UPDATE 2-Altria to appeal revived $10.1 bln 'light' cigarette verdict

Wed Apr 30, 2014 12:48pm EDT

(Adds labeling changes, market share, updated stock price, paragraphs 10-11 and 15)

By Jonathan Stempel

April 30 (Reuters) - An Illinois state appeals court has reinstated a $10.1 billion verdict against Philip Morris USA in a lawsuit accusing the Altria Group Inc unit of misleading consumers about the risks of smoking "light" cigarettes. Philip Morris USA said it will appeal immediately.

Tuesday's decision by the Fifth District Court of Appeals in Mount Vernon, Illinois, revives a 2003 judgment handed down by a state trial judge.

That judgment against the maker of Marlboro cigarettes had been overturned by the Illinois Supreme Court in 2005, a ruling that the U.S. Supreme Court let stand the following year.

In 2008, the plaintiffs sought to revive their case after the U.S. Federal Trade Commission (FTC) rescinded a 42-year-old policy on how cigarette makers could describe tar and nicotine levels in their advertising and packaging.

A state court judge dismissed the case in December 2012, but Justice Melissa Chapman wrote for a three-judge appeals court panel that he lacked authority to speculate how the policy change might affect damages. She said the effect of overturning the dismissal was to reinstate the original verdict.

The lawsuit, brought on behalf roughly 1.4 million Illinois smokers, began in 2000. It was the first class action case to reach trial over using the word "light" to promote cigarettes.

Plaintiffs led by Sharon Price and Michael Fruth accused Philip Morris USA of violating an Illinois consumer fraud law by deceiving consumers into believing that "light" or "low tar" cigarettes were safer than regular cigarettes.

Philip Morris USA countered that the FTC had permitted the use of such terms through prior settlements, or consent decrees, with other cigarette makers.

"The law does not allow the Fifth District to reopen a decision by the Illinois Supreme Court based on speculation about the possible impact of subsequent events," Murray Garnick, an associate general counsel at Altria, said in a statement.

Altria said its appeal puts Tuesday's decision on hold automatically. The Richmond, Virginia-based company controls roughly half of the U.S. cigarette market.

U.S. regulators have since June 2010 banned companies from using "light," "low" and "mild" in tobacco labeling.

CHANGED GUIDANCE

Unlike in many other smoking cases, the plaintiffs had not sought to recoup money for health-related claims, but rather for sums they spent on light cigarettes.

"The plaintiffs believe very strongly that this was the correct decision," said Stephen Tillery, a partner at Korein Tillery in St. Louis and lead counsel for the plaintiffs. "The law is abundantly clear. I don't think, as a matter of fact or law, that Philip Morris has a strong appellate outlook."

Bonnie Herzog, a beverage and tobacco analyst at Wells Fargo Securities, called Tuesday's decision "very much an unexpected move," but predicted it would be reversed on appeal.

Shares of Altria were down 11 cents at $40.01 in afternoon trading on the New York Stock Exchange.

In voiding the original verdict, the Illinois Supreme Court had said that the FTC intended that its consent decrees would "provide guidance to the entire cigarette industry."

But according to the Fifth District, the FTC later changed its approach, saying it had neither defined "light" or "low tar," nor "provided guidance or authorization" as to their use.

The plaintiffs then sought to revive their case, but Circuit Judge Dennis Ruth in Edwardsville, Illinois, said they had not shown it was "more probably true" that the Illinois Supreme Court might ultimately rule in their favor on damages.

In Tuesday's decision, however, Chapman said the top state court had not resolved the issue.

"The only ruling it reversed was the trial court's decision to deny the defendant's motion for summary judgment on the basis of (the) Consumer Fraud Act," she wrote. "Vacating the dismissal order will reinstate the proceedings with the verdict intact."

The case is Price et al v. Philip Morris Inc, Appellate Court of Illinois, Fifth District, No. 5-13-0017. (Reporting by Jonathan Stempel in New York; Additional reporting by Martinne Geller in London; Editing by Sofina Mirza-Reid and Tom Brown)

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