action plaintiffs' lawyers to stop the insanity in our nation's courts.''

Daniel Donahue, deputy general counsel for R.J. Reynolds, went further in saying that the judges' opinion ``is a total and complete rejection of every argument the plaintiffs made in support'' of the class action. ``The plaintiffs' lawyers should realize that they are simply wrong on the facts and wrong on the law.''

Under the ruling, the lawsuit can go forward but only on behalf of the original plaintiffs - three smokers and Dianne Castano, whose husband died of lung cancer. But there is little chance that those plaintiffs alone could reap enough in damages to justify the huge cost of pursuing the case through the courts.

Nonetheless, the plaintiffs' lawyers, blocked at the federal level, vowed to fight on state by state. ``We will be filing class-action lawsuits in all 50 states, the District of Columbia and Puerto Rico,'' said John Coale, a member of the plaintiffs' consortium of lawyers. ``The tobacco companies are hardly home free. It will now bTe 50 times more expensive for them, because they'll have legal expenses in all 50 states.''

Donahue, of R.J. Reynolds, called such a state-oriented strategy ``desperate'' and ``an abuse of judicial process,'' adding that it ``should be seen by state court judges as the improper and inappropriate legal maneuver that it is.''

Coale said the plaintiffs' coalition had not decided whether it would appeal the ruling beyond the three-judge panel to a so-called ``en banc'' group consisting of the full bench of the 5th U.S. Circuit Court of Appeals in New Orleans. Also undecided, he said, was whether the case would be appealed to the Supreme Court.

The three-judge panel had not been expected to rule before the summer. ``The surprise was that they ruled so quickly, and that the decision is going to make law,'' said Roy Burry, a securities analyst for Oppenheimer & Co.

``In all likelihood there will be no appeal to the full bench,'' said Lawrence Adelman, a securities analyst for Dean Witter Reynolds. ``This was a unanimous ruling, not a rogue decision.''