Monday, August 29, 2005

DOJ Defends its Remedies Requests - POST 3: Youth Smoking Reduction Targets

In a post-trial brief submitted last week, the Department of Justice defended its proposed remedies in the RICO case against the tobacco companies, addressing specifically the argument that these remedies are not consistent with the D.C. Court of Appeals decision that RICO civil remedies must be forward-looking, designed to prevent and restrain future RICO-related misconduct of the defendants.

This is the third of a series of three posts that will address the 3 major monetary remedies: a smoking cessation program, a national anti-smoking education campaign, and youth smoking reduction targets. This post will deal with the third of these - the request for the industry to be fined if a set of youth smoking reduction targets are not met.


DOJ has proposed as a remedy "targeted reductions in youth smoking of 6% per year between 2007 and 2013, for a total reduction of 42% among those 12-20 years old. ... If Defendants fail to meet the yearly targeted reductions, they will be assessed $3,000 per youth above the target levels. ... The assessment, imposed for each youth in excess of the target levels, exceeds Defendants’ financial gain from each such youth. ... It is thus a forward-looking remedy aimed at preventing and restraining future racketeering violations." The remedy is designed to work by "eliminating the economic incentives that defendants experience to market cigarettes to young people."

The government goes on to argue that this remedy is an attractive one because it allows the tobacco companies complete flexibility in deciding how to meet the target levels. They can decide the appropriate mix of price-related, advertising-related, and other measures to meet the targets. In addition, DOJ argues that reaching these targets is feasible, as a 42% increase in cigarette price would result in the required reduction in smoking prevalence among young people. In summary, DOJ argues that this proposed remedy is "an efficient and effective means of removing the economic incentive for Defendants to engage in future RICO violations that make their cigarette brands appealing to young people."

The Rest of The Story

This is clearly the strongest of the three proposed monetary remedies. In contrast to the proposed national smoking cessation program, this remedy is clearly designed to prevent and restrain future RICO violations, not to remedy the damages caused by past or by future violations. And unlike the proposed public education and counter-marketing campaign, I believe this proposed remedy would in fact create an economic incentive for the companies not to engage in youth marketing, because it would fine the industry more for failing to achieve the smoking reduction limits than the amount of money that the companies would reap from recruiting new youth smokers.

So do I then think that Judge Kessler will order such a remedy and that the remedy will be upheld on appeal should she decide in favor of the DOJ in the case?

Not a chance. And here is why:

The proposed remedy, while it may be designed to prevent and restrain future RICO violations, is hardly an efficient means of doing so and it may not even be effective. The remedy is not at all directly tied to future RICO violations and the connection is, in fact, so remote that I would find it hard to believe that a court would approve such a plan. As I pointed out in my May 23 post, youth smoking prevalence is a measure only indirectly tied to future RICO violations. There are a number of reasons why youth smoking prevalence targets may not be met, of which continued marketing to youths is only one.

To understand the quite indirect connection between youth marketing and youth smoking prevalence targets, consider the following two scenarios.

First, suppose that the companies were to completely stop marketing to kids. However, suppose that the entertainment industry began to portray smoking in movies more often and in an ever more glamorous way. According to some research, this would be expected to result in a monumental increase in youth smoking. So despite the fact that the tobacco companies stopped marketing to youths completely and thus refrained from RICO violations, the youth smoking prevalence targets would not be met because of the actions of a party over which the tobacco companies have no control.

The research demonstrates that while tobacco marketing does influence youth smoking behavior, it is only one of a large number of factors. Eliminating youth exposure to cigarette marketing would certainly be expected to lower youth smoking prevalence, but there are a number of other factors over which the tobacco companies do not have control which could come into play and could work in the opposite direction. The overall result could be that the youth smoking reduction targets are not met, even though the tobacco companies have acted appropriately.

This hardly seems like a just approach (to penalize the companies even though they discontinued RICO violations). And it may in fact turn out that the companies have an economic incentive to continue youth marketing. Because if it appears that they are going to have to pay the fines whether they market to kids or not, then the incentive is clearly for them to market to kids. They might as well reap the benefits of an increased customer base.

Now here's a second possible scenario. Let's assume that the American Legacy Foundation's efforts to secure funding for the continuation of the "truth" anti-smoking campaign are successful and that it is as effective as Legacy claims. A 22% reduction in youth smoking therefore occurs and continues for several years. Thanks to Legacy's efforts, there would be a dramatic reduction in youth smoking prevalence, and there would be no need for the tobacco companies to alter their marketing behavior because they wouldn't have to pay the fines anyway. (Remember that the smoking prevalence changes that Legacy attributes to itself were observed in presumed presence of continued tobacco marketing to youths.) Thus, external factors that influence youth smoking could reasonably work in such a way that the youth smoking reduction targets are achieved without changes in youth marketing, and the proposed remedy would not in fact be effective in preventing and restraining these future RICO violations.

Whether these scenarios are likely to occur or not (and by the DOJ's own expert's testimony, the second scenario will likely occur if the public education and counter-marketing remedy is ordered), the very fact that these are possible and not totally unreasonable scenarios demonstrates my point that the proposed youth smoking reduction targets are quite indirectly tied to future RICO violations.

The government mentions in its brief that youth smoking prevalence reduction targets were a part of the failed 1997 global settlement that was ultimately rejected by Congress. And that seems to be the appropriate place for a public health strategy of this nature to be considered. I think you could potentially legislate such an approach to dealing with tobacco-related disease, but I don't see how a court can fashion this type of approach as a remedy in a RICO case. Youth smoking prevalence is just far too indirectly tied to RICO violations to make it appropriate for a court to impose that broad a remedy for such narrow a purpose.

The rest of the story suggests that none of the monetary remedies that the government has proposed is likely to be ordered by Judge Kessler and/or upheld by the D.C. Court of Appeals because they either are: (1) designed to provide equitable relief for, rather than prevent future RICO violations (smoking cessation); (2) ineffective at preventing future RICO violations (public education and counter-marketing campaign); or (3) far too indirectly tied to future RICO violations to make them an effective preventive remedy (youth smoking reduction targets).

I think that pretty much does it for any reasonable chance of a substantial monetary remedy in the DOJ case - I imagine probably to the great disappointment of many anti-smoking groups who seem to be in this mainly for the money. Unless, of course, the Supreme Court decides to hear the case and rules in the government's favor. Had the anti-smoking groups spent less time and less of their donors' money whining about the loss of money and issuing public, political attacks on individuals for decreasing the monetary requests, and more time helping to fashion effective remedies that would directly restrain future RICO violations by directly regulating tobacco industry marketing practices, then I think the public interest and the public's health would have been far better served.


Cantiloper said...

Mike, you wrote:

"DOJ has proposed as a remedy "targeted reductions in youth smoking of 6% per year between 2007 and 2013, for a total reduction of 42% among those 12-20 years old. ... If Defendants fail to meet the yearly targeted reductions, they will be assessed $3,000 per youth above the target levels....

and then correctly point out the fallacy of pretending that "youth marketing" is the only (or even necessarily a deciding) factor affecting youth smoking.

I would go further than that: While criminal may not be the proper term to use, I think something equally strong is deserved when the Government ignores its responsibility to enforce its own laws and instead tries to force private sector non-police-empowered companies into a form of involuntary servitude to take up the slack.

If the companies marketed to youth in the past, and if it was a crime to do so (I'm not sure I've actually seen that law though) then they should be punished. The companies should be punished, specifically, and forbidden to pass on the costs of that punishment to their customers. Unfortunately the money grubbers, both the politicians and the Antismoking Lobby groups, want more money than they can steal without bankrupting the companies so they insist that smokers pay for the supposed crime instead... even though they had nothing to do with committing it.

It would be similar to charging senior citizens a 50% surcharge on their prescriptions because a certain percentage of kids are hanging on the street corner snorting ritalin.

In terms of forward vs. backward looking actions, the Government is charged with responsibility for enforcing its laws. If it is illegal for the tobacco companies to market to youth, and they are doing so, then it is the Government's responsibility to fine them. If they are not marketing to youth, then they should not be fined.

Further, if they market to youth and youth smoking goes down, they should still be fined, and if they stop marketing to youth and youth smoking goes up they should not not be fined. Doesn't that seem to make more sense than putting the companies into a position of having to enforce government regulations and then punishing innocent consumers if the companies turn out not to be effective enough in exercising police powers?

Philip Morris et al may indeed be guilty of violating laws (Although again, I'd like a reference on what laws. For some reason, being an American and all, I'm not real comfortable with the idea of the Government suddenly writing laws that declare that legal activities I did ten years ago are suddenly not only now illegal but that I'm going to be punished for doing them when they were legal.) but the Government needs to face up to the responsibility and expense of enforcing its own laws and halt the disgraceful practice of fining innocent people for crimes they never committed simply because the "criminals" don't have enough money to pay for themselves.

As I stated, sorry if I'm a bit quirky on that... has something to do with being an American.

norbert hirschhorn said...

So Mike, say you're the lead attorney on the DOJ side: What WOULD you have asked for? Would you have even initiated the case in the first place?

As I mentioned in an earlier response, a finding by Judge Kessler that the industry has been naughty is of no event as the industry already accepts that as fact; "and now let's get on with selling more cigarettes even though we know they addict and kill."

Norbert Hirschhorn

Michael Siegel said...

First, I wouldn't underestimate the impact that a "guilty" verdict would have. The tobacco companies are spending a lot of money on public relations to increase their public image, and it certainly wouldn't help them to be found guilty of racketeering. Also, the case is getting a lot of media attention, so that amount of attention to a guilty verdict would likely harm their public image substantially.

As far as remedies, as I've written for some time, I think the most appropriate remedy would be some direct restriction on tobacco marketing that would directly prevent and restrain future RICO violations. Since the main claim in the case is that the companies have been running a fradulent and deceptive marketing campaign, in part targeted at youths, I think the appropriate remedies under RICO would be those which directly restrain that conduct. That would involve direct restrictions on marketing activities so that the companies could not market to youths and could not commit fraud by deceiving the American public about the true health consequences and addictiveness of tobacco products.

Bill Godshall said...

I suspect that Judge Kessler (or at least the DC Court of Appeals) will concur with Mike Siegel's analysis on the DOJ's proposed remedies for the $14 billion smoking cessation program and the youth smoking reduction targets.

I think the DOJ's proposed marketing/advertising/warning remedies (although rather weak) are consistent with the RICO statute, and perhaps even the DOJ's proposed public education / counter advertising program.

The intervenors brief also requested additional marketing/advertising remedies (although they could/should have requested even more effective marketing/advertising remedies) that comply with the DC Court of Apeals ruling.

Hopefully, we'll never find out. If the Supreme Court agrees to consider the DOJ's appeal, and then overturns the DC Court of Appeals ruling that limited DOJ remedies to only those that were forward looking, that will change everything, as additional remedies then would be permitted (as long as they comply with the Supreme Court's ruling).

It's also possible that a settlement could occur before the Supreme announces its decision to consider the DOJ's appeal, or before the Supreme Court rules on the DOJ's appeal.

Anonymous said...

Gentlemen, you miss a key point (and this cannot be emphasized strongly enough):

MARKETING CIGARETTES TO YOUTH IS NOT BY ITSELF A RICO VIOLATION. Particularly not "youth" that include legal adult smokers between the ages of 18-21 as the gov't defines them!.

There are a specific list of possible predicate RICO violations that include wire fraud, mail fraud, embezzlement, etc. But "Joe Camel" ads are most certainly NOT among them! So if there is any RICO violation here its tobacco LYING about marketing to youth, not the marketing itself!

The way to correct that alleged RICO violation would by preventing tobacco from LYING about marketing to youth, something that is somewhat ridiculous, if you think about it. Alternatively, if the problem one wishes to address is "youth marketing" itself, since the FTC regulates tobacco marketing, the FTC could act to sanction tobacco for violations of youth marketing restrictions (assuming, that is, that there such restrictions actually exist and that they have been violated!). And of course, the MSA, which effectively has the power of law since it is enforced by all 50 states Attourney Generals, has comprehensive and strong anti-youth marketing provisions already. . .ones that have ALREADY been enforced in various actions.

Even if we make a stretch and assume that youth marketing is synonymous with fraud (which it isn't) and that tobacco is currently actively engaged in youth marketing (which is also a ridiculous allegation given the prior restraint of the MSA) restricting tobacco's marketing practices would be outside Judge Kessler's jurisdiction anyway, since Tobacco marketing is controlled by the FTC by Congressional mandate. Kessler has herself as much as said this during the remedies portion of the trial. She will not, and more importantly CAN NOT stand in for the Congress and the FTC and enact and enforce a new tobacco marketing schema, particularly when there are also first amendment issues involved. If the FTC wants to regulate youth marketing it can do so. That's not her role, and she knows it.

In response to Bill Godshall, I say that the US Supreme Court is highly unlikely to accept jurisdiction on the disgorgement issue as an interlocutory appeal when the full case record hasn't been developed. That court is overworked, and they simply don't like to mess around with cases in the middle. Without a finding of liability here (which hasn't happened yet), they could be wasting their time writing a nuanced decision on potential civil RICO remedies based on a hypothetical "what if the Tobacco companies are found liable" scenario. Why should they even bother when there has been a clear ruling by the DCCA, arguably the second highest court in the United States, in this case already, and even denial of en-bloc review? This is just not a good "test case" for the SCOTUS.

To Michael Siegel, allow me to make one small correction. This is a civil (not criminal) trial, and there is no jury. So there can be no "guilty" and there will be no "verdict". Nobody is going to go to prison, no matter what the outcome.

At best there can be a finding of civil LIABILITY under RICO 1964(a) for *ongoing and likely future* RICO violations.

Kessler can (and probably will) find that tobacco has committed a slew of prior potential predicate RICO acts. But those things don't establish liability. The "enterprise" has to be proven to be ONGOING, and RICO violations have to either be currently ongoing or likely to continue in the future in order for her to establish liability and order remedies.

Without a finding of CURRENT or LIKELY FUTURE RICO violations the public relations effect of findings of past predicate RICO acts is probably negligible. I really don't think the tobacco industry is going to care. They've been called worse than "racketeers" already, and it would be pretty easy for them to dismiss predicate RICO acts committed in the 1950s and 70s as irrelevant from a modern PR standpoint. They could keep the same "we were bad then, but we're saints now" marketing attitude that they currently have. In fact, they could well spin the whole thing as saying that since the gov't has in effect conducted a seven year long investigation of the tobacco inudstry, but couldnt prove any ongoing RICO violations, that this proves the industry has completely reformed itself! And truthfully, it would be hard to rebut that position, considering the straws the gov't has grasped at, and the money and manpower they have spent on this to date.

The question is, has the gov't met the burden of proving an ONGOING RICO conspiracy? What I am saying is, no RICO liability, no remedies. No liability, no negative PR effect.