Federal Appeals Court Grants Immediate Review of Disgorgement Ruling in Government's Lawsuit against Cigarette Companies

A federal appellate court today said it would consider now, as opposed to after trial, the question of whether the Department of Justice is legally entitled to seek disgorgement of alleged “ill-gotten gains” from Philip Morris USA and other major cigarette companies as part of the Department of Justice lawsuit.

Under an order issued today, all appellate briefs on the issue of disgorgement must be submitted to the U.S. Court of Appeals for the District of Columbia by August 31, and oral argument will be scheduled shortly thereafter.

“Philip Morris USA is pleased that the Court of Appeals agreed with the trial court judge that the issue of whether the government is entitled to disgorgement in this case was important enough to warrant immediate review,” said William S. Ohlemeyer, Philip Morris USA vice president and associate general counsel. 

“The company looks forward to the opportunity to present this issue to the Court of Appeals because a decision on disgorgement could have a significant impact on how this case is tried,” added Ohlemeyer.

On May 24, U.S. District Judge Gladys Kessler ruled that the government’s request to seek disgorgement as a remedy for alleged violations of the Racketeer Influenced Corrupt Organizations Act (RICO) was appropriate.  In doing so, the Court rejected an opinion issued by the U.S. Court of Appeals for the Second Circuit in the Carson case, which indicated that disgorgement under the civil RICO statute is limited to those ‘ill-gotten gains’ which are “being used to fund or promote the illegal conduct or constitute capital available for that purpose.”

The companies then asked Judge Kessler to permit them to seek interlocutory review of her decision by the appellate court.  The judge not only granted that request, she encouraged an expedited review of the issue in view of the approaching September 13, 2004 trial date.

To permit such an appeal, Judge Kessler said “the District Court must find that its order (i) ‘involves a controlling question of law,’ (ii) ‘as to which there is a substantial ground for difference of opinion,’ and (iii) ‘that an immediate appeal from the order may materially advance the ultimate termination of the litigation.’ This Court is ‘of the opinion’ that all three requirements are satisfied.”

Judge Kessler also noted that “there is a direct conflict between the lengthy analysis by this Court and by the Second Circuit in Carson examining the text, the legislative history, and the purpose” of the RICO law.

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