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Court rules for tobacco, blocks U.S. from seeking billions

WASHINGTON - A federal appeals court ruled Friday that the Justice Department cannot seek $280-billion it alleges the tobacco industry earned through fraud, an enormous victory for American cigarette makers.

The industry had urged the federal appeals court late last year to throw out a lower court decision allowing the Justice Department to seek the huge penalty from the companies for allegedly misleading the public about the dangers of smoking.

The federal government brought the lawsuit, now being heard in U.S. District Court, under a civil racketeering statute originally designed to prosecute mobsters.

A panel of the U.S. Court of Appeals for the District of Columbia Circuit ruled 2-1 that the civil RICO statute doesn't allow the government to recover money in the ongoing lower court case because RICO statutes required "forward-looking remedies," while seeking the money was "a remedy aimed at past violations."

Government lawyers were reviewing the ruling and had no immediate comment said Justice Department spokeswoman Kimberly Smith.

Charles A. Blixt, executive vice president and general counsel for R.J. Reynolds Tobacco Co., applauded the decision, saying it "dramatically transforms" the government's lawsuit.

Tobacco company stock prices jumped on the news, with Altria Group Inc., parent of Philip Morris USA Inc., rising $3.42, or 5.4 percent, to $67.16 in afternoon trading on the New York Stock Exchange.

The industry had argued that the government should have filed its case under criminal RICO laws, which require a higher burden of proof and would have allowed the government to go after money in the case.

But the government argued that judges have the power to impose monetary remedies in civil RICO cases and that the government therefore has the right to go after earnings made through fraud.

U.S. District Judge Gladys Kessler previously agreed with the government but said the industry could appeal her ruling even as the case proceeded in lower court. That trial has been under way since September and is expected to last several more months.

The government has described the $280-billion as an estimate of money the companies earned illegally through fraudulent activities such as marketing to children and denying doing so.

However, the industry says the government failed to distinguish between money earned legally and illegally.

The federal case comes six years after the states reached legal settlements with the industry worth $246-billion and aimed at recouping health care costs. Those settlements also imposed restrictions on the industry, such as banning ads on billboards and public transportation.

[Last modified February 4, 2005, 18:35:03]