[Intl-tobacco] Tobacco Firms Win Victory In Lawsuit on EU Smuggling (fwd)

[Robert Weissman]

Tobacco Firms Win Victory In Lawsuit on EU Smuggling
by Gordon Fairclough / gordon.fairclough@wsj.com4
Source: The Wall Street Journal Interactive Edition, Wednesday, 7/18/01

NEW YORK -- A federal judge dismissed a cigarette-smuggling lawsuit filed
by the European Commission against some of the world's largest tobacco
companies, saying that the commission doesn't have standing to sue since
it wasn't directly harmed by the companies' alleged wrongdoing.

But the judge's ruling, handed down Tuesday in the U.S. District Court in
Brooklyn, left open the possibility that individual European governments
could file racketeering complaints similar to the one brought by the
commission, which alleged that the companies conspired to smuggle
cigarettes across national borders.

"We're very pleased that there is no longer a case brought by the EC,"
said Steven Rissman, a lawyer for Philip Morris Cos., one of the
defendants.

The other defendants are all successor companies to RJR Nabisco Holdings
Corp.  In 1999, the company sold its international tobacco operations to
Japan Tobacco Inc. and spun off its U.S. cigarette business, which became
R.J. Reynolds Tobacco Holdings Inc. A Reynolds spokeswoman said, "the
judge has reached the appropriate decision."

Luc Veron, a commission spokesman in Brussels, said the EC "regrets" the
ruling, adding that "the commission will now, together with member states,
consider all available legal options." Mr. Veron said that despite the
dismissal, the judge's order "contains very positive elements."

Most important was Judge Nicholas G. Garaufis's decision that the
so-called Revenue Rule -- which has been used to block foreign governments
from using U.S. courts to collect taxes -- doesn't apply to the case. The
tobacco companies had argued that the racketeering claim was nothing more
than an impermissible effort to collect taxes. Judge Garaufis, however,
held that tax losses suffered by European governments were just one aspect
of the economic harm sustained as a result of the companies' alleged
smuggling.

The judge's ruling is at odds with a decision by another federal judge,
this one in upstate New York, who last year dismissed a
cigarette-smuggling suit filed by Canada against Reynolds and related
companies on the grounds that the Revenue Rule barred him from considering
the claim. Canada appealed the decision.

A federal appeals court in New York heard arguments in the case at the end
of May, but has yet to issue a ruling. If the court finds as Judge
Garaufis did, that the Revenue Rule doesn't apply, it could encourage more
governments to mount legal attacks on the tobacco industry. Colombia's
provincial governments already have filed a smuggling lawsuit against
cigarette makers. That case is also before Judge Garaufis, who has yet to
rule on an industry motion to dismiss it. The defendants in that case are
Philip Morris and British American Tobacco PLC.

While Judge Garaufis found that the EC hadn't suffered any direct injury
from the alleged loss of customs revenue because of smuggling, he signaled
that European national governments could have standing to bring a suit.
"This is not to say, of course, that the individual Member States, who are
ultimately responsible for funding the EC's budget, would not have been
harmed by cigarette smuggling," he wrote.

Philip Morris's Mr. Rissman said, "I don't read this as an invitation to
any further litigation."

Governments around the world have started to move more aggressively to
tackle cigarette smuggling. About a third of global cigarette exports end
up being diverted onto the black market and smuggled across national
borders, costing governments billions of dollars in lost tax revenue and
threatening public health by lowering cigarette prices and encouraging
smoking.



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