Huge tobacco case seems Court-bound

By Lyle Denniston
on Apr 20, 2005 at 6:25 pm

A 3-3 split in the D.C. Circuit on Wednesday, denying rehearing en banc on a key remedies issue in the government’s massive and long-running lawsuit against the tobacco industry, probably will be the signal for the Bush Administration to move on to the Supreme Court. Indeed, it would be astonishing if the government were now to abandon its attempt to recoup $280 billion of profits made by six tobacco companies – a goal it has pursued relentlessly for nearly six years.

The tobacco case, now rivaling the fabled Jarndyce v. Jarndyce in Charles Dickens’ “Bleak House,” has just gone through its 95th trial day this week. District Judge Gladys Kessler in Washington has issued 927 orders, and there have been 5,261 docket entries. No entry in that case was more controversial than Kessler’s Order No. 550, issued on April 24 last year, refusing to throw out the government’s plea that the companies “disgorge” corporate earnings made on sales of nicotine-containing tobacco products. That claim has been a part of the case since it was first filed, on September 22, 1999, under the anti-racketeering RICO Act of 1970.

That order was overturned by the D.C. Circuit, in a 2-1 ruling on February 4 this year (Philip Morris USA, et al., v. U.S., docket 04-5252). Judge Kessler has since described the decision as “a body blow to the government’s case.” The Justice Department sought rehearing en banc, arguing that the panel ruling threatened to cripple the “remedial force” of RICO. That was the request turned down on Wednesday. Three judges on the D.C. Circuit did not take part, without saying why, and the remaining six divided evenly; under Circuit rules, five votes were necessary to grant en banc review. Kessler has said she expected the government to take the case on to the Supreme Court if it lost in the Circuit Court. Nothing in the government’s actions up to this point suggests it would surrender now.

Here is the way Kessler, in her Order 550 a year ago, described the issue: “The government seeks…disgorgement of $280 billion dollars of ill-gotten gains for what it alleges to be defendants’ unlawful conspiracy to deceive the American public. The government’s amended complaint describes a four-decade long conspiracy, dating from at least 1953, to intentionally and willfully deceive and mislead the American public about…the harmful nature of tobacco products, the addictive nature of nicotine, and the possibility of manufacturing safer and less addictive tobacco products.” The disgorgement was sought under RICO. Kessler ruled that RICO did not bar a disgorgement remedy even if it was aimed, at least in part, at punishing the companies for past conduct, as a deterrent to prevent future violations. She thus refused to grant the industry summary judgment on the point.

The six companies took the issue on to the D.C. Circuit, and the divided panel ruled that RICO only allowed “forward-looking” remedies. The Act, the majority said, gives federal courts authority to issue orders “to prevent and restrain” RICO violations. “This language indicates that the jurisdiction is limited to forward-looking remedies that are aimed at future violations….Permitting disgorgement…would…thwart Congress’ intent in creating RICO’s elaborate remedial scheme.”

The appeal was interlocutory, and the trial continues before Kessler, with heavy new controversy already developed over what other remedies the government may still seek if Kessler, in the bench trial, rules that the companies did violate RICO. The latest tussle there was over a government request to call a Harvard Business School professor, Max Bazerman, as a witness to discuss possible removal of senior executives of the tobacco companies, as one possible remedy. The industry denounced that as “a draconian new remedy to replace its now-dismissed $280 billion disgorgement claim.”

Judge Kessler on April 9 refused to strike Bazerman as a witness or to take any “corporate restructuring remedy” off the table. The government has not yet begun its case-in-chief on the remedies issue, so the “corporate restructuring” dispute is likely to recur. The judge and the Justice Department contend that the entire remedies case has shifted as a result of the D.C. Circuit ruling on the disgorgement question. That, no doubt, will be a key facet of any appeal the government takes to the Supreme Court.