A government effort to seize $280 billion in tobacco industry profits as the fruits of a decades-long racketeering enterprise has suffered a major setback.
On Monday, the US Supreme Court let stand a federal appeals court decision that effectively bars the government from using the Racketeer Influenced and Corrupt Organizations Act (RICO) as a means to recover what Justice Department lawyers say are the ill-gotten gains of cigarette manufacturers dating to the 1950s.
The issue is important because a broad reading of the law would have authorized massive seizures of assets of any company or industry under RICO.
In 1999, government lawyers filed a civil action under the racketeering law seeking to prove that the tobacco industry functioned as a corrupt enterprise (similar to a Mafia family) by engaging in a pattern of unlawful conduct aimed at deceiving smokers about tobacco's health hazards.
The centerpiece of the government's case was a claim that the federal racketeering law authorizes "disgorgement" of illegal proceeds obtained in violation of RICO. A federal judge in Washington, D.C., agreed with the government that such massive seizures are permitted. But a divided three-judge appeals court panel reversed, ruling that RICO authorizes only remedies that prevent future acts of racketeering, not wholesale seizure of assets related to prior illegal acts.
In declining to take up the case, US v. Philip Morris, the Supreme Court did not announce whether it agrees with the appeals court's reading of the law. The justices merely declined to examine the case at this time.
The appeal to the high court stems from a tobacco-industry trial pending before US District Judge Gladys Kessler. The nonjury trial was conducted from September 2004 to June 2005. Both parties are awaiting Judge Kessler's ruling on whether the tobacco companies are guilty of having violated federal racketeering laws.
Should she find them guilty, she must then decide which remedies are available under RICO. Aside from the $280 billion disgorgement, the government is seeking to force the industry into spending $10 billion on a national effort to help people stop smoking. The government is also seeking to establish a system of penalizing the tobacco industry if youth smoking rates do not decline by targeted amounts.
The tobacco companies named in the government's suit account for roughly 85 percent of cigarette sales in the US. They are Philip Morris USA, Reynolds American Inc., Lorillard Tobacco Co., and Liggett Group.
The federal case isn't the first time the tobacco industry has faced a massive financial threat from litigation. In 1998, the industry agreed to pay $246 billion over 25 years to state governments in exchange for settling a series of lawsuits filed by state attorneys general.
In urging the Supreme Court to take up the tobacco case, Acting Solicitor General Edwin Kneedler called the case "the most important civil RICO action that the government has ever brought.... The government cannot protect the public interest if it cannot divest the [RICO enterprise] of the fruits of its ill-gotten gains."
In response, Michael Carvin, a Supreme Court advocate representing the tobacco industry, urged the high court to reject the government's "sweeping interpretation" of RICO. "No circuit [court] has ever upheld an award of disgorgement under civil RICO," he wrote in his brief.