Appeals Court Divided on Tobacco Disgorgement

A divided U.S. federal appeals court panel Wednesday expressed skepticism about whether the government had the power to force cigarette makers to pay billions of dollars in past profits as part of its racketeering case against the industry.

Hearing a legal argument that could be crucial to the $280-billion racketeering case, two of three appeals judges raised doubts about a lower court ruling that permitted the government to seek $280 billion in penalties from the industry.

“This RICO law was issued with all sorts of testimony about racketeers and Mafiosi. I’ve seen the government using it in court against everybody except racketeers and Mafiosi,” Judge David Sentelle said.

Before the three-judge panel of the U.S. Court of Appeals for the District of Columbia is a motion by the industry challenging the government’s bid for disgorgement of some past profits in the case that went to trial in September.

The motion was denied in May by U.S. District Judge Gladys Kessler, who concluded that the government could ask for disgorgement under a provision in civil racketeering law that seeks to “prevent and restrain” future violations.

The case is in its ninth week of trial before Kessler, but industry lawyers appealed Kessler’s ruling while the case continues.

Sentelle and Judge Stephen Williams both challenged the government’s reasoning and questioned whether the government’s disgorgement request would bankrupt the industry.

The government charges that cigarette makers lied and tried to confuse the public about the dangers of smoking as part of a 50-year industry conspiracy.

The tobacco companies deny they illegally conspired to promote smoking and say the government has no grounds to pursue them after they drastically overhauled marketing practices as part of a 1998 settlement with state attorneys general.

Targeted in the lawsuit are Altria Group Inc. and its Philip Morris USA unit; Loews Corp.’s Lorillard Tobacco unit, which has a tracking stock, Carolina Group; Vector Group Ltd.’s Liggett Group; Reynolds American Inc.’s R.J. Reynolds Tobacco unit; and British American Tobacco unit British American Tobacco Investments Ltd.