September 18, 2004 in Business

Tobacco lawsuit goes to court

Nancy Zuckerbrod Associated Press
 

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Cigarette suit

WASHINGTON — The nation’s cigarette makers are accustomed to massive anti-smoking lawsuits, but even cases that have produced enormous jury awards don’t come close to what the government is seeking from the companies: $280 billion.

The Justice Department’s 5-year-old lawsuit, the largest civil racketeering case in history, goes to trial Tuesday in U.S. District Court.

The government alleges the industry schemed for decades to deceive the public about the dangers of smoking and the addictive nature of nicotine as it tried to nurture future smokers by targeting children in advertisements.

The industry denies acting fraudulently and says changes in how cigarettes are sold now make fraud impossible in the future.

The government is pursuing the case under the 1970 Racketeer Influenced and Corrupt Organizations Act, known as RICO, created for but not limited to prosecuting mobsters.

William Schultz, a former Justice Department lawyer who headed the case during the former Clinton administration, said the case alleges a fraud carried out for half a century. “The RICO statute is designed to get remedies where there has been an enterprise that violated fraud statutes,” he said.

While U.S. District Judge Gladys Kessler is letting the government pursue the racketeering case, she ruled the government cannot sue to recover the cost of treating sick smokers.

The government also is seeking new industry restrictions, which might include limits on in-store advertising and prohibition of descriptions the government considers misleading, such as “light” and “low tar.”

Justice lawyers are keeping quiet on the case but said in a recent filing that the alleged fraud conspiracy “has resulted in extraordinary profits for the past half-century, but has had devastating consequences for the public’s health.”

The government already has spent about $135 million on the case, according to Justice Department figures.

Internal industry documents from previous litigation are central to the government’s case. In them, tobacco officials acknowledge health problems associated with smoking and that children were targeted through marketing, said Robert Kline, a senior attorney at the Tobacco Control Resource Center, a think tank at Northeastern University in Boston.

“Their own documents, in their own words, are the items that are the basis of the government’s case,” Kline said.

Tobacco officials deny they committed fraud and say the way cigarettes are marketed has changed since the industry reached a $206 billion settlement with 46 states in 1998. That settlement and agreements with four other states were aimed at recovering costs associated with treating smokers.

The agreements also led to elimination of industry organizations that did research and lobbying and imposed advertising limits on companies. The limits include bans on cartoon characters and billboards.

Tobacco officials say the restrictions make it unlikely that fraud will occur in the future, and that’s what the government must show probably would happen to win the case.

“You can’t ignore the significant change that has occurred over the course of the last six years because of what society has demanded of the tobacco companies and what has been included in the settlement agreement,” said Mike Pfeil, vice president of communications for Altria Group Inc., parent company of Philip Morris USA.

Justice Department lawyers say the industry’s past behavior is enough to show a reasonable likelihood of future wrongdoing.

The Clinton administration sued the industry, and the Bush administration pursued it after receiving early criticism for openly discussing the case’s perceived weaknesses and attempting unsuccessfully to settle it.

Justice Department officials, speaking on the condition of anonymity, say no settlement talks have occurred since that exchange three years ago.

Philip Morris USA attorney William Ohlemeyer said the case has been more expensive and time-consuming than any others the company has tried. He declined to put a dollar figure on that, but Ohlemeyer characterized as absurd the $280 billion the government is seeking for “ill-gotten gains.”

“If the government obtains everything they claim to be seeking in this lawsuit, they then become the owners of these five companies,” Ohlemeyer said. “The companies don’t have $280 billion.”

Judge Kessler ruled in May that, as a remedy for wrongdoing, the government can go after money the companies earned.

The trial could take up to six months. There are nearly 300 witnesses, about 100 of whom are expected to appear in court.

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