[Intl-tobacco] Canada revives U.S. tobacco suit

[Robert Weissman]

Canada revives U.S. tobacco suit - The (Montreal) Gazette/Southam News
Wednesday, May 30, 2001
CRISTIN SCHMITZ
Southam News

OTTAWA - The government of Canada will be in a Manhattan court today to
appeal the dismissal or its trailblazing, $1-billion-plus
anti-racketeering lawsuit for alleged tobacco smuggling against the R.J.
Reynolds companies and the Canadian Tobacco Manufacturers Council.

"Canada was the victim of one of the most brazen criminal enterprises ever
mounted by U.S. corporations," the government contends in its argument
filed with the Second Circuit United States Court of Appeals.

As high-priced U.S. litigators for the federal government and the tobacco
companies face off before three appellate judges, the proceedings will be
closely monitored by lawyers for the European Union, which recently filed
a "friend of the court" brief in support of the attorney-general of
Canada's appeal.

Canada's legal battle with R.J. Reynolds is being watched world-wide
because it marks the first time a foreign government has tried to use the
civil provisions of the U.S. Racketeer Influenced and Corrupt
Organizations (RICO) Act to sue U.S.-based big tobacco.

Last November, the European Union launched a similar RICO action in New
York against Reynolds and Philip Morris-related companies, also claiming
billions in damages due to alleged tobacco smuggling in Europe.

"We are encouraged by the action taken by the European Community in its
own case and also by the support that they have shown for our case. The
European Community has demonstrated the same resolve as Canada in
protecting their borders," said Gordon Bourgard, head of the five-person
tobacco litigation team in the Canadian Justice Department.


Canada's initial suit was thrown out last June 30 by a U.S. federal judge.

The Canadian government alleges that the defendants aided and abetted the
smuggling of tobacco products into Canada, and claims damages of $1
billion U.S. for evaded taxes and duties and for other expenses such as
increased law enforcement costs. If it eventually wins the case, the
government could reap as much as $3 billion U.S., since proven damages are
tripled under RICO.


However, last year U.S. District Court Judge Thomas McAvoy accepted the
tobacco companies' position that Canada's case is, in essence, an effort
by the federal government to collect evaded taxes and duties, which is
prohibited by the 18th-century common-law "revenue rule" that bars U.S.
courts from interpreting or enforcing the tax laws of foreign countries.

In its appeal, the Canadian government argues the revenue rule does not
apply because the case deals with an alleged conspiracy by the tobacco
companies to use the U.S. mails and wires to further a smuggling scheme,
contrary to RICO. The government contends the resulting evaded taxes are
simply part of the damages Canada suffered.

Bourgard said a decision is expected in two to four months. Canada has
already paid more than $4 million in legal fees to its US lawyers.