Cigarette makers escaped major financial penalties Thursday, even though a federal judge found them liable for violating racketeering laws in a decades-long conspiracy to hide the dangers of smoking.
U.S. District Judge Gladys Kessler ruled that a group of tobacco companies had broken the law, but could not be forced to pay monetary penalties such as funding a large anti-smoking campaign, as the government had sought.
“Cigarette smoking causes disease, suffering, and death. Despite internal recognition of this fact, defendants have publicly denied, distorted, and minimized the hazards of smoking for decades,” she said in the 1,653-page opinion.
Kessler said the companies suppressed research, destroyed documents and manipulated nicotine levels to perpetuate addiction, but an appeals court ruling prevented her from slapping the companies with costly remedies.
She did impose some remedies, including ordering the companies to make “corrective” public statements about the health effects and addictiveness of smoking, and banning them from describing cigarettes in ways that convey health claims such as “low tar” and “light.”
Targeted in the 1999 lawsuit were Altria Group Inc. and its Philip Morris USA unit; Loews Corp.’s Lorillard Tobacco unit; Vector Group Ltd.’s Liggett Group; Reynolds American Inc.’s R.J. Reynolds Tobacco unit and British American Tobacco Plc unit British American Tobacco Investments Ltd.
As public health groups expressed disappointment in the outcome, tobacco stocks rose. Altria gained over 3 percent in extended trading after the ruling, Reynolds rose over 2 percent, Carolina Group, a tracking stock for Lorillard, was up over 1 percent.
“Although they lost, they won. It’s a victory for the tobacco companies,” said Tim Ghriskey, chief investment officer at Solaris Asset Management.
A spokesman for Reynolds Tobacco said the company was disappointed that Kessler ruled in favor of the government, but "certainly we’re pleased that the court did not award unjustified and extraordinary expensive monetary penalties."
The ruling was also seen as the last major hurdle to be cleared before Altria decides when it will spin off its Kraft Foods Inc. business.
Kessler ordered each company to post on its Web site all documents it submitted to prosecutors in the case and transcripts of letters and depositions of former employees about the health impacts of cigarette smoking or research. The material must remain on their Web sites until 2016.
The corrective statements would have to appear on Web sites, in full-page advertisements in major newspapers, on three major television networks and on cigarette packaging.
Little regard for suffering
She also ruled that the tobacco companies will have to pay for the government’s court costs. Current figures are not available, but the government has previously said it spent more than $130 million on the case.
The companies pursued profits “with little, if any, regard for individual illness and suffering, soaring health costs, or the integrity of the legal system,” Kessler said.
Kessler exempted Liggett from the remedies, saying the company “does not have a reasonable likelihood of future (racketeering) violations” because it withdrew from the conspiracy in the mid-1990s.
The judge said she was barred from imposing stricter penalties against the tobacco companies by a February 2005 ruling of the U.S. Court of Appeals for the District of Columbia Circuit.
That opinion, written by appellate Judge David Sentelle, barred the government from seeking $280 billion in past industry profits, depriving the government of its biggest potential weapon in the case.
Lawyers for the Justice Department eventually asked the judge to instead require tobacco companies to fund a 10-year, $14 billion anti-smoking program.
But in Thursday’s opinion, Kessler said that remedy was also out of step with the appeals court ruling, which dictated that civil racketeering remedies focus on the prevention of future misconduct, not punishment of past misdeeds.
Public health groups applauded Kessler for holding the tobacco companies liable but expressed disappointment in the remedies .
“It’s ... worthy of a life sentence but instead they got a slap on the wrist,” Cass Wheeler, the chief executive of the American Heart Association, said in a statement.
The Justice Department applauded Kessler’s finding of liability, and while disappointed with the remedies, was hopeful they could have “a significant, positive impact on the health of the American public.”