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US Department of Justice

Action brought against the industry


In 1999, the US Department of Justice brought an action against various tobacco industry members under the Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO).

The US District Court rejected key parts of the claims, including recovering Medicare costs related to alleged smoking related illnesses, but the US Department of Justice lawyers continued to seek a US$280 billion penalty against the defendants – effectively a disgorgement of the tobacco companies' past profits – when the trial eventually started in September 2004.

During the trial, the Washington DC Court of Appeals decided that the US$280 billion penalty was not allowed on the basis that RICO is a forward-looking statute. Nevertheless, the trial continued through June 2005 with the Department of Justice asking the court for other remedies.

These included funding for remedial measures (quarterly payments of $600 million for five years and $100 million thereafter), imposing targets for reductions in youth smoking, obliging the industry to publish corrective communications about the adverse health effects of smoking, imposing disclosure of all smoking and health documents on a publicly available website and removing certain 'lights' type descriptors from cigarette packs.

On 17 August 2006, US District Judge Gladys Kessler issued a Final Judgement, ruling that the US Government had proved its case but Judge Kessler did not order payment of a monetary penalty. Instead, she issued a Remedial Order requiring extensive remedial actions by the defendants.

In February 2010, the defendants and the Department of Justice separately asked the US Supreme Court to review the case. Both appeals were refused on 28 June 2010. In September 2010, the US Supreme Court refused British American Tobacco's application for rehearing and the matter went back before Judge Kessler, for directions.

In January 2011, British American Tobacco filed a motion for reconsideration of the Final Judgment based on the US Supreme Court's intervening decision in Morrison v National Australia Bank Ltd. that reaffirmed that U.S. statutes are presumed to have no effect outside the U.S. unless there is clear Congressional intent to the contrary and that this presumption is not overcome by alleged U.S. 'effects' from foreign conduct.

In March 2011, Judge Kessler granted British American Tobacco's motion, ruling that because British American Tobacco's liability in the RICO action was predicated solely on conduct that took place outside the US, the liability finding against British American Tobacco was invalidated. With the liability finding invalidated, the court also ruled that British American Tobacco is no longer subject to the remedies being pursued in the case by the US Department of Justice.

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