Commentary

Republicans Take Their Shot at Tobacco Jackpot Justice

Republicans love to criticize judicial shakedowns—using the court system to redistribute income from unpopular industries to “more deserving” plaintiffs. But if Republicans want to cast some well-deserved aspersions, they need look no further than the current White House, where members of their own party have unaccountably embraced the mother of all baseless lawsuits—the Justice Department’s crusade against tobacco. If ever there were a poster child for civil justice reform, if ever there were an appalling example of government’s addiction to litigation, if ever there were a waste of $136 million in taxpayer money—and the trial has only just begun—this lawsuit is it.

Basically, the executive branch is attempting to bypass Congress and legislate through the courts—a tactic that the Bush administration routinely denounces when it’s pursued by the reviled trial lawyers. The Justice Department has accused cigarette manufacturers of making false statements, manipulating nicotine content, marketing tobacco products to kids and misleading customers about less hazardous cigarettes. For those misdeeds, the government wants $280 billion, to be disgorged under the civil provisions of the Racketeer Influenced and Corrupt Organizations Act.

Never mind that government investigators have already rejected the charges. After a five-year, multimillion dollar inquiry by two dozen prosecutors and FBI agents, the Justice Department came up with nothing. The government dissected allegations that tobacco executives perjured themselves when testifying before Congress. Prosecutors plowed through documents for evidence that cigarette makers manipulated nicotine levels. Whistle-blowers and company scientists testified before grand juries. The outcome: not a single indictment of a tobacco company or industry executive.

Still, the trial moves forward. Some industry observers expect a settlement. They’re probably right if the Court of Appeals rejects the government’s disgorgement remedy, as it should. At that point, the only dispute will be over the government’s insistence on industry behavior modifications, none of which imposes much of a burden on the tobacco companies beyond what they’ve already agreed to in their 1998 settlement with 46 states. But if $280 billion remains on the table, don’t count on a settlement with the feds.

This case is not like the state Medicaid recoupment suits, when the cigarette giants rolled over for $246 billion. The industry covered that price tag with some sleight-of-hand that the public hasn’t fully digested. Essentially, the major tobacco companies, state attorneys general and soon-to-be-billionaire tobacco lawyers colluded to “cartelize” the industry—requiring companies that didn’t agree to the settlement to post damages in escrow, sufficient to prevent those companies from cutting prices to capture market share. That way, the four large cigarette makers could raise their prices with impunity and foist the entire cost of the settlement onto their supposedly addicted customers.

Not even the politicians are willing to burn smokers with yet another quarter-trillion dollar boondoggle. So the cigarette giants, who would have to raise prices significantly to cough up $280 billion, won’t be protected against price cutters. Therefore, the major companies will either resist the Justice Department suit with all of the weapons in their considerable legal arsenals or be forced into bankruptcy, or else reduce their payments to the states as provided in the settlement agreement if cigarette sales decline markedly. Yet we know that the states won’t sit still if their cash cow gets milked by the federal government. How would the states continue to fund their favorite “tobacco-cessation” programs like improved sidewalks, cuts in college tuition and flood control?

Let’s assume the cigarette companies did what the Justice Department says they did. Who, then, were the victims? Maybe smokers were victimized. If so, let them sue for damages, as several of them have done—sometimes successfully—in private lawsuits. Maybe the Medicare system was victimized because it paid for smoking-related injuries. Sorry, a federal judge has already dismissed that claim. Instead of helping smokers or Medicare, the federal lawsuit—or what’s left of it—is designed to punish an industry for quasi-criminal infractions for which federal investigators could not produce sufficient proof. This litigation is a second bite at the apple, a blatant and shameful attempt to extort money from a tobacco treasure trove perceived as bottomless.

Plain and simple, the Justice Department is engaged in double dipping—a failed criminal investigation by the government has given way to a new civil suit by that same government for the same charges originally found wanting. Whether the government functions as criminal prosecutor or civil plaintiff, if the same charges are leveled, then the defendant should be entitled to the protections of the criminal law. That means, at a minimum, a higher burden of proof. Even better, in civil litigation we should rely on private remedies with redress sought by, and for the benefit of, the injured party, not the state.

Robert A. Levy is senior fellow in constitutional studies at the Cato Institute and author of the Cato book Shakedown: How Corporations, Government and Trial Lawyers Abuse the Judicial Process (2004).