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Cigarette makers face suit
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February 8, 2000: 2:34 p.m. ET
Two wholesalers contend the tobacco industry illegally fixed prices
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NEW YORK (CNNfn) - Opening a new front in the battle against big tobacco companies, two cigarette wholesalers launched a federal antitrust lawsuit Tuesday, contending that the tobacco industry has illegally fixed prices since the 1980s.
The lawsuit alleges that cigarette manufacturers met secretly to illegally set wholesale prices in the United States and abroad.
The suit was filed Tuesday morning in U.S. District Court in Washington. It was brought on behalf of two cigarette wholesalers, one in Buffalo, N.Y., and the other in Bryant, Texas.
But lawyers are seeking class-action status for the lawsuit, which would allow them to represent all distributors hurt by the alleged price-fixing.
The lawsuit, brought by about two dozen law firms, represents a new front in tobacco litigation, which so far has focused mainly on the health risks of smoking.
Philip Morris Cos. Inc (MO: Research, Estimates), R.J. Reynolds Tobacco Holdings Inc. (RJR: Research, Estimates), Brown & Williamson Tobacco Corp., a unit of British American Tobacco PLC, Lorillard Tobacco Co., a unit of Loews Corp. (LTR: Research, Estimates), and Liggett Group, a unit of Brooke Group Ltd. (BGL: Research, Estimates), were named as defendants.
The news put tobacco stocks -- which have taken a beating amid the industry's continuing legal woes -- again under pressure.
In afternoon trading on the New York Stock Exchange, shares of Dow industrials component Philip Morris fell 1-1/8 to 19-7/16. The stock is trading near 52-week lows. RJR stock lost 9/16 to 18-1/16, also near a yearly low. Loews shares lost 3-11/16 to 53-3/8, and Brooke Group stock was down 3/4 to 15-13/16.
Plaintiffs' lawyer Paul Gallagher, of the Washington law firm Cohen, Milstein, Hausfeld & Toll, said the alleged price-fixing occurred since at least 1993 domestically, and since at least 1988 in international markets.
According to the lawsuit, high-level tobacco industry lawyers allegedly colluded during get-togethers of a so-called "Committee of Counsel." During alleged executive sessions of the counsel, the attorneys "frequently discussed, and reached agreements regarding, future price increases for cigarettes," the lawsuit contends.
The lawsuit does not seek a specific damage amount, but Gallagher said that "billions of dollars" could be at stake in the case. Plaintiffs' attorneys say the alleged overcharge totaled as much as 30 percent per pack of cigarettes.
"The remedy is to have the five major domestic U.S. manufacturers disgorge the illegal profits that they've made over the decades that we allege that they engaged in these illegal, anticompetitive activities," he told CNN's In the Money.
RJR spokesman John Singleton said the company couldn't comment on the lawsuit because it has not had a chance to review it.
But, he said, "I can tell you ... in no uncertain terms, that there is no basis for a suit based on price-fixing allegations against our company. Our pricing practices conform to all applicable federal and state laws -- all of RJR's pricing decisions, including level of prices and timing, are based on our own unilateral independent judgment."
A Brown & Williamson spokesman, Mark Smith, called the lawsuit "frivolous," saying the tobacco industry was "brutally competitive."
"We're going to defend ourselves vigorously," he said.
Tobacco industry analyst Roy Burry, of Brown Brothers Harriman, also said he thinks the case is without merit.
"It is not a case that's meant to go trial," he said. "This, like so many tobacco cases, is filed in hopes of settlement. The industry typically does not settle out of court, so the chance of anything really going on here is really remote."
In 1998, the industry settled a case with the states for about $246 billion. In September 1999, the U.S. Justice Department sued major cigarette makers in hopes of recovering billions of dollars in health costs for treating sick smokers. The industry also faces a Florida class-action lawsuit brought on behalf of smokers.
Tobacco stocks have been "hammered over and over again in the last two or three months, and this is just one more hammer that creates tremendous dividend yield and tremendous upside potential for the stocks," Burry said.
-- from staff and wire reports 
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