Read the newest updates at RICO PART TWO
Court Blocks U.S. From Seeking Billions From Tobacco Industry
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United States Court of Appeals
Argued November 17, 2004 Decided February 4, 2005
No. 04-5252
UNITED STATES OF AMERICA,
APPELLEE
v.
PHILIP MORRIS USA INC., ET AL., f/k/a PHILIP MORRIS
INCORPORATED,
APPELLANTS
PHARMACIA CORPORATION AND
PFIZER INC.,
APPELLEES
http://pacer.cadc.uscourts.gov/docs/common/opinions/200502/04-5252a.pdf
US Judge Delays Remedies Phase Of DOJ Tobacco Trial
February 28, 2005
http://www.nasdaq.com
How to Silence a Racket
The Justice Department’s tobacco lawsuit threatens freedom of speech
By Jacob Sullum.? When a federal appeals court said the Justice Department cannot force cigarette manufacturers to turn over $280 billion in allegedly ill-gotten gains, it was not just a victory for the tobacco industry. It was also a victory for freedom of speech.
February 11, 2005
http://www.reason.com/
Legal Reality Tsunami Sweeps Away Anti-Tobacco Damage Claims
February 6, 2005
By Norman E. Kjono
It just seems to me that if 50 million consumers simply choose to say no to Philip Morris, Pfizer, and GlaxoSmithKline our world would be a much more pleasant place to live.
http://www.forces.org/
A Big Win for Big Tobacco:
Why It Essentially Moots the Ongoing RICO Trial in D.C.
By ANTHONY J. SEBOK
anthony.sebok@brooklaw.edu
February 7, 2005
Ironically, the great victory won by Big Tobacco does not directly affect the trial which is currently being conducted by the Justice Department against the industry in the courtroom of U.S. District Judge Gladys Kessler. Still, the decision by the D.C. Circuit Court–involving a highly technical interpretation of a federal statute–essentially renders the trial moot.
http://writ.news.findlaw.com/sebok/20050207.html
R.J. Reynolds Says Appellate Ruling Dramatically Transforms DOJ Lawsuit; Government Cannot Seek Disgorgement
February 4, 2005
A federal appellate court today ruled that the U.S. government cannot continue to seek
disgorgement from the tobacco industry in the suit filed by the Department of
Justice (DOJ) against the nation’s major cigarette manufacturers.? In doing
so, the court struck down the DOJ’s claim that the manufacturers could be
forced to disgorge $280 billion because of past racketeering activity.
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?”We are extremely pleased that the appellate court agreed with our long-
held belief that disgorgement is not an appropriate remedy in civil RICO
suits, such as this,” said Charles A. Blixt, executive vice president and
general counsel for R.J. Reynolds Tobacco Company, on today’s ruling by the
U.S. District Court of Appeal for the District of Columbia.? “This ruling
dramatically transforms the DOJ suit.
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?”While we continue to believe that no remedies are warranted under the
facts of this case,” he said, “with the threat of disgorgement removed, the
principal remedies still available to the government are forward-looking
measures.? These would include marketing and sales restrictions already put in
place by our company and others under the Master Settlement Agreement.”
???
In its ruling that the lower district court erred, the appellate court
found that ” … we can find no justification for considering any order of
disgorgement … “? Adding, “We need not twist the language to create a new
remedy not contemplated by the statute.”
??? R.J. Reynolds Tobacco Company (R.J. Reynolds) is an indirect wholly owned
subsidiary of Reynolds American Inc. (NYSE:? RAI).? R.J. Reynolds is the
second-largest tobacco company in the United States, manufacturing about one
of every three cigarettes sold in the United States.? R.J. Reynolds’ product
line includes five of the nation’s 10 best-selling cigarette brands:? Camel,
Winston, Kool, Salem and Doral.? For more information about R.J. Reynolds,
visit the company’s Web site at http://www.RJRT.com .
http://www.prnewswire.com/
Court Blocks U.S. From Seeking Billions From Tobacco Industry
February 4, 2005
By DAVID STOUT
WASHINGTON, Feb. 4 – A federal appeals court ruled today, in a big victory for cigarette makers, that the federal government could not use an antiracketeering statute to collect $280 billion from the tobacco industry, which it accuses of conspiring for decades to hook people on smoking and conceal the deadly effects of the habit.
A panel of the United States Court of Appeals for the District of Columbia Circuit ruled, 2 to 1, that the government could not use the Racketeer Influenced and Corrupt Organizations Act, familiarly known as RICO, to “disgorge” billions of dollars from the industry.
The majority held that “disgorgement,” which a layman might interpret as forcing a party to surrender its ill-gotten gains, was not an appropriate remedy in this case because that particular remedy is meant to make up for past violations – not for anticipated future violations.
Judge Sentelle said the government might have sought remedies like injunctions against future wrongful activities or dissolution of the companies, but not disgorgement, which he called “a quintessentially backward-looking remedy focused on remedying the effects of past conduct to restore the status quo.” As such, he said, it is not allowed under civil sections of the RICO act, which was originally meant as a weapon against organized crime.
Neither the tobacco companies nor the Justice Department had an immediate reaction to the ruling. But given the importance of the issue, and the thicket of suits against tobacco companies in recent years, an appeal to the full District of Columbia Circuit is likely, as is perhaps an eventual appeal to the United States Supreme Court.
Judge Sentelle wrote for himself and Judge Stephen F. Williams that there is no Supreme Court precedent dealing with disgorgement under the RICO law. “With no Supreme Court case having direct application, it is our duty to construe the statute,” Judge Sentelle held. “That is what we have done.”
In so ruling, the majority overturned a district court ruling that disgorgement was appropriate in this case, in which the government is suing Philip Morris and other big tobacco companies.
The government could have proceeded under criminal sections of the RICO act, but a much higher standard of proof would have been required.
Judge David S. Tatel wrote a sharply worded dissent, arguing that the majority had interpreted the RICO section in question too narrowly and that the government’s claims that “the companies are likely to continue their deceptive practices and commit further racketeering violations in the future” were entitled to deference, and that the district court had ruled correctly.
“If the district court concludes that the government has shown that the tobacco companies have committed RICO violations by advertising to youth despite assertions to the contrary and by falsely disputing smoking’s addictive, unhealthy effects, then it may order whatever equitable relief it deems appropriate,” Judge Tatel held.
http://www.nytimes.com/
Tobacco Trial Restarts With Whistleblower Testimony 1/6/05
Tobacco companies don’t need to be attacked by RICO.
The Federal Government’s RICO Suit Against Big Tobacco. An Unprecedented Case Begun by the Clinton DOJ, And Continued by the Bush DOJ.
The Massive Racketeering Suit Against Big Tobacco:? By ANTHONY J. SEBOK .? The District Judge’s RICO Ruling, and Why It Is Likely to Be Reversed
Witness denies knowledge of tobacco data destruction. Justice lawyers declined to comment.
RICO stretch is dangerous. The federal government seems willing to use any tool it takes, even an illegitimate one, to squash tobacco companies.
?Bad precedent on tobacco
October 3, 2004
By Bob Barr
??? I am not a smoker, except for an occasional cigar – a good cigar. I think smoking is bad. Cigarettes kill people. I think society should work to stop kids from smoking. I am glad secondhand smoke is illegal in confined places like airplanes.
??? Despite these views, I am also certain the Justice Department’s latest lawsuit against tobacco companies is (a) legally laughable, and (b) a detrimental move that will have serious repercussions down the road. I still hope the litigation’s legal defects will doom it before it becomes public policy.
??? Why do I feel this way? Simple. I happen to think people are personally responsible for their actions. I believe individuals should be given choices, be allowed to make those choices and have to live with their consequences.
??? From a legal standpoint, the notion of applying racketeering statutes to overzealous marketing executives is a perversion of the law. The statutes’ goal when written was prosecuting organized crime. This means the Justice Department essentially is taking a law meant to apply to John Gotti and trying to use it to bankrupt a lawful industry that has become politically incorrect.
??? They could as easily use it to torment the used car industry for misrepresenting the reliability of automobiles. The idea tobacco firms are on a par with the mob may please some antismoking lobbyists, but no one in real America seems to buy it.
??? Furthermore, anyone who thinks cigarette-makers haven’t been punished enough for their actions clearly has been living under a rock for the last decade. Tobacco companies have been systematically squeezed by governors, attorneys general, senators, big city mayors, and county commissioners and trial lawyers. Smokers now pay significantly more for cigarettes to compensate for the costs of this litigation.
??? In essence, the increase in cigarette prices is a new tax enacted through the courts without a single elected representative ever having the opportunity to vote on it. Where are the “taxation without representation” opponents in this battle?
??? Now, you may think, if you aren’t a smoker, you shouldn’t care. If so, you might want to ask yourself what other products share similar traits of being (a) habit-forming and (b) dangerous if abused. Immediately, I can think of fast food, liquor, fast cars, the Internet, caffeine, prescription drugs, steak dinners, beer and dozens of others. Remember the legal system works on precedent. A principle established in this case will undoubtedly be applied in other cases down the road.
??? There is a very high likelihood these lawsuits will – if allowed to continue – eventually bankrupt the American tobacco industry. If we reach this point, it will constitute a significant failure of America’s system of government. In short, we will have discarded separation of powers, and violated the fundamental belief in the capacity of individuals to make their own decisions that our Constitution was crafted to protect.
??? So, why the sudden interest on the part of the Bush administration in bashing smokers? I can answer that with three words: “money” and “swing voters.” The government has already spent more than $135 million on this case, but that pales in comparison to what might be collected at its conclusion. These new funds could then be used to buy votes with new programs, to say nothing of the benefits of bashing a publicly despised industry. Much of the burden of these lawsuits will fall on Southern states (heavy with tobacco growers and processors), where Mr. Bush already enjoys a strong political position, thereby minimizing damage to his campaign. In return, the administration picks up voters in swing states where a constituency that is much less conservative than the Deep South would be inclined to applaud a president who beats up on “big business” and appears “sensitive” to nonsmokers and their allies.
??? We can only hope our legal system sees this lawsuit for what it is, since our political system has thus far failed to do so.
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??? Bob Barr, a former Republican member of the U.S. House of Representatives from Georgia, is a columnist for United Press International.
http://www.washingtontimes.com/commentary/20041002-102019-4805r.htm
White House warns Tobacco Industry.? August 15, 2001
Top Judges Have Doubts on Tobacco Penalty
By Peter Kaplan Wed Nov 17, 2004 05:01 PM ET
WASHINGTON (Reuters) – A divided U.S. federal appeals court panel on 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,” Appeals Court 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 of their 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 may 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.
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 Plc? unit British American Tobacco Investments Ltd.
Stocks of tobacco companies were mostly higher. The S&P; tobacco index closed Wednesday up 5.14 percent to 280.12.
CONSPIRACY CASE
The government charges 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 the 1998 settlement with state attorneys general. ?
The industry’s lawyers have argued that any potential sanctions must be limited to money that would be used to perpetuate any racketeering violations in the future.
During Wednesday’s arguments, industry lawyer Michael Carvin told the judges that if the government wanted to force the industry to give up past profits, it should have filed suit under the criminal section of the racketeering statute.
The government’s interpretation of the racketeering laws “would make nonsense of the statute,” Carvin said.
Sentelle was receptive to that argument, demanding to know how the government could “wedge” its $280 billion disgorgement claim into the “prevent and restrain” wording in the law.
“It says what it says, and I don’t see why you’re not stuck with that,” Sentelle said.
Sentelle and Stephen Williams both challenged the government’s reasoning and questioned whether the government’s disgorgement request would bankrupt the industry.
Government lawyer Michael Dreeben countered by citing past cases and said judges in racketeering cases should have “an arsenal of remedies” at their disposal to “change the economic incentives to say crime is not profitable.”
That argument got a sympathetic hearing from one of the other judge on the appeals panel, David Tatel.
The judges also asked about another issue raised by the government: whether the appeals court may be barred by judicial procedures from ruling either way on the disgorgement matter at this point in the case.
The government has argued that the appeals court has no grounds to rule on the matter at this point because cigarette makers had a chance to appeal an earlier disgorgement ruling by Kessler but declined to do so.
http://www.reuters.com/newsArticle.jhtml?type=businessNews&storyID;=6845700
Tobacco Trial Shifts To The Big Issue: Money
November 16, 2004
WASHINGTON (Dow Jones)–For eight weeks, the government’s racketeering case against tobacco has swung from the profound, like whether the industry conspired to shade secondhand smoke research, to the mundane, like whether a symposium is the same thing as a conference.
This week, the case gets back to what most observers have been focused on all along: money, and whether the government is entitled to ask a judge to “disgorge” $280 billion in supposedly ill-gotten gains to prevent cigarette makers from engaging in fraudulent acts in the future.
Disgorgement is a legal tool the Justice Department is using to recover proceeds it alleges the tobacco industry received through what the government calls a “50-year scheme to defraud the public, including consumers of cigarettes,” in violation of the Racketeer Influenced and Corrupt Organizations Act, or RICO.
The government based the $280 billion damages figure on direct and indirect proceeds from youth smoking from the 1970s through the 1990s.
In May, Judge Gladys Kessler, who is hearing the racketeering case, denied a motion to dismiss the government’s disgorgement claim, saying the RICO laws allow remedies like disgorgement to prevent future fraud.
The Court of Appeals for the District of Columbia hears oral arguments on the tobacco industry’s appeal Wednesday and could rule on it by the end of the year.
The racketeering trial should last until spring 2005.
If the appeals court completely throws out disgorgement as a remedy, which is considered unlikely, it would be a huge win for tobacco as it would largely remove monetary damages from the table and leave the government only with other remedies like mandating industry changes in marketing and smoking cessation efforts.
In contrast, a ruling upholding Kessler’s broad interpretation of disgorgement would make it much easier for the government to claim large damages if it successfully proves a RICO conspiracy.
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?? Experts See A Balance
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Experts expect the appeals court to strike a balance – leaving disgorgement as a remedy but limiting it to funds that the government must prove would be available to commit fraud in the future, which would still be considered a victory for the tobacco industry.
“It would be an unprincipled decision and highly unlikely” to eliminate disgorgement as a remedy, said G. Robert Blakey, professor of law at the University of Notre Dame who drafted the racketeering law. “There’s no justification in statutory acts and in prior cases to say it’s available in other cases and not available here.”
However, “it could go forward on a more limited disgorgement and more limited argument,” said Blakey.
The model for such a standard is the so-called “Carson” case, which was a civil RICO action against a former union officer who had been convicted of embezzling union funds and taking illegal kickbacks from employers.
In that case, the U.S. Court of Appeals for the Second Circuit overturned an order requiring a union official to disgorge $16,200 in kickbacks he had received 13 years earlier. The court said disgorgement was meant to stop future violations and therefore didn’t apply to the union official because he had left his job.
Analysts at Citigroup assign a 60% chance that the Appeals Court will hand down this “better case” industry scenario accepting the Carson disgorgement standard.
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?? Blame It On RICO
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Tobacco lawyers say that the RICO lawsuit is a misuse of racketeering statutes and that the only reason it’s being used is that prior efforts to base the case on reimbursement of health expenses under Medicare were struck down.
“The government is trying to pound a square peg in a round hole,” said William Ohlemeyer, associate general counsel at Altria Group Inc. (MO). “There is no claim for punitive damages or for compensatory damages and there’s no claim for medical expenses – all that’s left is this RICO claim.” Altria owns Philip Morris USA, which is a defendant in the suit.
In its brief to the appeals court, the industry said, “RICO’s statutory text and supporting remedial structure… confirm that disgorgement is entirely unwarranted.”
“RICO is supposed to extract criminality from legitimate business, not to destroy otherwise legitimate businesses. And both Congress and the Supreme Court have long recognized that the defendants here are engaged in a lawful business,” the industry brief added.
“The key issue on appeal is whether the D.C. Circuit agrees with Kessler that illegally gained profits in the past don’t need to be used in future illegal behavior in order to be eligible for disgorgement,” said William Corr, executive director of the Campaign For Tobacco-Free Kids in Washington, D.C.
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?? Question Of Future Fraud
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If the appellate court takes the standard used in Carson, then “profits from the past have to be used to further illegal acts in future,” Corr noted. That could sharply limit potential monetary damages.
The government has argued that, based on past behavior, there is a reasonable likelihood that cigarette companies will commit fraud in the future.
“Even assuming that Carson was correctly decided on its facts, its analysis would provide no ground for declaring a categorical limitation on disgorgement in this case,” the DOJ’s appellate court brief stated.
“The government stands ready to prove that defendants have obtained billions in ill-gotten gains, that defendants have vast resources for illegal conduct, and that defendants are, in fact, continuing to engage in fraudulent conduct in violation of RICO,” according to the DOJ brief.
The industry has countered that its 1998 settlement with states worth $246 billion has made it impossible to engage in future fraud.
In addition to Altria’s Philip Morris, companies named in the racketeering suit are R.J. Reynolds Tobacco Holdings Inc. and Brown & Williamson, which have merged to form Reynolds American Inc. (RAI); British American Tobacco PLC (BTI); Vector Group Ltd.’s (VGR) Liggett Group Inc.; and Loews Corp.’s (LTR) Lorillard Tobacco Co.
Wednesday’s argument will be before Appeals Court Judges David Sentelle, David Tatel and Stephen Williams. Williams and Sentelle sided with the tobacco industry in an appeal during a 2001 health-care reimbursement case that was presided over by Judge Kessler.
Citigroup analysts noted that two of the three judges hearing the appeal, Sentelle and Williams, are considered conservative and that the court itself has “the highest reversal rate of lower court rulings compared to all of the other circuits” which “bodes well for the tobacco industry in this appeal.”
Last month, the D.C. Appeals Court overturned Kessler’s ruling ordering British American Tobacco to produce a key memo that BAT had argued was privileged.
-By Brian Blackstone, Dow Jones Newswires; 202-828-3397; brian.blackstone@dowjones.com
http://framehosting.dowjonesnews.com
