Judge Whittles U.S. Suit Against Tobacco Firms

In a partial victory for the tobacco industry, a federal judge on Thursday threw out portions of a U.S. government lawsuit seeking to collect billions of dollars in reimbursement from cigarette makers for public health-care funds spent on ill smokers.

The ruling leaves intact another part of the massive lawsuit that accuses the tobacco industry of engaging in a 45-year pattern of racketeering through its fraudulent marketing practices.

Federal officials--though disappointed in the overall decision--said they are pleased they still will be able to go to trial on that part of their claim.

U.S. District Judge Gladys Kessler said in her ruling that “it is simply inconceivable” that after more than three decades of inaction the federal government can now hold the tobacco industry liable for up to $20 billion a year in medical costs for smokers.

Tobacco industry officials savored that portion of the ruling, saying they believe it could substantially lessen the government’s chances of obtaining big monetary damages in a lawsuit that President Clinton announced to much fanfare in his 1999 State of the Union address.

Philip Morris Cos., the lead defendant among 11 industry firms sued by the government, called the ruling “a big step in the right direction.”

“We’re certainly much better off today than we were yesterday. The government’s in a very difficult position,” said one industry lawyer who requested anonymity because the litigation is ongoing.

Outside observers characterized the ruling as at least a partial win for the tobacco industry, but were not quite as confident about the ultimate outcome.

“The bottom line,” said Mary Aronson, an independent tobacco industry analyst, is that federal officials “have fewer claims, fewer pieces of ammunition, but that doesn’t mean they still can’t make a significant recovery.”

Tobacco analyst Martin Feldman of Salomon Smith Barney agreed that dismissal of the two medical cost recovery claims was good for the industry, but noted that the RICO claims left intact by the judge “essentially represent the largest aspect of the government’s claim.”

The Justice Department, which is litigating the case, had wanted to show in part that the tobacco industry should have to repay the federal government for all the money spent on smoking-related illnesses over the years. Lawyers argued that two arcane federal laws--the 1962 Medical Care Recovery Act and the Medicare Secondary Payer provisions amended in 1980--gave the government the authority to collect for its medical outlays.

“Smoking has cost taxpayers hundreds of billions of dollars under Medicare and other programs,” Clinton said in announcing his surprise plans to pursue the lawsuit last year, following a landmark $246-billion settlement between the tobacco industry and the states. “Taxpayers shouldn’t pay for the cost of lung cancer, emphysema and other smoking-related illnesses--the tobacco industry should.”

But the judge found that the government overstepped its authority in its claims. Reviewing nearly four decades of public policy debate on the regulation of tobacco, Kessler said that “it is simply impossible to conclude” that Congress meant for the Medical Care Recovery Act to be used as a financial weapon.

Similarly, the government’s second claim for Medicare-related costs “must be dismissed” because federal attorneys failed to show they were covered under the law, Kessler said.

She also ruled that the British parent company of Brown & Williamson Tobacco and British-American Tobacco cannot be sued.

Federal officials and anti-smoking advocates acknowledged disappointment over the ruling, which has no direct effect on the 1998 settlement with the states.

“Obviously, we would rather have won both those [medical] claims,” said a government official who asked not to be identified. “But we think we won an important piece of the case, and when you’re talking about billions of dollars, their potential exposure is still very great.”

Under Kessler’s ruling, the government will still be allowed to pursue claims against the tobacco industry under the Racketeer Influenced and Corrupt Organizations Act.

The Justice Department alleges that for the last four decades the major cigarette makers “have made countless false and deceptive statements” about the addictive qualities of their products and their efforts to entice children smokers, and that they have “concealed and destroyed documents” to hide their pattern of racketeering.

While she did not rule on the merits of those allegations, Kessler said “it would be premature” to throw out the RICO claim at this early stage, as sought by the tobacco industry. And she rejected the industry’s arguments that it is already cleaning up its act under the terms of the 1998 settlement with the states and has put its racketeering days behind it.

Government attorneys think they can make a strong case of racketeering against an industry whose decades-old secrets have been widely exposed in recent years. Tobacco lawyers, however, insist that racketeering is a tougher case to make than than the medical compensation claims that Kessler threw out.

“The medical care side was the heart and soul of the states’ cases [in the 1998 settlement], and I think it would have been the same here. The RICO portion of this is much more difficult for people to grasp,” said a tobacco industry lawyer.

Then there is the matter of how much the industry might have to pay.

Justice Department attorneys argue that if they can show the tobacco industry engaged in decades of racketeering, they should be able to collect a portion of the industry’s earnings dating to the 1950s. But cigarette makers counter that the law would affect only future racketeering profits, severely limiting their liability.

John Coffee, a professor at Columbia Law School and an expert in RICO and mass tort litigation, said plaintiffs have had some success bringing racketeering claims against the tobacco industry. In Florida and Texas, cigarette makers were forced to settle RICO-related suits, but in Ohio, the tobacco industry went to trial and won.

The government’s biggest problem, Coffee said, may be in showing that federal authorities would have made different policy choices had they known about the industry’s misconduct. “The government was subsidizing tobacco, it was testing and raising tobacco, and the surgeon general knew something about the risks of tobacco,” he said.

Because of the complexity of the case, attorneys say they do not expect it to go to trial for at least two years.

But Richard Daynard, who heads the Tobacco Products Liability Project at Northeastern University, said a key hurdle in the case looms in next month’s presidential election in light of George W. Bush’s recent comments suggesting he might favor dropping the lawsuit.

“As a practical matter,” Daynard said, “the outcome of the case turns on Nov. 7.”