WASHINGTON, Feb 4 (AFP) - An appeals court Friday rejected a US government lawsuit seeking 280 billion dollars from the tobacco industry that alleged cigarette makers plotted to cover up the risks of smoking.
The 2-1 decision by a panel found that the case, which sough to recover government health care costs, cannot be brought under federal racketeering laws, which were written to deny ill-gotten gains from organized crime.
The suit was initially filed in 1999 by the US Department of Justice against the major tobacco companies, claiming they engaged in a fraudulent pattern of covering the dangers of tobacco use and marketing to minors.
The ruling would halt efforts to recover massive monetary damages from the industry. But the government could conceivably pursue other remedies or seek a settlement with cigarette makers.
Defendants included Philip Morris USA; RJ Reynolds Tobacco; Loews Corp's Lorillard Tobacco; Brown and Williamson, which was part of British American Tobacco PLC and later merged with RJ Reynolds; and the Vector Group's Liggett Group.
The court ruled that the government cannot sue under the civil Racketeer Influenced Corrupt Organizations Act and seek so-called "disgorgement" of past revenues and profits as a remedy.
Judge David Sentelle wrote in his ruling that "disgorgement is not an available remedy under (the law); even if disgorgement were available, the government's model fails the ... test for permissible disgorgement that will 'prevent and restrain' future violations."
The tobacco companies went to the appeals court last year after the trial judge in US District Court rejected a so-called summary dismissal.
RJ Reynolds applauded the decision.
"We are extremely pleased that the appellate court agreed with our long-held belief that disgorgement is not an appropriate remedy in civil RICO suits, such as this," said Charles Blixt, executive vice president and general counsel for RJ Reynolds.
"This ruling dramatically transforms the DOJ suit. While we continue to believe that no remedies are warranted under the facts of this case, with the threat of disgorgement removed, the principal remedies still available to the government are forward-looking measures. These would include marketing and sales restrictions already put in place by our company and others under the Master Settlement Agreement" with a number of US states to recover the cost of smoking-related illnesses.
A dissent filed by Judge David Tatel argued that the case is similar to other cases of corporate misconduct, and that the trial should have been allowed to continue.
"Just as we permit actual profits in insider trading cases to serve as a proxy for ill-gotten gains, so too can actual profits from sales to the (young smokers) meet the government's initial burden of reasonably approximating the tobacco companies' unlawful gains," Tatel wrote.
"The burden would thus shift to Philip Morris to demonstrate that the disgorgement figure was not a reasonable approximation, and the district court would have to sort out who is right."
William Corr of the Campaign for Tobacco-Free Kids, said the government should still pursue the case even if it cannot win massive disgorgement penalties.
"If the government wins the case, the civil racketeering statute grants the trial judge broad authority to fashion a judgment and remedies that fit the defendants' violation of the law," Corr said. "Among other things, the tobacco industry could be required to fund programs to keep kids from starting to smoke and help smokers quit."
02/04/2005 21:02 GMT - AFP