Plaintiffs in five separate cases sought class certification, based on allegations that Defendants deceived them about the addictive properties of cigarettes and fraudulently induced them to purchase and continue to smoke cigarettes. The trial court held that class certification was appropriate, and that the claims were not preempted by the Federal Cigarette Labeling and Advertising Act, 15 U.S.C. § 1331 et seq. The Appellate Division decertified the class, and dismissed the remaining causes of action as preempted by the Federal Act. The Court of Appeals affirmed the Appellate Division's orders by means of a certified question concerning the validity of the orders.

The appeal is a review of whether the Appellate Division abused its discretion as a matter of law. The Appellate Division had determined that class certification was inappropriate because Plaintiffs did not meet the requirements of C.P.L.R. 901(a). First, the issues of addiction and damages would be highly individualized, and thus Plaintiffs did not meet the requirements of 901(a)(2). Further, 901(a)(4) was not met because the class would exclude those wishing to sue for similar claims prior to 1980 and those wishing to sue for claims of physical injury and emotional distress. Thus, Plaintiffs could not represent the interests of all potential class members. Finally, 901(a)(5) was not met because the highly individualized nature of many of the issues meant that a class action would not be the best method for fair and efficient adjudication of the dispute.

The Appellate Division also dismissed the remainder of Plaintiffs' claims. The court determined that Plaintiffs' claims were preempted by the Federal Cigarette Labeling and Advertising Act, 15 U.S.C. § 1331 et seq., insofar as they alleged fraudulent concealment and failure to warn of the dangers of nicotine. While Plaintiffs' claims of affirmative misrepresentation were not preempted by the Act, they were also dismissed because they were not pleaded with the requisite specificity.

Plaintiffs were granted leave to appeal to the Court of Appeals. The Court of Appeals upheld the decertification of the class, and affirmed the dismissal of the remaining causes of action.

1. Whether Plaintiffs suing tobacco companies for misrepresentation and fraudulent inducement, seeking compensatory damages for money paid for cigarettes since 1980, can be certified as a class.

2. Whether Plaintiffs, in the alternative, can proceed on individual causes of action based upon statutes covering deceptive acts or practices and common law fraud.

1. No. Because the relief requested concerns only pecuniary harm since 1980, and not damages suffered earlier or damages from physical harm or emotional distress, the issues of fault and damages are highly individualized and Plaintiffs cannot therefore be certified as a class under C.P.L.R. 901(a).

2. No. Without proof of addiction, any misrepresentation or claim of fraudulent concealment did not result in injury for the purposes of the statutes or common law fraud.

State of the Law Before Small

The determination of whether a lawsuit can qualify as a class action is a matter of discretion that rests with the trial court. Brown v. State of N.Y., 250 A.D.2d 314 (N.Y. App. Div. 1998). The Appellate Division may also exercise its discretion in reviewing the findings of the trial court even if it finds that the trial court has not erred as a matter of law. O'Connor v. Paperstian, 309 N.Y. 465 (N.Y. 1956). In deciding whether an action can be certified as a class, both courts examine whether, based upon the facts presented, the statutory criteria under N.Y. C.P.L.R. 901(a) are satisfied. C.P.L.R. 901(a) is the New York statute specifying the criteria a court considers in determining whether to certify a class:

"(1) the class is so numerous that joinder of all members, whether otherwise required or permitted, is impracticable;

(2) there are questions of law or fact common to the class which predominate over any questions affecting only individual members;

(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class;

(4) the representative parties will fairly and adequately protect the interests of the class;

and (5) a class action is superior to other available methods for the fair and efficient adjudication of the controversy."

False concealment claims are governed by N.Y. Gen. Bus. Law § 349, which regulates consumer-oriented conduct. This statute allows an individual plaintiff to sue a business engaged in deceptive or misleading practices through false advertising. Karlin v. IVF America, 93 N.Y.2d 282 (N.Y. 1999); see also, Genesco Entertainment v. Koch, 593 F.Supp 743 (S.D.N.Y. 1984). In order to succeed on a claim under this statute, a plaintiff must prove two things: first, that the defendant engaged in a materially deceptive or misleading act or practice and second, that this act or practice caused the plaintiff actual harm. Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20 (N.Y. 1995). Also, under a common law claim of fraudulent concealment the plaintiff must prove that there was a representation of a material fact, falsity, scienter, reliance and injury. Vermeer Owners v. Guterman, 78 N.Y.2d 1114 (N.Y. 1991). In order for a plaintiff to succeed, there must be a connection between defendant's deceptive act or practice and the actual injury suffered by the plaintiff.

Effect of Small on Current Law

Although the Appellate Division had stated that it issued its class action de-certification order "on the law", the Court of Appeals held that the Appellate Division also exercised its discretion in reaching its decision. Small at para. 10. The Court held that the Appellate Division did not abuse its discretion as a matter of law. Small at para. 18.

After Small, in order to successfully state an individual claim under N.Y. Gen. Bus. Law § 349, an individual must both allege and prove that the defendant engaged in a material deceptive act or practice and that that act or practice caused an actual or pecuniary "legally cognizable" injury. Small at para. 20. The "legally cognizable" injury must be distinct from the deceptive act that caused the injury. Small at para. 23. In Small for example, nicotine addiction was the "legally cognizable" injury that had to be alleged and proved for the plaintiffs to succeed with their individual claims. The Court also held that intent to defraud and justifiable reliance do not constitute elements of the statutory claim.

Failure to allege and prove a "legally cognizable" injury also impairs the sufficiency of claims of fraud or fraudulent concealment, concert of action, conspiracy and aiding and abetting.

Unanswered Questions

One of the Appellate Division's grounds in decertifying Plaintiffs as a class was the fact that the representatives could not adequately represent all the members of the class because Plaintiffs were suing only for restitution for the price of cigarettes since 1980. This claim excluded those who wanted to sue prior to 1980 for restitution for the price of cigarettes, and those with claims for physical injuries and emotional distress. Does this mean that in order for a representative to adequately represent all the members of the class, the representative must plead every conceivable claim any member of the class could have? The Court is not clear on this issue.

This case also leaves open the question of exactly what comprises a legally cognizable injury in a misrepresentation claim against a tobacco company. The Court of Appeals held that Plaintiffs did not legally demonstrate injury in their misrepresentation claim because they did not plead addiction as part of their injury. Could Plaintiffs have made out a misrepresentation claim by predicating only physical damage (e.g., lung cancer or emphysema) or mental distress as an injury, or is it necessary to plead addiction as part of the legal injury?

Survey of the Law in Other Jurisdictions

Federal law is settled on the issue of class certification in tobacco and mass tort litigation. Federal courts have stated that questions of addiction and causation, as well as the defenses of comparative and contributory negligence, present problems that are better handled as individual actions. See Barnes v. American Tobacco Co., 161 F.3d 127, 143 (3rd Cir. 1998); Anchem Products., Inc. v. Windsor, 521 U.S. 591 (1997).

State courts, however, are divided on the issue. Unlike the court in Small, some states have held that while individual differences arising among plaintiffs in class action suits are present, the commonality of the plaintiffs' claims against the manufacturers prevail. Therefore, the class is certified in these courts. See, e.g., Broin v. Philip Morris Co., 641 So.2d 888 (Fla. App. 1994); Scott v. American Tobacco Co., et. Al., 725 So.2d 10 (La. App. 1998).

Few courts have had the opportunity to comment on the "deception as injury" claim as described by the court in Small. Like Small, a large majority of the tobacco cases that arise in both federal and state court concern fraud claims based on plaintiffs' injuries, which all include addiction to nicotine. While it is true that most of these courts hold manufacturers who know of the potential harm to a user and do not inform the user liable under tort law, the courts define "harm", in part, as addiction to nicotine. See, e.g., Gilroy v. American Tobacco Co., et. Al., 582 So.2d 1263 (La. 1991). Plaintiffs in Small accepted the trial court's modified pleading that addiction was not part of their claim.

There has been mention of a plaintiff's right to damages based solely on the deceptive nature of the tobacco company's marketing, regardless of resulting physical harm to the plaintiff. A Texas court wrote (in dicta) that "the failure to warn of cigarettes' addictive nature could be the essence of a plaintiff's complaint." See Carlise v. Philip Morris, Inc., 805 S.W.2d 498, 516 (Tex. App. 1991). This sentiment was echoed in American Tobacco Company, Inc. v. Grinnell, 951 S.W.2d 420, 430 (Tex. 1997). It is crucial to note, however, that while the Texas courts did recognized this scenario, the claims involved in those particular controversies were based upon physical harm to the plaintiffs, including addiction to nicotine.