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The Massive Racketeering Suit Against Big Tobacco:
The District Judge's RICO Ruling, and Why It Is Likely to Be Reversed

Monday, Oct. 18, 2004

United States v. Philip Morris et al. is a massive civil racketeering suit now being tried in Washington D.C. The suit is yet one more battle in a bizarre and hard fought legal war between Big Tobacco and its enemies. In it, the Department of Justice seeks a court order telling the tobacco companies to "disgorge" (that is, pay to the government) $280 billion dollars in allegedly ill-gotten profits.

In my last column, I recounted the suit's history -- emphasizing the bizarre combination of events that led the Bush Administration Justice Department to embrace an unusual suit begun by the Clinton Administration's Justice Department.

The suit's premise is that the entire tobacco industry has operated a criminal enterprise that could be held liable under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), a law usually associated with businesses owned by men like Tony Soprano. (The tobacco companies adamantly deny any RICO violations, however.)

Some may applaud the suit simply because the ox that is getting gored is the tobacco industry - which, evidence has shown, took money from consumers by concealing the dangers of smoking. But I will argue that the suit sets a dangerous precedent - one that won't be limited to Big Tobacco.

With this suit, the government is attempting to reshape the law to expand its already tremendous power. And once this expanded power is established - if indeed it is - it can be turned on virtually any corporation or organization. For this reason, the Supreme Court may well take an interest in this case.

An Unusual Rationale for a Civil Suit: Prevention of Future Wrongdoing

As I explained in my prior column, the Justice Department technically is pursuing injunctive relief here - that is, it is seeking a court order. But in this instance, the order sought is tantamount to damages. Rather than seeking an order to, say, desegregate a school, or stop an illegal practice, the government is asking for an order telling Big Tobacco to disgorge millions in profits.

This suit is very odd. Ordinarily, the government might seek to get money out of Big Tobacco by bringing a criminal case, hoping to get a fine, and along the way, to deter future criminal violations. Or, if the government was cheated out of money, it could bring a civil suit seeking to get that money back as a damages award - and, again, to deter future violations along the way. Here, though, the government is doing something very different.

Here, the government is not bringing a criminal case. Nor is it bringing a civil suit on the theory that it has suffered. Instead, it is invoked a special section of RICO that allows it to sue to protect others from the future wrongdoing of a party who has violated RICO.

Specifically, that section instructs the federal courts that they may issue injunctive relief in order to "prevent and restrain" future violations of RICO. Can this relief be ordered in this situation?

For several reasons, Big Tobacco argues the answer is no.

One Big Tobacco Argument: The Alleged Wrongdoing Is All In the Past

First, the tobacco companies argue that all the wrongdoing of which they are accused occurred years in the past - and thus, there is no future wrongdoing to "prevent and restrain."

They tobacco companies have therefore asked the court to dismiss the suit on the ground that the Justice Department's complaint, as a matter of law, fails to state a valid civil claim. The Justice Department has retorted, however, that this is an issue of fact - not law. It is a matter of fact, it says, whether the evidence suggests that Big Tobacco will engage in racketeering in the future.

(Big Tobacco also argues, similarly, that the money the government is demanding cannot be connected with any credible risk of future RICO wrongdoing. And the government responds, similarly, that the connection is a factual issue.)

A Second Big Tobacco Argument: The Statute Doesn't Allow This Remedy

Big Tobacco also argues that a disgorgement order is not among the injunctive remedies the statute envisions. And it's true that the statute gives a few examples of the kinds of orders it contemplates - and a disgorgement order is not among them.

The statute, in fact, provides in its text examples of the kind of injunctive relief it does envision: The court could order defendants to "divest" themselves of enterprises which could be used for future RICO violations. The court could issue an order "prohibit[ing]" defendants from engaging in the same "type" of endeavors that had been part of the criminal enterprise. Or, the court could order the "dissolution or reorganization" of enterprises that had been involved in racketeering.

To support its point, Big Tobacco cited two key precedents. The first was the 1995 decision by the U.S. Court of Appeals for the Second Circuit in United States v. Carson. The second was the 2003 decision by the U.S. Court of Appeals for the Fifth Circuit in Richard v. Hoechst.

In Carson, the government sued to recover money paid to a union official who had been convicted in a parallel criminal RICO action. It argued that the official had gotten the money as a result of his past racketeering activities, so if the money wasn't disgorged, he would benefit from his past wrongdoing. And it argued that the statute allowed a court order of disgorgement.

But the Second Circuit disagreed. It held that the section of RICO that allows the government to seek injunctive relief can be used only to prevent future wrongdoing, not to prevent unjust enrichment.

Why Judge Kessler Rejected Big Tobacco's Second Argument

Judge Kessler, who sits on the D.C. District Court, was not bound by the Second Circuit decision; the higher court that oversees her District is the U.S. Court of Appeals for the D.C. Circuit. Accordingly, Judge Kessler was free to disagree with Carson - and, indeed, she did.

In support of her decision, she noted that Congress never ruled out a disgorgement order. She also noted that disgorgement is permitted under federal securities law, which - like the relevant RICO section -- contains a vague reference to injunctive relief. She also reasoned that a disgorgement order - by deterring other wrongdoers--fits the statute's mandate that future violations be "prevented and restrained."

At Big Tobacco's request, Judge Kessler certified her decision for immediate review by the D.C. Circuit. Typically, appeals in the federal system occur at the end of a case. But a district judge can certify a question for interlocutory review - that is, review in the middle of a case.

Why did Judge Kessler do so here? Doubtless, because she rightly sees this question as very important - for it's the heart of the case. If the $280 billion disgorgement remedy is unavailable, the Justice Department's arsenal will be tremendously impoverished.

That remedy is almost the whole ball game. The government could still ask - for example - for injunctions against certain kinds of cigarette advertising. But the impact would pale in comparison to that of a multibillion disgorgement order.

Why the D.C. Circuit Is Likely to Reverse Judge Kessler's Ruling

In my view, it is likely that the D.C. Circuit will agree with the Second Circuit's reasoning in Carson - and disagree with Judge Kessler. That is because Judge Kessler's interpretation of the statute blurs the boundaries between civil RICO and criminal RICO.

In a criminal case, the government can prosecute even if it has not suffered injury. It can also seek whopping fines. And its goal can be not compensation, but incapacitation and deterrence. But in doing all these things, it is restrained by the "reasonable doubt" standard and other protections for criminal defendants.

Here, the government wants the benefit of proceeding criminally without complying with criminal justice standards. It wants to proceed despite lack of injury to itself, as a quasi-prosecutor. It wants to seek a whopping amount that it tantamount to a huge fine. It wants to be able to incapacitate Big Tobacco, and deter anyone else who might contemplate similar violations. And it wants to do all this by a "preponderance of the evidence" - not with evidence "beyond a reasonable doubt."

That should not happen. The criminal/civil line should be preserved here.

This Is Not the Way to, In Effect, Expand Criminal RICO

RICO is already a famously broad law. If Congress wants to expand criminal RICO to give it even more reach than it has now, Congress should say so explicitly. It certainly knows how.

Criminal RICO should not be stretched just to get Big Tobacco. Once that door is opened, it will not be closed again. And the next victim of the Justice Department's "civil" litigation might be a defendant who is less obviously deserving of rough justice. It could be a labor union whose members are innocent workers. It could be a nonprofit that temporarily suffered under corrupt membership. It might be a pharmaceutical company whose management allegedly made a misrepresentation in a submission to the FDA, or a fast food company who claimed that its products could be consumed as part of a healthy diet.

Not every wrongdoing--whether real or imagined--should be criminalized. We need to maintain the distinction between criminal and civil justice, and for this reason the D.C. Circuit must reverse Judge Kessler.

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

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