Political Hay

Revenue Smoke Stacks

Tobacco shakedowns are Washington’s addiction.

By 9.28.04

Send to Kindle

"This case is about a 50-year pattern of misrepresentation, half-truths and lies by the defendants that continues to this day," said Justice Department attorney Frank Marine as the trial phase of the five-year-long legal scuffle between the federal government and the nation's largest tobacco companies resumed the other week. "Why did the defendants pursue this cause of action?" Marine mused as he delineated 145 purported acts of fraud. "Money, pure and simple."

But the greed Marine ascribes to the tobacco companies is on display in the government which he represents. Money, pure and simple, explains the government's motive in demanding an outrageous disgorgement award of $280 billion.

The case was first filed in September 1999 when the Department of Justice lobbed four charges at the cigarette manufacturers under three federal statutes. While the first count under the Medical Care Recovery Act and the second under the Medicare Secondary Payer provisions were subsequently dismissed by Judge Gladys Kessler, the remaining claims were made under the civil provisions of the RICO (Racketeer Influenced and Corrupt Organizations) Act of 1971.

This use of RICO, a provision of which gives the government independent statutory standing, is an example of the government seeking out legal loopholes only it can jump through in order to shake tobacco companies down before toppling them (similar claims made by health plan providers have been thrown out, but Kessler agreed to hear the government's case).

The court acknowledges that before it can order the disgorgement award of $280 billion it will have to find "a reasonable likelihood of future violations." Judge Kessler reasons that a crippling disgorgement award would prevent and restrain future violations by the tobacco companies. And where did the $280 billion figure come from? $75 billion constitutes the "proceeds" from all cigarette sales to the "Youth-Addicted Population" since RICO was enacted in 1971. The hypothetical YAP includes every person who smoked 5 or more cigarettes a day before turning 21. Never mind that it is legal to smoke at age 18 in most states. The remaining $205 billion reflects a broad sum of "additional gains" -- basically an interest charge applied to the aforementioned $75 billion.

Yet the government's two expert witnesses in support of the demand, Dr. Franklin Fisher and Dr. Jonathan Gruber, both testified that the government's enormous estimate is not limited to the requisite "ill-gotten" gains. Dr. Fisher admitted his role was "to estimate the proceeds on the sales to the YAP…without regard for the question of whether they were earned illegally." Both Dr. Gruber and Dr. Fisher used phrases such as "highly unlikely" and "preposterous" in reply to questioning about whether the government's estimate included only the illegally obtained gains.

WHAT EXACTLY DOES the government plan to do with the enormous disgorgement award? If past behavior predicts future conduct -- which the government maintains to substantiate its disgorgement claim -- then why not revisit the Master Settlement Agreement of 1998, in which the first payout of $200 billion handed over by the tobacco industry was misspent by the government? In May of 1999, the National Governors Association released a statement that reported "the nation's Governors unanimously passed a resolution stating that they are committed to spending a significant portion of the settlement funds on smoking cessation programs, health care, education, and programs benefiting children."

The "unanimous resolution" was bogus. A report delivered by the National Conference of State Legislatures revealed that in Fiscal Year 2004, states spent just 3% of their tobacco settlement money on tobacco prevention. Connecticut spends just 0.1% of the $840.3 million collected in tobacco-generated revenue on tobacco prevention, while 5 states (including the District of Columbia) haven't committed any of their tobacco settlement money for such programs, according to the National Center for Tobacco-Free Kids.

Some states have chosen to receive their settlements in single up-front payments. As the National Conference for State Legislatures explains, such securitization is akin to "a lottery winner accepting an up-front payment in lieu of a 20-year annuity." An interesting choice of words -- states collecting lump sums of tobacco settlement revenues are like lottery winners.

WHAT IS THIS CASE really about? Very simple: politics by litigation. What the government can't do legislatively -- Congress will not pass a prohibition on smoking -- it seeks to do legally. Attorney General John Ashcroft inherited this politicized case from the Clinton administration, and the Bush administration has chosen not to risk the wrath of the media and political case by abandoning it.

Judge Gladys Kessler has a deep bias against the tobacco industry. A Jimmy Carter appointee bumped higher up by Bill Clinton, Kessler was described by Robert Novak in a July 2001 column as "closely tied to liberal-labor Democrats." According to last Thursday's Washington Post, Kessler couldn't restrain her bias when responding to Philip Morris USA attorney Ted Wells' admission that the companies were in the business of selling a dangerous product and explicitly tell the American public that smoking is dangerous. "Is that succinct and pithy phrase actually on any cigarette packaging or any company Web sites anywhere?" she demanded.

Where there's smoke, there's money, and Big Government seeks to gorge itself on the profits of Big Tobacco.

Like this Article

Print this Article

Print Article