Appellate Judges Critical of Landmark Tobacco Decision

Lawyers representing a group of tobacco companies on appeal urged the U.S. Court of Appeals for the District of Columbia Circuit to reject the “grotesque” expansion of RICO laws that a federal judge applied to Big Tobacco in a landmark decision in 2006.

The survival of that decision, which held that the tobacco industry conspired to mislead consumers for decades about the health risks of smoking, could be in jeopardy. A three-judge panel—Chief Judge David Sentelle sat with Judges David Tatel and Janice Rogers Brown—questioned key elements of U.S. District Judge Gladys Kessler’s nearly 1,700-page decision.

Sentelle and Tatel—who dominated the nearly three hours worth of argument, held in the court’s ceremonial courtroom—questioned whether Kessler and the government sufficiently and clearly identified the acts that make up a pattern of racketeering activity. Sentelle explored the extent to which a corporation, beyond any individual employee, can be found to have a specific intent to defraud.

“They had to turn our entire industry into something like the Gambino family,” argued Jones Day partner Michael Carvin, who represented Philip Morris with Gibson, Dunn & Crutcher partner Miguel Estrada. RICO laws, established in 1970 to take on the mob, are commonly used in the criminal arena.

In her decision, which followed a nine-month bench trial, Kessler ordered the tobacco industry to stop using descriptions such as “light” and “low-tar” on cigarette boxes. The judge also issued a permanent injunction. “It places the entire conduct of a corporation’s business at the peril of a summons or contempt,” Estrada argued.

Kessler did not order monetary damages—rejecting a Justice Department push for billions of dollars in disgorgement. Meyer Glitzenstein & Crystal partner Howard Crystal, representing public health groups as intervenors, argued today that tobacco companies should be required to fund a smoking cessation program. “Here what we have is a contract of addiction,” Crystal argued. Smokers, he said, are an asset of the tobacco industry.

Sentelle asked Justice Department lawyer Mark Stern several times whether the government was challenging the tar numbers on cigarette boxes—asking for a yes or no response—but the judge did not immediately get a answer. “Counsel, you’ve been coming here a long time and you know that you need to answer my questions,” Sentelle told Stern. Stern called the numbers misleading. Carvin disagreed. “‘Light’ is perfectly truthful, legitimate, and endorsed by the (Federal Trade Commission),” Carvin said.

The likelihood of a future violation is minimal, Estrada said, because of agreement between tobacco companies and 46 states called the Master Settlement Agreement, or MSA, which contains its own injunctions. There has been no effort to show the current system of injunctions is not working or has failed, Estrada argued. Through the agreement, tobacco companies agreed to disband industry trade groups and to finance an anti-smoking campaign.

Sentelle and Tatel questioned whether Kessler had authority to force convenience store owners to put up “corrective” signs in stores for each cigarette product on sale. “Where’s the due process of making store owners put up signs?” Sentelle asked. Sentelle, Tatel, and Brown did not immediately rule today. Tatel and Sentelle are intimately familiar with the case. The judges were part of a three-judge panel in 2005 that struck down disgorgement—a court-imposed stripping of profits—as a remedy in the case.