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Washington-By early October, the paper blizzard in the government’s extraordinary and nearly six-year-old racketeering case against the tobacco industry will come to an end, just as a new one tries to descend on the nation’s high court. Under a schedule set by U.S. District Judge Gladys Kessler, presiding in U.S. v. Philip Morris, No. 99CV2496, Oct. 9 will be the final, post-trial filing deadline in the tobacco case, which has won the government praise for its creative and aggressive pursuit of the industry under the civil RICO (Racketeer Influenced and Corrupt Organizations Act) statute, but also strong criticism for a “retreat” on possible remedies in the face of a negative appellate court ruling. Kessler has completed both the liability and remedies phases of the tobacco trial, but she has yet to rule on liability on the government’s claim that the industry for decades has engaged in a pattern of unlawful conduct designed to deceive the American public about the health hazards of smoking. And, the parties, at Kessler’s urging, reportedly have engaged in some settlement talks. But lurking over the judge and those negotiations is the shadow of the U.S. Supreme Court. The government recently asked the justices to review a 2-1 ruling by a panel of the U.S. Circuit Court for the District of Columbia, which eliminated the government’s centerpiece remedy: disgorgement of $280 billion that the government contends was earned by the fraud. “The government’s suit, by any measure, is the most important civil RICO action that the government has ever brought,” wrote Acting Solicitor General Edwin Kneedler in the high court petition, U.S. v. Philip Morris, No. 05-92. “The government’s ability to achieve justice in this case depends on the availability of the full scope of equitable remedies that Congress conferred. The government cannot protect the public interest if it cannot ‘divest the [RICO enterprise] of the fruits of its ill-gotten gains.’” The government’s position in the high court is “flatly contradicted by the plain language of the statute,” insisted William S. Ohlemeyer, Altria Group Inc.’s vice president and associate general counsel. The tobacco defendants, said Ohlemeyer, will tell the high court that it should not hear the government’s petition. “We’re not in a procedural posture where we think the case is appropriately reviewed,” he said, explaining, “It’s part of an ongoing case that’s pending in the district court and could result in a final judgment in a matter of months. If the defendants prevail, there won’t be an issue for the Supreme Court to decide.” When the government seeks high court review, it “always has a good chance,” noted David Vladeck of Georgetown University Law Center, of counsel to six public health organizations recently allowed to intervene in district court on the remedies question. “I think this was a very strong cert petition,” said Vladeck, but, he added: “The public health community never thought disgorgement was a key remedy in this case. Our clients have always been looking for more fundamental, structural reforms. But the reality is even if it’s not $280 billion, if it’s only a fraction of that, when you have money like that potentially on the table, the case takes on a different character. That’s important.” Off the table Ask a handful of civil RICO scholars what they know about the use of disgorgement as a remedy and they quickly admit to knowing very little. “I haven’t come across any significant number of cases dealing with this subject,” said Gregory P. Joseph of New York, echoing others. “While one can think of industries where it could be applied, it’s not going to be a lot of cases.” But the business community breathed a sigh of relief, according to Robin S. Conrad, senior vice president of the National Chamber Litigation Center, when the D.C. Circuit overturned Kessler’s ruling that disgorgement was an available remedy under RICO’s Section 1964. “The Justice Department’s disgorgement theory greatly expanded RICO’s statutory remedies beyond congressional intent, and could have been used to run other industries into the ground,” she said at the time of the ruling. In the district court, the tobacco defendants, represented by Theodore Wells of New York’s Paul, Weiss, Rifkind, Wharton & Garrison, and Dan Webb of Chicago’s Winston & Strawn, among others, had argued that the government’s right to disgorgement should be limited to those proceeds that either “are being used to fund or promote the illegal conduct, or constitute capital available for that purpose.” They relied on a rule announced in United States v. Carson, 52 F.3d 1173, a 1995 decision by the 2d Circuit. Kessler rejected their argument that RICO is limited to ill-gotten proceeds currently available to fund further unlawful activities. But she agreed to certify her order on the applicability of the Carson standard for interlocutory appeal to the D.C. Circuit. During briefing at the circuit court, the tobacco industry asked the appellate panel to address, not just the applicability of the Carson standard, but whether the government ever could seek equitable disgorgement under RICO. The panel took on the broader question and answered no. It held, 2-1, that RICO’s grant of judicial authority to enter appropriate orders to “prevent and restrain” statutory violations does not include the power to order equitable disgorgement. The majority, led by Judge David Sentelle, over a strong dissent by Judge David Tatel, said that “[t]his language indicates that the jurisdiction is limited to forward-looking remedies that are aimed at future violations.” Disgorgement, in the majority’s view, “is a quintessentially backward-looking remedy focused on remedying the effects of past conduct to restore the status quo.” Disgorgement was now completely off the table in the tobacco case. A divided D.C. Circuit (with Supreme Court nominee John Roberts recusing himself) refused to hear the case en banc. Supreme Court arguments In the Supreme Court, the government argues that the D.C. Circuit panel decision is directly contrary to two Supreme Court precedents that interpreted statutory provisions like RICO’s Section 1964 to give district courts the full range of equitable powers, such as orders of disgorgement, to fashion relief. The government also urges the high court to intervene because the D.C. Circuit ruling creates a conflict with two circuits authorizing disgorgement: the 2d Circuit in the Carson case (recognizing limited disgorgement power), and the 5th Circuit in Richard v. Hoechst Celanese Chem. Group Inc., 355 F.3d 345 (5th Cir. 2003). The tobacco industry has yet to file its brief in opposition to high court review, but “Our position is very straightforward,” said Altria’s Ohlemeyer. Section 1964(a), he argued, is designed to restrain and prevent fraud in the future. “The government has insisted that civil RICO allows them to seek essentially dollar damages,” Ohlemeyer added. “It just doesn’t make any sense in a statute that has a criminal provision and criminal forfeiture to allow a civil RICO claim to seek compensatory or punitive damages. It’s not supposed to do that. It’s supposed to prevent and restrain fraud in the future.” But G. Robert Blakey, a professor at University of Notre Dame Law School who is known as the father of RICO, strongly disagrees. Testifying before the Senate Judiciary Committee in 2001, he said that “The legislative history of RICO indicates that its authors intended to grant courts at least as much authority as they possessed under the antitrust statutes.” He added that “While [Section] 1964(a) contains the phrase ‘prevent and restrain,’ the legislative history indicates that this language was not intended to confine the courts to purely forward-looking remedies.” Blakey also believes that the 2d Circuit in Carson was wrong in limiting disgorgement as a remedy. “The legislative history of RICO, [Section] 1964 in particular, indicates that the ‘only limit on remedies is that they accomplish the aim set out of removing the corrupting influence and making due provision for the rights of innocent parties,’” he told the senators. But remedies scholar Anthony Sebok of Brooklyn Law School has a less expansive view of the powers granted under the RICO statue. He said that “From a practical point of view, I would have thought a fair reading of the civil RICO provision would have counseled caution about giving too much power to the government for using civil actions to do what otherwise should be done in criminal actions.” The tobacco case is a case about consumer fraud, Sebok added. “I don’t think Congress has decided yet to nationalize consumer fraud law. There is a risk here of mission creep, which is a reason why the Supreme Court might take the case.” Sebok also thinks the 2d Circuit approach may be the correct one even though it is difficult to state exactly what the rule there is. “I think the Supreme Court could take the case because it honestly recognizes a genuine question for future RICO adjudication,” he said. Disgorging the pain Even if the government ultimately prevails on liability and disgorgement, the money that the industry might have to pay would probably be passed to the current consumers in the form of price increases, said Mark Gottlieb, executive director of the Tobacco Control Research Center at Northeastern University School of Law. “Research suggests these price increases do reduce consumption,” he said. “But I think the more important purpose is, it would serve as a possible deterrent for future misconduct.” Despite losing the disgorgement remedy in the D.C. Circuit, the government’s new remedy proposal was “by and large fairly reasonable,” said Gottlieb. Not everyone agreed. After the appellate ruling, the government proposed a $130 billion, 25-year program to persuade smokers to stop and a public education program to persuade youth not to start smoking. But the government reconsidered that remedy and then proposed forcing the industry to spend $10 billion over five years on a smoking cessation program and $4 billion over 10 years on public education. The expression of disappointment from the public health community and others has triggered an investigation at the U.S. Department of Justice about possible influence over the trial team by higher-ups in the department. It also led six public health groups to move for-and recently prompted Kessler to approve-intervention on the question of remedies, a move that was vigorously opposed by the industry. “We’re trying to make clear we thought the government was trying to walk away from some kind of cessation program that made real sense, and that there should be some restrictions in terms of advertising practices to ensure the industry stops targeting young people,” said Vladeck, who represents the six public health organizations. But Northeastern’s Gottlieb said: “Our worst fears about the government in this case-that it switched sides-were not realized.” He added: “There’s always the chance they’re going to enter into a terrible settlement. That’s a real concern. With this petition pending and the importance it has for future civil RICO cases by the Justice Department, I think it’s much less likely they’re going to do a quick settlement here.”

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