As Deadlines Near, Outlook for U.S. Tobacco Suits Fades

It was a signal event in the smoking wars.

Five years ago, the chief executives of the seven top U.S. tobacco companies raised their hands, swore an oath and told Congress they didn’t think nicotine was addictive.

Within days, skepticism turned to outrage when secret documents leaked to members of Congress showed that high-ranking industry figures had privately acknowledged the addictiveness of nicotine three decades earlier.

“We are then in the business of selling nicotine, an addictive drug,” said a 1963 memo from the top lawyer at Brown & Williamson Tobacco Corp.

Angry congressmen accused the executives of perjury, and the Justice Department launched a criminal investigation that soon broadened to examine a wide range of industry statements to government agencies and the public.

But today--with the imminent expiration of the five-year statute of limitations on any perjury charge arising from the April 14, 1994, testimony--the Justice Department has almost nothing to show for its much-ballyhooed crackdown on Big Tobacco.

To be sure, next Wednesday is not a drop-dead day for the probe. Legal experts say a successful perjury case was never likely, since the executives carefully couched their views as matters of personal opinion.

But other key deadlines--linked to statements the industry gave the Food and Drug Administration in the spring of 1994--are fast approaching too.

Justice Department officials say no final decisions have been made. And it is possible that other industry statements made after 1994 could be grounds for a future prosecution. Still, outward signs--such as the reassignment of key lawyers spearheading the probe, including dispatching one to Salt Lake City to work on the Olympics bribery investigation--suggest they are throwing in the towel.

Deputy Atty. Gen. Eric H. Holder Jr., the department’s No. 2 official, recently denied the investigation is over. But he said, “We are getting close to . . . a time when we are going to have to make some final decisions.”

Anti-smoking leaders, once highly optimistic about the prospect of criminal indictments, now are deeply disappointed. If tobacco companies “can engage in such blatant and obvious deception and pay no price, then what’s the incentive for others to tell the truth?” asked Matt Myers, general counsel for the National Center for Tobacco-Free Kids.

Reluctant to rattle the Justice Department’s cage, tobacco company officials and defense lawyers are steadfastly avoiding public comment--but counting the days. They, too, have come to believe they are in the clear. One official noted that amid public speculation that the case is dead, there has not been “any real blow-back from Justice saying that’s not right.”

Department officials, bracing for criticism of their anti-tobacco efforts, hope to shift the focus to a new initiative. President Clinton said in January that the U.S. plans to follow the lead of the states and file a civil lawsuit against cigarette makers to recover smoking-related costs under Medicare and other federal programs. A Justice Department task force is researching such a suit--which, like a criminal case, would accuse the industry of lying for decades about the hazards and addictiveness of smoking.

But even in the civil case, the Justice Department risks losing some of its best arguments and potential damages to the statute of limitations if it does not move expeditiously, according to some anti-tobacco lawyers.

Investigation Had Optimistic Start

If five years seems like a long time for an investigation that has so far produced a single misdemeanor conviction, technically speaking, the probe is even older than that. In 1992, the U.S. attorney in Brooklyn quietly opened an investigation into whether cigarette makers had committed fraud by using the putatively independent Council for Tobacco Research to create the illusion of a continuing scientific controversy on the effects of smoking. That effort later was merged into the main investigation triggered by the executives’ appearance before Congress.

The notorious April 14, 1994, hearing came several weeks after David Kessler, then FDA commissioner, announced that the agency was investigating its authority to regulate tobacco products as drug delivery devices. In March, May and June, FDA staff members visited offices and factories of the three big cigarette makers, where company officials briefed them extensively on the manufacturing process and the role of nicotine. Statements during those briefings--and comments later filed with the FDA--became a key focus of the probe.

With teams of prosecutors, FBI agents and several grand juries joining in the hunt, gleeful foes of the industry believed that criminal charges were a near certainty.

Investigators relied heavily on a cadre of former industry scientists and whistle-blowers, calling on them repeatedly to review documents and explain technical issues. The exhaustive inquiries led the former industry figures and other tobacco foes to consider indictments almost a foregone conclusion. As a whistle-blower remarked last year: “It appears they’re going to be nailing some peoples’ asses.”

Other events fed such expectations. Last April, the Justice Department announced a cooperation agreement in which Liggett Group Inc., the smallest of the major companies, pledged information and testimony in support of the probe. That Liggett agreed to help without a promise of immunity was seen as further proof the criminal case was strong.

Anticipation was heightened by widely circulating rumors--never confirmed by the Justice Department--that “target” letters had gone out to several current and former officials at B&W.; Target letters typically are sent to people likely to be soon indicted, giving defense lawyers a chance to plead their case.

Anti-tobacco lawyer Cliff Douglas, who in 1994 drafted a lengthy memo to the department outlining possible grounds for criminal charges, was similarly optimistic in a speech last May to a legal conference in Boston. He predicted that “prosecutions are inevitable,” saying the question has “shifted from if to when.”

The specter of humiliating indictments dramatically changed the dynamics of congressional and courtroom battles. Fearful of being linked to a business that was under a criminal cloud, lawmakers balked at supporting the industry’s call for a sweeping settlement that would give it some protection from anti-tobacco suits. Moreover, juries in major civil cases were treated to videotaped testimony of industry figures invoking the 5th Amendment.

The criminal probe “gave us leverage and opportunities,” said Myers of the National Center for Tobacco-Free Kids. “The threat of criminal indictments put a great deal of additional pressure on the leaders of the tobacco industry to try to at least appear to be making a good-faith effort at change.”

In the only criminal case filed so far, DNA Plant Technology Corp. of Oakland pleaded guilty in January 1998 to a misdemeanor violation of an obscure, now-defunct law that had banned the export of tobacco seed without a government permit.

During the 1980s, DNAP developed a high-nicotine strain of tobacco for B&W;, which grew the fortified leaf, called Y-1, in Brazil. DNAP admitted conspiring to violate the law and agreed to pay a $100,000 fine and to cooperate in the continuing investigation.

Tobacco foes were thrilled, reasoning that the Justice Department couldn’t possibly charge DNAP without eventually charging B&W.; Widely overlooked, however, was the fine print of the plea bargain--DNAP had agreed to plead guilty notwithstanding the fact that the statute of limitations had lapsed.

Indeed, the tobacco seed law was repealed in December 1991, and the last known instance of non-permitted exports was in July 1991. Any charge against B&W; for illegal exports would have had to have been filed by July 1996.

Department officials have declined comment on why their momentum stalled, but at least two potential roadblocks appeared last year.

In August, the U.S. 4th Circuit Court of Appeals ruled that the FDA lacked jurisdiction to regulate tobacco products--a decision the government has since appealed to the U.S. Supreme Court.

Federal law makes it a crime to make false statements to government agencies, but only when the agency has jurisdiction over the matter in question.

If the FDA had no jurisdiction, arguably the industry could “lie to them through [its] teeth and not get prosecuted,” as a former federal prosecutor put it. Others disagreed, but the 4th Circuit ruling added an element of doubt.

Another impediment was an industry victory involving documents B&W; was withholding under the attorney-client privilege. The Justice Department argued in a sealed motion that the documents must be surrendered under a rule known as the “crime-fraud exception,” which holds that papers reflecting criminal planning by clients and their lawyers may not be withheld. U.S. District Judge Norma Holloway Johnson, in a decision that remains under seal, ruled for B&W;, according to reports in the Wall Street Journal.

The ruling dealt department officials a psychological blow, according to people close to the investigation. In seeking to defeat privilege claims, prosecutors typically present what they consider to be their strongest evidence of criminal wrongdoing. Prosecutors are forced to reassess when a judge, “seeing what the prosecutors believe to be their strongest evidence, concludes that they haven’t met a burden that is far below” the standard of reasonable doubt needed for a criminal conviction, according to a source close to the case.

In recent weeks, the transfer of key prosecutors to other assignments has fed speculation that the probe is dying. Richard Wiedis, who headed the team focused on Philip Morris, was packed off to Salt Lake City to take charge of the Olympics corruption probe. Randall D. Eliason, in charge of the B&W; team, was promoted to chief of the public corruption unit with the U.S. attorney in Washington, D.C. And Elisa Liang, a former assistant U.S. attorney who had led the Council For Tobacco Research probe in Brooklyn and later joined the main investigation in Washington, has left for a new post at the U.S. attorney’s office in Boston.

Dispersing such key players “would be very atypical of a group that’s getting geared up to bring a major action,” one defense lawyer said.

Pursuing a Civil Lawsuit

But while the criminal case has withered, the department’s efforts to mount a massive civil suit--announced by President Clinton in his State of the Union address--seem to be gathering steam.

Even so, some anti-tobacco lawyers fear the effort is bogging down. “I think the bureaucrats in the Justice Department are trying to run out the clock on the Clinton administration,” said Richard Scruggs, a Mississippi lawyer who helped engineer the successful anti-tobacco assault by state attorneys general.

Justice Department attorneys denied this, pointing to a large task force with 10 full-time and 10 part-time attorneys. It is headed by Deputy Assistant Atty. Gen. William B. Schulz, who served as a deputy FDA commissioner under Kessler.

And on Tuesday, the department retained Robins, Kaplan, Miller & Ciresi, the Minneapolis law firm that represented Minnesota in its successful lawsuit against the industry, to advise on the case.