The Department of Justice’s case against the tobacco industry is finally went to trial on Sept. 21. The underlying issues have not changed, and our opinion remains that the federal government will have difficulty winning its case.
Ironically, the trial began in mid-September, more than two months before the Court of Appeals of the District of Columbia is scheduled to hear oral arguments on a defendant appeal of whether the industry can be compelled to disgorge $280 billion of “ill-gotten gains” for fraudulent activities over the last 50 years. It is possible that disgorgement could be thrown out while the trial continues.
Already, Judge Gladys Kessler has dismissed two claims or “counts” against the defendants demanding monetary damages for federal health care costs. The remaining counts allege conspiracy violations under federal racketeering statutes. This case will be difficult because the federal government will have to prove that tobacco companies conspired to misrepresent the health effects of smoking in the past, that they do so now and are likely to continue to do so in the future.
Tough case to make
The government argues that a meeting among tobacco company executives in 1954 initiated a conspiracy to mislead the public on the dangers of smoking. Tobacco companies deny the allegation. It would seem, in our eyes, difficult to make the case that tobacco companies can be expected to continue conspiring in light of the scrutiny the industry has been under since 1998 when the Master Settlement Agreement was signed; there is a major split in the industry between companies favoring federal regulation of tobacco, led by Altria (Philip Morris), and those bitterly opposed (Reynolds American). The trial is likely to be decided in the spring of 2005 with appeals to follow.
If the federal government wins the case and disgorgement is required, it is more likely that the payout would take place over a number of years, similar to the MSA, and that cigarette prices would be raised to pay the award. If disgorgement is disallowed, but the case succeeds, tighter regulation of the tobacco industry would likely result.
