WASHINGTON -- The Supreme Court ruled that consumers can sue Altria Group Inc.'s Philip Morris USA unit under state unfair-trade laws for its advertising of "light" cigarettes, striking a blow against a broad effort by U.S. corporations to limit their exposure to suits filed under state law.
The 5-4 ruling rejected Altria's claim that federal cigarette-labeling laws, which bar states from imposing their own health warnings on cigarette packages, pre-empt consumer lawsuits.
The suit, filed under the Maine Unfair Trade Practices Law, alleges that Altria misled consumers into believing that light cigarettes, which contain less tar than regular varieties, were less dangerous to smoke. The suit says the companies knew smokers typically make up the difference in tar by taking longer or deeper puffs.
Similar suits are pending in other states, exposing the tobacco industry to a new avenue of attack by smoking opponents. More broadly, the decision undercuts a legal strategy that the business community has deployed to insulate itself from consumer lawsuits filed in state court. With increasing success, companies have been arguing that federal regulation of their products implicitly barred state action, whether by consumers or state government, to hold them liable for injury.
The Bush administration has made a concerted effort across agencies to incorporate pre-emption. Language in nearly 60 regulations since 2006 has protected, among others, auto manufacturers and the railroad industry form suits involving safety issues. New regulations address motorcycle brakes, sun lotion, the crashworthiness of railroad cars and number of seatbelts required in certain automobiles.
In June, the Supreme Court in an 8-1 ruling said that a lawsuit filed in a state court alleging a defective catheter was pre-empted by a federal act reserving regulation of medical devices to the Food and Drug Administration. Last month, the court heard arguments that pre-emption should also extend to prescription drugs, which the FDA regulates under a different federal law.
Monday's ruling suggests that the pre-emption argument isn't a magic bullet for companies.
Justice John Paul Stevens, writing for a five-justice majority that included three other members of the court's liberal wing plus Justice Anthony Kennedy, said Maine's antifraud statute complements federal regulatory goals, rather than interfering with them.
He said the Federal Trade Commission "has long depended on cooperative state regulation to achieve its mission because, although one of the smallest administrative agencies, it is charged with policing an enormous amount of activity."
Justice Clarence Thomas, in dissent, said the majority's ruling defeats an "express congressional purpose, opening the door to an untold number of deceptive-practices lawsuits across the country."
Heavyweights in industry and government filed friend-of-the-court briefs on both sides. More than 45 states, aiming to protect their own jurisdiction, filed suits siding with the consumers. Business groups, including the U.S. Chamber of Commerce, backed Altria.
The FTC, which oversees cigarette advertising, backed some of the consumers' arguments in the Altria case, breaking with the usual Bush administration policy of backing business in pre-emption cases.
Robin Conrad, executive vice president of the chamber's litigation arm, said the decision "doesn't provide the kind of predictability that the business community has been looking for." The decision underscored that the court examines each statute individually to determine whether it leaves room for state laws, she said, "and clearly, this is not the end of the pre-emption doctrine."
Altria issued a statement saying it was prepared to defend itself against the lawsuit that may now proceed. "We continue to view these cases as manageable, and the company will assert many of the strong defenses used successfully in the past to defend against this very type of case," said Murray Garnick, an Altria associate general counsel.
On Monday, the Supreme Court broke along familiar ideological lines. Justice Kennedy, who sometimes splits with his fellow conservatives, joined Justice Stevens's majority opinion, along with Justices David Souter, Ruth Bader Ginsburg and Stephen Breyer.
For Justice Stevens, the Altria ruling vindicates an opinion he delivered in a cigarette case 16 years ago. In Cipollone v. Liggett Group, Justice Stevens, citing a general presumption against pre-empting state laws unless necessary, upheld portions of a lawsuit filed by the son and husband of a smoker who died of lung cancer. The 1992 court split in several directions over the case, however, and none of the other three justices who provided his plurality remain on the court today.
Since then, lower courts have struggled to apply the Cipollone opinion, and tobacco companies hoped the Altria case would bury the Cipollone doctrine. Instead, Justice Stevens at last found a majority for his approach, which distinguishes regulation that specifically targets the health effects of smoking from general laws such as those barring fraud or deceptive advertising.
Starting in 1965, Congress has mandated warnings on cigarette packs and advertisements, while barring states from requiring adding warnings on "with respect to any relationship between smoking and health."
While the federal act had the dual aim of providing adequate health warnings without impeding "commerce in cigarettes," Justice Stevens wrote that nothing "suggests that Congress meant to proscribe the States' historic regulation of deceptive advertising practices."
Matthew L. Myers, president of Campaign for Tobacco-Free Kids, characterized the decision as a "major victory for consumers and public health." He also said that the ruling "poses a significant legal threat to the tobacco industry and is an important step toward holding cigarette manufacturers accountable for decades of deceptive and harmful marketing" of light cigarettes.
Low-tar and ultra-low-tar cigarettes recorded $9.5 billion in sales in 2007, or 12% of total cigarette sales, according to Euromonitor International.
In dissent, Justice Thomas argued that Monday's decision departed from the court's recent cases that have displaced state law in favor of federal regulation. He was joined by the court's other conservatives: Chief Justice John Roberts and Justices Antonin Scalia and Samuel Alito.
Justice Thomas wrote that only deceptive advertising lawsuits related to cigarette health claims should be barred. "Thus, if cigarette manufacturers were to falsely advertise their products as 'American-made,' or 'the official cigarette of Major League Baseball,' state-law claims arising from that wrongful behavior would not be preempted."
While the Bush administration was generally sympathetic to pre-emption claims, outside of the Altria case, that landscape is likely to change when President-elect Barack Obama takes office next month.
Mr. Obama has said regulatory failures contributed to the nation's economic crisis. A Democratic administration is likely to view state action as complementing federal efforts to police markets, enforce environmental laws or promote workplace safety.
—Lauren Etter contributed to this article.
Write to Jess Bravin at jess.bravin@wsj.com
The United States Supreme Court on Monday ruled that "tobacco companies that marketed 'light' and 'low tar' cigarettes may be sued for fraud." The 5-to-4 judgment is expected to open the way for dozens of lawsuits claiming billions of dollars in damages.
United States Supreme Court building.

In the certiorari ruling penned by Justice Stevens, the Court held that a class action brought under state law prohibiting deceptive advertising generally was not preempted by federal law regulating cigarette advertising. The lawsuit claims that tobacco makers who manufacture "light" and "low tar" cigarettes had deceived smokers into thinking the products are safer than regular cigarettes. Former United States Solicitor General Theodore Olson, now working with Gibson, Dunn & Crutcher, argued the case for the petitioners, Altria Group and Philip Morris USA.

Several smokers in recent decades switched to light cigarettes, with fervent faith they posed less of a danger to their health. But scientific or medical researches have shown this common-sense view is wrong. Although mechanical tests showed "light" cigarettes emitted less tar when burned, actual smokers inhale about the same amount of tar when they puff on a light cigarette, the studies found. The cigarette business faces more than 30 class-action lawsuits from smokers and ex-smokers who seek billions of dollars in damages and claim they were deceived by the marketing of light and low-tar cigarettes.
 
Respondents Stephanie Good and 2 others are Maine residents and for over 15 years smoked Marlboro Lights and Cambridge Lights cigarettes, which are manufactured by petitioners Altria Group and Philip Morris USA. They sought damages compensation for economic rather than medical harm, claiming they had overpaid for cigarettes based on fraudulent advertisements suggesting that light cigarettes were safer than regular ones. The Labeling Act requires tobacco companies to indicate rotating warnings on their packaging and advertising. “No requirement or prohibition 'based on smoking and health' shall be imposed under state law with respect to the advertising or promotion,” the law provides, and only if the labeling requirements on cigarettes are obeyed. 
Evolution of the "Marlboro Miles" promotion. From left to right: "5 Miles" used through 2003; "FIVE Miles" used ca. 2004-2006; and no Marlboro Miles (after ca. April 2006).
In the case, the Court applied the pertinent Federal laws, in question, Title 15 U.S.C. § 1334(b), the "Federal Cigarette Labeling and Advertising Act" and Me. Rev. Stat. Ann., Tit. 5, § 207 (Supp. 2008), the "Maine Unfair Trade Practices Act" (MUTPA). It held that "the Labeling Act neither expressly nor impliedly pre-empts respondents’ fraud claim." The landmark decision allows the lawsuit to proceed on the merits upon remand to the trial court below. The ruling strikes a blow against a broad effort by U.S. corporations to limit their exposure to lawsuits filed under federal law. 

The court also dismissed Philip Morris's argument that the Federal Trade Commission's mid-1960s endorsement of machine testing of cigarette tar and nicotine levels "should relieve the company of liability for alleged fraud." In November, the FTC officially dropped its endorsement of the Cambridge Filter Method, saying it is flawed because "the machine doesn't take into account the way smokers adjust their behavior."

The Supreme Court in a June ruling, said 8 to 1 that "a case filed in a state court alleging a defective catheter was pre-empted by a federal statue providing regulation of medical devices to the U.S. Food and Drug Administration." The court also ruled in 1992 in 'Cipollone v. Liggett Group, Inc.' that "the phrase 'based on smoking and health' in the Labeling Act did not apply to pre-empt suits under state laws based on the 'general duty' not to make fraudulent statements." 

Justice Clarence Thomas said that "some kinds of fraud claims against cigarette makers may go forward, just not those concerning smoking and health. Thus, if cigarette manufacturers were to falsely advertise their products as ‘American-made’ or ‘the official cigarette of Major League Baseball,’ state-law claims arising from that wrongful behavior would not be pre-empted. Forbidding lawsuits based on health claims, would not mean consumers lack protection, as tobacco marketing is subject to regulatory oversight." 

Altria's associate general counsel, Murray Garnick, in a statement, said "we continue to view these cases as manageable, and the company will assert many of the strong defenses used successfully in the past to defend against this very type of case."