Altria, Cigarette Makers Lose 'Lights' Ruling Appeal

Source from:  Bloomberg 05/25/2009

Altria Group Inc. and other U.S. cigarette makers lost an appeal of a lower court's decision that the companies violated racketeering laws and barring them from marketing cigarettes as "light" or "low-tar." The U.S. Court of Appeals in Washington today upheld U.S. District Judge Gladys Kessler's August 2006 ruling, which found that the companies conspired for decades to defraud the public and were likely to violate racketeering laws in the future. Today's decision is a victory for the Justice department, which sued the industry in 1999. "The district court found -- permissibly in our view -- that the enterprise had the common purpose of obtaining cigarette proceeds by defrauding existing and potential smokers," the appeals court said in its 3-0 decision. The companies had argued that the ban on "light" and "low-tar" descriptors, which was delayed pending the appeal, would cost hundreds of millions of dollars and would "fundamentally alter the business landscape." Altria and its Philip Morris USA unit said in a statement today that they intend to appeal. Reynolds American Inc.'s R.J. Reynolds Tobacco also said it will appeal. [b]Altria Response[/b] "The court's conclusions are not supported by the law or the evidence presented at trial, and we believe the exceptional importance of these issues justifies further review," Murray Garnick, Altria Client Services senior vice president and associate general counsel, said in the statement. Judge Kessler's ruling came after a nine-month trial that began in September 2004. In addition to the "lights" ban, the court today upheld Kessler's order barring the companies from future violations of the Racketeer Influenced and Corrupt Organizations Act, or RICO. The appeals court also agreed that the companies may be required to publish statements correcting past misstatements about addiction, the dangers of smoking and second-hand smoke, the companies' manipulation of cigarette design and the dangers of "light" and "low-tar" cigarettes. Kessler found that the companies misled consumers into believing that "light" cigarettes are less dangerous than other types. not hazardous to health. [b]'Deceptive Practices'[/b] "This ruling is a victory for the American people that bans the use of misleading terms such as 'light and low tar,' and provides the government with the ability to pursue these companies should they continue with their deceptive practices," Deputy Attorney General David Ogden said today in a statement. Kessler ruled the restrictions are necessary to prevent future RICO violations, rejecting the companies' argument that a 1999 agreement between U.S. cigarette makers and 46 states already prevents them from violating the law. "This ruling reinforces the validity of Judge Kessler's ruling in 2006 that the tobacco company defendants are racketeers and their racketeering conduct isn't just a matter of ancient history," said Edward Sweda, senior staff attorney for the anti-smoking group Tobacco Products Liability Project. Sweda said he was surprised at the unanimous opinion, which included Chief U.S. Circuit Judge David Sentelle, a North Carolina native appointed to the appeals court by President Reagan in 1987. Sentelle had ruled against the government in an earlier appeal in the case. The court today declined the government's request to require additional remedies denied by Kessler, including a counter-marketing campaign, nationwide smoking cessation program, a plan targeting underage smoking and a proposal for a court-appointed monitor to oversee the industry. [b]RICO Violations[/b] While upholding findings against most companies, the court returned the case against Brown & Williamson Holdings Inc. to the trial court for further findings of fact on whether it is likely to commit future RICO violations. Reynolds bought Brown & Williamson's U.S. operations in 2004. The court also instructed the lower court to make clear that the ruling applies only in the U.S. and to change part of the decision related to point-of-sale displays. And the lower court must determine whether Kessler's order applies to subsidiaries of the defendant companies. The appeals court dismissed from the litigation two industry groups, the Council for Tobacco Research-USA Inc. and the Tobacco Institute Inc. The suit was filed by the Clinton administration in 1999 and originally sought $289 billion to reimburse the federal government for money spent treating sick smokers. A series of rulings prevented the government from recovering money from the companies. [b]Top-Selling Brand[/b] Altria, based in Richmond, Virginia, is the biggest U.S. cigarette maker. Its Philip Morris USA unit makes Marlboros, the top-selling brand. The defendants included Reynolds American, based in Winston-Salem, North Carolina, the second-largest cigarette company and the maker of Camel cigarettes; Lorillard, spun off by Loews Corp., maker of Newports; British American Tobacco Plc's British American Tobacco; and Vector Group Ltd.'s Liggett Group. Jeannine Dowling, a Lorillard spokeswoman, declined to comment. Altria was unchanged at $16.64 in New York Stock Exchange composite trading today. The shares have risen 10 percent this year. The case is U.S. v. Philip Morris USA, 06-5267, U.S. Court of Appeals, District of Columbia Circuit (Washington). Enditem