Choking on Disgorgement


Today the U.S. Court of Appeals for the D.C. Circuit heard arguments against the federal government's attempt to compel the "disgorgement" of $280 billion from the leading cigarette manufacturers. If the court rules in the industry's favor, it would pretty much demolish the Justice Department's case. The trial judge, Gladys Kessler, already has rejected the government's attempt to claim compensation for smoking-related Medicare expenses. Without the possibility of using RICO to bankrupt the industry, all that would be left to the case would be tinkering with the requirements (such as promotion restrictions and anti-smoking funding) imposed by the agreement that settled the states' tobacco lawsuits.

The government is suing the tobacco companies under the Racketeer Influenced and Corrupt Organizations Act (RICO), alleging a "pattern of racketeering activity" focused on hiding the dangers of smoking. (Never mind that these dangers have been a matter of common knowledge for decades.) Since RICO's civil provisions do not explicitly allow disgorgement, the Justice Department maintains that forcing the tobacco companies to cough up their "ill-gotten gains" is not punishment or compensation; rather, it's a remedy aimed at preventing future misbehavior.

Reuters' report suggests that two out of the three judges who heard the case are skeptical of this argument, and of wide-ranging RICO litigation generally. "This RICO law was issued with all sorts of testimony about racketeers and mafiosa," noted Judge David Sentelle. "I've seen the government using it in court against everybody except racketeers and mafiosa."