Troutman Sanders LLP: Big Tobacco Loses Appeal in Racketeering Case

Troutman Sanders LLP: Big Tobacco Loses Appeal in Racketeering Case

A federal appellate court recently rejected the tobacco industry's argument that restrictions imposed as part of a 2006 judgment should be set aside because Congress, in 2009, passed a law that imposed other restrictions on the industry and gave the Food & Drug Administration ("FDA") the primary authority to regulate tobacco products [United States of America, et al. v. Philip Morris USA Inc., et al., No. 11-5146, D.C. Cir. [enhanced version available to subscribers].

The 2006 judgment arose out of a lawsuit brought by the United States government against Philip Morris USA Inc., R.J. Reynolds Tobacco Co. and Lorillard Tobacco Co., among others. In that case, the defendants were accused of violating the federal Racketeer Influenced and Corrupt Organizations Act, generally referred to as RICO. After a nine month trial, the court found that the tobacco companies had violated RICO by intentionally deceiving the public about the dangers of smoking. In fashioning a remedy, the court imposed injunctive relief including a number of marketing, sales and advertising restrictions on the tobacco industry, as well as affirmative obligations to issue corrective statements about the dangers of their products.

In seeking relief from the 2006 judgment, the tobacco industry argued that a subsequent 2009 law, the Family Smoking Prevention and Tobacco Control Act ("Tobacco Control Act"), eliminated the need for the previous court-imposed restrictions. The tobacco industry also argued that because the FDA was now its primary regulator, the federal court should vacate the injunctions out of deference to the FDA. In short, the tobacco industry's argument was that since they are obligated to follow the law, then there was no longer any reasonable likelihood the defendants would commit future RICO violations. The tobacco industry's efforts were rejected by the federal district court and also recently rejected on review by an appellate court.

A three-judge panel of the District of Columbia Circuit Court of Appeals found that the Tobacco Control Act does not prevent the companies from again violating RICO. Noting a "proclivity for misconduct," the appellate court clarified that the intervening law dealt solely with the regulation of tobacco, and had no bearing on RICO. Instead, the law "simply subjected the defendants to the comprehensive oversight of the FDA." Further, the appellate court noted that the intervening law does not completely overlap with the previous court-imposed injunctions. Lastly, the appellate court noted that Congress explicitly stated in the Tobacco Control Act that it should not "affect any action pending in Federal, State, or tribal court." Interjecting a little humor, the appellate court referred to the tobacco industry's efforts as "the latest round in the Government's heavyweight bout against the tobacco industry," but the appellate court declared that "we give this round to the Government."

As federal, state and local governments increase their focus on the sale and use of tobacco, the Troutman Sanders Tobacco Team will continue to monitor developments in this area.

Contributor: John Costello, Troutman Sanders Regulatory Compliance and Government Litigation Practice Group and Tobacco Law Team

For questions and/or comments, please contact Bryan Haynes, Troutman Sanders Tobacco Law Team Co-Leader, at 804.697.1420 or by email.

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