WASHINGTON - An appeals court Friday dealt a major blow to the government's attempt to hold the tobacco industry accountable for decades of alleged deceit about the dangers of smoking, ruling the Justice Department can't seek $280 billion in penalties.
In a 2-1 decision, a panel of the U.S. Court of Appeals for the District of Columbia Circuit found the government could not use a federal racketeering law to seek the huge penalty.
The decision comes in the midst of a monthslong trial in U.S. District Court on the government's lawsuit contending the industry knew about the health dangers of smoking but hid that information from the public. The trial will crippling continue while the government considers an appeal.
Even if the decision stands, U.S. District Judge Gladys Kessler could impose restrictions on the tobacco companies, such as limiting marketing or requiring the industry to fund public health campaigns or smoking cessation programs.
Still, the appeals court decision was a major win for tobacco companies. Wall Street greeted it by sending stock prices of cigarettes makers sharply higher.
Charles A. Blixt, executive vice president and general counsel for R.J. Reynolds Tobacco Co., said the ruling "dramatically transforms" the government's lawsuit.
Government lawyers were reviewing the ruling and had no immediate comment, Justice Department spokeswoman Kimberly Smith said. Government lawyers could request a rehearing in front of the three judges, ask for the full appeals court to consider the case or appeal to the Supreme Court.
Robert Mintz, a former federal prosecutor now in private practice in New Jersey, said the decision lowers the stakes for the tobacco companies, potentially clearing the way for a settlement.
"The decision significantly changes the leverage that the government had going into the case," he said.
The $280 billion is the most ever sought in a civil racketeering trial. The government has described the sum as an estimate of money the companies earned illegally through fraudulent activities such as marketing to children and denying doing so.
The trial, which comes six years after the states reached settlements worth $246 billion with the industry to recoup the cost of treating sick smokers, is in its fifth month and probably will continue for several more.
The Justice Department is pursuing the case using a 1970 civil racketeering statute originally designed to prosecute mobsters. To win, the government must show the industry still is acting fraudulently or is likely to do so in the future.
Last year, Kessler ruled the government could seek the penalty, called a "disgorgement," under the racketeering statute. The tobacco companies appealed and the appellate court sided with them, ruling the government can't recover any money using the racketeering law because the statute requires "forward-looking remedies."
Disgorgement is "a remedy aimed at past violations," Judge David Sentelle wrote in the latest ruling. He was joined by Judge Stephen Williams. Both were appointed by President Reagan.
In dissent, Judge David Tatel said his colleagues ignored Supreme Court precedent, misread the law and contradicted the decision of another appeals court, the 2nd U.S. Circuit Court of Appeals in New York. Tatel was appointed by President Clinton.
Jamin Raskin, a law professor at American University, said the decision is a big win for tobacco, "but the game isn't over yet." Tatel's strong dissent gives the government strong grounds for an appeal, he said.
William V. Corr, executive director of the Campaign for Tobacco-Free Kids, urged the government to continue pressing its case.
"Today's ruling should not be an excuse for this administration to seek a weak settlement that lets the tobacco industry off the hook," he said.
The defendants in the lawsuit are: Philip Morris USA Inc. and its parent, Altria Group Inc.; R.J. Reynolds; Brown & Williamson Tobacco Co.; British American Tobacco Ltd.; Lorillard Tobacco Co.; Liggett Group Inc.; Counsel for Tobacco Research-U.S.A.; and the Tobacco Institute.
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