Did Big Tobacco finally get burned?

WASHINGTON, - Hidden among the thousands of petitions the U.S. Supreme Court rejected before recessing for the summer was a case so spectacular — the case against Big Tobacco — you wonder why its outcome isn’t drawing more attention.

The remnants of the case have huge applications for lobbying and opinion molding, and even for the actions of U.S. companies overseas and foreign companies operating in the United States.

The rejection by the high court was a victory for Big Tobacco in one sense: It ended the government’s attempt to recover $280 billion in “ill-gotten gains” derived from past industry conduct. The Supreme Court left intact an appeals court ruling that penalties under the Racketeer Influenced and Corrupt Organizations Act had to be “forward looking,” and could not include past actions.

Subsistence farming aside, tobacco production may be the oldest American industry, once dominating the economies of Southern states. If the government had been allowed to seek the penalty it wanted, it could have pushed the industry over the edge into bankruptcy.

The case — actually a consolidation of seven cases — also was a testing ground for commercial free speech. Can the government allege fraud when corporate statements, even if untrue, are designed to influence public policy?

In that arena, Big Tobacco came up the loser.

The case was first filed by the Clinton administration in 1999, and has gone up and down the appeals court ladder.

Early on, a federal judge in Washington found the nine major tobacco companies guilty of manipulating the nicotine content of cigarettes to ensure addiction and of lying to the public about the dangers of cigarettes.

U.S. District Judge Gladys Kessler said the evidence “must be viewed in its totality … to fully appreciate how massive the case is against (the companies), how irresponsible their actions have been and how heedless they have been of the public welfare and the suffering caused by the cigarettes they sell.”

She added the companies’ business “survives, and profits, from selling a highly addictive product which causes diseases that lead to a staggering number of deaths per year, an immeasurable amount of human suffering and economic loss, and a profound burden on our national healthcare system.” She put the death toll from tobacco at 400,000 a year.

Kessler also agreed to consider whether the companies should “disgorge” past profits earned from the racketeering behavior.

But in 2005, a divided panel of the U.S. Appeals Court for the District of Columbia Circuit reversed the verdict and said RICO doesn’t allow for the disgorgement of past “ill-gotten gains.” The Supreme Court at the time refused review on the penalty issue.

The case went back to the trial level where the judge ruled it was likely the companies would continue to violate RICO in the future.

Last May, the appeals court upheld Kessler’s second verdict as it applied to the tobacco companies’ RICO violations, saying there were “countless examples of (the companies’) deliberately false statements.” But again, the appeals court said the trial judge could craft only “forward looking” remedies, not impose heavy penalties for past behavior.

The rejection by the Supreme Court leaves the appeals court verdict in place and — given the D.C. Circuit’s unique position as the second most powerful court in the country — applicable across the United States.

The prospect of the appeals court ruling remaining law set off alarm bells within the American business community. In effect, the ruling handicaps the ability of any particular industry to influence public opinion with subjective opinions.

In a friend of the court brief, the U.S. Chamber of Commerce said: “The D.C. Circuit stretched RICO far beyond its breaking point, and beyond the statute’s constitutional scope, when it decided that the defendants could be held liable for statements overwhelmingly made to influence public sentiment and affect legislative and enforcement policy.” It added that “98.9 percent” of the “fraudulent” public statements “identified by the district court — addressing the health effects of smoking and secondhand smoke, the addictive nature of nicotine and alleged manipulation of nicotine levels — were not product advertisements, but op-ed pieces, congressional testimony and the like.”

The brief also cited the trial court’s evaluation of conduct that occurred outside the United States. The defendants included a British as well as U.S. tobacco companies.

“The D.C. Circuit refused to apply the established presumption against extraterritoriality,” it said. “In direct conflict with this (Supreme) Court’s decisions and those of other courts of appeals … the D.C. Circuit hewed to its idiosyncratic view that ‘Congress’s regulation of foreign conduct (with substantial domestic effects) is “not an extraterritorial assertion of jurisdiction.”‘ Thus, in the D.C. Circuit, the normal presumption is reversed: All federal laws apply to foreign conduct unless Congress expressly provides otherwise.”

The brief said unless the Supreme Court acted, “the D.C. Circuit’s unwarranted expansion of RICO’s territorial scope will invite retaliation by other nations, to the detriment of U.S. businesses and the U.S. economy.”

That concern was echoed by the International Chamber of Commerce United Kingdom, which filed its own friend of the court brief.

“In recent years, the United States has increasingly followed an international consultative approach in dealing with global problems in the fields of crime and corruption, not the unilateral extension of U.S. law based on tenuous ‘effects’ in the United States,” the group said in its brief. “The United States followed a similar approach in pursuing the U.N. Organized Crime Convention, the purpose of which is ‘to promote cooperation to prevent and combat transnational organized crime more effectively.'”

The brief said this cooperative approach was abandoned in the tobacco case.

“Actions by Congress, this (Supreme) court, the U.S. government and friendly foreign nations over the last 25 years all point toward a cooperative approach to legal problems arising from international trade,” the brief said. “The opinion (from the D.C. Circuit), however, is a throwback to earlier doctrine, which views the world as if the United States were the only regulator. That approach fails to take account of the interests of comity to foreign nations and the legitimate expectations of companies doing business internationally.”

The seven separate cases now must play themselves out in the trial court, with Kessler or another U.S. judge relying on the D.C. Circuit opinion.

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