Subject: [Homestead] Big Tobacco Boat on RICO rocks
Date: Sun, 19 Sep 2004 22:00:44 -0700
Their bribees in Congress and White House too preoccupied with Iraq and
next election to pay back the bribers.
The New York Times
------------------------------------------------------------------------
September 20, 2004
Tobacco Firms Face U.S. in High-Stakes Trial
*By MICHAEL JANOFSKY*
WASHINGTON, Sept. 19 - In 1953, the chief executives of the country's
leading cigarette companies and officials from a major public relations
firm gathered at the Plaza Hotel in Midtown Manhattan.
What they discussed that day and what happened over the next 50 years as
a result go to the heart of the biggest legal challenge the tobacco
industry has ever faced.
In a nonjury trial scheduled to start here on Tuesday in Federal
District Court, the government is seeking to strip the companies -
disgorgement, in legal terms - of $280 billion that Justice Department
lawyers say was earned through fraud. As the largest civil case ever
prosecuted under the federal Racketeer Influenced and Corruption
Organizations Act, it has the potential to put the companies out of
business.
Five years in preparation, at a cost to the government of $135 million,
the trial is scheduled to last at least six months, with 100 witnesses
expected to testify in person and 200 others through depositions or
testimony in other trials.
Company lawyers say the hotel meeting produced only a research
organization, now defunct, to study smoking and health. The government's
lawyers say the meeting led to a widespread conspiracy of deception that
remains in effect, reflecting a carefully built strategy to misrepresent
the addictive nature of cigarettes, lie about the health risks of
secondhand smoke and direct marketing efforts at young people to sustain
a large population of smokers.
"The government has provided extensive evidence to support our case,"
Peter D. Keisler Jr., assistant attorney general for the civil division
of the Justice Department, said in a statement. "We look forward to
presenting it in court."
The defendant companies - Philip Morris USA; its parent, the Altria
Group; the R.J. Reynolds Tobacco Company; the Brown & Williamson Tobacco
Corporation, which merged over the summer with Reynolds; the Lorillard
Tobacco Company, a subsidiary of the Loews Corporation; British American
Tobacco; and the Liggett Group - say that the government's case is
groundless.
They deny engaging in a conspiracy and accuse the government of
distorting history to drive them into bankruptcy. They also say that
under the terms of a 1998 settlement with 46 states that sued to recover
nearly $250 billion for the health care costs of smoking, the companies
have already complied with orders that the government is seeking in the
lawsuit, like public disclosure of company research relating to smoking
and bans on marketing to children.
William S. Ohlemeyer, vice president and associate general counsel for
Altria, said the judge, Gladys Kessler, could decide for the government
only if it could show that a pattern of fraud in the past was evidence
of fraud in the present and future.
Mr. Ohlemeyer said that past behavior was debatable. He said positions
the companies once held - that smoking does not cause disease, for
example - "can be wrong without being evidence of committing fraud."
As for the present and future, he said, the 1998 settlement created so
much government oversight that continuing fraud would be impossible.
"The court is required to review the totality of circumstances," Mr.
Ohlemeyer said in a conference call with reporters last week. "It's
difficult for the government to argue that the past is a reasonable
predictor of the future. It ignores a detailed list of how cigarettes
are sold today versus the past."
Filed in 1999, the case originally included charges to recover federal
health care costs due to smoking. Judge Kessler dismissed them, leaving
two counts under the racketeering act. The Justice Department has
aggressively pursued those charges despite several efforts by Congress
to block financing for the case.
"With President Bush's election, the tobacco industry thought they were
going to have a friend who would get the lawsuit dismissed," said
William V. Corr, executive director of the Campaign for Tobacco-Free
Kids. "Fortunately none of those efforts succeeded, and when terrorism
became such a prominent issue for our government and the public, it
appears that the effort to undermine the lawsuit diminished."
Full victory for the government after appeals would have major financial
consequences for the companies. Martin Feldman, an analyst for Merrill
Lynch who tracks the tobacco industry, estimated that the combined net
worth of the companies, which account for 85 percent of the domestic
cigarette market, was less than $200 billion, at least $80 billion less
than what the government is seeking.
But whether the government has the right to seek disgorgement under its
theory of the case is now before the United States Court of Appeals for
the District of Columbia Circuit. That court has agreed to hear an
appeal of Judge Kessler's decision in May dismissing the companies'
request that the disgorgement claim be thrown out. Oral arguments are
scheduled for Nov. 17.
If Judge Kessler's ruling is overturned, Mr. Feldman said, "this case
ceases to be newsworthy."
Justice Department officials, who discussed the case in a background
briefing with reporters under the promise that their names not be used,
said the government would try to show a conspiracy to sell cigarettes
through intentional misstatements about smoking and health, the
addictive nature of cigarettes, the manipulation of nicotine as the
addictive ingredient, the marketing of low-tar cigarettes as safer and
the suppression of evidence that would adversely affect sales.
The companies' chief strategy is to direct the judge's attention to
industry reforms since 1998. "The focus of this case should be on recent
history, the activities of the defendants today, and an actual threat of
a specific ongoing or future violation," the companies said in court
documents.
"We intend to rebut the charges that fraud was committed in the past,"
Mr. Ohlemeyer said. "And we're going to make it very clear to the judge
that no evidence currently exists of an intent to commit fraud in the
future."
To speed the case along, Judge Kessler has instructed each side to
conduct direct examinations of witnesses outside court before their
appearances. That means that when David A. Kessler, a former
commissioner of the Food and Drug Administration who is not related to
the judge, takes the stand on Thursday as the first witness, company
lawyers will immediately cross-examine him about testimony that was
filed last week.
In that testimony, Dr. Kessler recounted efforts by the agency during
his tenure, 1990 to 1997, to regulate nicotine as a drug in the belief
that the cigarette companies manipulated the level of nicotine to
sustain addiction.
Citing company documents, he told the court that the companies had known
for decades that nicotine was a drug but that the agency's effort at
regulation had been challenged by a lawsuit from the industry that
reached the Supreme Court.
In 2000, the court ruled 5 to 4 for the industry, saying that Congress
did not intend the agency to regulate cigarettes. But when Dr. Kessler
was asked if any justice took issue with the agency's findings, he said,
"No."