A federal judge yesterday (25 September) granted the Schwab case against the tobacco industry class action status, a move that could delay the long awaited spin-off of Kraft Foods from its parent company the Altria Group.

The decision, issues by US District Judge Jack Weinstein, will allow plaintiffs who claim they were mislead by the tobacco industry’s marketing of light cigarettes to proceed with a class action suit. Class action status greatly increases the plaintiffs’ ability to launch a long-running legal battle with the industry

“The company will take immediate steps to begin the process of appealing this decision to the United States Circuit Court of Appeals for the Second Circuit, and will seek a stay of all trial court proceedings pending a decision by the appellate court,” said William S. Ohlemeyer, Philip Morris USA’s vice president and associate general counsel. “The company believes that the appellate court will find that today’s certification decision runs counter to the overwhelming weight of federal and state case law regarding class actions in smokers’ litigation and must be reversed.”

Despite Philip Morris USA’s confidence that the decision will be overturned, Altria’s share price dropped dramatically yesterday from an open of us$80 to close at $77.06.

The ruling opens the door to potentially billions of dollars in damages, meaning that a large penalty could potentially loom over Kraft’s break-up plans. Such a penalty could be enough to persuade Altria management to postpone the spin-off.

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