On June 3, 2013, a Vermont Superior Court judge ordered R.J. Reynolds Tobacco Company to pay more than $8.3 million in civil penalties for violating the Vermont Consumer Fraud Act (“CFA”), the Master Settlement Agreement and a related Consent Decree between the State of Vermont and R.J. Reynolds.  The Vermont court found R.J. Reynolds liable of deceptive advertising of its Eclipse cigarette brand over three years ago.  The parties engaged in extensive settlement discussions before the court ultimately imposed civil penalties earlier this month.

The Eclipse cigarette contains a carbon tip.  When it is lit, the cigarette heats the tobacco giving off vapor.  R.J. Reynolds marketed its Eclipse cigarette from 2000 to 2007.  The State of Vermont sued R.J. Reynolds, alleging R.J. Reynolds engaged in deceptive advertising by claiming the Eclipse cigarette may pose less significant health risks than other cigarettes.  For example, one of the advertising slogans on R.J. Reynolds’ website stated that: “The best choice for smokers worried about their health is to quit – the next best choice is to switch to Eclipse.”  Similar health claims would now be prohibited by the Family Smoking Prevention and Tobacco Control Act, absent an order by the Food and Drug Administration allowing a company to market a product as having a modified risk.

The Vermont court was limited by a statutory cap when determining the amount of civil penalties to impose against R.J. Reynolds, and the $8.328 million in civil penalties ordered by the court was well below this limitation.  Under the CFA, a Vermont court may assess a civil penalty up to $10,000 per violation.  There is no monetary limit for violating the MSA or the related Consent Decree.  The court found that the State proved 6,776 instances of R.J. Reynolds making unsubstantiated, deceptive health claims about the Eclipse cigarette.  Therefore, the maximum penalties R.J. Reynolds could have been assessed is $67,760,000 – $10,000 for each of the 6,776 violations of the CFA.

In Vermont, a party has 30 days from the date of the superior court’s ruling to file a notice of appeal.  To date, R.J. Reynolds has not filed a notice of appeal.

For questions and/or comments, please contact Bryan Haynes, at 804.697.1420 or by email.