Verdict: Tobacco Companies Conspired To Deceive American Public and Addict Children

The Supreme Court announced on Monday that it would not take up either government or industry appeals of a landmark racketeering verdict against cigarette companies for what a lower court judge had termed a half-century of lying over the health effects of smoking.

The court’s action surprised analysts on both sides of the issue and pushed tobacco stocks sharply higher.

“What a relief,” Credit Suisse titled a note to investors.

The decision to deny a writ of certiorari, issued without comment, meant the Supreme Court would not accept an appeal by tobacco companies to overturn the 2006 civil racketeering judgment on free speech grounds, nor a counterappeal by the Obama administration asking for the trial judge to be able to force companies to return up to $280 billion in profits.

Stocks of each of the three major tobacco companies rose more than 3 percent immediately on the news on Monday morning.

Thilo Wrede, industry analyst for Credit Suisse, said in an interview, “If the decision would have been the other way, you would have seen a headline saying a $280 billion case is open again. The stocks would have seen a comparable downward move — if not more.”

Edward L. Sweda, a senior lawyer with the Tobacco Products Liability Project, an antismoking group, at the Northeastern University School of Law in Boston, described the decision as mixed.

“Obviously we’re disappointed, because we would have liked to force the companies to disgorge their ill-gotten gains,” he said. “But we’re delighted with upholding the judge’s basic finding that the major tobacco companies are in fact adjudicated racketeers. Now that is established as historical fact.”

The industry was seeking the Supreme Court’s review largely on constitutional grounds, particularly First Amendment issues, in making its views known during the public health debate about smoking.

In the 2006 case, United States District Judge Gladys Kessler concluded in a ruling of more than 1,500 pages that for more than 50 years, cigarette companies had “lied, misrepresented and deceived the American public, including smokers and the young people they avidly sought as ‘replacement’ smokers, about the devastating health effects of smoking and environmental tobacco smoke.”

The case returns to Judge Kessler for action on other remedies, like requiring the companies to do corrective advertising.

“It is now critical that the trial court move forward with strongly enforcing the remedies that it did order,” Matthew L. Myers, president of the Campaign for Tobacco-Free Kids, said in a statement. “These include requiring the tobacco companies to make corrective statements about the health risks of smoking and secondhand smoke, and their deceptive practices through newspaper and television advertising, on their Web sites and on cigarette packaging.”

Murray Garnick, a senior vice president and counsel with Altria, owner of Philip Morris USA, said in a statement, “Although we are disappointed that the Supreme Court did not grant our petitions challenging the basis for the lawsuit, we are pleased that the Supreme Court has confirmed once again that disgorgement is not an available remedy.” The two other major tobacco companies, R. J. Reynolds Tobacco and Lorillard, had also appealed.

Altria’s shares closed up $0.64, or 3.3 percent, to $20.34, and Lorillard’s rose $1.77, or 2.5 percent, to $73.54. Shares in Reynolds American, the parent of R. J. Reynolds, rose $2.08, or 4.1 percent, to $53.45.

David J. Adelman, tobacco analyst for Morgan Stanley, had expected the court to accept the case, but not to force disgorgement because that could have ruined the companies. “The ultimate prospect of a large-scale disgorgement award has been eliminated,” Mr. Adelman wrote on Monday.

Elena Kagan, as solicitor general, had signed the Obama administration petition to the Supreme Court over the disgorgement issue, and she would have had to sit out the case if it had been accepted and she was confirmed as the Supreme Court nominee by the Senate. That would have meant five of the eight remaining justices would have had to agree on disgorgement, which court watchers found unlikely.

Some aspects of Judge Kessler’s ruling, including a ban on the tobacco terms “light” and “low tar,” were also imposed through legislation enacted last year to place tobacco products for the first time under the control of the Food and Drug Administration.

Nytimes: June 28, 2010

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