U.S. Calls Retreat in Tobacco Suit Proper

After losing an internal battle over dramatic cuts in a key sanction sought against tobacco companies, a Justice Department attorney stood before a federal judge Thursday to defend the sudden move as legally sound.

As closing arguments wrapped up in the government’s massive racketeering case against top cigarette makers, Sharon Eubanks, head of the department’s tobacco trial team, told U.S. District Judge Gladys Kessler that reduction of a proposed smoking-cessation program -- from $130 billion to $10 billion -- was dictated by a federal appeals court ruling.

When closing arguments began Tuesday in the 8 1/2 -month trial, Stephen Brody, the trial team’s deputy director, stunned the courtroom by asking Kessler to order a five-year program costing $2 billion annually.

On Wednesday, eight Democrats in the Senate and House asked the Justice Department’s inspector general to investigate whether the change stemmed from improper political interference by department higher-ups, including Associate Atty. Gen. Robert McCallum, its No. 3 official.

People close to the situation, speaking on condition of anonymity, said Eubanks and others on the trial team had staunchly opposed the shift from a proposed 25-year cessation program, costing more than $5 billion per year, but were overruled.

Among career Justice Department lawyers, there had long been “this sense that the administration was never going to let the industry take the kind of hit that might result from an unfettered ability to prosecute the case,” a person close to the trial team said. “I think it’s really clear from the circumstances here that what happened here in the last few days is not based on the legal merits.”

But on Thursday, Eubanks defended the reduced program as more likely to pass muster with the U.S. Court of Appeals for the District of Columbia, which in February limited sanctions available to the government.

Justice Department officials have said that the case was handled properly and that all decisions were made in the interest of getting a successful result.

Some observers said reduction of the government’s demand could spur negotiations by narrowing the distance between the two sides on the size of a possible settlement.

With Kessler unlikely to rule for several months, “I’m quite confident you will not see a verdict in this case,” said the person close to the trial team. The reduction will make it easier for negotiators “to reach a number that is not too politically offensive.”

Justice Department officials declined to say whether the change was meant to facilitate a settlement.

With the smoking-cessation proposal reduced by more than 90%, the lawsuit, in terms of the threat posed to the industry, is a shadow of its former self.

The Justice Department originally sought forfeiture of $280 billion in allegedly ill-gotten profits. But the appeals court ruled in mid-trial that seizure of past profits was not allowed under civil provisions of racketeering law.

According to the ruling, sanctions must be narrowly tailored to prevent future acts of fraud, not to undo past harm. Justice officials said Thursday that the smoking-cessation program was retooled with the ruling in mind.

They said the original proposal, aimed at providing enough money to assist every addicted U.S. smoker who wanted to quit, could be challenged as an attempt to correct past harm.

But Eubanks told Kessler that a scaled-down program could be based on a finding that future industry misconduct was “not just likely but practically certain” -- and would create a new crop of addicted smokers.

Court-appointed monitors could extend the program beyond five years “if the evidence justified it,” Eubanks said.

But tobacco lawyers ridiculed the switch as a flip-flop revealing a case in disarray.

It was a $280-billion case, then a $130-billion case, now a $10-billion case, and “eventually it will be a zero-dollar case,” said Ted Wells, a lawyer for Philip Morris USA.

The suit claims cigarette makers conspired for 50 years to mislead the public about the risks of smoking. Defense lawyers argued that the companies did not commit fraud and that business practices the government called illegal all had ceased by 1998, when cigarette makers reached a landmark legal settlement with the states.

Along with Philip Morris, defendants include Brown & Williamson Tobacco and R.J. Reynolds Tobacco, which have merged to form Reynolds American Inc., and British American Tobacco Investments Ltd.

McCallum joined the Justice Department in 2001 as head of the civil division and is a former partner with Alston & Bird, an Atlanta-based firm that has done trademark and patent work for R.J. Reynolds. But McCallum, who was in court Thursday, said he personally had “never represented any tobacco company in my career.”

After a review by the department’s ethics office, McCallum said, he “received a clearance that there was no conflict of interest and that I could proceed” to take part in the tobacco case.

He would not confirm or deny ordering the cut in the smoking cessation proposal, saying that he could not discuss “internal deliberations relating to trial strategy.” But McCallum said that in major cases at the Justice Department it was not unusual for “the career people and the political people ... to work together to devise the most appropriate strategy.”

In a short op-ed piece Thursday in USA Today, McCallum said, “Critics have questioned the moves behind the government’s cessation program proposal. But its form and structure are dictated by the law.”