Vice Squad
Thursday, March 18, 2004
Tobacco Lawsuits

Maybe someone can keep track of what is happening with respect to the multitudinous ongoing tobacco lawsuits, but I can't. Nevertheless, I soldier on. The case that the US government is pursuing against tobacco firms continues apace, now that the judge ruled today against the tobacco companies' request for dismissal. The companies claimed that the lawsuit violates the separation of powers, as it essentially is using the courts to perform a legislative function. The judge disagreed, so the $289 billion racketeering suit also soldiers on. Here's a brief description of the case from this Reuters news story:

"The government has brought claims against the Philip Morris unit of Altria Group Inc., R.J. Reynolds Tobacco Holdings Inc., the Loews Corp.'s Lorillard Tobacco unit, British American Tobacco Plc, Brown & Williamson Tobacco Co. and the Vector Group Ltd.'s Liggett Group.

Brought in 1999 by the Clinton administration, the suit seeks damages and tougher rules on marketing, advertising and warning claims on tobacco products."

Last week, the judge in the case ruled that the government could target pre-1970 tobacco company profits, even though the RICO statute that the government is employing did not exist in those years. From the linked LA Times story (registration required): "U.S. District Judge Gladys Kessler said that "disgorgement of illegal proceeds is not 'punishment,' " allowing the government to seek remedies for the pre-1970 activity as long as it does not add new punishments."

Disgorging profits "punishment"? Well of course not. It's a compliment, really.

Meanwhile, attempts to hold on to their stream of future payments from Big Tobacco are causing states to target "Little Tobacco" firms. It's Florida's turn now. Though Florida was one of four states that was not part of the 1998 master settlement, it negotiated a similar, separate deal, but is worried that its revenues will fall as smokers switch to the cheaper cigarettes manufactured by non-settling firms. From today's Miami Herald:

"Florida's Republican-led, staunchly antitax Legislature is mulling a 50-cent-per-pack tax increase on cigarettes -- but only on some cigarettes.

Smaller manufacturers of dozens of mostly lower-priced cigarettes that have seen their sales mushroom in recent years would be targeted. The nation's biggest tobacco companies -- makers of well-known brands such as Marlboro and Newport -- would be exempt."

I assume that Florida won't actually enact such a discriminatory "tax," but will dress it up, as other states have, as payments into an escrow account reserved for future lawsuit damages. Some of Vice Squad's earlier looks at the Tobacco Settlement shenanigans are here and here.) Incidentally, West Virginia has rejected for now, but might reconsider, a plan to sell its claim to future tobacco settlement payments for current cash; look about halfway down here.

Oh, here's an excerpt from another recent Miami Herald article that neatly lays out the main issue for the settling states:

"In 1998, the major tobacco companies agreed to settle lawsuits from 46 states that alleged Big Tobacco engaged in deceptive marketing practices and should pay for smoking-related illnesses. The companies agreed to pay the states more than $200 billion over 25 years, though the precise amounts vary depending on cigarette sales.

Last year, North Carolina received $164 million, money it uses for health and economic development programs, among other uses. That amount could decline if discount cigarette sales soar, reducing the number of brand-name cigarettes sold.

Concerned about that possibility, the states that signed the settlement passed laws requiring small tobacco companies that weren't part of the lawsuit to pay fees to cover future costs associated with tobacco liability. Last year, North Carolina collected about $20 million from small tobacco companies.

But because of the way the settlement was written, companies that sell cigarettes in only a few states can receive big refunds. In 2003, North Carolina refunded about three-quarters of the money it collected from discount cigarette makers."

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