Kraft Foods Inc could be spun off by its parent Altria, following the rejection by the Illinois Supreme Court of a US$10.1bn verdict in a case against the company over tobacco, according to the Reuters news agency.
The judgement ordered a lower court to dismiss a case against Altria’s Philip Morris USA arm in which the company was accused of defrauding customers into thinking “light” cigarettes were safer than regular ones.
In a divided opinion, the court found that the US Federal Trade Commission has authorised tobacco companies to characterise their products as “light” or “low tar and nicotine.”
The “lights” case has been closely watched not just because of the size of the ruling, but because it is one of the legal hurdles management has said need to be cleared before it could spin off Kraft, Reuters said.
“I think it will expedite the spin-off of Kraft and for the industry it provides some clarification as to how future decisions will be rendered,” said Fred Burke, fund manager at Johnson Lemon Asset Management in Washington DC, who owns shares of Altria.
But some attorneys warn that an Illinois ruling does not set legal precedent for courts in other states.
“This is a very good result and I think again the right result, but it is not controlling in any other state court,” said Jamie Wareham, global chairman for litigation practice for Paul Hastings Jonofsky and Walker, a Washington, DC-based law firm.
The Illinois case helped spawn the filing of “lights” lawsuits in other states. One being watched closely is in New York, where US District Judge Jack Weinstein is expected to decide early next year whether to certify a similar lawsuit as a class action.
The initial US$10.1bn judgment in the class-action case was handed down against Philip Morris by a trial court judge in March 2003. The Supreme Court took the unusual step of bypassing the appellate court and hearing the case on appeal directly from the trial court.