Tobacco Racketeering Trial to Proceed

Judge Says Government Can Seek $280 Billion From Companies

The government can seek $280 billion in tobacco industry profits as part of its case against cigarette manufacturers, a federal judge ruled yesterday, clearing the way for a high-stakes civil racketeering trial this fall.

In her decision, U.S. District Judge Gladys Kessler said the companies will be liable for the $280 billion if the government proves its case that the cigarette makers knowingly deceived the public for decades about the dangers of smoking and the addictive qualities of nicotine.

Kessler said that under federal law the government has the right to seek the money if it can prove the billions were earned through fraud, and if it can demonstrate that paying the money would prevent future wrongdoing.

The pretrial ruling is the last major decision before the case goes to trial in Kessler's court on Sept. 13. It was warmly received by tobacco-control advocates and criticized by tobacco companies. The potential damage to the companies was reflected in yesterday's declines in the value of stock in Altria Group Inc. (the parent company of Philip Morris) and R.J. Reynolds Tobacco Holdings Inc. -- which dropped 9 and 6 percent, respectively.

"This ruling means the Justice Department can put on the strongest possible case and seek the strongest possible remedies that would amount to fundamental reform of the industry's harmful practices over the past 50 years," said William V. Corr, executive director of the Campaign for Tobacco-Free Kids.

But William Ohlemeyer, attorney for Philip Morris USA, said the judge was wrong in her ruling and the company is considering whether it should appeal the decision before the trial. A spokesman for R.J. Reynolds said his company is also considering an immediate appeal.

"She has ignored, if not rejected, two federal circuit courts of appeals' prior decisions, which we think are persuasive, if not legally binding," Ohlemeyer said. "We think she's wrong on the law and, before or after trial, an appellate court will have to tell us who is right or wrong."

In her ruling, Kessler rejected arguments that under civil racketeering law, the government can claim only profits that were "ill-gotten" under a narrow interpretation and would be used in the future for additional improper activity. Instead, she allowed the government to proceed with its efforts to prove that the "ill-gotten" gains include all profits from the sale of cigarettes to people addicted to nicotine when they were young.

The Justice Department case against the tobacco industry, brought near the end of the Clinton administration, is a civil case under the Racketeer Influenced and Corrupt Organizations Act, known as RICO. The 1970 law was written to prosecute organized crime members.

There was a reported effort early in the Bush administration to reduce the funds available to prosecute the case, but after vocal congressional criticism, funds for the tobacco lawsuit continued to flow unimpeded. The $280 billion being sought is the largest sum ever claimed under the racketeering statute.

In addition to the $280 billion, federal prosecutors can seek funds to pay for smoking-cessation programs and research into safer cigarettes if they win the case.

The trial is expected to last between three and five months. In addition to Altria and R.J. Reynolds, the lawsuit charges Brown & Williamson Tobacco Corp., British American Tobacco PLC, Lorillard Tobacco Co., Liggett Group Inc., Council for Tobacco Research-U.S.A. Inc. and the now-defunct Tobacco Institute.