U.S. wants $289 billion from cigarette makers

Justice Department suit seeks `fraudulent' profits

March 18, 2003|By NEW YORK TIMES NEWS SERVICE

WASHINGTON - The Justice Department is demanding that the nation's biggest cigarette makers be ordered to forfeit $289 billion in profits derived from a half-century of "fraudulent" and dangerous marketing practices.

Citing new evidence, the Justice Department asserts in more than 1,400 pages of court documents that the major cigarette companies are running what amounts to a criminal enterprise by manipulating nicotine levels, lying to customers about the dangers of tobacco and directing multibillion-dollar advertising campaigns at children.

Those practices continue today, despite the industry's repeated pledges to change its ways, the Justice Department said in filings in federal court in Washington as part of a federal lawsuit first filed by the Clinton administration in 1999.

The Justice Department's aggressive attack on the industry surprised many legal analysts because Attorney General John Ashcroft has voiced public skepticism in the past about the strength of the federal lawsuit.

This is the first time the federal government has given a dollar figure for what it believes the tobacco industry should have to forfeit in "ill-gotten gains."

The $289 billion number is based partly on proceeds the government said the industry made from selling cigarettes to about 30 million people who started smoking regularly before the age of 18, beginning in 1954, when the industry allegedly began its illegal collusion.

That figure, if endorsed by District Judge Gladys Kessler when United States vs. Philip Morris et al. goes to trial next year, would eclipse the $206 billion that the industry agreed to pay to 46 states in a landmark 1998 settlement in a separate lawsuit brought by the states.

If the Justice Department were to win out in its demands in this case, the judgment could threaten to bankrupt the American tobacco industry, lawyers and analysts said.

The five principal defendants in the lawsuit are Philip Morris; R.J. Reynolds; the Loews Corp.'s Lorillard Tobacco; British American Tobacco's Brown & Williamson; and the Vector Group's Liggett Group.

A financial analyst who covers the tobacco industry but demanded anonymity said that if the Justice Department were to win anything approaching the $289 billion figure, cigarette makers would, at the very least, have to consider raising their prices by about 50 cents a pack.

But even then, the analyst said, "their survival would be problematic."

The new filings lay out the details of the government's case for the first time and rely on potentially incriminating documents from within the tobacco industry. The Justice Department filed seven volumes of material Jan. 29, along with additional filings this month.

The tobacco industry said the charges were without merit, asserting in new filings of its own that its public pronouncements about cigarettes were free speech protected by the First Amendment.

Moreover, the tobacco industry, which has been a major political contributor to the Bush administration, said it is wrong for the Justice Department to charge cigarette makers with engaging in a conspiracy when the federal government has been an active partner for years, subsidizing cigarettes for military personnel and reaping billions in taxes and fees.

Tobacco lawyers also accused the government of withholding federal health documents helpful to the industry's case.

The lawsuit, one of the biggest in federal history, was initiated in 1999 by President Clinton and Attorney General Janet Reno.

Ashcroft, who opposed the suit when he was in the Senate, has demonstrated occasional resistance to it since becoming attorney general in 2001. Months after he took office, he moved to curtail funding for the legal team working on the case, and he said he wanted to try to reach a settlement because he was concerned the case was too weak to go to trial.

But with senior Justice officials preoccupied with terrorism for the past 18 months, the suit has attracted virtually no attention from the attorney general or his top advisers, officials acknowledged. Lower-level, career attorneys working on it have quietly sifted through reams of documents to move toward a trial date of September 2004.

Anti-smoking groups said that, given Ashcroft's past positions on the suit, the scope and volume of the department's latest allegations surprised them.

"For this Justice Department to pursue this case so aggressively is very significant," said William V. Corr, executive vice president of the Campaign for Tobacco-Free Kids, an advocacy group.

"With these filings, the Justice Department has documented that the tobacco industry continues to violate the law by marketing to our children and by deceiving the American public."

Ashcroft does not appear to have personally reviewed or approved the latest filings, officials said. Asked about Ashcroft's current thinking on the case, officials said he has delegated responsibility for the lawsuit to the department's civil division and relies upon officials there to direct its handling.

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