The Justice Department plans to file a mammoth civil lawsuit against the major tobacco companies as early as today, alleging that cigarette smoking costs the federal government billions of dollars annually in health-related expenses and seeking to recover those funds on behalf of taxpayers, sources familiar with the matter said yesterday.
The government contends that cigarette smoking causes lung cancer and other diseases that have resulted in an estimated $25 billion annually in health claims paid to veterans, military personnel, federal employees, the elderly through Medicare payments and others. The lawsuit includes claims that tobacco companies engaged in consumer fraud by conspiring to conceal the risks of cigarette smoking. In its allegations of industry collusion, the government plans to invoke the powerful federal civil racketeering statute, sources said.
The lawsuit represents a new legal challenge at a time when the tobacco industry seems to have beaten back the most aggressive assault by states and the federal government in its history. In the last two years, cigarette makers have settled lawsuits by about 40 state governments, appeared to have evaded federal criminal charges against company executives and forestalled broad regulation that had been proposed by the Food and Drug Administration.
Now, the industry finds itself facing a new legal opponent, with resources as extensive as its own.
"The American taxpayer has been forced to spend billions of dollars due to smoking-related illnesses, and the Justice Department is working on a way to get them their money back," a government official said.
The tobacco industry has questioned the administration's authority to bring such a lawsuit since January, when President Clinton signaled that the administration was considering doing so in his State of the Union address, surprising both tobacco executives and some lawyers in the Justice Department.
While Justice Department officials declined comment yesterday, industry officials were swift to denounce the pending suit.
"We just don't believe they have a basis for filing this lawsuit," said Tommy Payne, an executive vice president of R.J. Reynolds Tobacco Co., one of the companies named in the suit. "We are going to vigorously defend the lawsuit. We are not going to settle this lawsuit. And we anticipate that when this case is judged on the merits and not on the press release, the law is going to find that the Justice Department doesn't have a valid case against the tobacco industry."
The filing of a lawsuit by the federal government could pose a devastating threat to the industry, which last year fought off far-reaching federal legislation intended to settle the state lawsuits in exchange for concessions that included increasing cigarette prices and imposing significant restrictions on tobacco marketing. The bill was killed by Senate Republicans.
"They are trying to do in the courts what they weren't able to do through legislation. They tried to impose burdensome tax increases on the sale of cigarettes, and Congress rejected that effort. Now, they are trying to use the court system to essentially impose a tax," said Gregory Little, associate general counsel of Philip Morris USA, the nation's largest tobacco company.
Last November, after the congressional efforts failed, industry officials settled the states' suits by agreeing to pay them more than $240 billion over 25 years. The settlement also required the industry to remove all billboard advertising around the nation and restrict its sponsorship of sports events.
Michael York, a Washington attorney for Philip Morris, called the lawsuit "utterly political." York accused the Clinton administration of "bullying some very professional people in the Justice Department into doing something." The department indicated misgivings about a lawsuit in 1997 in testimony on Capitol Hill.
Matt Myers, executive vice president of the Washington-based Campaign for Tobacco Free Kids, said that the Justice Department's lawsuit poses a great potential financial threat to the industry. "The federal government's claims dwarf the claims of the individual states and the private class actions," he said.
"The true reality is this will be a difficult case. The charges are serious. And the claims have substantial merit. But no one knows how this lawsuit's going to come out. For the tobacco industry, this is Russian roulette. If they lose, they lose big."
Mary Aronson, a Washington litigation analyst, agreed that the potential damages in a federal lawsuit against the industry could be "mind-boggling" if the government prevails. She said the filing of a Justice Department lawsuit alone would shift the momentum against the companies, which at times have had the upper hand as they prevailed in private litigation and beat back federal legislation.
"This is another example of the see-saw nature of the tobacco issue," Aronson said. "Over the last five years, the industry and its opponents have taken turns at winning battles."
Recently, the industry suffered a significant defeat in a class action lawsuit by Florida smokers, in which the jury found that cigarette makers addicted and defrauded smokers, and it could be forced to pay billions of dollars in damages. The Florida appeals court must make a final ruling on whether the plaintiffs can recover punitive damages as a group or whether such damages must be proven individually. Earlier, the court had indicated that such damages must be proven case-by-case .
Staff writers Saundra Torry and John Harris contributed to this report.