Smoke Signals

When Republicans gained control of the U.S. Department of Justice in early 2001, it seemed a safe bet that dumping the federal government's massive fraud case against the tobacco industry would be near the top of their to-do list.

After all, when he was governor of Texas, President George W. Bush painted a bull's-eye on the trial bar and aggressively sought to limit personal injury lawsuits. Bush also spoke against the tobacco suit while running for president. Similarly, as a U.S. senator from Missouri, attorney general John Ashcroft opposed the tobacco suit. In August of 2000 he wrote to one anti-tobacco advocate that he was deeply concerned that "the DOJ suit could set an unwise precedent leading to the federal government filing lawsuits against countless other legal industries."

But almost three years into the Republican reign, the tobacco suit is still moving forward. This year the DOJ's tobacco team -- currently 36 lawyers strong -- filed a 1,200-page preliminary findings of fact that detailed what the government charges is a 50-year tobacco industry conspiracy to cover up the dangers of smoking. The government is seeking $289 billion in damages -- the profits that it claims tobacco companies made by addicting underage smokers. Unless the defendants can derail the case in pretrial motions (which seems unlikely), the case will go to trial next September in Washington, D.C., before federal district judge Gladys Kessler.

The continuation of the tobacco case, the first industry ever sued by the federal government under the Racketeer Influenced and Corrupt Organizations Act (RICO), raises a host of political and policy questions. On the political side the glaring question is: Why hasn't the Bush administration unloaded this case? The answer seems to be a muddle of reasons ranging from political expediency to principle. California Democratic congressman Henry Waxman says he thinks the administration was unprepared for the heat it took from both sides of the aisle when it proposed cutting funding for the suit in the spring of 2001.  A longtime Washington lawyer who works for the tobacco industry agrees, saying it was easier for the administration to wait and hope the courts knocked out the case rather than voluntarily withdraw it. "I never expected them to drop it," says the lawyer, who asked not to be named, citing the pending litigation. Earlier this year Robert Levy, a senior fellow at the CATO Institute, hosted an entire policy forum to discuss the issue (entitled "Ashcroft's U-Turn"), but he admits that no one outside the upper reaches of the Justice Department is really sure why the case wasn't dropped. (Ashcroft declined to be interviewed).

Perhaps the more intriguing question, especially in regards to the future of litigation, is this: Will the assault against the tobacco industry actually set the "unwise precedent" that Ashcroft warned of, potentially putting other industries in the government's sniper scope?

To William Ohlemeyer, vice president and associate general counsel for tobacco giant Philip Morris Companies, Inc., the answer is clearly yes. "There is no precedent to sue a legitimate business engaged in an already regulated activity that is taxed at the state and federal level," he says. Ohlemeyer notes that the federal suit, filed in September 1999, came only after the Clinton administration tried and failed to pass legislation regulating the tobacco industry and after the industry had agreed to fork over $206 billion in a Master Settlement Agreement (MSA) with state attorneys general.

"[The Justice suit is] another example of regulation through litigation," says W. Kip Viscusi, a professor of law and economics at Harvard Law School, who consults for the tobacco industry on the government's suit. Viscusi believes that this type of "litislation" by the department could have wide-ranging effects if the tobacco case is successful. "You could generalize this tactic to go after makers of lead paint, guns, fast food, HMOs, and others," he argues.

Predictably, critics of the tobacco industry don't think much of its Chicken Little pronouncements. "That is a kind of `innocence by association' defense," says G. Robert Blakey, a professor at the University of Notre Dame Law School and a longtime critic of the tobacco industry. Blakey notes that the government's case centers on alleged efforts by the industry to market their products to minors for the express purpose of insuring a steady supply of customers. "In a real sense they are drug pushers," says Blakey, "and selling opiate to children is not legal."

Blakey, who helped draft RICO, part of the Organized Crime Control Act of 1970, admits that it was originally designed to help prosecutors keep the Mafia away from legitimate businesses. But Blakey says that "nothing in the statute limits it to Italian criminals." Instead, Blakey argues that any product manufacturer can be sued under RICO if the seller knows that his product is being sold or used illegally. He cites two examples, sugar sellers prosecuted during Prohibition for knowingly selling their product to bootleggers to make alcohol, and pharmaceutical companies prosecuted in the 1940s for using direct sales to circumvent federal regulations.

That broad conception of RICO is what gives some in the business community sympathy pangs for Big Tobacco. "We have long been concerned about the broad reach of RICO," says Quentin Riegel, vice president of litigation for the National Association of Manufacturers (NAM), "and this kind of litigation does chill the kinds of legitimate communications companies engage in." As a result of the tobacco suit and actions such as the deceptive advertising case against Nike, Inc. -- which the U.S. Supreme Court allowed to go forward, but which settled in September -- companies are increasingly worried about their free speech rights to market or promote their products, Riegel says.

Still, Riegel and others tend to see some meaningful distinctions between Big Tobacco and most other industries. The potential targets that tobacco advocates most often cite as susceptible to similar treatment are firearms makers and alcohol distillers and distributors (the products that not coincidently were also placed under the auspices of the Bureau of Alcohol, Tobacco, and Firearms.

The gun industry is already under something of a litigation assault from cities and municipalities. Beginning with New Orleans in October of 1998, about 30 cities brought suit against gun makers, challenging their distribution systems and allegedly unsafe product designs. Those suits have not been brought under RICO but under theories of public nuisance. So far most of the suits have been knocked out on pretrial motions, though many of those decisions are on appeal and several more cases are pending. "You've got a legal and regulated product, and [the cities] are seeking regulation over and above what the legislators have enacted," says Darren McKinney, director of media relations for NAM, which has filed amicus briefs opposing the gun suits. "You don't have to be very imaginative to envision that standard being applied to baseball bats or hammers or steak knives," says McKinney.

However, Lawrence Greenwald of Baltimore's Gordon, Feinblatt, Rothman, Hoffberger & Hollander, who represents gun maker Beretta USA Corp. in several municipal suits, says he sees those actions as distinct from the federal tobacco suit. "Public nuisance is very different than RICO," says Greenwald. "RICO envisions a conspiracy of intentional wrongdoing, usually with mail or wire fraud at the root. There have been no allegations against gun makers that even approach that standard," says Greenwald.

Jonathan Lowy, senior attorney at the Brady Center to Prevent Gun Violence, agrees that RICO hasn't been used to go after gun makers - yet. "It is certainly possible that [a RICO suit] could be brought," says Lowy. "The gun industry is a remarkably irresponsible industry that has caused a tremendous amount of suffering for many years through its sales, distribution, and design practices."

Lowy notes that the gun industry must be worried about something, because it is seeking legislative immunity on the state and federal level from lawsuits. Already 30 states have passed laws blocking municipal suits within their borders, and a bill granting gun makers broad federal immunity from suits has passed the House and is pending on the Senate. The president has indicated that he'll sign the bill into law if it passes. "I think it's bizarre for the Bush administration to litigate against the tobacco industry while seeking immunity for an industry that is at least equally irresponsible," says Lowy.

Lawrence Keane, vice president and general counsel of the National Shooting Sports Foundation, a firearm trade association, says the gun industry's ability to get such legislation passed highlights the weakness of the suits against it, as well as a key difference between guns and tobacco. "Do you think the tobacco industry could have gotten those immunity bills passed?" asks Keane. "Ours is the only product that has constitutional protection." Keane says that, unlike tobacco, the danger posed by firearms have always been obvious and open and that guns have a recognized utility. "They're used by millions of Americans every year for recreation and self-defense," says Keane. "You can't say that about cigarettes."

Of course, perhaps the biggest disincentive for suing gun makers is that they have relatively shallow pockets. Annual sales of firearms in the United States amount to less than 5 percent of the domestic cigarette market. It is an article of faith among tobacco industry advocates that Justice's suit is a $289 billion money-grab instituted after the federal government saw the states cash in under the MSA. David Ogden, who supervised the vetting of the tobacco suit during his two years as assistant attorney general in charge of the civil division at Justice, denies that a big payday was the object of the suit. "We put together a team of career lawyers from across the DOJ to look at whether this was a good decision," says Ogden, now a partner at Washington, D.C.'s Wilmer, Cutler & Pickering. "And the decision to file was virtually unanimous, including people from the criminal division who are charged with overseeing RICO."

If any industry rivals Big Tobacco as a potential source of damages, it's the $116-billion-a-year alcohol industry. Like tobacco, alcohol causes health problems for millions of Americans and is often obtained illegally by minors who may be drawn in by many of the industry's "party hearty" ad campaigns. In September the National Academy of Science's Institute of Medicine released a report critical of the industry and its contribution to promoting underage drinking.

But David Rehr, president of the National Beer Wholesalers Association, perhaps Big Alcohol's most powerful trade group, says that the history and conduct of alcohol makers stands in sharp contrast to the conduct of Big Tobacco. In fact, he resents the tobacco industry's attempts to equate the two: "It's classic. They want to protect themselves by throwing everyone else under the bus," says Rehr. He cites several differences between the two industries, such as the fact that studies show that alcohol, unlike tobacco, has some health benefits when consumed in moderation. Moreover, Rehr claims, beer industry executives don't destroy documents, and industry executives have never lied to Congress -- a jab at the now-infamous group of tobacco executives who pledged before Congress in 1994 that tobacco was not addictive.

But lawyers defending Big Tobacco see such confidence on the part of other industries -- the certainty that the government will never target them -- as shortsighted. Twenty years ago, they point out, suits against cigarette makers were viewed with similar skepticism (Cigarettes cause cancer? Hello! Look at the warning label). "If this suit is successful, it could easily serve as a model to go after any unpopular industry the federal government wants to target, using the equitable relief under RICO to make policy," says Kenneth Bass in the Washington, D.C. office of Chicago's Kirkland & Ellis who represents cigarette maker Brown & Williamson Tobacco Corporation. "You just take their public statements, made in the context of a public debate, and trump those up into mail and wire fraud by saying they conspired to defraud and mislead, and now, by God, we're going to clean them up by court decree, and oh, by the way, seek lots of money through disgorgement of profits."

Blakey, the Notre Dame law professor and tobacco critic who helped draft RICO, has an answer to that: "If there is another industry as perfidious as tobacco, it ought to be sued under RICO," says Blakey. "You can't deny the good case because a bad one may be brought later."

REPRINTED WITH PERMISSION FROM THE FALL 2003 ISSUE OF THE FUTURE OF LITIGATION, SUPPLEMENT TO AMERICAN LAWYER © 2003 ALM PROPERTIES, INC. ALL RIGHTS RESERVED. FURTHER DUPLICATION WITHOUT PERMISSION IS PROHIBITED.