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A centuries-old common-law rule may bar three Latin American nations from suing American tobacco companies under RICO in U.S. courts. According to Kenneth J. Parsigian, who argued for the tobacco companies Tuesday before a panel of the 11th U.S. Circuit Court of Appeals, the nations of Belize, Ecuador and Honduras don’t have the right to sue his clients. “No court anywhere in history, anywhere in the world, has ever allowed a claim like this to go forward,” said Parsigian, of Boston’s Goodwin Proctor. The three countries have accused five tobacco companies, including R.J. Reynolds Tobacco Co., Phillip Morris Cos. Inc. and Brown & Williamson Tobacco Corp., of setting up “elaborate criminal schemes to move their tobacco products into the hands of smokers, well below the radar screen of [the countries'] regulatory infrastructure.” According to the plaintiffs, the companies sold tobacco in the Latin American nations tax-free by moving it through shadow companies and smugglers. They filed a complaint in a Florida state court, alleging money laundering and mail and wire fraud, among other things. Under the Racketeer Influenced and Corrupt Organizations Act, the nations sought to recover tax revenue, the costs of treating those addicted to nicotine, and triple damages. The defendants moved the case to U.S. District Court in Miami, where the judge dismissed all the actions with prejudice. Republic of Ecuador v. Phillip Morris Cos., 188 F. Supp. 2d at 1360 (2002). The bar to the suit, according to the lower court, is the common-law “revenue rule,” which prohibits one country from trying to enforce its own revenue laws by using another country’s courts. The tobacco companies’ brief notes cases from 225 years of Anglo-American jurisprudence, each upholding that principle. The earliest Parsigian cited was Holman v. Johnson, 98 Eng. Rep. 1120, 1121 (K.B. 1775), and the most recent was Attorney General of Canada v. R.J. Reynolds Tobacco Holdings, 268 F3rd 103 (2nd Cir. 2001). During arguments Tuesday, the Latin American nations’ lawyer, Joel S. Perwin of Miami-based Podhurst, Orseck, Josefsberg, Eaton Meadow, Olin & Perwin, argued that the court didn’t need to reach the issue of the revenue rule. Under heavy questioning from Judge Joel F. Dubina, Chief Judge J.L. Edmondson and the Middle District of Florida’s Judge William T. Hodges, sitting by designation, Perwin said his clients’ right to recourse in the U.S. courts is established under the plain language of RICO. “[The revenue rule] is obviously superseded by the plain meaning of the federal statute,” he said. “The plain meaning of the statute covers our claim. No doubt about it.” NATIONS AS PERSONS Dubina seemed skeptical of Perwin’s theory from the start, and asked him to save the discussion of the revenue rule. Rather, the judge said, he wanted Perwin to address the defense claim that nations are not persons under RICO. Perwin responded that the language of the RICO statute is “broad enough to encompass nations as persons.” Dubina also questioned the defense’s argument that under the plaintiffs’ theory, allied nations such as Canada would not be able to sue in U.S. courts, because they have a reciprocal treaty that supersedes federal statute. However, nations like Iraq, with which the U.S. wouldn’t even consider negotiating a treaty, would have recourse to the U.S. courts under RICO. “That makes no sense to me,” Dubina said. “Well, that should be addressed to Congress,” Perwin responded. Congress, he said, had given countries like Iraq that recourse by enacting the law. Edmondson asked Perwin whether the panel could rule for the nations without creating a split with the 2nd Circuit. “The temptation of the appeals court judge is to follow the 2nd Circuit and be done with it,” he said. Perwin replied that the statute is what allows his clients to sue. The court wouldn’t have to address the revenue rule, and therefore wouldn’t have to split with the New York-based 2nd Circuit, which includes Connecticut, New York and Vermont. However, during his argument, Parsigian reminded the panel that if the 11th Circuit allows the countries to proceed, it would be a first. “There is no court anywhere in the country that has ever read RICO the way Mr. Perwin wants you to read it,” he told the panel. He noted that nations do not qualify as persons under the RICO statute, citing U.S. v. Bonano, 879 F.2d 20 (2d Cir. 1989). In that case, the courts found that the United States is not a person capable of bringing suit under RICO. No decision in any court recognizes a nation as a person under the statute, Parsigian said. Dubina interjected: “If the U.S. can’t sue, why should it let Honduras sue, or Belize, or any other country?” That, Parsigian replied, was precisely his point. Under the plaintiffs’ theory, he said, Congress would have to state specifically that it doesn’t intend to supercede any common-law rule, if it intends to leave that rule intact. RICO is clear, he said, and it says nothing about doing away with the revenue rule. “The common law is presumed to survive,” he said, unless the Congress specifically addresses it. Under the plaintiffs’ theory, he wrote, even such doctrine as sovereign immunity would be in jeopardy because Congress didn’t specifically provide for its survival under RICO. Though the revenue rule is old, Parsigian said, the reason for retaining it today is “chiefly concern about separation of powers.” Applying the rule keeps the courts out of an area in which they are poorly equipped to meddle, he told the panel. Courts, he contended, cannot show favor to allies or punish enemies simply because of their relationship with the United States, and they cannot ensure that the countries that sue in U.S. courts would return the favor for the United States. Destroying the rule would be a disaster for U.S. foreign policy, Parsigian said. “Imagine the impact that would have on the executive’s ability to negotiate treaties,” he said. If a foreign government wants the United States to help it enforce its tax laws, the proper way to go about it is to negotiate a treaty, Parsigian said. The United States has done so with such countries as Canada, Denmark and France. But such negotiations for centuries have relied on the principle that no government will meddle in the revenue laws of another, said Parsigian. “All these treaties that the executive negotiates and that Congress ratifies … have been negotiated against this backdrop,” he said.

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