WASHINGTON -- The Supreme Court yesterday announced it will rehear arguments in a cigarette liability case that is seen by some as a barometer of the court's commitment to federalism.

The unusual move suggests the justices are deadlocked in the case, Cipollone v. Liggett Group Inc., and want to rehear the matter after Justice-designate Clarence Thomas as takes his judicial oath of office Nov. 1, court observers said.

"This is a clear, strong indication that the justices are probably split 4-4, and it will take Justice Thomas to sort it all out," said Stephen A. Bokat, vice president and general counsel of the U.S. Chamber of Commerce.

Geoffrey P. Miller, Kirkland & Ellis professor at the University of Chicago Law School, said he believes it is significant the court waited until after Justice-designate Thomas was confirmed by the Senate.

Mr. Miller speculated that "the justices didn't want to simply affirm the lower court ruling because then you end up with a nondecision decision."

When the Supreme Court summarily affirms lower court ruling on a tie vote, the ruling settles the matter for the parties to the case but does not set a national precedent. Mr. Miller said the court's decision to hear arguments in the case again -- it originally heard the case Oct. 8 -- suggests the court is serious about resolving the question once and for all.

The Cipollone case presents the high court with an opportunity to definite the scope of the federal Cigarette Labeling and Advertising Act of 1965, which specifies the health warning labels that must appear on packages. The law also forbids states to regulate cigarette advertising but is silent on whether smokers can sue cigarette comapnies in state court for smoking-related ailments.

Thomas Cipollone is pressing the matter on behalf of his mother, Rose, who died in 1984 from lung cancer. Mr. Cipollone contends that because the labeling law does not expressly ban such lawsuits, they should be allowed. Tobacco companies, by contrast, argue that the clear intent of the law is to preempt any state regulation.

In the end, the case pits states against businesses, two core conservative constituencies. The court, despite its growing conservatism, has shown little inclination to side with commercial interests. Last term, for example, the court in Pacific Mutual Life Insurance Co. v. Haslip ruled that punitive damage awards against businesses do not violate the due process clause of the U.S. Constitution.

By contrast, the court has shown increasing interest in states' rights. In last term's Gregory v. Ashcroft, the court adopted what it called a "plain statement rule" and held that if Congress intends to preempt state law, it must do so explicitly.

"I think the case will turn on inferences of the intent of the legislature," Mr. Miller said, noting that the labeling law was pushed by tobacco companies as a means of pre-empting state law. "I would see this case as a conflict between the pragmatists on the court, who know what was going on when Congress passed the labeling law, and the Scalia forces in favor of plain meaning."

Justice Antonin Scalia has been the court's leading proponent of analyzing cases based upon the language of the statute in question rather than studying ancillary documents, such as legislative histories and committee reports. If the court adopts such an approach in the Cipollone case, it likely would rule against the tobacco companies because the law does not explicitly outlaw state suits.

A court spokesman said the Cipollone case will reargued in January, though no date has been selected.

In other action yesterday, the Supreme Court let stand a ruling by the Indiana Supreme Court allowing the state to tax the sale of federal income tax benefits to an out-of-state party.

Hoosier Energy Rural Electric Cooperative Inc. hired Goldman, Sachs & Co. to identify buyers of federal income tax benefits the firm no longer needed. J.C. Penney Co. and Amoco Tax Leasing IV Corp., both incorporated in Delaware, bought the tax breaks, which were negotiated in New York City. The sales brought in nearly $200 million.

Hoosier claimed the sales were exempt from the Indiana gross income tax because of the interstate nature of the sales. But the state revenue department disagreed, and billed Hoosier for more than $2 million in taxes on the sales, plus $954,883 in interest. Hoosier paid the tax and applied for a refund. The refund request was denied, and the state supreme court ultimately sided with the revenue department.

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