Federal Litigation Against The Tobacco Industry

Elevating Politics Over Law -- Heritage


No. 1315 July 30, 1999



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Heritage 25: Leadership for America

In his 1999 State of the Union Address, President Bill Clinton announced that he had directed the U.S. Department of Justice (DOJ) to pursue a federal lawsuit against the tobacco industry to recover the costs that smoking supposedly imposed on Medicare and related programs. But this decision to use litigation to achieve what the Administration could not secure last year through legislation is fraught with serious problems. Regardless of what anyone thinks about the legislative options, this litigation approach is wrong and would undermine the rule of law.

The President's instruction to the DOJ to sue the tobacco industry amounted to a seemingly abrupt reversal of the legal position taken by career and political officials in the Department. When the states sued to "recover" similar Medicaid costs, both Attorney General Janet Reno and the DOJ spokesman stated that the federal government had no independent cause of action against the tobacco companies for losses under Medicaid, Medicare, or any other program. They said that the cause of action, if it existed, belonged to the states alone. For two years, senior DOJ officials refused every effort by the states and others to get the Department to reverse its position--at least until the President directed the DOJ to do so.

But the DOJ's original determination was correct. The United States Supreme Court has categorically rejected the federal government's attempt to bring suit to recover other medical costs when such a suit was not expressly allowed by statute. The Supreme Court refused to create or expand the scope of federal tort law beyond that set forth in federal statutes, explaining that--unlike state courts--federal courts cannot create new tort law. The Supreme Court also has noted that a medical reimbursement claim is not really about tort law at all; it is about federal fiscal policy, for which Congress alone is responsible.

Although Congress has created a few limited grounds for recovery of medical costs, there is no statute that allows the federal government to bring the type of suit contemplated against the tobacco industry. The two statutes most likely to be invoked are the Medical Care Recovery Act and the Medicare Secondary Payer Act, but neither provides a valid basis for the broad Medicare recovery suit being discussed. Other statutes mentioned as possible grounds for suit are even more baseless.

In addition, almost every government and independent expert who has studied the costs of smoking has concluded that it does not cause a net economic loss to government. This is because smoking affects the timing of health care costs more than the total costs for the typical individual. The costs paid by government for many tobacco-related diseases are offset by savings to government retirement and health programs that otherwise would provide longer coverage and different end-of-life care. As the authors of a widely cited article in The New England Journal of Medicine noted, "If people stopped smoking, there would be a savings in health care costs, but only in the short term. Eventually, smoking cessation would lead to increased health care costs." This means that state and federal tobacco taxes are a windfall to government at both levels and that tobacco use enriches public treasuries. And this is even before the $246 billion in "payments" from the 1998 state tobacco settlement are added to state coffers.

Nevertheless, the DOJ has assembled a new team of lawyers who are willing to pursue the President's dubious directive. The DOJ has even requested an additional $20 million appropriation to pursue this baseless lawsuit. Tellingly, the DOJ has not said what its theories of liability or damages are. It is presumptuous for the Administration to push a funding request without answering the most basic questions about its intentions and legal theories, particularly when the likely theories of liability and damages (and the history of the state litigation) make such a suit highly questionable at best. Unfortunately, the appropriations battle could be only the first of many skirmishes over the litigation--unless Congress or the federal courts end the lawsuit promptly.

The planned federal suit against the tobacco industry is not really about recovering Medicare costs or vindicating legal rights; it is best explained as an attempt to use the majesty and might of the federal government to force an unjust settlement with no basis in law. Regardless of the merits of the legislative options available to Congress, everyone should oppose a naked attempt to misuse the courts in order to impose industry-wide regulation by litigation. Accordingly:

  • Congress should refuse to appropriate any money for a baseless suit. It should tell the Administration that no special appropriation will be considered again until the Attorney General submits a detailed legal opinion that includes a legitimate theory of liability and damages as well as satisfactory responses to numerous unanswered questions about the suit.

  • Congress should enact an express prohibition against the use of any federal funds to file such a lawsuit unless and until it is satisfied with the DOJ's answers to these questions.

  • Congress should seriously consider permanent legislation that would prevent the worst abuses of government reimbursement lawsuits and provide fair treatment to all defendants.

  • The lower federal courts should follow the Supreme Court's instruction and summarily dismiss any claim for reimbursement that is not expressly authorized by statute, and the courts should not hesitate to award attorneys' fees to the defendants for frivolous or bad-faith litigation.

--Todd F. Gaziano is a Senior Fellow in Legal Studies at The Heritage Foundation.

Link to:
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Note: PDF version contains both the Executive Summary and the Full Text
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