Legal Reality Tsunami Sweeps Away Anti-Tobacco Damage Claims

By Norman E. Kjono February 6, 2005

From The Seattle Times, February 5, 2005, “Government Cannot Confiscate Profits In Tobacco Case,”  by Myron Levin of The Los Angeles Times:

The tobacco industry won a resounding victory yesterday when a federal appeals court barred the Justice Department from seeking forfeiture of $280 billion in allegedly ill-gotten profits as part of its fraud and racketeering case against the top cigarette makers. The government accuses cigarette makers of engaging in a decades-long conspiracy to distort the risks of smoking and of second-hand smoke, of targeting minors with cigarette advertising, and of regulating nicotine levels to keep customers hooked. In a 2-1 ruling, the U.S. Circuit Court of Appeals for the District of Columbia declared that the government may not seek the taking, or disgorgement, of illicit profits in civil suits filed under the racketeering statute known as RICO. The decision does not end the massive case — the government can still seek other sanctions — but by far wipes out the most worrisome threat to the tobacco companies. The decision sparked wide speculation that the Justice Department may seek to settle the case rather than appeal the ruling and continue the trial, which has been puttering along since September in U.S. District Court in Washington , D.C. . . .  Along with forfeiture of past profits, the government has been seeking court-ordered changes in industry practices, such as advertising restrictions, industry-funded smoking-cessation programs and bigger warning labels. . . . Tobacco foes tried to put the best face on the decision, noting that U.S. District Judge Gladys Kessler still can order significant changes in industry practices if she finds the companies did engage in fraud. 

In a related article, MSNBC News published a February 5, 2005 Associated Press article, “Settlement Chances Slip With Tobacco Ruling,”  that quoted tobacco litigation and policy analyst Mary Aronson. That article said in part:

WASHINGTON - When a federal appeals court took away the Justice Department’s biggest hammer in its civil suit against tobacco companies — the possibility of a $280 billion penalty — it may have made a settlement unlikely in the five-year-old case, according to legal analysts. ‘I don’t think the industry would be interested in settling this case,’ Mary Aronson, a tobacco litigation and policy analyst in Washington , said Saturday in a telephone interview. . . . Jamin Raskin, a law professor at American University , added: ‘The government will be much more likely to want to reach a settlement, and big tobacco may want to ride out the storm.’ . . . The suit asks the judge to impose other penalties on the industry, such as changing its marketing and advertising and funding anti-smoking programs. . . . The decision — which boosted the stock prices of tobacco companies on Friday — leaves open other penalties that would cheer anti-tobacco groups, Aronson said.” (Underline, italic added.)

The full text of the U.S. Court of Appeals decision  can be accessed by clicking on the preceding bold text in this sentence. The federal appeals court thoroughly explained the basis for its conclusion to deny the federal government’s economic damage claims, for example saying at page 19:

“Congress’ intent when it drafted RICO’s remedies would be circumvented by the Government’s broad reading of its 1964(a) remedies. The disgorgement requested here is similar in effect to the relief mandated under the criminal forfeiture provision, 1963(a),  without requiring the inconvenience of meeting the additional procedural safeguards that attend criminal charges, including a five-year statute of limitations, 18 U.S.C. 3282, notice requirements 18 U.S.C. 1963(l), and general criminal protections including proof beyond a reasonable doubt. Further, on the government’s view it can collect sums paralleling—perhaps exactly—the damages available to individual victims under 1964(c). Not only would the resulting overlap allow the Government to escape a statute of limitations that would restrict private parties seeking essentially identical remedies, see Agency Holding Corp. v. Malley-Duff & Assoc., Inc., 483 U.S. 143,156 (1987), but it raises issues of duplicative recovery of exactly the sort that the Supreme Court said in Holmes v. Securities Investor Protection Corp., 503 U.S. 258,269 (1992) constituted a basis for refusing to infer a cause of action not specified by the statute. Permitting disgorgement under 1964(a) would therefore thwart Congress’ intent in creating RICO’s elaborate remedial scheme.” (Underline added.) 

In a nutshell, the federal government’s $280 billion damage claim against tobacco companies that it sought to collect from its civil lawsuit is a sum based on criminal remedies under the Racketeer Influenced and Corrupt Organizations Act (RICO). While doing so the government apparently chose to ignore the inconvenience of proving its case for that demand consistent with statute of limitations requirements and proof beyond a reasonable doubt. And, as the majority opinion states, the federal government also sought to collect an amount of damages that is more than what individual persons bringing a civil lawsuit under RICO would be permitted to collect from the same civil proceedings. It comes down to anti-tobacco effectively shouting at the federal appeals court “We said so, we won’t be inconvenienced by having to prove it, we want to collect more than anyone else is entitled to receive, and we will go back as far in the continuum of time as it takes to get what we want, notwithstanding inconsequential matters like a mere five-year statute of limitations.”

Well, what’s new? Tobacco control advocates have been pulling off similar shennigans for decades. They merely ran head-long at full speed into a brick wall of adult supervision by our federal appeals court in this case. 

The majority of that appeals court panel of judges were not persuaded by anti-tobacoc’s demands, however. The new millennium’s next special-interest advocacy trough just ran dry. Bummer! What’s a good “Anti-Mentality” activist to do, find a real job? Well, at least we won’t have another centi-billion-dollar “settlement” like the 1998 tobacco Master Settlement Agreement (MSA), negotiated in large part by Washington Governor Gregoire, providing more $500,000 grants for the folks in Pierce County . The Pierce County grant from the MSA’s Legacy foundation was used to support its Board of Health mandating smoking bans that Washington Superior Court Judge Culpepper and our Court of Appeals  have ruled violate state law. I trust the Washington Supreme Court will see the common sense and legal merit presented in lower court decisions about that smoking ban and rule accordingly. For an overview of last year’s smoking ban battle in Washington please see my June 10, 2004 commentary “Reasonable Minds DO Differ II”  published by Forces.org

I suspect that we will next observe a nationwide phenomenon of tobacco control advocates licking their wounded wallets in teary resignation, accompanied by shrill cries of outrage – to include desperate pleas for “Grass Roots” donations to the “Ma and Pa” American Cancer Society and American Lung Association -- from the Robert Wood Johnson Foundation. The 200 decibel whine will be for even higher state tobacco taxes to keep those erstwhile activists in business. To which the appropriate response for the Marie and Louie aristocrats of Junk Science must inevitably be: “Sorry, Dudes, cake will have to do!” 

A hundred billon here, a hundred billion there. Sooner or later it adds up to serious money. 

To get a handle on the economic hubris and sheer financial chutzpah of tobacco control advocates, consider that the $280 billion in alleged damages sought by the federal government through this lawsuit in its War on Tobacco is greater than funding requested to date by the Bush administration or appropriated by Congress for the War in Iraq . Putting that sum together with Gov. Gregoire’s 1998 MSA there would be enough money in the anti-tobacco war chest to fund two Iraq wars, gather every anti-tobacco activist on the planet for a month-long fun-in-the-sun worldwide conference on mandating on Sri Lanka beaches, and have enough left over to pay still-mounting Governor’s race legal bills for the Democrat and Republican parties in Washington. Fortunately, the U.S. Court of Appeals sent a tsunami of legal reality to sweep over such puffed up expectations. 

The U.S. Court of Appeals On Tobacco Control Expert Opinion

Referring to the government’s expert witness testimony in support of the government collecting $280 billion in damages from tobacco companies, Senior Circuit Judge Williams wrote on page 6 of his concurring U.S. Court of Appeals opinion:

“Obviously such testimony cannot alone resolve the issue, turning legal analysis of the statute into a fact battle among experts. Thus the experts’ testimony is valuable for its analytic quality, not it’s utterance by a PhD.” (Underline, Italic added.)

University of California at San Francisco anti-tobacco luminary Stanton Glantz, PhD, the author of “studies” that “conclusively” show smoking bans increase hospitality trade revenues and are good for business, comes to mind. There’s something about such opinions that bothers me in terms of Judge Williams’ “analytical quality” test. Mr. Glantz’ academic endeavors were dedicated to mechanical engineering sciences, yet he enjoys a prominent position in the cardiology discipline at UCSF due to his anti-tobacco advocacy. Maybe there’s a message in that: when a mechanical engineer starts tinkering with cardiology all sorts of unrelated minutiae begin to fly around the public policy operating room. 

Perhaps Judge Williams’ observation also applies to Dr. C. Everett Koop, former Surgeon General of the United States , who presented views Glantz’ in paid television advertisements during our legislature’s 2004 session. Dr. Koop addied thoughts to the effect that Washington hospitality businesses could pack new customers in to the rafters if we would just pass a statewide smoking ban. Despite Dr. Koop’s best prescription that smoking bans are “good for business” smoking ban bills died in legislative committee. Statewide smoking ban Initiative 890, filed in April 2004, later failed to gather sufficient signatures by July 2, 2004 to qualify for the November 2004 general election ballot. And Initiative to the Legislature 332 that was filed in July 2004 also failed to gather sufficient signatures. It appears that ‘ol Doc Koop’s “expert” statewide smoking ban prescription failed the “analytic quality” test, too.

Judge Williams’ astute observation about the analytic quality of alleged expert opinion also presents a fresh light in which to examine the steady gale of expert opinion blown by “Secondhand Smoke Consultant” James Repace, who charged Pierce County $7,836.50 to testify before its Board of Health that it takes 50,000 air exchanges per hour to safely address Environmental Tobacco Smoke (ETS). There are problems with Mr. Repace’s inflated opinions about ETS that should have been transparently clear to the Tacoma-Pierce County Board of Health when in enacted its smoking ban December 3, 2003. January 24, 2004 Repace stated that air exchanges of 34,000 times per hour are necessary to safely remove secondhand smoke from Toronto Pubs. CBS Online recently reported that story. By March 16, 2004 Repace had upped the ante in the New York smoking ban game of chance to 100,000 air exchanges per hour. That fact was reported in The Albany Times Union article “Doubts Cast On Clean-Air Claims.” Immediately before those pronouncements Repace testified in Tacoma , Washington that it takes 50,000 air exchanges per hour to do the same job. So how hard does the anti-tobacco wolf really need to blow about ETS to bring down the hospitality house? Maybe 280 billion air exchanges per hour will finally do the job. 

I address Mr. Repace’s most recent new theory about ETS – that a bar where smoking is allowed is more dangerous than congested city streets loaded with diesel exhaust – in my February 2, 2005 commentary “Smoky Data Smolders”   published by Forces.org. That work includes Mr. Repace’s latest theory as published in January 2005 by the Associated Press and my February 2005 rebuttal. A reprint of Mr. Repace’s theory and my rebuttal were both published by Chief Engineer Magazine, for which links are provided in “Smoky Data Smolders.”  

It is interesting that The Los Angeles Times reports in its February 5, 2005 article quoted above that the federal lawsuit was about “a decades-long conspiracy to distort the risks of smoking and of second-hand smoke” (Underline added.) Normal work environments have about 2 air exchanges per hour to comply with building code. Toward the end of its seven-year regulatory effort to enact a nationwide smoking ban as part of proposed Indoor Air Quality Regulations the U.S. Department of Labor’s Occupational Health and Safety Administration (OSHA) reported in its August 10, 2001 filing with the same U.S. Court of Appeals for the District of Columbia:

1.) Page 15: “Critically, there is no longer any basis to assume, as the proposed rule does, that all workers in all workplaces face an elevated risk equivalent to that found in homes during the 1980s.” (Underline, italic added.)

2.) Page 17: “Here, as we have explained above, the proposed rule appears to be based upon outdated information and methodology and its risk estimates are not supported by the weight of evidence now available.” (Underline, italic added.)

3.) Page 17: “OSHA does not believe that over 74 million workers are exposed to ETS at work at levels equivalent to those faced by a nonsmoking spouse of a smoker at home.”

4.) Page 18: ”Nor does OSHA believe that issuance of an ETS rule would prevent between 2,234 and 13,723 excess deaths annually, or anything like that.” (Underline, italic added.)

5.) Page 18: “This potential hazard is not, as ASH’s Petition suggests, so egregious as to demand instant action, especially to the exclusion of all other safety and health matters before the agency.” (Underline, italic added.)

OSHA later withdrew its proposed Indoor Air Quality regulations, which it announced December 14, 2001 (see  “OSHA Withdraws Indoor Air Proposal With Support Of Anti-Smoking Groups”) Current federal OSHA policy, as stated in its February 24, 2003 “Reiteration Of Existing OSHA Policy In Indoor Air Quality,” is that it will not apply a general duty clause to “protect workers” by banning smoking because it has concluded that exposure to ETS constituents does not exceed its Permissible Exposure Limits (PELs) in normal work environments. OSHA’s conclusion about ETS exposure is clearly supported by a recent study published in the journal Tobacco Control. That study found ETS constituent exposures of about 1/10^th to 1/5^th of OSHA PELs in 17 Australian bars and social clubs. The odd thing about that study is that tobacco control advocates proclaim in its title “Designated ‘No Smoking’ Areas Provide From Partial To No Protection From Environmental Tobacco Smoke”  when the study data prove the opposite: the data show sufficiently low exposure to ETS constituents that no “protection” is required!

There is not a shadow of a doubt that our federal courts would readily qualify as an expert on ETS and worker protection any OSHA staff designated to address those issues before the court. Mr. Repace was introduced to the Tacoma-Pierce County Board of Health as a person who was directly involved with OSHA’s proposed Indoor Air Quality regulation. Being, therefore, familiar with OSHA’s conclusions as regulatory actions why do Repace’s “expert” theories about ETS now so wildly differ with those of OSHA?

Perhaps we would materially improve our indoor and outdoor air quality with substantially fewer utterances of wind about ETS from tobacco control “experts.”

Satisfying Judgments

U.S. Court of Appeals Judge Williams also made an astute observation about the magnitude of the prospective judgment against tobacco companies, noting that the magnitude of the damages sought by the federal government is more than the entire net worth of all tobacco company defendants. On page 2 of his concurring opinion Judge Williams said about the limitations of disgorgement:

“In the context of corporate defendants such as those before us, a possible limit would be the entire net worth of the companies (a good deal less than the $280 billion that the government claims to have been ill-gotten gains.) But perhaps not. Even that limit is arbitrary, as resources can be used for criminal purposes even if offset by debt. Subject to the bankruptcy laws, nothing in the logic of crime-enablement theory clearly calls for stopping at confiscation of the shareholders’ interests; why not the bondholders as well?” (“Underlie added.) 

There are currently more than $20 billion in tobacco settlement revenue bonds issued by states still outstanding. Washington issued $517 million of those bonds October 2002 (see page 1 of prospectus.)  Then-Attorney General Gregoire passed on certain legal matters for that bond offering, as noted at the bottom of the prospectus’ page 1. Were the federal government’s damage theories to be allowed by the appeals court the entire legitimate interests of Big Tobacco stock and bondholders could be confiscated, leaving the judgment still not satisfied. Such an action would immediately eliminate the legitimate interests of bondholders who purchased in good faith more than $20 billion in tobacco settlement revenue bonds from Master Settlement Agreement Settling States such as Washington

So how could a new judgment for $280 billion against Big Tobacco in favor of the federal government be satisfied? The answer is the same way Christine O. Gregoire negotiated for Big Tobacco to settle lawsuits brought by states in November 1998: by leaving cash-cow Big Tobacco still frolicking in consumer meadows and healthy as ever, while milking consumers one-pack-at-a-time through price increases to finance annual “settlement” payments. The October 2002 prospectus for Washington ’s $517 billion revenue bond offering says that prices on cigarettes were increased by 45 cents per pack to finance settlement payments. Today a settlement of $280 billion would impose estimated price increases on cigarette consumers of about 60 cents per pack. Page 15 of the prospectus says: 

"The settlement represents the resolution of a large potential financial liability of the PMs [Participating Manufacturers] for smoking-related injuries, the costs of which have been borne and will likely continue to be borne by cigarette consumers." (Bracket, underline added.) 

Since prospectus statements are required to be true, factual, and accurate for purposes of reliance by investors, we can dispense with any further representations that tobacco control advocates and their supporters taught Big Tobacco a "stern lesson." Tobacco control has known for at least six years that they crafted the tobacco settlement to expressly target smokers for discriminatory costs and taxes. Any other representation about tobacco companies bearing the settlement cost is false and known to be false at the time it is made. Tobacco consumers should be profoundly grateful that the U.S. Court of Appeals for the Washington D.C. Circuit did not impose another 60 cents per pack cost on them.

A Few Thoughts For Tobacco Consumers

As laudable as removing the possibility of dramatic price hikes on cigarettes to finance satisfaction of a $280 billion judgement may be, tobacco consumers are still not out of the woods on this federal lawsuit. As noted by Mary Aronson in the February 5, 2005 Associate Press article above:

“The suit asks the judge to impose other penalties on the industry, such as changing its marketing and advertising and funding anti-smoking programs. . . . The decision — which boosted the stock prices of tobacco companies on Friday — leaves open other penalties that would cheer anti-tobacco groups, Aronson said.” (Underline, italic added.)

Should the district court order an economic remedy for Big Tobacco that would cheer up anti-tobacco groups by ordering the companies to fund their anti-smoking programs who would pay for that? You guessed correctly, persons who smoke, through yet another pick-pocket increase in the cost of cigarettes. Stanton Glantz, Dr. Koop, James Repace et al could still walk away from this litigation gig cheering that their nests are comfortably feathered for yet another decade, compliments of and paid for by those whom they dump copius piles of Junk Science doo doo on to justify their “expert” ramblings. 

It’s time for tobacco to consumers take their financial destiny into their own hands. It is time for smokers to say to the purveyors of scientific toro poo poo that enough on our nickel is, quite simply, enough.  The way to do that is to read carefully read and act on what is written in “21^st Century Boston Tea Party” published at  Tobacco consumers now have a choice: they can sit and whine, while hoping anti-tobacco activists will not convince a federal judge to order that smokers continue to support their livelihoods, or they can make a decision to change their buying habits to where the “Anti-Mentality” leeches are not fed regardless of what the judge orders. 

On a closing note I mention that the Appellants in this federal tobacco case (those who took the appeal from the U.S. District Court to the U.S. Court of Appeals) are Big Tobacco companies like Philip Morris and the Appellees (the party against whom the appeal is taken) are Pharmacia Corporation and Pfizer, Inc. Pharamcia is now a subsidiary of Pfizer that manufactures and distributes Nicotrol “Smoke Free” nicotine delivery device products. Pharmacia also manufactures products like Nicorette gum and NicoDerm CQ patch products for GlaxoSmithKline. It’s rather interesting to me that normal folks can’t get away from ubiquitous “Smoke Free” nicotine distributors and their influence anywhere, even in a federal lawsuit where the federal government is seeking $280 billion in damages that would necessarily be paid by tobacco consumers. 

So my friends and readers who choose to smoke, go right ahead and do nothing. Refuse to take even the simplest of steps by boycotting Philip Morris products in favor of Non-Participating Manufacturer brands, let alone bother to pick up a pen and write a Letter to the Editor or your legislators. Be a victim, that’s your choice. Wallow in it until you heart’s content. But if you make that choice then just suck it up and pay because you have defined that absence of choice for yourself. And when you do please know that Philip Morris will stay in business forever by pumping your money to state coffers, “Smoke Free” pharmaceutical nicotine will laugh more loudly at you with each quarterly income statement they prepare, and Stanton Glantz will merrily continue to waddle down the yellow brick road to “scientific success” while he and James Repace laugh up their sleeve at you.

It just seems to me that if 50 million consumers simply choose to say no to Philip Morris, Pfizer, and GlaxoSmithKline our world would be a much more pleasant place to live. 

Norman E. Kjono