Altria Bid to End Court Oversight Draws Judges’ Skepticism

Cigarette makers, including Altria Group Inc. (MO)’s Philip Morris USA unit, drew skeptical questions from a federal appeals court for their contention they shouldn’t be bound any longer by penalties imposed in a 13-year-old case.

Judges on an appeals panel in Washington said today they were “troubled” and “puzzled” by claims that a 2009 law giving the Food and Drug Administration the authority to regulate cigarette sales extinguished court oversight of three companies found in a U.S. lawsuit to have violated the Racketeer Influenced and Corrupt Organizations Act.

“Your chances of that striking are not all that wonderful,” U.S. Circuit Judge Laurence Silberman told a lawyer for the companies during oral argument.

Silberman’s colleague, Circuit Judge David Sentelle added, “You’re in here because you didn’t obey the old law.”

The defendants, which also include Reynolds American Inc. (RAI)’s R.J. Reynolds Tobacco and Lorillard Inc. (LO)’s Lorillard Tobacco Co., are appealing a judge’s decision that court monitoring of the industry, which resulted from the government’s 1999 racketeering case, is necessary and will continue.

U.S. District Judge Gladys Kessler ruled June 1 that her involvement with the companies wasn’t ended by a 2009 law empowering the FDA to monitor the industry and restrict the sale, promotion and distribution of tobacco products.

Cigarette makers, including Altria Group Inc.’s Philip Morris USA unit, drew skeptical questions from a federal appeals court for their contention they shouldn’t be bound any longer by penalties imposed in a 13-year-old case. Photo: Chris Goodney/Bloomberg Close

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Cigarette makers, including Altria Group Inc.’s Philip Morris USA unit, drew skeptical questions from a federal appeals court for their contention they shouldn’t be bound any longer by penalties imposed in a 13-year-old case. Photo: Chris Goodney/Bloomberg

Challenge to Law

In her ruling, Kessler said the cigarette makers continue to challenge the law that authorized the FDA’s regulation of the industry. If they prevail, “it will be all the more necessary for them to be restrained by this court from any future violations” of the racketeering laws, she said.

In 2006, Kessler found that the companies violated RICO by conspiring to hide the dangers of cigarettes. She ordered them to stop marketing cigarettes as “light” and “low-tar” and to make statements about the health effects of smoking in newspapers and magazines and on cigarette packaging.

Kessler is considering so-called corrective statements submitted to her by the Justice Department. They include health warnings and confessions of past wrongdoing.

She said the statements are “necessary to prevent and restrain” tobacco companies from “making fraudulent public statements” on the health effects of smoking.

FDA Mandates

Miguel Estrada, the lawyer for the companies, told the appellate judges today that the mandates imposed by the FDA strip away the chance of future violations -- a key element to continued court oversight.

“This current regulatory environment makes it unlikely to violate the law even if there was opportunity to do so,” said Estrada of Gibson, Dunn & Crutcher LLP in Washington.

He said some of the FDA rules are duplicative to prohibitions ordered by Kessler, such as banning cigarette makers from using the words “light” or “low tar” to market products. Estrada said the FDA has also imposed new warning labels for cigarettes that include statements similar to those proposed by the Justice Department in the RICO case.

“To complicate things -- and you try to poo-poo this -- you’re trying to get this law stricken,” Sentelle said.

Panels of circuit judges in Washington and Cincinnati, in two separate cases brought by tobacco companies, are deciding whether FDA rules mandating graphic health warnings on cigarette packaging are unlawful.

The only questions posed to the Justice Department today had to do with whether there was any conceivable statute that could be enacted that would make the racketeering case irrelevant.

“It is very hard for me to imagine it given the defendants repeated violations,” Sarang Damle, a Justice Department lawyer, said.

The case is U.S. v. Philip Morris USA Inc., 11-5145, U.S. Court of Appeals for the District of Columbia Circuit (Washington).

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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