Legacy Foundation Wins Decision Over Tobacco Company

July 1, 2002

WASHINGTON-A Delaware judge has sided with the American Legacy Foundation in its legal jousting with Lorillard Tobacco Co. The judge denied Lorillard’s request to stay or dismiss a lawsuit filed by the foundation in a series of court maneuvers that began in January. His ruling would allow the Legacy lawsuit to go forward before one filed in North Carolina by Lorillard against the foundation.

WASHINGTON—A Delaware judge has sided with the American Legacy Foundation in its legal jousting with Lorillard Tobacco Co. The judge denied Lorillard’s request to stay or dismiss a lawsuit filed by the foundation in a series of court maneuvers that began in January. His ruling would allow the Legacy lawsuit to go forward before one filed in North Carolina by Lorillard against the foundation.

At issue is whether the foundation’s aggressive advertising campaign, called "Truth," violates a provision of the Master Settlement Agreement (MSA), which resolved the lawsuits filled by 46 states, the District of Columbia, and several US territories against the big tobacco companies.

The settlement created the American Legacy Foundation—which under the MSA is funded by the tobacco industry—as an educational body to alert the public, and particularly the young, about the health hazards of tobacco use.

An ‘In-Your Face’ Campaign

The Legacy Foundation’s in-your-face "Truth" campaign—which, for example, has run a TV commercial showing a group of young adults piling up body bags outside a tobacco company office—has won several awards, including one for best public service announcement of the year from the trade magazine Advertising Age. However, a provision of the MSA prohibits the Legacy Foundation from making any personal attacks on tobacco company employees or vilifying the tobacco industry.

On January 18, Lorillard gave the foundation 30 days notice, as required by the MSA, that it would file suit to block the "Truth" campaign because, the company said, it violated the MSA’s vilification clause. Lorillard filed the suit on February 19.

Before that, however, the foundation filed suit in the Delaware Court of Chancery in New Castle County on February 13 asking for a declaration that Lorillard had no right to sue it under the terms of the MSA. Lorillard then asked the Delaware court to stay or dismiss the foundation’s action so it could pursue its lawsuit in North Carolina. The Court of Chancery handles legal disputes between entities incorporated in the state. Both Lorillard and the foundation are incorporated in Delaware, Legacy as a nonprofit corporation.

In filing its lawsuit, the foundation argued that it was not a party to the MSA and, therefore, not subject to lawsuits under the agreement, and that the "Truth" campaign did not vilify any individual or the tobacco industry. Legacy asked the court to find that Lorillard had no grounds to sue it and to bar the tobacco company from filing similar lawsuits against it in any other court.

‘Filing Not Inequitable’

In his decision denying Lorillard’s request to stay or dismiss the foundation’s action against it, vice chancellor Stephen P. Lamb said: "The crux of Lorillard’s argument is that this court should not accord first-filed status to the foundation’s complaint because the foundation acted inequitably by filing suit during the 30-day notice required under the MSA."

Mr. Lamb said the company’s assertion "of inequitable or unfair conduct is wide of the mark," adding that Legacy’s "decision to preempt Lorillard’s choice of forum by filing first in Delaware was merely strategic, not inequitable."