- The Washington Times - Friday, February 4, 2005

A federal appeals court ruled yesterday that the Justice Department cannot seek $280 billion it claims the tobacco industry earned through fraud, an enormous victory for American cigarette makers.

The industry had urged the federal appeals court late last year to throw out a lower court decision allowing the Justice Department to seek the penalty from companies it accused of misleading the public about the dangers of smoking.

The federal government brought the lawsuit, now being heard in U.S. District Court, under a civil racketeering statute originally designed to prosecute mobsters.

A panel of the U.S. Court of Appeals for the District of Columbia Circuit ruled 2-1 that the civil Racketeer Influenced and Corrupt Organizations Act statute doesn’t allow the government to recover money in the ongoing lower court case because RICO statutes required “forward-looking remedies,” while seeking the money was “a remedy aimed at past violations.”

Government lawyers were reviewing the ruling and had no immediate comment, said Justice Department spokeswoman Kimberly Smith.

Charles A. Blixt, executive vice president and general counsel for R.J. Reynolds Tobacco Co., applauded the decision, saying it “dramatically transforms” the government’s lawsuit.

Tobacco company stock prices jumped in reaction to the news, with Altria Group Inc., parent of Philip Morris USA Inc., rising $3.26, or 5.1 percent, to close at $67 in trading on the New York Stock Exchange.

The industry had argued that the government should have filed its case under criminal RICO laws, which require a higher burden of proof and would have allowed the government to go after money in the case.

But the government argued that judges have the power to impose monetary remedies in civil RICO cases and that the government therefore has the right to go after earnings made through fraud.

U.S. District Judge Gladys Kessler previously agreed with the government but said the industry could appeal her ruling even as the case proceeded in lower court. That trial has been under way since September and is expected to last several more months.

The government has described the $280 billion as an estimate of money the companies earned illegally through fraudulent activities such as marketing to children and denying doing so.

However, the industry says the government failed to distinguish between money earned legally and illegally.

Judge Kessler had said she wanted to sort that out in trial, thereby not promising the government how much it could actually get out of the case.

Judge Kessler can still impose restrictions on the tobacco companies, such as limiting marketing or requiring the industry to fund public health campaigns or smoking cessation programs.

The federal case comes six years after the states reached legal settlements with the industry worth $246 billion and aimed at recouping health care costs. Those settlements also imposed restrictions on the industry, such as banning ads on billboards and public transportation.

The defendants in the lawsuit are: Philip Morris USA and Altria; R.J. Reynolds; Brown & Williamson Tobacco Co.; British American Tobacco Ltd.; Lorillard Tobacco Co.; Liggett Group Inc.; Counsel for Tobacco Research-U.S.A.; and the Tobacco Institute.

In trading on the NYSE, British American Tobacco’s U.S.-traded shares rose 75 cents, or 2 percent, to close at $36.15; Loews Corp. shares rose $1.80, or 2.6 percent, to close at $70.80; Reynolds American Inc. shares rose $3.69, or 4.5 percent, to close at $85.60; shares of Carolina Group, a Loews subsidiary that owns Lorillard, gained $1.52, or 4.8 percent, to close at $33.50; and shares of Vector Group Ltd., owner of Liggett, rose 47 cents, or 2.9 percent, to close at $16.53.

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