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US: Court Blocks Nation From Seeking Billions From Tobacco Industry

by David Stout New York Times
February 4th, 2005

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.

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