For years, Big Tobacco has won over juries in negligence lawsuits with a compelling argument: The smoker should have known better. But the federal government's unprecedented lawsuit against the industry could change that. By using a law designed to fight mobsters, the government is trying to make it as hard for the industry to fault the smoker as it was for the Mafia to blame its victims for wearing cement boots.
Many legal observers scoffed when the Justice Dept. filed its Sept. 22 suit. The case relies heavily on the 1970 Racketeer-Influenced & Corrupt Organizations Act, which Congress created to go after mobsters. But the much-maligned statute may be the government's most effective weapon. Many private personal-injury suits in the past have failed to find the industry was liable for the plaintiff's tobacco-related illness because they argued that smokers made a deliberate, informed decision to light up. But under the civil section of RICO, the spotlight will shift away from smokers' conduct to the industry's own behavior.
Placing tobacco executives in the same category as the Mafia wins the government some public-relations points, too. But more important, the law is so broad that the government has a real shot at victory. Indeed, the statute has become a staple in private commercial litigation, where all sorts of businesses are accused of engaging in a pattern of fraud or price-fixing. In 1994, the U.S. Supreme Court expanded RICO's already broad scope by upholding a claim by health-care clinics that anti-abortion groups were part of an illegal conspiracy to shut them down.
To prevail, the government must prove that tobacco companies were involved in an ongoing pattern of illegal activity. Justice charges that the industry created its illegal enterprise on Dec. 15, 1953, at a meeting of five tobacco company CEOs in New York. The government alleges that they agreed to work on a "concerted public relations campaign" to deny published studies showing links between smoking and disease. They also allegedly conspired to suppress internal research on health hazards and addiction, Justice says.
Soon after, the companies formed two trade groups that, while purporting to be independent, conspired to execute the industry's plan to mislead the public, the government claims. Justice accuses the companies of 116 "racketeering acts" of mail and wire fraud, such as sending out advertisements and press releases that the companies knew to be false.
KIDS' STUFF. Florida and Texas have used RICO in Medicaid fraud cases against the health-care industry, though the cases were settled before the RICO charges were tested in the courts. G. Robert Blakey, a Notre Dame Law School professor who wrote the federal RICO statute as a Senate aide, helped both states and encouraged Justice to use RICO to pursue the tobacco industry as well. "There are no defenses," he says. "This is not a difficult mail- and wire-fraud case to prove, given all the documents we have now." Particularly powerful, says Blakey, would be any evidence that the industry had aimed its marketing at children.
That's not how tobacco industry lawyers see it. "This effort by Justice stretches RICO beyond recognition," says Philip Morris Companies Associate General Counsel Gregory G. Little. Indeed, federal courts recently dismissed RICO charges brought against the tobacco industry by union health plans, which were trying to recover the costs of treating tobacco-related illnesses of their members. The courts ruled that the unions could not seek triple damages, which are usually allowed under RICO, because they were not directly injured by the industry.
Federal prosecutors are hoping to avoid that trap by forgoing triple damages. Instead, they will seek disgorgement of profits and changes in industry practices. But Little says that for the government to recover ill-gotten gains, it would have to show "how specific profits were generated by specific wrongful conduct," which he says is a virtually impossible task. And while Justice also is requesting the court to order the industry to stop deceptive advertising and other misleading marketing practices, Little says the companies already have agreed to many of Justice's proposed remedies in their $246 billion settlement of state Medicaid suits.
No doubt, the government's case must leap some high hurdles. Considering that the government ordered warning labels on cigarette packs as far back as the mid-1960s, Justice may have a difficult time proving it was defrauded. Tobacco lawyers will charge that political considerations are driving the case. And they'll further attack the federal government for being hypocritical. If Big Tobacco is the equivalent of La Cosa Nostra, they'll assert, government officials and Congress were co-conspirators, raking in billions in excise taxes, subsidizing overseas marketing, and accepting campaign donations from the industry.
Hypocrisy won't make or break the case, though. In the end, prosecutors could surprise everyone if they prove that tobacco executives, while perhaps not in the same league as the Godfather, were racketeers nonetheless.