U.S. alleges scheme of fraud, deceit in suing tobacco firms

Justice Department says conspiracy cost taxpayers billions

September 23, 1999|By Jonathan Weisman and Lyle Denniston | Jonathan Weisman and Lyle Denniston,SUN NATIONAL STAFF

WASHINGTON -- The Clinton administration dramatically opened a new legal assault on the cigarette industry yesterday -- a legally uncertain venture, based on novel ideas, that the industry will try to kill immediately.

In a 131-page lawsuit against the cigarette manufacturers, the Justice Department blamed the industry for nearly five decades of harm to Americans' health and billions of dollars in financial injury to the federal Treasury.

"The tobacco companies should answer to the taxpayers for their actions," President Clinton said. "The taxpayers of our country should have their day in court."

Denouncing the lawsuit as having "no basis in fact and no basis in law," the industry said it would ask the courts to throw out the case immediately.

Even if that does not happen, there is little chance that the case would move through the courts before the end of Clinton's term in early 2001, raising the prospect that the lawsuit could be abandoned in the administration that follows.

With those hurdles before her, Attorney General Janet Reno nevertheless went ahead with the legal broadside against the cigarette makers that Clinton had promised in January in his State of the Union address.

Reno charged that, for 45 years, the manufacturers have waged "an intentional, coordinated campaign of fraud and deceit."

"It has been a campaign designed to preserve their enormous profits whatever the cost -- in human lives, in human suffering and in medical resources."

While the new lawsuit was unveiled with fanfare, the Justice Department took another step much more quietly: It disclosed, without elaboration, that it has ended a five-year criminal investigation of cigarette company executives.

Though the Justice Department refused to say how much it was seeking in the lawsuit, the stakes are clearly enormous. The government spends more than $20 billion a year to treat smoking-related illnesses of Medicare patients, the military, veterans, Native Americans and federal employees.

The suit seeks to recoup much of that money, as well as company profits that the department says were secured through fraud and deceit.

Defendants in the suit are six cigarette companies, their parents companies and two trade groups.

The $206 billion legal settlement reached last year by 46 states and the tobacco companies would pay less than $10 billion a year over 25 years, or half what the federal government could be seeking, said Richard Daynard, director of the Northeastern University Law School's Tobacco Control Resource Center.

"These are big dollars," said Mary Aronson, a Washington-based tobacco industry analyst. "They're going to dwarf anything we've seen so far."

With those stakes in mind, the tobacco industry reacted furiously to the federal suit.

Gregory Little, the associate general counsel for Philip Morris, called it "a blatant political maneuver" that was "nothing more than the height of hypocrisy."

The Justice Department's allegations are not new.

The suit alleges that as far back as 1953, cigarette manufacturers colluded to lie about the health effects of tobacco, to hide damaging health research and to disseminate misleading scientific studies, to squelch research into safer cigarettes and to intentionally market their products to children.

Those allegations have been used for years by state attorneys general and class-action lawyers to good effect. State governments have reached settlements totaling $246 billion. A class-action lawsuit by flight attendants secured $300 million for research into the effects of secondhand smoke.

And this year, a jury decided that the cigarette industry was liable for the deaths and illnesses of thousands of smokers in a Florida class-action lawsuit. The damages have not been decided.

Case relies on three laws

But rather than sue to recover money directly for the harm to smokers, the Justice Department based its lawsuit on its right to recover its own financial outlays for health care for smokers.

It relied on three federal laws: the Medical Care Recovery Act, enacted initially to help the government recoup the cost of treating servicemen; the Medicare Secondary Payer Act, enacted to combat Medicare fraud by insurers; and the Racketeer Influenced and Corrupt Organizations statute, originally aimed at mobsters but now widely used against business fraud.

The department argued that it has a right under the Medical Care Recovery Act to recoup fraud-induced payments to patients who receive federal health benefits. Damages under that law can be recouped only for the past three years.

In addition, citing the Secondary Payer Act, it claimed a right to force the companies to underwrite the government's health care costs for smokers going back six years.

Finally, relying on RICO, a sweeping law against fraud, the department asserted that the industry had committed 116 separate racketeering acts.

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