[Intl-tobacco] More on US Supreme Court's Dismissal of Canadian Smuggling Suit

[Robert Weissman]

Thanks to Ross H. for compiling the following set of clips.

November 5, 2002
Ottawa may sue tobacco firm in Canada: U.S. court dismisses smuggling
lawsuit
Cristin Schmitz, with files from Janice Tibbetts
National Post

OTTAWA -The federal government is considering suing the U.S.-based R.J.
Reynolds tobacco empire in Canada following the dismissal of its novel
US$1-billion cigarette smuggling civil suit by the U.S. Supreme Court.

Yesterday, the top court in the United States denied Canada's petition to
appeal last year's dismissal of its test case under U.S. federal
anti-racketeering laws by the Second Circuit Court of Appeals in Manhattan.

Despite spending more than $17-million on U.S. lawyers and other expenses,
Canada lost the case at every court level. As is its custom, the U.S.
Supreme Court did not explain its refusal to hear the appeal.

The U.S. Supreme Court' rejection of Canada's last-ditch bid to revive its
civil suit came several weeks after the Bush administration filed a legal
brief with the court.
The U.S. administration argued Canada should use its own courts if it wants
to pursue Reynolds for millions in tax revenues the federal government
claims it lost due to alleged cigarette smuggling in the early 1990s.

Gordon Bourgard, a lawyer for the federal Justice Department, confirmed that
a civil action against the defendants in Canada is among Ottawa's options.

"That is a possibility," he said. "No decision has been made on possible
next steps."
Martin Cauchon, the Minister of Justice, one of three Cabinet ministers who
announced the ill-fated lawsuit in a blaze of publicity in December, 1999,
pledged the government will announce its next move "very shortly."

"There is still a door open in Canada," he said in Calgary where he was
attending a meeting of federal, provincial and territorial justice
ministers.

"Give us the time to proceed with a full assessment ... in the States and
Canada," the Minister added. Mr. Cauchon denied Ottawa threw away nearly
$20-million by pursuing an ill-advised and speculative court action. Under
U.S. federal anti-racketeering laws, proven damages are tripled, which meant
the Canadian government was looking at a US$3-billion payoff had it been
able to win its case.

"When we are fighting for principles as a government we are fighting for the
people of Canada," Mr. Cauchon said. "We are fighting for justice as well,
so it's worth doing what we did."
Stephen Heard Jr., one of Reynolds New York lawyers, said it would be "an
outrage" if Canada tries "to take a second bite at the apple" with a
politically motivated lawsuit that stands little chance of success.

Mr. Heard noted in a supplemental legal brief filed last month in the U.S.
Supreme Court that the Canadian government acknowledged it would be
difficult to sue Reynolds for allegedly evading taxes and duties in Canada
since those taxes would have been owed for the most part by tobacco
retailers and not by tobacco manufacturers such as Reynolds.

"I think they have waived any right to bring a Revenue Canada action for the
taxes," said Mr. Heard, who warned his clients will vigorously defend
themselves against any civil action launched in Canada. "We will issue a
countersuit against the Canadian government if they sue."
He also suggested "it would be worthwhile for Canadian citizens to look into
whether the Canadian government has misspent $20 million of taxpayer money.
We may find a Canadian taxpayer to bring a taxpayers' suit in Canada to have
(Cabinet) ministers reimburse the treasury."
However, anti- tobacco activists remained strongly supportive of the federal
government.
"The tobacco industry said all along that this lawsuit should not have been
filed in the United States but should have been filed in Canada," said Rob
Cunningham, a spokesman for the Canadian Cancer Society.

"That is exactly what the Canadian government should do now. The Canadian
government should pursue every available avenue to recover the taxes
foregone." While Canada's civil suit was thrown out in the U.S., Mr.
Cunningham argued the millions spent on the case was worthwhile.
"I believe that this has been a deterrent to the manufacturers resuming the
actions described in the Canadian government's lawsuit," he said. The
federal government claims it was defrauded of hundreds of millions of
dollars by R.J. Reynolds Tobacco Co., five related companies and the
Canadian Tobacco Manufacturers Council, which allegedly conspired to violate
U.S. anti-racketeering laws by funnelling billions of duty-free cigarettes
from the United States into Canada in the early 1990s, without paying taxes.
The U.S. lower courts quashed Canada's lawsuit for violating a centuries-old
"revenue rule" that bars U.S. courts from interpreting or enforcing the tax
laws of foreign nations.

Copycat suits by the European Union and several other countries will likely
be dismissed as a result of the Supreme Court's decision.

November 5, 2002
High Court Refuses Cigarette Suit Case had been filed by Canada against R.J.
Reynolds over alleged smuggling. Action could aid tobacco industry.
Myron Levin
Los Angeles Times

The tobacco industry scored a legal victory Monday when the U.S. Supreme
Court refused to hear a cigarette smuggling case filed by the government of
Canada against R.J. Reynolds Tobacco Co.
Canada had asked the court to reinstate the suit, in which it accused RJR
and several affiliates of violating U.S. anti-racketeering laws by colluding
with smugglers during the 1990s to sell billions of cigarettes on the
Canadian black market in a giant tax evasion scheme.
In a 2-1 decision last year, the U.S. 2nd Circuit Court of Appeals
upheld a
lower court ruling that the case was barred by the revenue rule, a 17th
century doctrine that prevents foreign countries from pursuing alleged tax
cheats in U.S. courts.

Canada argued in its appeal that the rule had been interpreted too broadly
and that it was not seeking unpaid taxes but damages for violations of U.S.
fraud and anti-racketeering laws.
"We're very disappointed that the court decided that the time wasn't ripe
for review," said Gordon Bourgard, senior general counsel with the Canadian
Department of Justice. Bourgard described the decision as "at cross
purposes" with combating international cigarette smuggling.
Asked whether an action now will be brought in Canadian courts, Bourgard
said only that officials "are considering possible next steps."

RJR hailed the court's decision. This "is another affirmation that foreign
governments cannot use our country's judicial system to enforce their
revenue laws," said Martin L. Holton III, RJR vice president and assistant
general counsel.

Although RJR is the immediate beneficiary, the action also could benefit
Philip Morris Cos., British-American Tobacco and other firms defending
anti-smuggling claims. Suits by Belize, Ecuador, Honduras, the European
Union and a group of Colombian states have all been dismissed and are
winding their way through appeals.

The European Union last week filed a separate lawsuit against RJR that seeks
to avoid colliding with the revenue rule. In that case, filed in U.S.
District Court in Brooklyn, N.Y., the EU accused the company of engaging in
money laundering to conceal its dealings with narcotics traffickers and
other criminals who allegedly distribute its cigarettes in Europe.
Monday's action was not unexpected because the court had sought the advice
of the Bush administration, which took the position that the revenue rule
applied. The court requested the input in May from the solicitor general,
though the government did not stake out its position until last month in a
friend-of-the-court brief.

Three high-ranking Bush administration lawyers had removed themselves from
the case because of tobacco industry ties. Solicitor General Theodore B.
Olsen recused himself because within days of his appointment in February
2001. He had filed a friend-of the-court brief with the 2nd Circuit on
behalf of the National Assn. of Manufacturers and the U.S. Chamber of
Commerce in support of RJR's position in the case. Olsen's No. 2, principal
Deputy Solicitor General Paul Clement, recused himself because his former
law firm, King & Spalding, represented the Canadian Tobacco Manufacturers
Council, RJR's co-defendant in the Canadian case. And Treasury Department
General Counsel David Aufhauser also disqualified himself because
Williams &
Connolly, where he was a partner until last year, has worked for RJR and
other tobacco companies.

Among those who did sign the administration's brief was Robert D. McCallum
Jr., who was confirmed in May 2001 as head of the Justice Department's civil
division. McCallum, a Yale classmate of Bush, had been a longtime
partner at
Alston & Bird, an Atlanta-based firm that does trademark and patent work for
RJR. Neither McCallum nor the firm took part in the smuggling case; RJR
officials told The Times that they did not think McCallum had represented
them in other matters. Under ethics rules, a government lawyer would be
barred from involvement in a case if he or she had worked on the matter
as a
private attorney. McCallum could not be reached, but a Justice Department
spokesman said its ethics office had cleared him.

The Times reported in September that the 2-1 appeals court majority that
rejected Canada's claim included federal District Judge Lewis A. Kaplan, a
one-time tobacco industry lawyer who was sitting as a visiting judge with
the 2nd Circuit when he cast the swing vote on Canada's appeal in October
2001.

Kaplan's former law firm, Paul Weiss Rifkind Wharton & Garrison, represented
tobacco companies from the 1970s through 1990s.


November 4, 2002
High Court Rejects Canadian Suit Against R.J. Reynolds
Mark H. Anderson
Dow Jones Newswires

WASHINGTON -- Canada's bid to sue R.J. Reynolds Tobacco Holdings Inc.
(NYSE:RJR - News) in the U.S. to recover $1 billion in lost tax revenue from
alleged cigarette smuggling was snuffed out Monday when the U.S. Supreme
Court rejected the country's appeal.

The high court turned away the court petition without comment, affirming
lower court rulings that said Canada can't bring a civil racketeering suit
against the tobacco company in the U.S. court system. Court decisions in the
case have given the tobacco industry a rare set of victories as it has been
bombarded by suits from the war on tobacco.

Canada filed a civil suit in a U.S. District Court against R.J. Reynolds in
1999 under the Racketeer Influenced and Corrupt Organizations Act, or RICO.
The suit alleged the company smuggled cigarettes from the U.S. into Canada
to keep sales steady after Canada in 1991 doubled taxes on tobacco products.

According to the suit, R.J. Reynolds' Canadian unit exported Canadian-made
cigarettes to U.S. foreign trade zones in New York. These cigarettes, which
weren't subject to an excise tax, were sold to distributors who returned the
cigarettes to Canada and sold them on the black market.
Canada also alleged R.J. Reynolds attempted to avoid a 1992 export tax on
cigarettes by making cigarettes that looked Canadian in Puerto Rico. Those
cigarettes also were sold in foreign trade zones and allegedly smuggled back
into Canada.

Canada said the smuggling schemes, which involved the illegal sale of
billions of cigarettes in the 1990s, cost it tax revenue and increased its
law enforcement costs. The suit is related to a long-running investigation
that led to the indictment in 1997 and 1998 of 21 people and Northern Brands
International, an R.J. Reynolds unit.

R.J. Reynolds moved to have the suit dismissed and a U.S. federal judge
threw the case out, deciding U.S. law didn't allow Canada to sue for lost
tax revenue here. Among other conclusions, the trial judge said the common
law known as the "revenue rule" prevents other countries from bringing tax
claims in the U.S. The 2nd U.S. Court of Appeals affirmed the ruling in
October 2001.

Canada urged the Supreme Court to overturn the lower court rulings. "If left
standing it will cripple efforts by victim countries to deter smuggling,"
Canada said in the appeal.
Acting Solicitor General Lawrence Wallace, writing for the U.S. government,
said the lower court decisions were correct and urged Canada to take action
in its own court system.
"Canada for its part has means to vindicate its interest in attacking
international smuggling operations by filing suit to enforce its laws in
Canadian courts," Mr. Wallace said. "The correct application of the revenue
rule in this case does not call for this court's intervention."
Similar suits separately filed by the European Union and other countries
against the tobacco industry were dismissed after the earlier Canadian suit
decisions.

- Mark H. Anderson, Dow Jones Newswires; 202-862-9230; mark.anderson@
dowjones.com


November 5, 2002
Top U.S. court rejects Canada's tobacco appeal --- Case accused R.J.
Reynolds of smuggling
James Vicini
The Toronto Star

The U.S. Supreme Court has rejected Canada's appeal of a ruling that
dismissed its civil racketeering lawsuit accusing R.J. Reynolds Tobacco
Holdings Inc. and its affiliates of smuggling billions of cigarettes into
Canada to avoid paying taxes.

A U.S. appeals court dismissed the lawsuit, which alleged the defendants
tried to defraud Canada of tax revenue in the early 1990s by shipping
Canadian cigarette brands to the United States and then smuggling them back
to Canada.

Without any comment, the high court let stand the ruling that declares
Canada's case represented an impermissible effort to use U.S. courts to
collect foreign taxes.
The high court acted after the U.S. justice department said the appeals
court had correctly ruled that a foreign government cannot bring a civil
racketeering claim when its alleged injury involved lost tax revenue.

The justice department told the high court that Canada's appeal should be
denied.
Canada's attorney-general sued R.J. Reynolds Tobacco , several currently and
formerly related companies, and the Canadian Tobacco Manufacturers Council
in 1999, accusing them of engaging in an elaborate smuggling scheme after
Canada sharply raised cigarette taxes.
A federal judge in New York City dismissed the lawsuit, ruling the so-called
common law revenue rule barred Canada from using American courts to enforce
foreign tax laws. The appeals court, by a 2-1 vote, agreed in its decision.

Canada appealed to the Supreme Court, arguing the ruling will significantly
undermine efforts to combat international smuggling.

Lawyers representing Canada said the case presented an important question
concerning the rights of foreign nations to bring claims arising under U.S.
laws.

The tobacco company said the appeal should be rejected, predicting the
repeal of the revenue rule would open American courts to an "onslaught" of
foreign tax claims and would undermine the U.S. government's ability to
negotiate tax treaties with other nations.

R.J. Reynolds welcomed the high court's action. "Today's decision is another
affirmation that foreign governments cannot use our country's judicial
system to enforce their revenue laws," said Martin Holton, the tobacco
company's vice-president and assistant general counsel.
"This ruling has important implications for a number of lawsuits brought by
foreign governments against the tobacco industry," he said.