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Cigarette makers lose appeal in landmark case

May 22, 2009

WASHINGTON (AP) -- A federal appeals court on Friday agreed with the major elements of a 2006 landmark ruling that found the nation's top tobacco companies guilty of racketeering and fraud for deceiving the public about the dangers of smoking.

The U.S. Court of Appeals in Washington upheld requirements that manufacturers change the way they market cigarettes. The requirements, which have been on hold pending appeal, would ban labels such as "low tar," "light," "ultra light" or "mild," since such cigarettes have been found to be no safer than others because of how people smoke them.

It also says the companies must publish "corrective statements" in newspapers and on their Web sites on the adverse health effects and addictiveness of smoking and nicotine.

Throughout the 10 years the case has been litigated, tobacco companies have denied committing fraud in the past and said changes in how cigarettes are sold now make it impossible for them to act fraudulently in the future. The companies have argued the ban on labels like "light" would cost them hundreds of millions of dollars.

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Philip Morris USA and its parent company, Altria Group Inc., said they will appeal to the Supreme Court.

"The court's conclusions are not supported by the law or the evidence presented at trial, and we believe the exceptional importance of these issues justifies further review," Altria attorney Murray Garnick said in a statement.

The government filed the civil case under a 1970 racketeering law commonly known as RICO, used primarily to prosecute mobsters in cases in which there has been a group effort to commit fraud.

The suit was first filed in 1999 during the Clinton administration. The Bush administration pursued it after receiving early criticism for openly discussing the case's perceived weaknesses and attempting unsuccessfully to settle it.

The nine-month bench trial included live and written testimony from 246 witnesses and almost 14,000 exhibits in evidence. U.S. District Judge Gladys Kessler heard accusations that the companies established a "gentleman's agreement" in which they agreed not to compete over whose products were the least hazardous to smokers. That was to ensure they didn't have to publicly address the harm caused by smoking, government lawyers said. Tobacco lawyers denied the contention.

"The government presented evidence from the 1950s and continuing through the following decades demonstrating that the defendant manufacturers were aware -- increasingly so as they conducted more research -- that smoking causes disease, including lung cancer," the appeals court wrote. "Evidence at trial revealed that at the same time defendants were disseminating advertisements, publications, and public statements denying any adverse health effects of smoking and promoting their 'open question' strategy of sowing doubt, they internally acknowledged as fact that smoking causes disease and other health hazards."

The government had asked Kessler to make the companies pay $10 billion for a national smoking cessation program, but Kessler said that wasn't within her legal authority. The government appealed that decision but the appeals court upheld it.

Besides Philip Morris and Altria, other manufacturers who were defendants in the lawsuit were: R.J. Reynolds Tobacco Co.; Brown & Williamson Tobacco Corp.; British American Tobacco Ltd.; Lorillard Tobacco Co. and Liggett Group Inc.

Liggett was excluded from the ruling because the judge said the company came forward in the 1990s to admit smoking causes disease and is addictive and cooperated with government investigators.

The appeals court ruled that two other defendants who were included in the District Court ruling -- Counsel for Tobacco Research-U.S.A. and the now-defunct Tobacco Institute -- be dismissed from the suit. Both are trade organizations for the cigarette manufacturers, but they did not manufacture or sell tobacco products.

The companies had no immediate response to the appeals court decision.

Charles Miller, a Justice Department spokesman, said lawyers there were reviewing the decision.

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