Advertisement

U.S.’ Years-Long Battle With Tobacco Firms Nears an End

Times Staff Writer

More than eight months after it started, the Justice Department’s marathon civil case against the tobacco industry enters its final lap today with closing arguments on whether the leading cigarette makers are guilty of fraud and racketeering.

The immense case, which already has cost the two sides hundreds of millions of dollars, has been described as the largest civil suit ever brought under the federal anti-racketeering statute known as RICO.

A federal appeals court in February wiped out what was, for the industry, the most worrisome part of the suit: a government demand that the companies be required to forfeit $280 billion in allegedly ill-gotten profits.

But the stakes remain high. Despite the industry’s dismal reputation, it is eager to avoid the stigma of a racketeering verdict -- which would be the first such judicial finding against a major industry.

Advertisement

A loss also could force the companies to spend billions of dollars on remedial measures sought by the Justice Department. These include a massive smoking cessation program that would cost the companies as much as $130 billion over 25 years.

A lot is riding on the verdict for the Justice Department as well, where lawyers are eager to vindicate their longtime pursuit of the industry.

For the industry, avoiding a costly verdict would put a major challenge out of the way -- though its legal problems won’t be over: Philip Morris is appealing a $10.1-billion verdict in an Illinois class-action suit involving deceptive marketing of low-tar cigarettes. And in Florida, plaintiffs in a class action are seeking to reinstate a $144.8-billion punitive damages award that was reversed by a state appeals court.

In the largest series of tobacco suits resolved to date, the industry agreed in 1998 to pay $246 billion to settle claims by the states. The tobacco industry has won and lost smaller cases brought by individual smokers.

Advertisement

With Justice Department and industry lawyers allotted 6 1/2 hours apiece, summations in the racketeering case are expected to last into Thursday. Then U.S. District Judge Gladys Kessler, who has heard the case without a jury, will consider 45,000 pages of testimony by more than 240 witnesses, along with about 15,000 exhibits.

Government lawyers have painted the companies as outlaws that engaged in a 50-year conspiracy to addict and mislead the public about the risks of smoking and secondhand smoke, at a cost to society of millions of premature deaths.

The cigarette makers have accused the government of exaggerating past wrongdoing, ignoring its own longtime support for the industry and failing to acknowledge significant changes in the companies’ conduct since their settlement with the states.

Defendants include Philip Morris USA, a unit of Altria Group Inc.; R.J. Reynolds Tobacco Co. and Brown & Williamson, which have merged to form Reynolds American Inc.; British American Tobacco; the Lorillard Tobacco unit of Loew’s Corp.; and Vector Group Ltd.'s Liggett Group Inc.

In addition to the smoking-cessation program, the government may seek to impose a system of stiff fines if teen smoking fails to decline by targeted amounts. And it also may seek monitors appointed to watch over senior industry executives and remove them if warranted.

But some of these remedies, too, seem in jeopardy from the sweeping appeals court ruling barring forfeiture of profits.

By a 2-1 vote, a panel of the U.S. Court of Appeals for the District of Columbia reversed Kessler and ruled that the civil provisions of RICO do not permit sanctions to undo past harm but only to prevent future acts of fraud. The Justice Department sought a rehearing by the full appeals court, but the request was rejected April 20. The government’s 90-day window for appeal to the U.S. Supreme Court expires July 20. Justice Department officials have not said whether they will appeal.

Kessler is almost universally regarded as sympathetic to the government’s case. But because the remedies sought could be deemed, like forfeiture of profits, to be improperly focused on misconduct in the past, experts say the judge may have little room to exercise her will.

Advertisement

Kessler described the appeals court decision, which reversed her ruling, as a “body blow” to the government’s case. Shortly after the ruling, she also voiced frustration that Justice Department attorneys were proceeding as if the appellate decision had never been written.

“She’s going to find them liable because they are liable, and I think the evidence is such that they go down,” said G. Robert Blakey, a Notre Dame law professor and a former Senate subcommittee counsel who drafted the RICO statute.

“The only question is the remedy” available to Kessler, said Blakey, who added that he considered the appeals court’s narrow ruling to be “dead wrong.”

“The expectation is that she [Kessler] will find some liability, because ... she seems to accept the premise of the racketeering charges,” agreed Jonathan Turley, a professor of public interest law at George Washington University.

But given the constraints imposed by the appeals decision, “I don’t think ... the government is likely to come out of this with the kind of breathtaking victory that they suggested in their initial press conferences,” Turley said.

Since it will take weeks, if not months, for Kessler to write her opinion, speculation continues that the case will end in a settlement that protects both sides from the worst possible result.

For the Justice Department, that would be having to explain how it pursued the tobacco industry for 11 years, at a cost of untold millions of dollars, but wound up with little or nothing to show for it.

The Justice Department lawsuit morphed from a criminal probe of the industry that began in 1994, when tobacco chief executives testified before Congress that they did not believe smoking was addictive -- a stance quickly contradicted by internal files leaked to Congress and anti-tobacco lawyers.

Advertisement

The Justice Department formally dropped the criminal investigation five years later without charges being filed against any of the big companies or their top executives. But on orders from then-President Clinton, the Justice Department launched the civil suit in 1999.

At first, the case centered on recovering billions of dollars in taxpayer funds spent on treatment of sick smokers. Kessler dismissed the healthcare reimbursement portion of the lawsuit in September 2000, leaving RICO as the focus of the case.

At Kessler’s insistence, Justice Department and industry representatives have met with Eric Green, a mediator who brokered the settlement in the Microsoft Corp. antitrust case. But neither Green nor participants in the talks will say whether they’ve made any headway, or even confirm that negotiations have taken place.

With the Justice Department case in mind, Altria and its Philip Morris unit have launched a charm offensive, promoting the company’s increased candor and marketing restraint since the settlement with the states.

William S. Ohlemeyer, vice president and associate general counsel of Philip Morris, said Monday that he was “optimistic” going into the closing arguments. “The government has some problems with what they said they would prove versus what they did prove,” he said. A Justice Department spokesman declined to comment.

*

(BEGIN TEXT OF INFOBOX)

Update on tobacco cases

A sampling of major government suits against tobacco companies:

Federal racketeering suit

The case was filed in 1999, and the trial began in September 2004. A federal appellate court ruled in February that the Justice Department could not seek $280 billion in past tobacco profits in the case. The judge overseeing the suit said in April that one possible remedy could be requiring tobacco companies to pay for programs educating the public about the dangers of smoking. Closing arguments are scheduled this week.

States’ tobacco settlement

In November 1998 cigarette makers agreed to pay an estimated $206 billion over 25 years to 46 states in exchange for the states’ dropping lawsuits filed to recoup smoking-related medical costs. The tobacco companies also agreed to restrictions on their marketing. Separate pacts with four other states raised the tab

to $246 billion.

Free cigarettes

In May 2002, a Los Angeles County Superior Court judge ordered R.J. Reynolds Tobacco Holdings Inc. to pay a $14.8-million fine for handing out free packs of cigarettes at an event where kids were present. The case, brought by the state, is on appeal with the California Supreme Court.

Free cigarettes by mail

In 2001 R.J. Reynolds Tobacco Co. settled a suit brought by California’s attorney general alleging the company violated the 1998 settlement with states by mailing about 900,000 free cigarette packs to 115,000 Californians in 1999. California and Arizona shared $175,000 from the company to cover investigation costs.

Marketing suit

In 2004 R.J. Reynolds agreed to pay $1.46 million in settling a suit with New York, Illinois and Maryland over the marketing of Kool cigarettes.

Marketing to teens

R.J. Reynolds agreed in December 2004 to pay an $11.4-million penalty and curb its ads in magazines with large teen audiences to settle a California state lawsuit over its advertising practices.

Source: Times research


Advertisement