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."

NEXT: Darwin, Dickens, and Dutton

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Not sure where I come down on tobacco lawsuits like this, but…

    “Never mind that these dangers have been a matter of common knowledge for decades.”

    If it can be demonstrated that the companies conspired to lie to the public about the safety of their product, would the fact that it didn’t work very well be a defense?

    It is my understanding that the law forbids misrepresenting the safety of consumer products regardless of the effectiveness of the misinformation campaign.

    I know, I know, it’s not the government’s business, companies should be able to sell bags of broken glass labelled “safe and fun for kids of all ages,” blah blah blah. I’m asking a legal question, not a philosophical one.

  2. Joe:

    Under RICO, the government could allege a “pattern of racketeering activity” involving fraud without showing that the fraud was successful. But the disgorgement claim is based on the premise that at least 33 million Americans were tricked into smoking by the industry’s dishonesty. Hence, as in the case of an individual smoker suing a tobacco company for damages, there has to be some showing not only that the industry lied (not so hard to demonstrate) but that the lies were effective (much harder to show, given the availability of information about the hazards of smoking from many other sources).

    This has always been the sticking point for me when it comes to tobacco litigation: You can’t conceal common knowledge. If cigarettes were a new product whose properties were not widely known, I would have no problem with consumers’ recovering damages for injuries stemming from the industry’s false assurances.

  3. “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.”

    Aint’t that the truth! Didn’t they successfully use it against a porn king because they couldn’t nail him on obscenity after like 10 tries? The RICO law is a catch all to end all. It seems to be more unjust than even the Patriot Act. Boy we need sunset rules more than ever!!!

  4. Thanks, Jacob. So a RICO charge would require a showing of causality, because fraud requires someone to be defrauded, but a false advertising charge would not, because that law only targets the message, not the damage it causes.

    Of course, a false advertising charge wouldn’t be worth $280 billion.

  5. Dave Barry once said that if smoking was 100% guaranteed to give you hemorrhoids within one year of taking up the habit then nobody would ever smoke.

    Instead, it’s a crap shoot. If you’re Woody Allen’s dad you can smoke until your 100 and it kills you. If you’re George Harrison you don’t get to see 60 (although there is some argument that it was the combination of pot and cigarettes that gave him lung cancer).

    Smoking cigarettes is certainly risky business but I don’t see why it’s the tobacco company’s job to let you know that. And anyone who claims they didn’t know smoking is bad for you is literally blowing smoke-they’ve been called coffin nails for 100 years.

    My sister Death Cloud has lived on Mickie Dees fries and M & M’s since she was 14. There were no warning labels and nobody clued her in. Now she’s obese, diabetic, and her teeth are rotting out. Maybe Justice will go to bat for her…….

    Like the man said…

    Ya pays yer money and ya takes yer chances.

  6. And the government gets the money?

  7. BILL OF ATTAINDER – An act of the legislature by which one or more persons are declared to be attainted, and their property confiscated.

    The Constitution of the United States declares that no state shall pass any bill of attainder.

    During the revolutionary war bills of attainder and ex post facto acts of confiscation were passed to a wide extent. The evils resulting from them, in times of more cool reflection, were discovered to have far outweighed any imagined good.

    http://www.lectlaw.com/def/b098.htm

  8. What part of “The Surgeon General has determined that smoking may be hazardous to your health” implies that cigarettes are safe?

    We don’t live in a world of absolutes. Several posters here get harangued for a purist or fundamentalist approach to libertarian principles, but it seems to me the purity angle is played to a victory in the justice system often enough to make it a valid position.

  9. If it can be demonstrated that the companies conspired to lie to the public about the safety of their product, would the fact that it didn’t work very well be a defense?

    Legally, I don’t think its fraud unless someone relied on what the tobacco companies did. You can lie all you want, and if no one believes you, you haven’t defrauded anyone.

    What I’m not sure about is whether you can claim to be defrauded if no reasonable person would have fallen for it.

    I’m also not sure its fraud if you have a disclaimer on your product that says it will make you sick.

  10. Hey, Overlord’s back!

    Jupiter Southwest, the financial penalty the government is seeking is not a “bill of attainder,” but a penalty for a violation of the law. People and corporations are fined all the time, or reach settlements with the government for wrongdoing, and it’s all perfectly Constitutional. You’re chasing a dead end.

  11. “My sister Death Cloud…”

    So tell us more about this family of yours, TWC, I think we’d all be interested.

  12. couldn’t resist:
    “Reuters’ report suggests that two out of the three judges who heard the case are skeptical of this argument”
    yes, but what do said judges feel about trident gum?
    (those years opening up for carrot top in reno sure have paid off)

  13. If you’re George Harrison you don’t get to see 60…

    I prefer to believe that vegetarianism got George, that and meditation. 🙂

    Disgorgement of “illegally-obtained” profits is one thing. Any fine in excess of that, whatever it is determined to be, would come under Eighth Amendment scrutiny. SCOTUS hasn’t been too willing to rein in the legislature on civil forfeiture, AFAICT. (IANAL)

    Kevin

Please to post comments

Comments are closed.