The Federal Government's Reversal In Its Suit Against the Tobacco Industry:
Why There May Actually Be a Good Reason For The Justice Department's Last-Minute About-Face

By ANTHONY J. SEBOK


anthony.sebok@brooklaw.edu
----
Monday, Jun. 13, 2005

Last week, lawyers for the Justice Department changed tactics in their suit against the tobacco industry. Even more strikingly, they did so in the middle of their closing arguments - at the very end of trial.

The government is now asking for significantly narrower remedies than it once sought. Here's one example: Originally, DOJ had asked the judge to order a $130 billion smoking cessation program. Now, it is asking for only a $10 billion program.

The move stunned DOJ's opponents, its allies in the tobacco-control community, and the judge trying the case -- who openly questioned the motive behind the government's eleventh-hour retreat.

A number of Democratic Congressmen are now crying foul. Indeed, Sen. Edward Kennedy and Rep. Henry Waxman have asked the Justice Department's Office of the Inspector General to investigate.

As I will argue in this column, however, the reasons for the Justice Department's about-face are probably more innocent than the Democrats suspect.

The Government's Case Against the Tobacco Industry: Some Background

The case against the tobacco industry--about which I have written in earlier a number of earlier columns--is relatively simple:

In 1994, tobacco industry CEOs infamously claimed, in testimony given under oath to Congress, that smoking was neither addictive nor a proven cause of cancer.

In 1998, Big Tobacco struck a $243 billion settlement with the states. The settlement also required Big Tobacco to abide by a specific code of conduct.

In 1999, President Clinton ordered his Justice Department to investigate whether the federal government, too, could sue Big Tobacco. Perhaps he was outraged by the 1994 testimony - and wondered if the federal government might deserve a large settlement like the one the states had gotten.

The government opted to sue Big Tobacco under civil RICO, the federal anti-racketeering statute. The government's theory was that Big Tobacco made money by encouraging youth smoking and other harms through a variety of fraudulent acts -- in the same way that a gang of con artists might lie and cheat to steal money from innocent and gullible people.

The trial judge, Judge Kessler, held that, in the RICO suit, the government could pursue "disgorgement" as a remedy. In other words, if the government could prove fraud on the part of Big Tobacco, it could also force Big Tobacco to pay back - disgorge - its wrongful gains from that fraud. Those gains might have amounted to a staggering $280 billion.

But in early February of this year, the government's case suffered a huge blow - when the U.S. Court of Appeals for the D.C. Circuit reversed the trial judge's decision, and ruled out any disgorgement remedy. Briefly, the decision was based on the court's interpreting the civil RICO statute to authorize only forward-looking court orders -- not backward-looking ones, like an order to pay back past profits. (For more details on the holding, see my column from that time.)

What might a forward-looking remedy be? Observers like me wondered. Due to the 1988 settlement's code of conduct, Big Tobacco's ongoing conduct did not share the hallmarks of its past wrongdoing. Most prominently, Big Tobacco was no longer lying about the dangers of smoking, as it once had.

Moreover, the Court had made crystal clear that a forward-looking remedy was one that was meant to prevent future violations. Although the Court did not say so explicitly, it seemed clear that a "forward-looking" remedy did not include one that addressed the future effect of past violations. So, according to the Court's logic, remedies that tried to address violations that had occurred years earlier wouldn't fly.

How DOJ Narrowed the Remedies It Had Sought

This spring, the Department of Justice focused on the "violation" stage of their case - that is, on showing in court that Big Tobacco had engaged in racketeering.

Meanwhile, DOJ's lawyers suggested -- in various affidavits and expert reports submitted to the court - that when it came to the remedies stage, they would seek controls on advertising and marketing, as well as the establishment of a very costly smoking cessation program, one that would have to be offered to anyone who currently smoked.

Last week, when the government made its closing arguments, it significantly narrowed the remedies it sought - in a number of ways.

Previously, the government had submitted an expert report by Michael Erikson, the former director of the Centers for Disease Control and Prevention's Office on Smoking and Health that suggested that the only "forward looking" remedy that would adequately remedy the fraud committed by the industry would be to prohibit the use of any imagery in cigarette advertising.

Recently, in his testimony, he recommended a narrower remedy: A ban on only image-based advertising that was misleading or directly targeted to youth.

The most controversial change in the government's position was "the incredible shrinking smoking cessation program." Originally, the government's expert, Dr. Michael Fiore, had testified that an adequate remedy to the fraud that was alleged was a program that allowed any smoker a chance to quit, at a cost of approximately $5 billion for 25 years.

On Thursday, however, the government's lead lawyer, Donna Eubanks, proposed a five year, $2 billion per year program - one that would allow limited enrollment of current smokers, rather than being open to all smokers.

The main focus of the new remedy, explained Eubanks, would be on monitoring the tobacco industry to insure that it was not still targeting youth smokers.

Why Did the Justice Department Reverse Itself?

Judge Kessler was clearly disturbed by the government's new approach, and she asked whether "additional influences are being brought to bear" on the government lawyers.

It is hard to imagine that anyone in the Bush circle thinks that the Justice Department's lawsuit is a good idea. Thus, Judge Kessler's question seemed designed to ferret out whether DOJ was being pressured by the Administration, which in turn might be pressured by lobbyists.

Is this the case? It seems unlikely.

If so, why didn't the lobbyists, and the Administration, act much earlier--before the expert reports were originally written, or even before the trial had begun? The Bush Administration could easily have let this Clinton-era suit fall by the wayside long ago -- - when it took office, or when the attacks of 9/11 happened. But it didn't.

Why would lobbyists wait until now to strike? Big Tobacco lobbyists doubtless have the same view of this suit now as they once did; if anything, since some remedies have been put off-limits, they may care less than they once did about this suit.

But if lobbying isn't the answer, what explains the government's reversal? I think the reality is that the government's lawyers realized that the February Court of Appeals decision was much more devastating to their case than they admitted at the time.

More specifically, they realized that it took away virtually any remedy they could seek. So they did their best to preserve what they hoped they could get: A finding of wrongdoing, and liability.

In my view, the Court of Appeals clearly implied that remedies designed to address future effects of past violations were not acceptable. Only remedies designed to prevent future violations were acceptable.

But did the remedies DOJ sought really fall into this category of acceptable remedies? It seems the answer is no.

A smoking cessation program addresses the effect of a past violation - rather than preventing a future violation. The violation occurred when the smoker, as a result of fraud, was initially hooked. The effects continue, but the violation does not - unless one believes that current advertising is also fraudulent, and is convincing smokers not to quit. So this kind of remedy is just the kind the Court of Appeals suggested could not be granted.

What about advertising restrictions? These may count as truly forward-looking - as long as the advertisements prohibited would, themselves, have been fraudulent, and would have supported a RICO violation.

But it's virtually impossible to argue that any ad that uses an image - that is, any ad within DOJ's original remedy request -- is, by its nature, a fraudulent ad. Moreover, using images is a key First Amendment freedom. Courts have held the Amendment protects not just words, but images too.

Perhaps ads directed to youth - the kind of ads DOJ seeks in its new, narrower remedy request -- are more likely to defraud these more gullible readers. Moreover, First Amendment freedoms are not as strong when it comes to young people. (For example, for adults, "obscene" materials are off limits, but minors are barred from seeing not only "obscene" materials, but less troubling "obscene as to minors" materials.) And we are used to regulating youth smoking and drinking; it may follow from this that ads for these practices can legally be curtailed, too.

Can DOJ Win Without Getting Anything? That May Be Its Current Gambit

In sum, the legality of the remedies DOJ has sought is shaky. Smoking cessation programs may be off-limits. And broad ad restrictions may violate free speech rights.

In addition, such restrictions may have to be based on a showing that, without restrictions, Big Tobacco would engage in a pattern of publishing youth-targeted ads so fraudulent, they constitute racketeering. That just doesn't sound like the kind of ad a newly-cautious Big Tobacco is interested in running right now; after all, Big Tobacco now even sponsors its own anti-youth-smoking ads.

No wonder, then, that DOJ's lawyers drastically narrowed their remedy demand. Once, they sought broad remedies that would have severely interfered with Big Tobacco - and would certainly have been appealed. Now, they seek ad restrictions that would hardly be a burden on an already-chastened Big Tobacco, and a modest smoking cessation program with which Big Tobacco might comply for public relations reasons alone.

They might hope that Big Tobacco may opt to comply, rather than appealing. After all, the more modest the remedy granted, the worse an appeal will look.

They may also hope to leverage the finding of liability, alone, into a kind of victory. At this point, Judge Kessler might find that the government has proven its case and yet issue nothing more than a set of hortatory injunctions, telling Big Tobacco not to do in the future those terrible things it did in the past. A finding by Judge Kessler that Big Tobacco had engaged in a 40-year conspiracy of fraud against the American people would be significant in itself.

Would this be such a bad result? Sometimes it is worth having a trial just to obtain an authoritative judgment on the past. Not every lawsuit has to be about getting money for victims, or even punishing wrongdoers.

In the end, then, the Justice Department's five year pursuit of the tobacco industry might be best seen, in retrospect, as one of the most expensive truth commissions in the history of the United States.

Given that Congress had shown no inclination to investigate Big Tobacco, a simple guilty verdict - paired with no damages and no significant remedy - might be exactly the right result.


Anthony J. Sebok, a FindLaw columnist, is a Professor at Brooklyn Law School. His other columns on tort issues - including suits against the tobacco industry-- may be found in the archive of his columns on this site.

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