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Tuesday, October 14, 2008

Tobacco comanies want judge's ruling to be reversed


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U.S. Cigarette Makers Ask Court to Reverse `Lights' Ruling

By Bob Van Voris

Oct. 14 (Bloomberg) -- Altria Group Inc. and other U.S. cigarette makers asked a federal appeals court to reverse a judge's decision to bar the companies from marketing cigarettes as ``light'' or ``low-tar.''

Lawyers for the companies asked a three-judge panel of the court in Washington today to throw out the August 2006 ruling of U.S. District Judge Gladys Kessler, which came in the Justice Department's civil racketeering suit against the industry.

In a 1,653-page decision, Kessler ruled after a nine-month trial ending in 2005 that the cigarette makers violated U.S. racketeering laws. She ordered them to stop marketing their products as ``light'' and to issue ``corrective statements'' about the health effects and addictiveness of smoking. The decision won't take effect unless it is upheld.

``The industry's already won this case,'' said Morgan Stanley tobacco analyst David Adelman in an interview. ``The realistic worst-case scenario is really manageable.' '

In the suit, filed in 1999, the government had originally asked for $289 billion to reimburse it for money spent treating sick smokers. A series of pretrial rulings prevented the government from recovering money from the companies.

In addition to Richmond, Virginia-based Altria, the biggest U.S. cigarette maker and its Philip Morris USA unit, the defendants include Winston-Salem, North Carolina-based Reynolds American Inc., the second-largest, Brown & Williamson Tobacco Corp., Lorillard Tobacco Co., the company spun off by Loews Corp., British American Tobacco Plc's British American Tobacco (Investments) Ltd. and Vector Group Ltd.'s Liggett Group.

Kessler's Ruling

Kessler's ruling barred the cigarette makers from violating racketeering laws in the future.

In briefs filed with the court, the companies claimed that the government failed to prove they intended to defraud consumers, as required under the Racketeer Influenced and Corrupt Organizations Act, or RICO. Kessler also improperly considered the companies as part of a racketeering enterprise, they claimed.

The companies argued that, because of voluntary marketing and advertising restrictions contained in a 1998 settlement with 46 states, there is no reasonable likelihood they will break the racketeering law in the future. While the trial was proceeding, the appeals court limited Kessler to considering only legal remedies designed to ``prevent and restrain'' future violations.

British American Tobacco, based in London, claimed that its activities, which included communications with its former U.S. affiliate, Brown & Williamson, and document destruction in Australia and Canada, aren't sufficient to subject it to U.S. liability.

Kessler found that Liggett isn't likely to violate RICO in the future.

Government Argument

The government argued in its briefs that the appeals court should uphold Kessler's finding that the companies violated the racketeering law. Corporations can combine to make an illegal enterprise under RICO, Justice Department lawyers claimed.

``Defendants formed and maintained their enterprise to deceive American consumers about the two defining characteristics of their product: its toxicity and its addictiveness, '' the Justice Department said.

A group of public-health organizations, including the Tobacco-Free Kids Action Fund, the American Cancer Society and the American Lung Association, joined in the appeal to argue that Kessler should have considered stronger measures against the companies, including a program of anti-smoking education, smoking cessation programs and youth smoking remedies.

The case is U.S. v. Philip Morris USA, No. 06-5267, U.S. Circuit Court of Appeals, District of Columbia Circuit (Washington) .

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