Federal Tobacco Lawsuit Proceeds on Two Fronts

Published August 1, 2005

On July 18, the U.S. Department of Justice (DOJ) petitioned the U.S. Supreme Court to reinstate its request for a $280 billion “disgorgement of past profits” remedy from the tobacco industry.

DOJ’s request had been rejected on February 4 by the U.S. Court of Appeals for the District of Columbia Circuit, which ruled in a 2-1 decision that civil anti-racketeering laws do not allow such a remedy. July 18 was the deadline for filing an appeal of that decision.

Judge Urges Settlement

The federal government filed suit against the tobacco industry on September 22, 1999, seeking $280 billion in what the DOJ claims are ill-gotten profits made from smokers who became addicted before age 21. Scores of pre-trial motions have been filed and decided in the case by U.S. District Court Judge Gladys Kessler.

In May 2004, Kessler ruled on one of those motions, determining that the federal government could legitimately pursue past earnings as a remedy in such a case. The tobacco industry defendants appealed that decision, and the appellate court “held that any remedies in the case must be ‘forward-looking’ to prevent and restrain future wrongful acts, rather than to address … consequences of past wrongful acts,” according to a statement from the DOJ’s civil division.

After the appeals court rejection of its $280 billion request, the government shifted to a forward-looking remedy strategy, while keeping open its option to appeal the rejection of its ill-gotten past profits request.

Initially, DOJ sought $130 billion from the tobacco companies to be used for smoking cessation programs over the next 25 years. Then, on June 7, DOJ attorney Stephen Brody unexpectedly proposed instead a $10 billion settlement to focus not on 45 million current smokers, but on the 1.3 million people who start smoking every year.

Testimony and arguments in the trial, which opened before Kessler in September 2004, concluded in June. It is unclear whether she will rule before the Supreme Court decides whether it will hear the DOJ’s appeal, a decision expected after the new term begins in October.

According to a June 27 Business Week commentary by Nanette Byrnes, the suit has “cost the government more than $135 million. Some 250 witnesses have testified and 16,000 documents have been admitted into evidence, resulting in 45,000 pages of trial transcript.”

Industry Already Settled with States

Forty-six states had already won $246 billion from four tobacco companies in the Master Settlement Agreement (MSA) in 1998. How that settlement money has been spent has been a topic of discussion for policy analysts and industry watchers alike and may have influenced dollar amounts in the DOJ’s forward-looking remedy request.

Frank Sloan, health policy and management professor at Duke University and author of The Price of Smoking (MIT Press 2004), questioned “how the states have been allocating the money they have received from the MSA.

“The states had stipulated that smoking had cost their Medicaid programs substantial sums,” Sloan noted. “But rather than use the MSA funds to invest in tobacco control and health programs, many states spent the money on deficit reduction and sold bonds against their future revenues from the MSA. It is also not clear that smoking imposed a substantial cost on state Medicaid programs.”

Other Suits Being Pondered

“The experience with the MSA offers the prediction that absent pressures from specific constituencies and without leadership from states’ executive and legislative branches, states spend the proceeds on a diverse range of priorities,” said Sloan in a study published in the January/February 2005 issue of Health Affairs.

The success of the MSA and other tobacco lawsuits, he said, has “elicited interest in using litigation to achieve public health objectives in other areas from fast food to guns.”

Susan Konig ([email protected]) is managing editor of Health Care News.

For more information …

For more information on the Master Settlement Agreement and other smoking-related topics is available in the Smoker’s Lounge at the Web site of The Heartland Institute. Point your Web browser to http://www.heartland.org/Article.cfm?artId=10594.

All court papers filed in the Department of Justice’s lawsuit are available online at http://www.usdoj.gov/civil/cases/tobacco2/.