Thursday, September 01, 2005

Tobacco-Free Kids and Five Other Health Groups Request Huge Monetary Remedies in DOJ Case: POST 1 - National Smoking Cessation Program

Six public health and anti-smoking organizations yesterday submitted a post-trial brief in the DOJ lawsuit, requesting a series of remedies to address the alleged RICO violations of the tobacco company and defending these remedies as being consistent with the D.C. Court of Appeals' decision that disallowed disgorgement of past profits as a remedy in the case.

The six organizations (hereafter referred to as the intervenors) - the Tobacco-Free Kids Action Fund, the American Cancer Society, the American Heart Association, the American Lung Association, Americans for Nonsmokers' Rights, and the National African American Tobacco Prevention Network - proposed three massive monetary remedies, similar to, but in some cases, more costly than proposed by the Department of Justice in its post-trial brief.

This is the first of a series of 3 posts that will provide a commentary on the brief in terms of its arguments supporting each of the 3 major monetary remedies requested: (1) a national smoking cessation program; (2) a public education and counter-marketing campaign; and (3) penalties for failure to meet youth smoking prevalence reduction targets.

This post will address the first of these remedies: the requirement that the tobacco companies fund a national smoking cessation program.

1. NATIONAL SMOKING CESSATION PROGRAM

The smoking cessation program requested by the intervenors is far broader and more expensive than that requested by DOJ. The request is for a $4.8 billion annual program that would continue until less than 10% of smokers report that they want or intend to quit.

The intervenors provide two arguments to support this remedy as being consistent with the RICO statute and with the D.C. Court of Appeals ruling:

A) "The cessation remedy prevents and restrains future violations by reducing the number of addicted smokers who want to quit, thereby reducing the economic incentives for the defendants to commit fraudulent acts aimed at that population."

B) "This Court may also impose the cessation remedy under its power to 'divest' the defendants of their unlawfully obtained investment, thereby ensuring that the defendants will not enjoy the assets, future dividends, and other interests derived from such illegal investments."

The Rest of the Story

ARGUMENT A
The intervenors have argued that the proposed smoking cessation program is necessary to, and would be effective at, preventing and restraining future RICO violations by eliminating the economic incentives for tobacco companies to attempt to deceive consumers into continuing to smoke. The underlying premise is that a national smoking cessation program would: (1) immunize smokers against tobacco companies' misleading marketing campaigns; and (2) reduce the number of people smoking in the future, thus reducing the number of consumers who the industry can continue to deceive. In both cases, the economic incentive for defendants to deceptively market their products would be eliminated.

The intervenors also argue that their proposed smoking cessation remedy is linked to a goal (the reduction of the proportion of smokers who want or intend to quit to less than 10%) that is "an indicator of whether the defendants are continuing to engage in ongoing wrongful behavior."

In my view, all of the intervenors arguments are severely flawed and quite irrational. Take first the notion that a national smoking cessation program would remove the economic incentive for companies to deceive smokers into continuing to smoke by immunizing them against any and all tobacco marketing campaigns. This idea may be nice in principle, but in the real world, is preposterous. It is simply impossible to imagine a smoking cessation campaign that could completely immunize all smokers against any and all potential deceptive marketing that could come their way, such that they would be completely immune to any such marketing.

The reality is that such a program might work for a certain proportion of the population and it might work to some degree for most or all of the population. But that would simply mean that the tobacco industry needs to be even more effective in deceiving the remaining proportion of the population into continuing to smoke in order to maintain its customer base. And it would have to become increasingly aggressive and increasingly deceptive in order to break through the barrier posed by the smoking cessation program. In other words, a national smoking cessation campaign would actually increase, not decrease, the economic incentive for tobacco companies to continue their RICO violations because they would be forced to be ever more effective in maintaining smoking behavior among the reduced proportion of consumers who remained susceptible to their marketing, and they would be forced to be ever more aggressive in their deceptive marketing practices in order to overcome the smoking cessation program's messages, which would be undermining their marketing campaigns.

The second part of the intervenors' argument - that a smoking cessation program would reduce the economic incentive for future RICO violations by reducing the number of smokers who could be affected by such violations - is actually, in my view, the exact opposite of valid reasoning. If the number of smokers was reduced, then the industry would have to be even more aggressive in maintaining smoking among the remaining smokers and this would create an incentive for the continued (and perhaps increased) occurrence of RICO violations.

But where the argument completely falls apart, I think, is in its assertion that the proposed smoking cessation remedy is linked to a goal (the reduction of the proportion of smokers who want or intend to quit to less than 10%) that is "an indicator of whether the defendants are continuing to engage in ongoing wrongful behavior."

Are we to believe that the proportion of smokers who want to quit smoking is a direct measure of the degree of tobacco companies' RICO violations? If this were true, then it would imply that the more RICO violations ongoing, the greater the proportion of smokers who would want to or intend to quit smoking. But that is a seriously flawed idea. Because it is very possible that the nature of the alleged RICO violations is that they would decrease, not increase, the proportion of smokers who want to quit.

In fact, the main argument in the case in this regard is that the industry has deterred smokers who might otherwise want to quit from having this desire by convincing them that it is acceptable to their health to instead switch to low-tar or low-nicotine cigarettes. In other words, the defendants' alleged misconduct would result in a population of smokers who are much less likely to want to quit smoking then would otherwise be expected. If that misconduct were very prevalent and very effective, then almost no smokers would want to quit smoking.

In other words, the 10% target for the maximum proportion of smokers who say they want to quit is actually a strong economic incentive for the companies to become ever more aggressive, intensive, and effective in their RICO violations such that they are able to convince nearly all smokers that the health risks of smoking are overestimated, it is acceptable to health to switch to light cigarettes, etc. If the companies are able to convince 90% of smokers that there is no need to quit, then the ballgame is over and there will be no need to pay for the smoking cessation programs. Because once at least 90% of smokers say they don't want to quit, the program ends.

The reasoning provided by the intervenors is, in fact, the exact opposite of the incentive that this requested remedy would actually provide to the companies. If faced with a national smoking cessation campaign that would undermine their marketing efforts and reduce the number of smokers, they would have a strong incentive to become more aggressive in their deceptive marketing practices. And if faced with the possibility of ending their payments if they can convince 90% of smokers not to want to quit, then the incentive would be to become as effective as possible in their deceptive marketing.

The rest of the story suggests that this argument in defense of the intervenors' request for a smoking cessation program is severely flawed because it would create a strong incentive for the companies to continue and in fact increase, not to desist from, their alleged RICO violations.

ARGUMENT B
The intervenors have provided one other argument to support their request for a smoking cessation program, in case the first argument doesn't work (which it is clear to me doesn't). They argue that the RICO statute gives the Court the authority to prevent and restrain future violations by divesting the defendants "of any interest, direct or indirect, in any enterprise." The intervenors interpret the word enterprise to include any individuals, and read the statute as therefore giving the Court the authority to fashion remedies aimed at denying the industry the benefits of their "ill-gotten gains" by separating them from the profits derived from their already addicted smoking customers.

This is a rather wild interpretation of the statute, which was clearly designed to prevent future RICO violations by breaking up the criminal enterprise - i.e., the business ventures, structures, and relationships - that would allow the violations to continue. As the intervenors themselves state: "the civil remedies must be employed as a means of requiring individuals who have used racketeering methods to acquire or operate legitimate businesses to divest themselves of their ill-gotten interests and to refrain from entering the same lines of business."

This is a far cry from the purpose to which the intervenors would put the civil remedies provision of RICO. Running smoking cessation programs does not represent any direct breakup of any business enterprise. It does not force the defendants to refrain from entering the same lines of business.

But even if one were to accept this widely stretched interpretation of the RICO statute, the argument fails, I think, because divestment of any interest in the enterprise still must be designed to prevent future RICO violations. One cannot read the authority given to the Court to divest the defendant of any interest in the enterprise independently from the clause: to prevent and restrain violations.

In other words, even if disallowing the tobacco companies to benefit from continued profits obtained from smokers who became addicted as a result of deceptive marketing practices were interpreted to be consistent with the meaning of divestment of any interest in the enterprise, it would still have to be effective at, and primarily designed to prevent and restrain RICO violations.

But at this point, the argument fails completely because encouraging smokers to quit so that they will no longer provide profits to the tobacco companies is simply not a remedy that would prevent and restrain future RICO violations. Unlike divestment of a business interest in a criminal business enterprise, which absolutely restrains future violations by dissolving or breaking up the enterprise, this remedy would actually allow the enterprise to continue and it would in fact create a strong incentive for the defendants to become more aggressive in their attempts to retain as many of the "fruits of their ill-gotten gains" as they could in order to sustain their customer base.

I don't even think the second part of this argument will be necessary for Judge Kessler or the appellate court to dismiss this rationale for the proposed smoking cessation remedy, but if it gets this far, it will most certainly fail at this point because the divestment of interest in the profits from existing smokers as proposed is simply not an effective method of preventing and restraining future RICO violations.

The rest of the story suggests that this argument in defense of the intervenors' request for a smoking cessation program is severely flawed because it is a rather wild interpretation of the RICO statute, is clearly not what Congress had in mind when enacting the statute, and even if it were, would not pass muster because the divestment method proposed would actually create a strong incentive for the companies to continue and in fact increase, not to desist from, their alleged RICO violations.

In summary, I think the intervenors' defense of their request for a national smoking cessation program as a remedy in the DOJ RICO case is quite weak, and it is very unlikely that this remedy will be ordered by Judge Kessler and/or upheld by the appellate court.

2 comments:

Anonymous said...

Not only have the various third party health groups not accomplished anything with this latest remedies request, with their blind greed for tobacco cash they've actually just inadvertently given a huge PR boon to big Tobacco.

Federal Judge Kessler allowed the health groups to participate dependent on them asking for permissable remedies. That was her emphasis. She made it clear they couldn't just ask for anything, but what they asked for had to be allowable based on case law (ie the DCCA ruling). But instead of asking for injunctive relief, as the DCCA specified, the health groups are trying to gorge themselves with the same kinds of fat remedies that the gov't had already belatedly rejected as inappropriate!

The irony is this: Previously, the lunatic fringe of the anti-tobacco groups like Tobacco-Free-Kids could (and did) claim that the gov't only reduced its remedies requests because of political interference by the Bush administration. The ridiculousness of that claim, I think, has already been addressed elsewhere in this blog.

The point is, though, that Judge Kessler's strange admittance of the third party health groups into this case at the 11th hour was almost certainly the result of these public (and messy) allegations of political interference.

Now, when she (or the DCCA appeals court) rejects all of the requested remedies as inappropriate as a matter of law as she will have no choice but to do, nobody is going to be able to claim with a straight face that the case was compromised by political interference.

The end result is going to be the same. . .all of the gov't remedies are going to be tossed in the legal trash can because the gov't accidentally "forgot" to ask for the types of remedies that the DCCA told them to ask for, specifically injunctive-type remedies, backed by sanctions. That means in the unlikely event that the gov't actually wins this case on its merits, they're still probably going to be left holding an empty bag.

Michael Siegel said...

Anonymous - I think this is a very insightful argument. Essentially what the greed for money did was to cast a dark shadow on the entire remedies request. It aids the tobacco companies' arguments tremendously and it gives Judge Kessler an opportunity to say that she gave the plaintiffs and intervenors every possible opportunity to fashion remedies consistent with the DCCA ruling. When all is said and done, the health groups may end up losing not only their coveted monetary windfall, but the entire set of remedies - including those which might have been permissible.