Image source: Altria.
Tobacco giant Altria Group (MO +1.32%) has given investors plenty of good news over the years. Not only has its share price soared over time, but it has also successfully fended off several major challenges to its business model. Litigation in the 1990s presented a huge threat to Altria, and its ability to defend against lawsuits with minimal financial consequences has been one of the key reasons that the stock has performed so well. Although regulatory actions represent the stronger focus against Altria and its peers, the tobacco giant still spends plenty of time in courtrooms, and one of its biggest victories in 2016 came at the hands of the U.S. Supreme Court.
Ending 16 years of litigation
In June, the Supreme Court chose not to hear an appeal from plaintiffs in the case of Price v. Philip Morris. By doing so, the Supreme Court left intact the decision from the Illinois Supreme Court, which had overturned a lower court's $10.1 billion verdict against the tobacco giant.
The case was a class action, with lead plaintiff Sharon Price asserting that the depiction of certain types of cigarettes as being "lights" -- with reduced amounts of tar and nicotine -- warranted the award of damages against the tobacco company. What was novel about the case was that it used Illinois state consumer-protection law, including the Illinois Consumer Fraud Act and the Uniform Deceptive Trade Practices Act, to assert that the marketing of Marlboro Lights and similar products was unlawful. Moreover, rather than claiming damages based on health issues, the plaintiffs in the case were merely trying to get back the money they had spent on light cigarettes -- along with potential punitive damages. With a class that was more than 1 million strong, the lower-court judge awarded $7.1 billion in compensatory damages along with $3 billion in punitive damages.
The initial review by the Illinois Supreme Court in 2005 overruled the verdict, arguing that federal regulatory authority existed that allowed the company, which was known as Philip Morris prior to its name change to Altria, to market cigarettes using "low tar" and "light" as terms in advertising materials. Nearly a decade later, the plaintiffs once again tried to have the initial verdict reinstated, pointing to new evidence that the Federal Trade Commission had never exercised its discretion to take a position on using those terms. An Illinois appellate court ruled in favor of restoring the original verdict, but once again, the Illinois Supreme Court took the opposite position and struck down the judgment.
The last available avenue for the plaintiffs was to take the top state court's ruling and appeal it to the U.S. Supreme Court. However, the Court grants certiorari, or the right to have a case heard, to only a select handful of cases each year. Price didn't make the cut, extinguishing further rights to appeal and leaving the Illinois high court's decision in place.
Calling it quits
The defeat was tough on the plaintiffs, but attorney Stephen Tillery tried to make the best of the situation. As he saw it, despite the expense and years of time spent on the matter, just having fought the case "brought into public view facts that needed to be revealed."
Altria was also glad that the case appeared to be over. Associate general counsel Murray Garnick said that as he saw it, the decision "effectively ends this case once and for all," and he was happy that the original Illinois Supreme Court decision had survived the legal assault that the plaintiffs had pursued.
It's inevitable that Altria will face future legal conflicts. Yet as the Price case's decision shows, the tobacco giant has a strong team that will fight hard against potential threats to Altria's business model. Shareholders can take comfort that they have people on their side working for them, especially when they win big victories like this one.
