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• BAT v. USA: PETITION FOR REHEARING (PDF) 

On June 24, 2010, the same day the petition was conferenced, this Court issued its opinion in Morrison v. National Australia Bank Ltd., No. 08-1191. As explained below, Morrison thoroughly invalidates the reasoning on which the D.C. Circuit based its holding in this case – namely, that the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. (RICO), reaches BATCo’s conduct outside the United States under the so-called “effects” test. Accordingly, the Court should grant rehearing, vacate the order denying certiorari, and enter a GVR order so that the D.C. Circuit may consider Morrison’s impact in the first instance. . . . BATCo’s certiorari petition presented the following questions:

1. Whether the D.C. Circuit correctly held * * * that the traditional presumption against extraterritoriality is completely irrelevant to determining whether Congress intends a statute to reach the wholly foreign conduct of a foreign corporation, if such foreign conduct is alleged to have had a direct and substantial effect within the United States.

2. Whether the D.C. Circuit, in concluding that * * * RICO[] regulates petitioner’s wholly foreign conduct, improperly (a) ignored the presumption against extraterritoriality and affirmative evidence that Congress never intended RICO to apply extraterritorially; (b) borrowed from federal securities and antitrust cases the ill-suited “effects” test as a measure of RICO’s extraterritorial reach; (c) approved a watered- down version of that test that conflicts with the test used by other circuits; and (d) relied on the U.S. “effects” of the U.S. conduct of other codefendants and of the “overall” alleged RICO scheme. . . .

CONCLUSION

The Court should grant the petition for rehearing, vacate the order denying certiorari, and enter an order that grants the petition for certiorari, vacates the portion of the D.C. Circuit’s decision that concerns the extraterritorial reach of RICO, and remands for consideration of Morrison.

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• New plea by tobacco company 

In a new plea that U.S. law should not reach overseas, British American Tobacco Co. on Friday asked the Supreme Court to order a second look by lower courts at the federal anti-racketeering law's scope. That law was used in the federal government's massive lawsuit against nearly the entire tobacco industry, including the British firm -- a case the Supreme Court refused to hear, denying seven separate appeals last month. The petition for rehearing (found here) is based mainly on the Supreme Court's broad ruling on June 24 against the overseas reach of U.S. securities law (Morrison v. National Australia Bank, 08-1191).

While conceding that the Court seldom grants rehearing to review a case once denied, the petition said it was "far more common" for the Court to agree to rehear a denied case and then set aside a lower court ruling so that "an intervening decision" by the Justices can be taken into account. The D.C. Circuit Court, it argued, should be told to "consider Morrison's impact in the first instance." In upholding all key parts of a District Court ruling against the industry, BATCo's lawyers contended, the Circuit Court created a "flawed 'exception' to the traditional presumption against extra-territoriality" of a U.S. law based on the alleged "effects" on the U.S. of overseas conduct.

"The D.C. Circuit Court held that RICO [the anti-racketeering law] could properly be applied to BATCo's foreign conduct based on that novel theory, and on its twin conclusions that the 'effects' test could be properly transplanted from securities and antitrust law to RICO and that a severely watered-down version of the 'effects' test is satisfied here," the petition said. The Morrison decision, it added, directly rejected that test for securities law, thus undercutting the Circuit Court's conclusion about BATCo.

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Investors Light Up as Cigarette Makers Move Higher 

So the headline-making news, says Morningstar analyst Philip Gorham, means the tobacco industry can breathe a sigh of relief as the potential payout could have put a material dent in its free cash flow for many years to come.

With the government’s racketeering case now settled, the analyst says, the companies’ solid cash-flow generation should ensure that the manufacturers can absorb any payouts without risk to their financial viability.

In response, investors lit up the shares of cigarette manufactures: In afternoon trading, Altria (MO), Reynolds American (RAI), and Lorillard (LO) were up 3.8%, 4.7%, and 3.1%, respectively.

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• U.S. Bid for Tobacco Damages Rejected by High Court  

The rebuff all but ensures that the racketeering suit first pressed by former President Bill Clinton's administration won't result in financial penalties against Altria's Philip Morris USA and R.J. Reynolds Tobacco Co. It's the second time the high court has refused to hear government arguments in the case.

Altria climbed 64 cents, or 3.3 percent . . .

U.S. District Judge Gladys Kessler's ruling could open companies to continuing judicial oversight and impose more stringent limits on their business practices than the 2009 law that let the FDA regulate tobacco.

The government appeal, filed by U.S. Solicitor General Elena Kagan, argued that judges have authority to order the return of "ill-gotten gains" under the 1970 U.S. Racketeer Influenced and Corrupt Organizations Act, known as RICO.

"Congress vested district courts with full equitable authority to award complete relief for violations of RICO, including orders to disgorge ill-gotten gains," argued Kagan, now President Barack Obama's nominee to the high court. Her confirmation hearings began today. . . .

She also ordered the companies not to engage in future racketeering or deception. That aspect of her ruling would let the government or anti-smoking advocates return to court to seek additional sanctions on cigarette makers. . . .

Private litigants have attempted to use Kessler's 1,653- page opinion as ammunition in their own lawsuits against tobacco companies.

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• Big Tobacco won't have to pay $280 billion  

The ruling yesterday means a lower court can order Big Tobacco to take steps -- such as not labeling cigarettes as light or low tar -- already required by last year's law that gives the U.S. Food and Drug Administration regulatory authority over tobacco products. . . .

"It is now established, and will not be overturned, that the major tobacco companies have been adjudicated to be racketeers," said Edward L. Sweda, a tobacco-control activist and senior attorney for the Tobacco Control Resource Center at Northeastern University.

The Campaign for Tobacco Free Kids said it was disappointed that the Supreme Court won't consider whether to reinstate the $280 billion in penalties, along with demands that tobacco companies pay for programs to teach people about the risks of tobacco and to help them quit smoking.

But, it added, "Today's decision upholds the trial court's historic verdict that the cigarette manufacturers are racketeers and have engaged in a decades-long conspiracy to deceive the American public and target children with their deadly and addictive products." . . .

Tobacco companies argued that it was wrong to apply racketeering law to a group of companies that compete with one another, and that many of the actions called racketeering were expressions of opinion about what was for many years a matter of heated public debate -- the degree of harm from smoking and second-hand smoke.

Garnick said he believes Kessler's racketeering finding is unlikely to affect individuals' lawsuits against tobacco companies.

He said juries and judges in several states had rejected many of the arguments the Justice Department made in its case.

The case now returns to the U.S. District Court in Washington, which is considering how to mesh its ordered remedies with last year's FDA tobacco law.

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High Court Leaves Tobacco Rulings in Place 

The Supreme Court announced Monday it would not take up either government or industry appeals of a landmark racketeering verdict against cigarette companies for what a judge had termed a half century of lying over the health effects of smoking.

The court's action surprised analysts on both sides of the issue and pushed tobacco stocks sharply higher.

"What a relief," CreditSuisse titled a note to investors. . . .

Thilo Wrede, industry analyst for CreditSuisse, said in an interview, "If the decision would have been the other way, you would have seen a headline saying a $280 billion case is open again. The stocks would have seen a comparable downward move if not more."

Edward L. Sweda, chairman of the Tobacco Products Liability Project at the Northeastern University School of Law in Boston, said the decision was mixed.

"Obviously we're disappointed because we would have liked to force the companies to disgorge their ill-gotten gains," he said. "But we're delighted with upholding the judge's basic finding that the major tobacco companies are in fact adjudicated racketeers. Now that is established as historical fact." . . .

David J. Adelman, tobacco analyst for Morgan Stanley, had expected the court to accept the case but not to force disgorgement because that could have ruined the companies. "The ultimate prospect of a large-scale disgorgement award has been eliminated," Mr. Adelman wrote on Monday.

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• U.S. Supreme Court Upholds Verdict that Tobacco Companies Conspired To Deceive American Public and Addict Children 

The U.S. Supreme Court today declined to hear appeals in the federal government's civil racketeering lawsuit against cigarette manufacturers. Today's decision upholds the trial court's historic verdict that the cigarette manufacturers are racketeers and have engaged in a decades-long conspiracy to deceive the American public and target children with their deadly and addictive products. That verdict is now final and undeniable: The cigarette manufacturers have been found guilty of engaging in a deadly fraud that is unprecedented in our nation's history. . . .

It is now critical that the trial court move forward with strongly enforcing the remedies that it did order. These include requiring the tobacco companies to make corrective statements about the health risks of smoking and secondhand smoke and their deceptive practices through newspaper and television advertising, on their web sites and on cigarette packaging. The trial court also ordered the tobacco companies to report marketing data annually to the government, extended and expanded current requirements that the cigarette manufacturers make public their internal documents produced in litigation, and prohibited the companies from committing acts of racketeering or making false, misleading or deceptive statements about cigarettes and their health risks in the future. The court also banned deceptive cigarette labels such as "light" and "low-tar," a ban that has already taken effect as a result of a new federal law granting the U.S. Food and Drug Administration authority over tobacco products.

Today's ruling also puts the responsibility squarely on elected officials at all levels to eliminate the harmful and deceptive influence of the tobacco industry and take effective action to protect the nation's health. Congress and the Obama Administration should fund a national public education and smoking cessation campaign, and the FDA must effectively exercise its new authority to regulate the manufacturing, marketing and sale of tobacco products. State officials must redouble efforts to implement proven measures, including higher tobacco taxes, comprehensive smoke-free workplace laws and well-funded tobacco prevention and cessation programs.

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US Supreme Court hands major victory to Big Tobacco 

The US Supreme Court gave a substantial victory to major tobacco firms Monday, rebuffing an appeal that would have allowed the government to pocket 280 billion dollars of their profits.

The decision not to hear the case dealt a potentially fatal blow to long-running government efforts to penalize tobacco firms for 50 years of allegedly deceptive practices aimed at getting people hooked on smoking.

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Tobacco Bond Risk Eases as Supreme Court Rejects Damages Bid  

The cost to protect against losses on bonds of Altria Group Inc. and Reynolds American Inc. fell after the U.S. Supreme Court rejected the Justice Department's bid for as much as $280 billion in tobacco company profits.

Credit-default swaps on Altria Group and Reynolds American, the largest cigarette makers, dropped the most in at least a year. The high court's refusal to hear an Obama administration appeal made it likely the racketeering suit first pressed by former President Bill Clinton's administration won't result in financial penalties against Altria's Philip Morris USA and R.J. Reynolds Tobacco Co.

Altria and Reynolds are "the biggest movers by a mile after the Supreme Court ruling on damages," Tim Backshall, chief strategist at Credit Derivatives Research LLC in Walnut Creek, California, wrote in an e-mail.

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UPDATE: US Supreme Court Won't Consider Long-Running Tobacco Case  

The U.S. Supreme Court Monday refused to review a landmark ruling that found the tobacco industry violated federal racketeering laws by engaging in a decades-long scheme to deceive the public about the dangers of smoking. . . .

All saw a boost Monday from the Supreme Court's decision, with Altria up 3.9% to $20.47, Reynolds American up 4.2% to $53.53, British American Tobacco up 1.3% to $64.91 and Lorillard up 2.7% to $73.74 in recent trading.

Morningstar analyst Philip Gorham said he wouldn't expect major stock moves as a result of any one court ruling, but said investors are relieved that the tobacco companies won't have to forfeit up to $280 billion in profits.

"The market tends to price in the risk of defeat in these cases," Gorham said.

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Tobacco shares bounce on Supreme Court's ruling  

NEW YORK (MarketWatch) -- Shares of cigarette makers traded higher Monday, gaining after the Supreme Court declined to review a case finding that the industry had violated federal racketeering laws -- but let it off the hook from an attempt to make the companies give up billions of dollars in allegedly ill-gotten gains.

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UPDATE 2-U.S. Supreme Court rejects tobacco case appeals  

The U.S. Supreme Court on Monday rejected separate appeals by cigarette makers and the Obama administration stemming from the government's racketeering lawsuit against the tobacco industry, a case that initially sought $280 billion from the industry.

The court's mixed ruling was seen by Wall Street as a win for tobacco companies, as it removed any uncertainty that a huge legal verdict could be reinstated against the companies. Shares of tobacco makers rallied on Monday morning.

The Supreme Court rejected the appeals without any comment. . . .

The Dow Jones tobacco index .DJUSTB was up 2.3 percent on Monday morning. Shares of Altria (MO.N), the largest U.S. tobacco company, were up 4.1 percent at $20.50, while rival Reynolds American Inc (RAI.N) was up 4.2 percent at $53.52.

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• United States Supreme Court Denies Review of DOJ Tobacco Litigation 

Philip Morris USA (PM USA) and its parent company, Altria Group, Inc., said today that the United States Supreme Court has denied all petitions for review of an intermediate appellate court ruling that largely upheld the trial judge's ruling in the long-running Department of Justice lawsuit against the country's major tobacco companies.

"Although we are disappointed that the Supreme Court did not grant our petitions challenging the basis for the lawsuit, we are pleased that the Supreme Court has confirmed once again that disgorgement is not an available remedy," said Murray Garnick, Altria Client Services senior vice president and associate general counsel, speaking on behalf of PM USA and Altria Group. The case is now expected to return to the district court for further proceedings.

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• Ban on Deceptive Cigarette Labels "Light" and "Low-Tar" Takes Effect June 22 

On June 22, the first anniversary of the law granting the Food and Drug Administration authority over tobacco products, one of the most significant provisions of the law will take effect: A ban on the use of the deceptive terms "light," "mild" and "low" tar in the marketing and sale of cigarettes.

This prohibition seeks to end one of the deadliest consumer frauds of our time. For decades, the tobacco industry responded to growing health concerns about smoking by using these terms to promote the falsehood that some cigarette brands are less harmful, and to discourage smokers from quitting. This deception has had devastating consequences for public health.

More than half of daily American smokers — including nearly two-thirds of women who smoke — say they smoke brands marketed as "light" or "ultra-light." Multiple studies have found that smokers commonly believe that using these products enables them to reduce the risk of smoking without having to quit. This is false, and internal industry documents have shown that the tobacco companies know it is false.

Industry Seeks to Foil New Rules

Despite the law, tobacco companies already are using new tactics to foil the regulations and perpetuate the deception. These include using lighter-colored packaging for light brands, and switching to terms such as "gold" and "silver" to replace "light" and "ultra-light." . . .

History of the Light and Low Deception

As far back as the 1930s and 1940s, the tobacco industry promoted certain cigarette brands as being less irritating, protective of smokers’ health — and even endorsed by doctors. . . .

Even as the United States and a growing number of countries ban terms such as "light" and "low," the tobacco industry continues to introduce and aggressively market such brands, with the same dishonest strategies, in the many countries that have not acted. The companies are especially targeting developing nations where consumers are only now becoming fully aware of the health risks of smoking. Countries that have seen large increases in sales of purportedly lower-tar cigarettes in recent years include China, Russia, Turkey and Ukraine.

The international tobacco control treaty, the Framework Convention on Tobacco Control, obligates its 168 ratifying nations to ban any label or practice that "directly or indirectly" misleads consumers that a particular tobacco product is less harmful than others. To prevent the tobacco industry from perpetuating the light and low-tar lie globally, it is critical that nations aggressively enforce this and other provisions of the treaty.

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• The tobacco cases: A primer 

That fight is back in the Supreme Court now, five years after the Court had passed up its first chance to consider the government's plea that the industry be forced to surrender scores of billions of dollars in profits taken in since 1971. But the case -- actually, there are seven cases in the group before the Court - reaches well beyond the government''s $280 billion "disgorgement" demand, and the final outcome could make over the industry, fundamentally reshape its commercial message, and -- perhaps -- change the nation's smoking habit.

The cases reach the Court in a form that means the Court need not hear any of them. That is the issue the Court will ask itself when it considers the cases next week, at its June 24 private Conference. The petitions are requests to review a D.C. Circuit Court decision made thirteen months ago (as well as an earlier one by the Circuit Court in 2005), and the Court could simply deny review of all of the pleas, if it wished. And the Court could narrow its task somewhat -- and that of the lawyers -- if it simply agreed, at this point, to decide one question: did the tobacco companies break any law at all? If they didn't, that would be the end of this marathon lawsuit. . . .

But even the question of whether the companies acted illegally is far from simple. It is implicated in many of the eighteen separate questions that the petitions raise, and the core question of illegality is itself a complex one. That issue is whether RICO, when it forbids a conspiracy to operate a racketeering "enterprise," means only a group of plotting individuals, or whether it can also embrace an "association" of competing companies in virtually an entire industry. . . .

The case then proceeded before Judge Kessler (without a jury), running for nine months, with live testimony from 84 witnesses, written testimony from 162, and nearly 14,000 exhibits. The judge, in a 1,600-page decision in August 2006, ruled that the nine companies and two trade groups had engaged in a scheme to defraud smokers and potential smokers by falsely denying smoking's health hazards, its addictive nature, the industry's manipulation of cigarettes to assure more nicotine delivery, the intentional marketing of cigarettes to youth, and second-hand smoke as a cause of diseases. She also found that the companies had falsely promoted "light" and "low tar" cigarettes as healthier than regular cigarettes. . . .

Aside from the specific questions raised in the seven petitions, the two sides each appear to be pursuing broader agendas. . . .

But the cases grow even more complex when they move from the scope of the alleged illegality in the industry, to the multi-faceted question of what to do about it -- that is, what remedies RICO allows a judge to impose. . . .

The sheer bulk of the case also may pose a scheduling challenge for the Court. The Justices have not had a case of this complexity or girth since 2003, when they dealt with multiple appeals on the constitutionality of a 2002 federal campaign finance law. The Court probably would schedule more than a single hour of argument, since it would be next to impossible to address both liability and remedy issues in the course of an argument with 30 minutes allowed on each side.

Because the cases come before the Justices at their final scheduled Conference next Thursday, it is likely that an announcement of their decision whether or not to hear the dispute would be released on Monday, June 28.

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