RICO Law Blog : RICO Lawyer & Attorney : Thomas Walker : Cosho Humphrey Law Firm : RICO Act, Federal and State Racketeering Litigation, Boise Idaho

Lyle Denniston reported in the SCOTUS Blog that British American Tobacco Co. (“BATCo”) asked the U.S. Supreme Court to require lower courts review whether RICO should be enforced against foreign companies. RICO was used in the federal government’s lawsuit against the tobacco industry, including BATCo. The Supreme Court has refused to hear any of the tobacco companies’ appeals. British American Tobacco notes in its petition that the Supreme Court held in Morrison v. National Australia Bank, 08-119, that U.S. securities laws could not be used against foreign defendants.

BATCo argues that the D.C. Circuit Court should be directed to “consider Morrison’s impact in the first instance.” In upholding all key parts of a District Court ruling against the industry, BATCo’s lawyers argue, the Circuit Court created a “flawed ‘exception’ to the traditional presumption against extra-territoriality” of a U.S. law based on the alleged “effects” on the U.S. of overseas conduct.

“The D.C. Circuit Court held that RICO [the anti-racketeering law] could properly be applied to BATCo’s foreign conduct based on that novel theory, and on its twin conclusions that the ‘effects’ test could be properly transplanted from securities and antitrust law to RICO and that a severely watered-down version of the ‘effects’ test is satisfied here,” according to the petition. BATCo’s lawyers that the Morrison decision rejected that test for securities law, thus undercutting the Circuit Court’s conclusion about RICO’s application to BATCo.

In the government’s RICO case against the cigarette-making companies, it charged that the firms had engaged in a scheme to defraud the American consuming public by denying and covering up the health hazards of smoking. The case was resolved mostly in favor of the government based on RICO.

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The Supreme Court has rejected appeals by the Obama administration and the nation's largest tobacco companies to get involved in a legal fight about the dangers of cigarette smoking that has stretched more than 10 years in a case involving the RICO statute..

The court's action, issued without comment Monday, leaves in place court rulings that the tobacco industry illegally concealed the dangers of smoking for decades. But it also prevents the administration from trying to extract billions of dollars from the industry either in past profits or to fund a national campaign to curb smoking.

In asking the court to hear its appeal, the administration said the industry's half-century of deception "has cost the lives and damaged the health of untold millions of Americans."

The appeal was signed by Elena Kagan, the solicitor general, a couple of months before President Barack Obama nominated her to the Supreme Court.

Philip Morris USA, the nation's largest tobacco maker, its parent company Altria Group Inc., R.J. Reynolds Tobacco Co., British American Tobacco Investments Ltd. and Lorillard Tobacco Co. filed separate but related appeals that took issue with a federal judge's 1,600-page opinion and an appeals court ruling that found the industry engaged in racketeering and fraud over several decades.

In 2006, U.S. District Judge Gladys Kessler ruled that the companies engaged in a scheme to defraud the public by falsely denying the adverse health effects of smoking, concealing evidence that nicotine is addictive and lying about their manipulation of nicotine in cigarettes to create addiction. A federal appeals court in Washington upheld the findings.

At the same time, however, the courts have said the government is not entitled to collect $280 billion in past profits or $14 billion for a national campaign to curb smoking. The high court previously denied the government's appeal on that issue.

The companies argue that the government improperly used the Racketeer Influenced and Corrupt Organizations, or RICO law, against them. The racketeering law often is employed against the Mafia and other criminal organizations.

The companies also say the courts' decision to brand their statements about smoking as fraudulent unfairly denied them their First Amendment rights to engage in the public-health debate about smoking.

The administration said the money it seeks from the industry is commensurate with the harm it has caused.

The public health groups in the case are: American Cancer Society; American Heart Association; American Lung Association; Americans for Nonsmokers' Rights; National African American Tobacco Prevention Network and Tobacco-Free Kids Action Fund.

The groups are most interested in forcing the tobacco companies to pay for a wide-ranging education campaign to discourage people from taking up smoking and helping others quit.

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The AP reported on February 19, 2010 that the Obama Administration "asked the US Supreme Court on Friday to allow the government to seek nearly $300 billion from the tobacco industry for a half-century of deception that 'has cost the lives and damaged the health of untold millions of Americans.'" The Administration "wants the court to throw out rulings that bar the government from collecting $280 billion of past tobacco profits and $14 billion for a national campaign to curb smoking." Meanwhile, "leading tobacco companies want the justices to wipe away court rulings that the industry illegally concealed the dangers of cigarette smoking," and "if they succeed, the attack on their profits also would be halted."

The New York Times also noted that a "consortium of health and antitobacco groups also filed a petition with the Supreme Court Friday supporting the return of profits. 'The government is asking for a much more expansive set of remedies than it asked for at the conclusion of the trial or before the Court of Appeals,' said Matthew L. Myers, a lawyer and president of the Campaign for Tobacco-Free Kids."

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The Supreme Court has ruled against New York City in its effort to use federal racketeering law to sue Internet cigarette sellers for lost tax revenue.

By a 5-3 vote Monday, the court ended the city’s lawsuit against Hemi Group, a New Mexico-based company that sells cigarettes online.

New York taxes the possession of cigarettes but finds it difficult to collect those taxes from Internet sales. The city says it loses millions of dollars in tax revenues from online sales.

Sellers like Hemi are not required to charge or collect the taxes, but they are supposed to provide information about their customers to states.

New York’s lawsuit under the Racketeer Influenced and Corrupt Organizations Act accused Hemi of fraud for failing to provide the customer information.

The court said Monday that the city cannot use the racketeering law to collect tobacco taxes from Hemi.

Chief Justice John Roberts and Justices Samuel Alito, Ruth Bader Ginsburg, Antonin Scalia and Clarence Thomas formed the majority.

Justice Sonia Sotomayor did not take part in the case because it came from the federal appeals court in New York on which she served before her elevation to the high court.

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Altria Group Inc. and other U.S. cigarette makers asked a federal appeals court to reconsider its ruling that the companies violated racketeering laws and barring them from marketing cigarettes as “light” or “low-tar.”

On July 31, Altria and the other companies asked the full U.S. Circuit Court of Appeals in Washington to overturn the decision by a three-judge panel in a case filed by the Clinton administration in 1999. In the May decision, the court upheld a 2006 ruling by U.S. District Judge Gladys Kessler, who found the companies conspired for decades to defraud the public and were likely to violate racketeering laws in the future.

“The panel’s opinion upholds the government’s unprecedented effort to impose pervasive regulation on the tobacco industry, not through legislative channels, but through the Racketeer Influenced and Corrupt Organizations Act,” Altria’s Philip Morris USA unit said in its court filing.

The companies have argued that the ban on “light” and “low-tar” descriptors, which was delayed pending resolution of the appeal, would cost hundreds of millions of dollars and would “fundamentally alter the business landscape.”

Kessler’s ruling came after a nine-month trial that began in September 2004. In May the appeals court also upheld Kessler’s order barring the companies from future violations of the Racketeer Influenced and Corrupt Organizations Act, or RICO.

The appeals court agreed that the companies may be required to publish statements correcting past misstatements about addiction, the dangers of smoking and second-hand smoke, the companies’ manipulation of cigarette design and the dangers of “light” and “low-tar” cigarettes.

Kessler found that the companies misled consumers into believing that “light” cigarettes are less dangerous than other types. She ruled the restrictions were needed to prevent future RICO violations, rejecting the companies’ argument that a 1999 agreement between U.S. cigarette makers and 46 states already prevents them from violating the law.

In court papers filed July 31, Philip Morris argued that legislation signed in June giving the U.S. Food and Drug Administration new authority to regulate the tobacco industry “makes clear that there is no reasonable likelihood of defendants’ committing future RICO violations.”

The case is U.S. v. Philip Morris USA, 06-5267, U.S. Court of Appeals, District of Columbia Circuit (Washington).

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The tobacco industry has hit a rough patch lately. The industry lost big in the courts in May. First, the California Supreme Court reinstated a major consumer lawsuit aimed at cigarette-makers’ decades-long advertising campaign. The case focuses on industry deceits including claims implying that “light” cigarettes were less harmful than regular cigarettes.

A few days later, the U.S. Court of Appeals in Washington, D.C., affirmed a 2006 lower court decision that the tobacco industry violated the Racketeer Influenced and Corrupt Organizations Act, citing past industry claims that nicotine was not addictive, that tobacco did not cause cancer and that secondhand smoke was not harmful. Then in June, President Obama signed legislation placing the U.S. Food and Drug Administration in charge of tobacco regulation.

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