Governmental Health-Care Cost Recovery Cases

In June 1994, the Mississippi attorney general brought an action, Moore v. American Tobacco Co., against various industry members, including R.J. Reynolds Tobacco Company. The case was brought on behalf of Mississippi to recover state funds paid for health-care and other assistance to the state's citizens suffering from diseases allegedly related to tobacco use.

After this, other states sued R.J. Reynolds and other U.S. cigarette manufacturers based on similar theories. The major cigarette manufacturers, including R.J. Reynolds, settled the first four of the cases scheduled for trial – those of Mississippi, Florida, Texas and Minnesota – by separate agreements between each state and those manufacturers named in each case.

The remainder of these suits culminated in the Master Settlement Agreement (MSA), which was signed by the major U.S. cigarette manufacturers and the states on Nov. 23, 1998. The MSA settled all health-care cost recovery actions brought by, or on behalf of, the settling jurisdictions and contained releases of various additional present and future claims.

Department of Justice (DOJ) Case

On Sept. 22, 1999, the U.S. Department of Justice (DOJ) filed a lawsuit in the U.S. District Court for the District of Columbia against the nation's five leading tobacco companies and a number of other organizations, seeking to recover health-care costs the government allegedly spent to treat tobacco-related illnesses dating back to 1971. In addition, the government filed two claims for injunctive relief under the civil provisions of the federal Racketeer Influenced and Corrupt Organizations (RICO) Act. The health-care reimbursement claims have all been dismissed, leaving only the RICO claims. The trial began on Sept. 21, 2004.

The DOJ originally sought over $250 billion in past profits from the defendants. On Feburary 4, 2005, the United States Court of Appeals for the District of Columbia Circuit ruled that the U.S. government could not recover disgorged profits from the tobacco industry in the suit. In its ruling that the lower district court erred, the appellate court found that "...we can find no justification for considering any order of disgorgement..." Adding, "We need not twist the language to create a new remedy not contemplated by the statute."

The DOJ petition to the U.S. Supreme Court to review this decision that the U.S. government could not seek disgorgement from the tobacco industry in the suit was denied on October 17, 2005.

On August 17, 2006, in United States, et al. v. Philip Morris USA, Inc., et al., federal district court Judge Gladys Kessler entered an Order in which she found Reynolds and certain other entities civilly liable under sections 1962(c) and (d) of the Racketeer Influenced and Corrupt Organizations act of the United States Code ("RICO"). In her Order, she enjoined Reynolds and certain other entities and/or individuals from committing future racketeering acts, participating in certain trade organizations, making misrepresentations concerning smoking and health, using certain brand descriptors (e.g., "light," "low tar," "mild"), and ordered Reynolds and other defendants to issue "corrective communications" on five subjects, including smoking and health and addiction. In addition, she ordered certain additional undertakings, including maintaining websites of historical corporate documents and dissemination of certain marketing information on a confidential basis to the government. Finally, she placed restrictions on the ability of defendants to dispose of certain assets, essentially prohibiting the transfer of cigarette brands, formulae, or cigarette businesses unless the transferee agrees to abide by the terms of her Order.

Reynolds has appealed this Order and decision.