U.S.

Sues Tobacco Makers in Massive Case --- Clinton Seeks the Recovery
Of Over $20 Billion Spent A Year on Sick Smokers
The Wall Street Journal
September 23, 1999 Thursday

Copyright 1999 Factiva, a Dow Jones and Reuters Company

All Rights Reserved

Copyright 1999, Dow Jones & Company, Inc.)

Section: Pg. A3

Length: 1159 words

Byline: By David S. Cloud and Gordon Fairclough, Staff Reporters of The Wall Street Journal

Body

The Clinton administration reopened its legal battle against the tobacco industry, filing a massive lawsuit against
major cigarette companies built around a risky interpretation of federal law.

The 131-page lawsuit, filed in U.S. District Court in Washington yesterday, claims that a 45-year tobacco-industry
campaign of deception about the dangers of cigarettes has contributed to the federal government's spending more
than $20 billion a year to treat ill smokers.

The suit seeks recovery of those costs going back to the early 1990s, as well as industry profits attributable to the
alleged fraud going back many more years. The industry's liability could potentially exceed the $246 billion the
industry paid to settle state lawsuits, federal officials claim.

"As millions of cigarette smokers have gone to the hospital for lung cancer and emphysema, the American taxpayer
has footed the bill," said Attorney General Janet Reno. "Today, we're asking the tobacco companies to pay their
fair share."

President Clinton said the lawsuit is "the right thing to do. The tobacco companies should answer to the taxpayers
for their actions."

Although modeled after dozens of similar state actions, the federal lawsuit represents the first time a legal industry
has been charged with responsibility for U.S. health-program costs that for years have been paid by the federal
government. For that reason alone, it is dicey for the Justice Department. It will have to get around what is sure to
be a bare-knuckles fight with the tobacco industry to have the suit dismissed. If it survives, though, the pressure
will shift onto the companies to settle the case, rather than risk a defeat in court.
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U.S. Sues Tobacco Makers in Massive Case --- Clinton Seeks the Recovery Of Over $20 Billion Spent A Year
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"We will not succumb to politically correct extortion," said Gregory G. Little, associate general counsel for Philip
Morris Cos. "We will not settle this lawsuit."

The filing of the federal suit was accompanied by a brief public notice by the Justice Department that it had closed
a five-year criminal investigation of tobacco companies without returning any indictments. The civil case, in effect,
replaces the criminal probe in the Clinton administration's long-running strategy of keeping pressure on the industry,
in hopes of extracting regulatory concessions from it.

Accompanying the legal attack on the industry, the White House and congressional Democrats are intensifying their
campaign to raise cigarette taxes. The move is being pushed as the solution to a problem of writing a budget for the
fiscal year beginning Oct. 1 that avoids painful spending cuts yet doesn't divert money from the Social Security trust
fund into other programs.

GOP leaders are billions of dollars short, and Mr. Clinton's longstanding proposal to raise tobacco taxes by 55
cents a pack would raise a much-needed $8 billion next year. When Mr. Clinton proposed the tax increase in
February, Republicans opposed it. But Democrats are betting the GOP will change its mind as the budget crunch
gets tighter.

Named in the federal suit are Philip Morris; R.J. Reynolds Tobacco Holdings Inc.'s R.J. Reynolds Tobacco Co.
unit; British American Tobacco PLC and its Brown & Williamson Tobacco Corp. unit; Loews Corp.'s Lorillard
Tobacco; Liggett Group Inc., a unit of Brooke Group Ltd.; and American Tobacco Co., which was bought by Brown
& Williamson in 1995; as well as the now-defunct trade groups, the Council for Tobacco Research and the
Tobacco Institute.

The stock prices of all the companies declined yesterday. Shares of the No. 1 tobacco maker, Philip Morris, fell
$1.125 to $34.50 in New York Stock Exchange composite trading. Shares of No. 2 R.J. Reynolds declined $1.1875
to $27.3125 on the Big Board.

The case isn't likely to go to trial before late next year, if then, because of the likelihood of time-consuming
preliminary motions and appeals, lawyers involved say.

The Justice Department asserts that industry documents, many of them uncovered in the state lawsuits, show
that beginning in 1950s, industry executives agreed not to disclose the full health risks of smoking and to suppress
research into safer cigarettes. The lawsuit skirts the issue of whether the federal government was ignorant of the
risks of smoking, focusing on alleged efforts by the industry to mislead the public.

"For decades, they repeatedly and consistently denied that smoking cigarettes causes disease, despite their
knowledge that it does," said acting Assistant Attorney General David Ogden. "If they could raise false doubts in
addicted smokers about the risks of smoking, few would muster the strength to quit."

The state suits sought recovery of expenditures for Medicaid, the joint federal-state health program for the poor.
The Justice Department suit, by contrast, focuses on recovering costs borne exclusively by federal programs,
including Medicare, which covers the elderly and disabled, and programs for veterans, Defense Department
personnel and federal workers.

The main statute invoked in the suit is the Medical Care Recovery Act, which permits the federal government to sue
to recoup health-care costs. Industry lawyers argue that it doesn't permit aggregation of thousands of claims into
one massive cost-recovery suit, as the Justice Department is attempting. Rather, tobacco lawyers say, the
federal government must litigate each claim individually and prove that misconduct by the industry caused the
smoker's illness and thus the government expenditures.

But agency lawyers said they were confident that a federal judge would let the case go forward on an aggregated
basis, because of the practical impossibility of the government litigating each claim separately. But even supporters
of the lawsuit concede that this approach has never been tried successfully in federal court.
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U.S. Sues Tobacco Makers in Massive Case --- Clinton Seeks the Recovery Of Over $20 Billion Spent A Year
on Sick Smokers

The government is also suing under the civil Racketeer Influenced and Corrupt Organizations law, alleging that the
industry collaborated to defraud the public. David Bernick, a lawyer for Brown & Williamson, said three recent
federal appeals-court rulings in cases against the industry brought by union health funds establish that insurers are
"too remote" from the injury caused to individual smokers to sue under RICO. The same logic applies to the federal
government, because it is acting in effect as an insurer, Mr. Bernick said.

But a department official said that the federal suit relies on special powers given to the attorney general under the
civil RICO statute to force recovery of alleged ill-gotten profits. The industry's liability under the RICO statute is
potentially massive. The civil RICO statute places no limits on how far back the government can go in forcing
companies to disgorge profits made as a result of the fraud.

"The number will be so large the industry can't pay it," said G. Robert Blakey, a professor at Notre Dame Law
School. "This case is not made to win, it's made to settle."

(See related letter: "Letters to the Editor: Tobacco Officials' Song and Dance" -- WSJ OCT. 7, 1999)

Notes

PUBLISHER: Dow Jones & Company

Load-Date: December 5, 2004

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