The U.S. Supreme Court is
shown in this October 2, 2000 file photo. The U.S. Supreme Court rejected
on Monday the government's appeal aimed at reinstating a potential $280
billion penalty in its landmark racketeering case against cigarette makers.
Without comment, the justices denied a request by the Justice Department
to review a U.S. appeals court ruling that barred the government from
seeking $280 billion in past tobacco profits as a legal remedy for decades
of alleged fraud by the tobacco industry.
The U.S. Supreme Court on Monday handed cigarette makers a victory,
rejecting a Justice Department appeal aimed at allowing a potential $280 billion
penalty in the government's landmark racketeering case against the industry.
Without comment, the justices denied the request to review a U.S. appeals
court ruling that barred the government from seeking $280 billion in past tobacco
profits as a legal remedy for decades of alleged fraud by the tobacco industry.
Targeted in the lawsuit are Altria Group Inc. and its Philip Morris USA unit;
Loews Corp.'s Lorillard Tobacco unit, which has a tracking stock, Carolina Group;
Vector Group Ltd.'s Liggett Group; Reynolds American Inc.'s R.J. Reynolds Tobacco
unit; and British American Tobacco Plc's unit British American Tobacco Investments
Analysts said the decision would keep the industry shielded from the harshest
potential penalties, if the trial judge finds them liable, and could set the
stage for settlement talks.
Tobacco stocks rose sharply following the Supreme Court decision. Altria led
the rally, jumping 6.1 percent to close at $74.96 a share on the New York Stock
Exchange. The Dow Jones tobacco index, was up 5.9 percent.
Attorney General Alberto Gonzales said the department was disappointed. "We
believe very strongly in this case.... I'll have to sit down with our team of
litigators and hear from them as to what is the appropriate next step,"
he told reporters.
A nearly nine-month-long trial ended in June. The presiding judge in the case,
U.S. District Judge Gladys Kessler, is expected to rule in coming months.
The government accused the companies of waging a decades-long effort to hide
the dangers of smoking.
The companies denied that they illegally conspired to promote smoking and said
the government has no grounds to pursue them after they overhauled marketing
practices as part of a 1998 settlement with state attorneys general.
Policy and litigation analyst Mary Aronson believes Kessler will be hard-pressed
to impose any substantial new penalties on the tobacco companies even if she
concludes that they broke the law. "I think that's going to be very hard
to do," she said.
At issue in the appeal was a February decision by the appeals court that civil
racketeering law only allows forward-looking remedies aimed at curbing future
The appeals court reversed a decision by Kessler, who had concluded that the
law does allow the government to seek disgorgement of industry profits as a
way to "prevent and restrain" future misconduct.
By eliminating the disgorgement option, the appeals court's ruling took away
the government's biggest weapon in the case. In a later opinion, Kessler said
it also had undercut many of the other remedies proposed by the government.
With the appeals court ruling left standing, Aronson said, it could be hard
for Kessler to justify the government's biggest alternative remedy: Forcing
the industry to fund a $14 billion program to help smokers quit and discourage
"I think it's going to be very difficult for the judge to find penalties
that could indeed be construed as forward-looking," Aronson said.
Christopher Growe, an analyst at A.G. Edwards & Sons, said the two sides
might be more apt to settle the case in light of the setback to the government.
He said the tobacco industry maintains the upper hand in any settlement negotiations.
But the anti-smoking group Campaign for Tobacco-Free Kids urged the government
to continue pressing for tough sanctions and "not use the Supreme Court's
decision as an excuse to let the tobacco companies off the hook with a weak
William Ohlemeyer, Altria's associate general counsel, said in a statement,
"Philip Morris USA believes the U.S. Supreme Court appropriately denied
the government's petition."
Lawyers for the cigarette companies had urged the Supreme Court to reject the
appeal, saying the appeals court's decision was "entirely consistent"
with Supreme Court precedent.
In appealing to the Supreme Court, the Justice Department said the appeals
court decision squarely conflicted with rulings by other appeals courts on the
same legal issue and was inconsistent with past Supreme Court rulings.