[Intl-tobacco] RJR seeks to quash federal suit by Canada

[Robert Weissman]

RJR seeks to quash federal suit
by WILLIAM MARSDEN / The Gazette
Source: Montreal Gazette, Friday, 3/24/00

The RJ Reynolds Tobacco company has filed a motion in U.S. federal court
to dismiss the Canadian government's $1-billion lawsuit against it, five
of its affiliates and the Canadian Tobacco Manufacturers Council.

RJR filed its motion Wednesday in Syracuse, N.Y., on three separate
grounds:

- The court has no jurisdiction to interpret and enforce Canadian tax law.

- The suit was filed after the four-year statute of limitations had
expired.

- The Canadian government has not met the specific requirements for filing
a civil fraud action under the U.S. Racketeering Influenced and Corrupt
Organizations (RICO) Act.

Ottawa sued RJR in December, alleging that it defrauded the government of
more than $1 billion U.S. from 1991 to 1994 by aiding and abetting the
smuggling of tobacco from the U.S. into Canada.

The federal suit alleges that most of the smuggling took place through the
Akwesasne Indian reserve near Cornwall, Ont.

The government filed its suit under the RICO statute, which gives courts
the power to award triple the value of damages claimed, meaning Ottawa
could win more than $3 billion.

The lawsuit was the first to target a tobacco company for smuggling, and
could signal a whole new round of court actions against international
tobacco companies - which is probably why RJR has come out swinging.

Its strongly worded motion indicates the company has no intention of
rolling over and is ready for a long battle.

The company claims the Canadian government is abusing the RICO statutes to
avoid litigation in Canada and to try to collect taxes lost because of
"the very excessive tax system it created a decade ago."

The motion essentially blames the federal government's "excessive
taxation" for the smuggling which, it states, Ottawa chose not to stop.

RJR claims the "technically complex" questions of taxation and enforcement
should be raised in Canada and not in the U.S.

Outside U.S. Jurisdiction

The motion states that U.S. revenue rules forbid involvement in a foreign
country's tax laws and enforcement regulations. Since the lawsuit would
inevitably require an analysis of Canadian tax law, the suit is outside
U.S. jurisdiction, RJR says.

"This action is nothing more than an attempt by Canada to collect tax
revenues," the motion states.

On the question of time limits, the motion cites a recent U.S. Supreme
Court ruling, referred to as the Rotella judgment, that the four-year time
clock for a RICO action begins ticking when the plaintiff discovers the
injury.

RJR notes that Canada's lawsuit admits the government knew it was being
defrauded as early as 1991 - and it knew how it was being defrauded.

It cites a 1994 speech by Prime Minister Jean Chretien to the House of
Commons in which he said that the government was enacting anti-smuggling
legislation "aimed at the tobacco companies who have benefited from this
illegal trade and who also bear responsibility."

"When viewed in its entirety, Mr. Chretien's speech fully admits Canada's
knowledge of all aspects of what it now contends was a fraudulent
smuggling scheme," the motion states.

It then comes razor-close to admitting industry involvement in smuggling:

"Based on these admissions, (the) plaintiff not only knew of its alleged
injuries from smuggling, but also knew of the alleged involvement of the
tobacco manufacturers, long before December 1995. Yet, for whatever
reasons - political or otherwise - Canada simply chose not to pursue its
claims at that time."

The government claims that while it knew of its injury in 1991 at the
latest, it did not have the necessary details to finger RJR.

Furthermore, it claims RJR attempted to fraudulently conceal its part in
the smuggling through statements made by the Canadian Tobacco
Manufacturers Council.

But RJR claims there was no concealment and that the issue is irrelevant
anyway, since the U.S. Supreme Court has ruled that the clock starts
ticking when the injury is discovered.

RJR basically ridicules the federal government for relying on press
releases and statements from the Canadian Tobacco Manufacturers Council
that its members were not involved in the smuggling.

The court has not set a date for hearing RJR's dismissal motion.