In
his 1999 State of the Union Address, President Bill Clinton
announced that he had directed the U.S. Department of Justice (DOJ)
to pursue a federal lawsuit against the tobacco industry to recover
the costs that smoking supposedly imposed on Medicare and related
programs.
But this decision to use litigation to achieve what the
Administration could not secure last year through legislation is
fraught with serious problems. Regardless of the merits of the
legislative options, this litigation approach is wrong and would
undermine the rule of law.
The
President's instruction to file a federal lawsuit appears to be an
abrupt reversal of the legal position taken by numerous career and
political officials in the Justice Department. When the states sued
to "recover" similar Medicaid costs in recent years, both Attorney
General Janet Reno and the DOJ spokesman stated that the national
government had no independent cause of action against the tobacco
companies for losses under Medicaid, Medicare, or any other
program. They stated that the cause of action, if it existed,
belonged to the states alone. Nevertheless, the DOJ
believed the federal government might claim a share of any recovery
received by the states because the federal government helped to
fund the Medicaid program.
In
other words, the Justice Department determined that it could not
lawfully sue the tobacco companies as a party, but it might require
the states to share a portion of any award they received. For two
years, senior DOJ officials refused every effort by the states and
others to get the Department to reverse its position--at least
until the President told them to do so.
As
bad as the state tobacco lawsuits and the 1998 master settlement
were, at least the settlement was supposed to put an end to the
reimbursement-type claims. Predictably, however, the states did not
want to share their windfall with Washington, and they asked
Congress whether they could keep it all. Meanwhile, major federal
legislation in 1998 designed to impose new taxes and regulations on
the tobacco industry failed in Congress.
It
was in that climate that the President apparently decided to seek
through litigation what he could not achieve through legislation.
So he declared that the federal government would try its own luck
at picking the pockets of the tobacco industry, with several of his
political aides explaining that the litigation was simply a tactic
intended to force a favorable settlement.
But
the DOJ's initial review of the law was correct. The United States
Supreme Court has categorically rejected the federal government's
attempt to bring suit to recover other medical costs when such a
suit was not expressly allowed by statute. The Supreme Court
refused to create or expand the scope of federal tort law beyond
that set forth in federal statutes, explaining that--unlike state
courts--federal courts cannot create new tort law.
The
Supreme Court also has noted that a medical reimbursement claim is
not really about tort law at all; it is about federal fiscal
policy, for which Congress alone is responsible. Although Congress
has created a few, limited grounds for recovery of medical costs,
there is no statute that allows the federal government to bring the
type of broad suit contemplated against the tobacco industry.
In
addition, almost every government and independent expert who
studied the costs of smoking has concluded that it does not cause a
net economic loss to government. Although the personal costs of
smoking, including premature death, may be tragically high, the
proposed government suit neither could nor does seek to recover
such private costs.
As
for the costs imposed on government programs, smoking affects the
timing of health care costs more than the total costs for the
typical individual. This is because the costs paid by government
for many tobacco-related diseases are offset by savings to
government retirement and health programs that otherwise would
provide longer coverage and different end-of-life care. As the
authors of a widely cited article in The New England Journal of
Medicine noted, "If people stopped smoking, there would be a
savings in health care costs, but only in the short term.
Eventually, smoking cessation would lead to increased health care
costs."
This
means that state and federal tobacco taxes are a complete or at
least partial windfall to government at both levels, and that
tobacco use enriches public treasuries. And this is even
before the $246 billion in "payments" from the 1998 state
tobacco settlement are added to state coffers. Thus, it is hard to
see how the government has suffered any economic damages from
smoking.
Nevertheless, the DOJ in recent months has
assembled a new team of lawyers, composed mostly of anti-tobacco
advocates, who are willing to pursue the President's questionable
directive. The DOJ even requested an additional $20 million
appropriation from Congress to fund this baseless lawsuit.
When
the Senate took up the Commerce-Justice-State appropriation bill on
July 22, 1999, it took a neutral stance. It did not approve the
special appropriation request, but it also failed to pass important
language that would prohibit the use of general funds for such a
suit.
House Members will likely have to vote on this line item when the
corresponding House bill is debated on the floor, and the issue
will remain an active one during any conference on the two bills.
Even then, the appropriations battle could be the first of many
skirmishes over the tobacco litigation--unless Congress or the
federal courts end the lawsuit promptly.
Yet
the Administration has not even said what its theories of liability
or damages are in this case. Its silence is understandable, given
that there are no legitimate theories that would support a federal
lawsuit of this nature. But it is presumptuous for the
Administration to push a request for funding without answering even
the most basic questions about its legal theories, particularly
when the likely theories of liability and damages (and the history
of the state litigation) make such a suit highly questionable at
best.
The
planned federal suit against the tobacco industry is not really
about recovering Medicare costs or vindicating legal rights; it is
best explained as an attempt to use the majesty and might of the
federal government to force an unjust settlement that has no basis
in law. Regardless of the merits of the legislative options still
available to Congress, every American should oppose the
Administration's blatant attempt to misuse the courts in order to
impose industry-wide regulation through litigation.
Accordingly:
-
Congress should refuse to appropriate
any money for a baseless suit. No special appropriation should
be considered again until the Attorney General submits a detailed
legal opinion that includes a legitimate theory of liability and
damages and provides satisfactory answers to the numerous questions
about the lawsuit.
-
Congress should enact an express
prohibition against the use of any federal funds to file such a
suit until and unless Congress is satisfied with the answers to
the questions raised about the Administration's liability and
damage theories.
-
Congress should seriously consider
permanent legislation, such as the Litigation Fairness Act (S.
1269), that would prevent the worst abuses of government
reimbursement lawsuits and provide fair treatment for all
defendants.
-
The lower federal courts should follow
the Supreme Court's instruction and summarily dismiss any claim for
reimbursement that is not expressly authorized by statute, and
the courts should not hesitate to award attorneys' fees to
defendants who are subjected to frivolous or bad-faith
litigation.
Congress and all Americans should bear in
mind that the contemplated lawsuit is not simply a policy issue
with short-term consequences; it appears to be another step that
would seriously undermine the rule of law. Adherence to the rule of
law is a defining principle that separates an arbitrary and
tyrannical government from a constitutional democracy. Despite some
recent attacks on the rule of law, it remains a bedrock principle
of America. But like all liberties, the rule of law must be
sustained and defended with constant vigilance. Even small
exceptions to it over time can weaken its protections for
everyone.
Thus, each assault on the rule of law
should be opposed as a matter of fundamental principle. Because the
contemplated federal litigation against the tobacco industry poses
such issues of fundamental principle, no one should compromise or
surrender until the protection of liberty is assured.
UNHEALTHY PRECEDENTS: LESSONS FROM THE
STATE LITIGATION
The
state Medicaid "reimbursement" or "recoupment" lawsuits that began
several years ago were highly improper as a matter of law--although
not as a matter of politics. Even with the power, influence, and
financial resources the states brought to bear (and operating in
their own courts), the states lost most of the early rounds of
their lawsuits under traditional legal principles. The state judges
were appropriately skeptical of the new and tortured legal theories
advanced by the states and disallowed many of them. The states
feared that their suits would fare no better than a thousand
private suits brought against the tobacco companies up to that time
in which the juries had uniformly rejected liability, generally on
the ground that the smokers had knowingly and voluntarily assumed
the risk.
Unprincipled Legislation
Faced with this setback, several states
then enacted special statutes stripping the tobacco companies of
their traditional defenses in the pending suits and allowing the
states to establish causation and damages in novel and unfair
ways.
The
states did not change the law for all future plaintiffs and
defendants or for all types of suits. Instead, first Florida
and then Maryland and Vermont passed legislation that essentially
provided that, in recoupment-type litigation in which the state was
the plaintiff, the defendants were denied such venerable defenses
as the assumption of risk, the requirement of proof of individual
damages, and the normal statute of limitations "to the extent
necessary to ensure full recovery by Medicaid." The
statutes also eliminated the requirement that the state identify
those allegedly injured by the tobacco companies; allowed causation
and damages to be shown by use of statistical analysis without
proving an actual link between tobacco use and the injury in
particular individuals; and permitted the state to proceed under a
market share theory, which allowed the state to treat all
cigarettes (regardless of the tar and nicotine level) as exactly
equal in health risk.
A
good analogy is to imagine a statute that allowed the state to
bring suit against car manufacturers for all automobile wrecks that
previously occurred in the state. Under the hypothetical statute,
the state would not have to reveal the names of the individuals
injured or the circumstances of each crash. The state simply could
supply a total loss figure for automobile-related injuries and
provide expert testimony on how much the manufacturers should pay.
Under the hypothetical statute, the manufacturers could not argue
that the accidents were caused by driver negligence. The
manufacturers could not show that some of the wrecks occurred
decades ago and that the normal statute of limitations had expired
long ago on such claims. Nor could the manufacturers argue that
they had already paid for many of the claims through a special tax
or that the state never suffered a loss. When the state inevitably
won the rigged suit, each manufacturer then would be forced to pay
an amount of the award proportional to its market share, without
regard to whether the cars it manufactured were Volvos or Pintos.
Essentially, this is what Florida, Maryland, and Vermont purported
to do to cigarette manufacturers, except that a few well-connected
attorneys were also beneficiaries of the corrupt statute.
Heightened Potential for
Abuse.
Robert Levy, who is a senior fellow in constitutional studies at
the Cato Institute, explained that there is a "quantum difference
between altering the common law [that applies to everyone] and
eviscerating a [particular] company's ability to dispute the
charges brought against it." And as nationally
syndicated columnist Doug Bandow wrote in a scholarly monograph for
the American Legislative Exchange Council, "The potential for abuse
is most evident when the state is a party and [it] eliminates a
particular defense or defenses only when the state [benefits]."
This
particular abuse (rigging the rules to enrich the state) was most
apparent in Maryland's acrimonious legislative debate to revive its
floundering lawsuit by special legislation. Lawyer-lobbyist Peter
Angelos, who stood to gain hundreds of millions of dollars with his
own sweetheart contingency deal, helped push the bill through the
legislature. Maryland Governor Parris
Glendening was surprisingly frank in describing what was going on
when he said, "Give me three more Peter Angeloses, and we don't
have to worry about the budget." In the end, Florida,
Maryland, and Vermont left very little to chance. They passed laws
that "almost automatically [held] cigarette makers liable for
Medicaid costs."
The
state statutes raised serious constitutional questions involving
the separation of powers, due process, equal protection, takings,
bill of attainder, and ex post facto concerns. Nevertheless, the
Florida Supreme Court modified some aspects of the Florida law and
narrowly upheld the rest as "a rational response to a public
need."
This led other states to consider how easy it would be to win if
their legislatures enacted a similarly unprincipled statute. As a
result, several states were considering such legislation at the
time of the global settlement.
All About Money.
Faced with the collusive and unjust nature of the new state suits
(as well as a poisoned political atmosphere), the defendants agreed
to a staggering settlement involving the payment of roughly $246
billion to the states and tens of billions more to the private
contingency-fee lawyers. Of necessity, this money
will be extracted for decades to come--mostly from low-income
smokers--in higher cigarette prices.
Those who negotiated the settlement were
sensitive to the fact that, even though the demand for cigarettes
is fairly inelastic, there are some limits to how much some smokers
will pay for cigarettes. Most industry analysts believed that the
unprecedented settlement amount reflected the most the states
thought they could get without bankrupting the industry and killing
the goose that would lay the golden eggs.
One
aspect of the settlement, in particular, helps show that the state
suits were not about any real wrongdoing, but about extracting
money with no basis in legal liability. The states implicitly
agreed to require new entrants into the tobacco market to charge
the same high prices as the settling defendants, and to make
payments to the states similar to those that would be required of
the settling defendants. The settlement agreement provides that if
the states did not do this, the payments would be reduced in
relation to the defendants' combined loss of market share.
This
provision violates basic antitrust principles (unless the "payment"
is really a tax), hurts consumers, hurts new entrants, and has no
relationship to alleged wrongdoing. But it is understandable that
the settling defendants would try to protect their shareholders'
interests in the coordinated litigation shakedown: If the suit was
not really about wrongdoing and the "payments" were just a tax by a
different name, then new entrants should pay the same tax. The
states seemed to agree.
Thus, the state officials sold out their
consumers (and their states' legislative sovereignty) for a pot of
gold. That many legislators were happy to avoid the political costs
of raising tobacco taxes explicitly and gladly abdicated their
legislative powers to legal thugs made matters worse, not
better.
Legal Principles Assailed in the Tobacco
Litigation
From
the brief summary provided above, it should be evident that the
state recoupment litigation represented a serious assault on the
rule of law itself. The rule of law encompasses many important
ideals. One of its most important components is the principle that
the protections of the law must not be waived in order to reach
what is deemed by the government to be a "just" result. The
protection of the law must be applied in the same way to everyone,
whether the parties to a lawsuit are powerful, popular, or
decidedly unpopular. This concept is expressed by a phrase that was
once taught to all schoolchildren in America: Ours is "a nation of
laws and not of men."
A
related corollary of the rule of law is that like cases are to be
handled and resolved in the same manner. Clever lawyers can always
find some distinction in the facts of a supposedly new case, but if
the relevant facts are the same, then the case should be
handled and resolved no differently than every other case of its
type. This means that novel legal theories are not justified by the
supposed noble purpose of a lawsuit.
The
state lawsuits and the contemplated federal lawsuit against the
tobacco industry to reimburse the government for smoking-related
Medicaid and Medicare payments conflict with these ideals. Among
the many doctrines of law that normally would apply to the recovery
of damages, the federal lawsuit against the tobacco industry likely
would attempt to displace the venerable doctrines of (1) assumption
of risk, (2) proximate cause, and (3) proof of individual
damages.
Assumption of Risk.
The assumption of risk doctrine prevents someone who voluntarily
accepts a known risk from recovering damages when the foreseeable
risk materializes. For example, a professional boxer should not be
able to sue his opponent if he gets a broken nose in a fair
fight.
One
does not need to know the precise probabilities of injury to
legally assume the risk involved. All that is necessary is that the
general nature of the risk be known. In the boxing example, a boxer
need not know the precise probability of receiving various types of
injury in each fight before he can assume the risk of injury. This
is true even if the injury he ultimately sustains is an extremely
rare one, as long as it is consistent with a fair fight. With
regard to the risks of smoking, "not only is there substantial
awareness of the smoking hazards," but people actually "appear to
overestimate the risks as compared with the levels in the
scientific evidence."
The
assumption of risk principle is a valuable rule for reasons other
than that it comports with our sense of morality and justice. It is
especially valuable in a free society in which different people are
willing to accept different levels of risk. Without the assumption
of risk rule, society would be forced either to (1) provide an
implicit subsidy and encouragement for some peoples' risky behavior
or (2) reduce the number of choices in the exercise of free will.
Neither option is very attractive to people who cherish
freedom.
Proximate Cause/Remoteness Doctrine. The
doctrine of proximate cause is designed to hold those who are
directly responsible for damages liable and to prevent them from
shifting the blame to those who are not directly or "proximately"
at fault. For example, if someone leaves his keys in his car and a
thief steals the car and hits someone in a high-speed chase, the
thief is liable for the injury. The car owner may have been a "but
for" cause of the theft (but for his negligence, the particular
theft might not have taken place), but the owner was not a direct
or proximate cause of the accident.
The
problem with "but for" causation is that it is limited only by a
lawyer's imagination. The city that laid out the streets would be a
"but for" cause in the example above, as would the injured person's
parents and a thousand other people. As a consequence, the law must
and does establish the cutoff point for liability.
There may be more than one person
responsible if there is more than one direct cause, but those who
are a remote "but for" cause are not liable. This is why the
proximate cause principle is also referred to as the "remoteness
doctrine." One important test of "proximate causation" is whether
there was a "superseding or intervening cause" that broke the
normal chain of causation. If there was a superseding or
intervening cause of an injury, a remote "but for" actor is
released from liability for the resulting injury. In the car chase
example above, the criminal acts (car theft, high-speed driving,
resisting arrest) are superseding/intervening causes of the wreck;
they break the chain of causation and release the car owner of
responsibility. Though the owner was negligent in leaving his keys
in his car, his negligence was not a proximate cause of the
wreck.
Proof of Individual Damages. Every
plaintiff normally bears the burden to prove his individual damages
that were proximately caused by each defendant. Smoking may cause
or contribute to various diseases, but it is not the only cause or
even the leading cause of many such illnesses.
Consider, for example, the effect of
smoking on heart disease, which many advocates claim is responsible
for over 100,000 deaths per year. A person's genetic makeup,
lack of exercise, eating fatty foods, not eating other healthful
foods, general obesity, not drinking moderate amounts of alcohol
and black tea are all causes or
contributors to heart disease. Although medical researchers have
some idea of the relative impact of various risk factors, there is
still a large degree of disagreement and uncertainty. At worst,
however, smoking is unlikely to be the top risk factor for heart
disease. Nevertheless, the federal government has attributed a
certain number of heart disease deaths to smoking for research
purposes.
But
what is necessary to advance scientific understanding is not what
is necessary to prove a case in a court of law. What is necessary
in a court of law is for each plaintiff to prove what damages were
proximately caused by each defendant by a preponderance of the
evidence. And during the course of discovery and trial, each
defendant is entitled to examine the plaintiff's medical records
and question the plaintiff to determine whether other causes of
illness might be more likely in his case.
Application of These
Doctrines.
As was the case in the state suits, lawyers bringing a federal
lawsuit against the tobacco industry would likely try to eliminate
the doctrines of assumption of risk, proximate cause, and proof of
individual damages by making absurd and contradictory arguments.
Several states argued that the assumption of risk doctrine did not
apply to their claims because the government never assumed any
risk, even if the smokers did. The states also argued that
cigarette manufacturers were the proximate cause of such illnesses
as heart disease in a certain number of smokers, but the states
tried to prevent the defendants from investigating medical records
to see what other causes might exist for each smoker. Such tactics
create many serious problems.
An
insurance company that pays a customer's claims (say, for medical
treatment) and then sues someone else for reimbursement must stand
in the shoes of its customer. The insurance company is allowed to
sue because its customer sold his potential legal claims as part of
the insurance agreement. An important principle in this type of
suit, which is called a "subrogation" suit, is that the insurance
company can buy no greater rights to sue than its customer had to
sell. Thus, the insurance company can only bring a lawsuit that its
customer could have brought, and the defendant can raise any
defenses against the insurance company's claim (including that the
customer assumed the risk) that it could raise if the customer had
filed the suit.
The
government is the health care insurer for Medicare enrollees and
should be treated no differently than a private insurer. This was
the early ruling of most state courts before the states began to
pass special legislation. Although the federal government may try
to invent a new cause of action and assert that it is not a
"subrogation" claim (to avoid pesky legal doctrines), the gravamen
(or essential nature) of the new cause of action would still be the
same as a subrogation claim. The same rules should apply to it--no
matter what the federal government's esoteric theory might be
called.
As Doug Bandow put it, "sophistry cannot hide the essential nature
of the state's action--to seek reimbursement for medical expenses
that those being treated are legally barred from collecting. The
state does not have a higher claim of action than the individual
allegedly harmed."
Even
if the assumption of risk doctrine is held not to apply directly in
an Orwellian federal suit, it still might bar the federal claim
indirectly--through the doctrine of proximate causation. If smokers
knew of the risks and continued smoking anyway, then the smokers,
not tobacco manufacturers, are the proximate cause of
tobacco-related illness. The smoker's risky behavior is the
superseding cause of his own illness and cuts off the remote chain
of causation. If there is another direct cause of the supposed
"loss" to government programs, it is the government's choice to
cover smoking-related illnesses (assuming they are as easily
identified as the government maintains). The government could have
refused to provide coverage for smoking-related illnesses under
Medicare, as it has done for veterans' benefits, or it could have
charged higher premiums for smokers. Thus, either the smoker is the
sole superseding cause of the alleged loss to the government
programs or the government is also complicit in the alleged
financial loss to its own programs.
There are also some inherent
contradictions in any attempt by the government to simultaneously
evade the assumption of risk doctrine and the necessity of proving
individual damages. There actually might be a few smokers who did
not know of the basic risks involved in smoking, but it hardly
seems fair to allow the government to raise such an individualized
argument if the defendants are not allowed to examine individual
smokers to determine the different causes of injury. Instead, the
government may have to argue that (1) smokers could not assume the
risk because the risks generally are unknown but (2) the risks are
so well-known that aggregate damages can be calculated without
individual proof of damages.
THE DOJ'S TOBACCO LITIGATION
FLIP-FLOP
The
Clinton Administration is rarely accused of a slavish consistency
to any one position, but the Administration's about-face on whether
the federal government can sue the tobacco industry to recover
Medicare costs is even more abrupt and unjustified than other
flip-flops. This reversal on what the law says, as opposed to a
mere policy reversal, without explanation is worth exploring in
greater detail.
DOJ's Original Position: "No Cause of
Action"
Two
years ago, career officials at the Department of Justice determined
that the federal government had no independent cause of action for
such claims. On April 30, 1997, Attorney General Janet Reno adopted
their conclusion and testified before the Senate Judiciary
Committee that "what we have determined was that [any such claim]
was the state's cause of action and that we needed to work with the
states, that the federal government does not have an independent
cause of action [to recover Medicaid or Medicare funds]."
That
year, the DOJ spokesman, Joe Krovisky, also said that the "Medicare
and Medicaid statutes do not provide explicit authority for the
federal government to pursue suit."
State officials and their attorneys also
testified before Congress that the DOJ had informed them that the
federal government could not join their suits or file its own suit
because it did not have a cause of action against the tobacco
companies for medical care reimbursement. Mississippi Attorney
General Mike Moore, who was instrumental in getting other states to
file suit, testified about his own and others' efforts to try to
get the DOJ to join as well:
We...wrote letters, had personal meetings,
and urged the Federal Government through the Justice Department and
others to file a lawsuit on behalf of Medicare.... We were informed
that the Justice Department and others did not feel that they had a
cause of action under the Federal statutory framework, so they
could not file such a lawsuit.
Richard Scruggs, a leading trial attorney
who worked with several states on their lawsuits against the
tobacco companies, testified that he strenuously urged the federal
government to join their efforts but the DOJ determined that such
an action would be illegal. In his words:
[W]e made every effort in the world to get
the Justice Department to initiate litigation similar to the
litigation that we had initiated to recover Medicare funds that
were related to smoking, and we couldn't get anywhere with them.
They interpreted that law...the black letter law as saying that
they could not seek to recover except for servicemen or federal
employees, but not those on Medicare. So we made an effort to get
them involved, and they basically refused us.
It
is highly unlikely that the DOJ's initial determination was made
casually. The issue was one of the most hotly debated legal issues
of 1997 and 1998; the state suits involved hundreds of billions of
dollars; and it was a topic that the U.S. Attorney General would
almost certainly be asked to address herself--and she was. Career
DOJ attorneys are among the best and brightest legal scholars in
government. It is simply inconceivable that their initial
determination was the product of carelessness or a lack of
attention.
Thus, throughout 1997 and 1998, the
Department's position, communicated through DOJ officials directly
and through third parties, was that there was no independent cause
of action for the federal government to sue tobacco companies for
medical cost reimbursements. Although these officials sometimes
added--when they were questioned by pro-litigation Members of
Congress--that they would continue to review the law, this is a
typical (and arguably polite) hedge phrase political appointees
mouth when they are questioned by a Member of Congress with an
opposing view. There was still no public deviation from the DOJ's
basic legal position until after the President told the Department
that it should reverse course.
The DOJ's Original Determination Was
Correct
The
Department's original determination has the special virtue of being
correct. In United States v. Standard Oil Co. of California,
the U.S. Supreme Court categorically rejected the federal
government's attempt to bring suit to recover medical costs when
such a suit was not expressly allowed by statute. The
Supreme Court rejected the invitation to create or expand the scope
of federal tort law beyond that set forth in federal statutes,
explaining the difference between state courts of general
jurisdiction that were permitted to develop theories of tort law
and federal courts which were not.
The
Supreme Court also noted another problem with the government's
theory, which it said is not really about tort law at all:
[T]he issue comes down in final
consequences to a question of federal fiscal policy...the federal
fiscal and regulatory policies which the Government's executive arm
thinks should prevail in a situation not covered by traditionally
established liabilities. Whatever the merits of the policy, its
conversion into law is a proper subject for congressional action,
not for any creative power of ours. Congress, not this Court or the
other federal courts, is the custodian of the national purse.
The
Supreme Court noted that Congress does create new federal causes of
action for reimbursement when it deems it necessary: "When Congress
has thought it necessary to take steps to prevent interference with
federal funds, property or relations, it has taken positive action
to that end." The Court also pointed out
that Congress is in the best position to weigh the competing issues
of settled expectations and unfair surprise, and can fine-tune any
new cause of action, for example, by making it apply only
prospectively.
Finally, the Court reasoned that it was
particularly inappropriate for the judiciary to create or recognize
a cause of action when the United States was the party seeking that
result:
Here the United States is the party
plaintiff to the suit. And the United States has the power at any
time to create the liability. The only question is which organ of
the Government is to make the determination that liability exists.
That decision...is in this instance for the Congress, not for the
courts. Until it acts to establish the liability, this Court and
others should withhold creative touch.
The
Standard Oil decision is still good law, and there is no
statute that allows the federal government to bring suit to recover
medical costs of this type.
The
two statutes most likely to be invoked in any federal lawsuit
against the tobacco industry are the Medical Care Recovery Act
(MCRA) and the Medicare Secondary Payer Act (MSPA), but neither
provides a valid basis for the type of broad suit contemplated by
the Administration. In its 37-year history, the MCRA has never been
used to seek reimbursement of Medicare costs from anyone. A careful
reading of its terms and history reveals (including to the original
career DOJ staff) that it applies to medical services provided to
U.S. military personnel and perhaps to other federal employees, but
not to all Medicare enrollees.
If
the MCRA provided a cause of action under Medicare for aggregate
losses, Congress would not have passed the MSPA in 1980 and amended
it several times since then. The MSPA allows the federal government
to recover certain limited costs paid by Medicare. It allows the
federal government to sue or intervene in an action against an
insurance plan, certain other "secondary" providers, and medical
providers and beneficiaries, but not an alleged wrongdoer. There is
not one single reported case in which the federal government tried
to use the MCRA or MSPA to recover Medicare costs against an
alleged wrongdoer.
Other statutes that have been mentioned,
including the antitrust laws and the Racketeer Influenced Corrupt
Organizations Act, are even more baseless as possible grounds for
suit. None of these statutes supplies the Administration with a
valid cause of action (except perhaps for costs incurred for
military personnel under the MCRA). As The Wall Street
Journal recently reported, each of these four statutes
mentioned as a possible basis for suit "would require leaps of
logic and backdoor strategies that offend the legal sensibilities
of some career Justice Department lawyers." This is because the Supreme
Court held in Standard Oil that when Congress has created
limited causes of action to recover medical costs in some contexts,
that presents the strongest case against the courts creating other
broad causes of action by judicial fiat.
The Only Change Is Political, Not
Legal
There has been no change in federal law
since the DOJ determined that it could not bring suit against the
tobacco industry (except to reinforce that position), but there has
been a sea change in attitudes affecting tobacco suits generally.
From 1954 until recently, more than 1,000 lawsuits were brought
against tobacco manufacturers without a single plaintiff's
victory.
That record is not because tobacco products have no adverse effect
on smokers' health (they do). In some cases, juries may have
doubted that the plaintiff's particular illness was caused by
smoking, but in the overwhelming number of cases, juries concluded
that smokers knew of the health risk and voluntarily assumed the
risk.
One
marked change in recent years is that demagoguery against the
tobacco industry by public officials has grown increasingly common,
including blaming the industry for costs which the officials know
do not exist. This focused vitriol against the tobacco industry
increases the risk that jurors will disregard the normal legal
rules in a case brought against a cigarette manufacturer. This
demagoguery not only undermines the operation of the law and
important legal principles, but also undermines the importance of
individual responsibility.
There also has been a change in the
perceived willingness of the tobacco industry to pay huge sums in
response to a rhetorical and unprincipled suit. With the master
settlement, the tobacco companies thought they had made a good deal
for themselves, but by paying off the extortionists, they inflicted
an injury on the operation of the law and funded an unprincipled
segment of the trial bar to go after other targets.
In
this way, the tobacco companies are partly to blame for what has
transpired. Although the tobacco companies are more likely to fight
the federal government's clear lack of legal authority to bring
suit, they still have to contend with the raised expectations of a
greedy government and a public that is even more confused about the
distinction between politics and law.
Tobacco Industry "Wrongdoing": A Red
Herring. The recent evidence of tobacco company culpability by
itself should not have had that much of an impact on public opinion
and no impact on the law. It is argued that industry documents
released in the past few years show that, while tobacco companies
denied that tobacco is addictive and downplayed the risks of
smoking, this was contrary to some of their own evidence.
The
physiology of addiction is complex and lends support to some
medical arguments about the nature of chemical addiction and its
individual variability. But as a matter of public relations, it was
unwise for tobacco companies to advance an argument that runs
counter to the lay use of the term "addiction" and the common
experience of millions of smokers. Although tobacco companies
have a corporate responsibility to respond to exaggerated claims
about the dangers of smoking, it also would be wrong for
them to try to downplay the health risks of smoking. Even assuming
such wrongful behavior, however, it adversely affected no one's
opinion.
People have known for centuries that
smoking tobacco was an "addictive" habit, and cigarettes were known
to cause death and serious illness for many decades before the
first Surgeon General's warnings appeared on cigarettes 33 years
ago. For example:
-
President John Quincy Adams said that he
was "addicted to tobacco" (both smoking and chewing) for much of
his youth, but on the advice of a physician friend, he quit in the
1810s. Writing in 1845, Adams said that he thought smoking reduced
life expectancy by five years on average, which was probably an
exaggeration for that time period when most people lived shorter
lives.
-
President Ulysses S. Grant's physician
attributed his death by cancer to smoking.
-
In 1892, The New York Times
reported on efforts to have tobacco banned by Congress due to its
serious health consequences and adverse affect on children.
-
In 1900, a U.S. Supreme Court opinion
noted how common the belief was that cigarettes were harmful,
particularly for young people, "and that communications are
constantly finding their way into the public press denouncing their
uses as fraught with great danger."
Even
more relevant to the recent arguments advanced by anti-tobacco
advocates, there have been thousands of non-industry and government
studies worldwide on the addictiveness and health consequences of
smoking. According to the director of the Office of Smoking and
Health at the Centers for Disease Control and Prevention in
Atlanta, "Cigarette smoking and other tobacco use is the single
most studied health risk factor in the history of medicine." Medical
studies dating from the 1930s have confirmed peoples' common
beliefs about smoking and are consistent with more modern studies
on the basic effects of cigarettes. As for the availability of
this information, the Library of Congress maintains a special
collection with tens of thousands of books, journals, studies, and
reels of microfilm dedicated to the health effects of tobacco. Most other
libraries have similar collections.
In
short, people know there are serious risks involved in smoking, but
as with many other activities in life that impose some risk, they
choose to do it anyway. This is the meaning of freedom, which
includes the right to take risks that others may think are foolish
and the corresponding duty to bear full responsibility for the
results.
Moreover, if people tend to overestimate
the risks associated with smoking--and there is strong evidence
that they do --then it simply is not
material (in tort litigation) whether tobacco executives tried to
downplay or conceal those risks. Dishonesty and fraud is serious
business. It should justifiably enrage policymakers (if it is
shown) and, if uttered under oath, should be prosecuted as perjury.
But as Doug Bandow notes, it is not grounds to torture the law or
engage in organized looting.
The
same is true for the allegation that industry executives lied to
policymakers about the documents they possessed and improperly
urged their attorneys to claim the information was legally
privileged. Discovery abuse is bad and should be appropriately
punished if proven, but it is difficult to argue that any essential
"truth" about smoking was concealed from policymakers or the public
or that they would have done anything differently if they had known
this additional information. In short, the alleged misstatements
and omissions did not adversely affect the opinion or actions of
anyone.
The
tobacco companies also were alleged to have targeted some of their
advertising at children. Teen smoking is a special problem because
few teenagers have the maturity to appreciate the risks of such a
habit (even if they know what they are). But there is plenty of
evidence that tobacco advertising has little effect on whether
teens smoke--even if it does influence brand preference.
Overall, teen smoking rates are determined
by teen attitudes, which have almost no relationship to tobacco
advertising (teen smoking rates increased in six European countries
when tobacco ads were banned, and some countries have higher teen
smoking rates than America). An argument also can be
made that teen attitudes are affected more by whether anti-smoking
crusaders emphasize taking personal responsibility (when rates
decline) or demonizing the tobacco companies (when rates increase
again).
But
under any set of facts, recent advertising practices
targeted at children hardly seem relevant to the past
Medicare or Medicaid costs. Almost no one believes that the state
tobacco litigation was really about teen smoking; if it were, it
would have addressed that issue in a much more narrow way. Nor
could a federal recoupment lawsuit provide a solution to the
problem of teen smoking.
Even
more to the point, all of the real or alleged wrongdoing has little
or no bearing on the legal argument over whether the federal
government has a valid cause of action to recover Medicare costs
from tobacco companies. And it ought to be self-evident that a
defendant's popularity should have no bearing on whether suit can
be brought or on the legal defense a defendant is allowed to raise.
Indeed, legal protections are most necessary for unpopular
defendants. A change in public opinion should have no bearing on
the operation of the rule of law--assuming America still is a
nation of laws.
The DOJ's Apparent Change of Position
Although the DOJ has not yet formally
announced that it will file suit against the tobacco companies, it
has taken several steps consistent with an intention to do so.
First, it has confirmed that it is pursuing the issue in conformity
with the President's directive. Second, it has requested an
additional $20 million from Congress to fund 40 attorneys in the
Civil Division "to recover the expenses of federal health care
programs for tobacco-related diseases."
Given that the DOJ has millions of dollars
for civil litigation, this funding request is peculiar in several
respects. In a Department with over 10,000 lawyers, why is a
special appropriation necessary for 40 additional lawyers to pursue
just one lawsuit? And if the lawsuit is supposed to recover large
sums of money, why must a $20 million investment be appropriated up
front?
One
possible theory for the appropriation request is that the DOJ does
not think Congress will pass special legislation authorizing the
suit, but it hopes to use any special appropriation or report
language to bolster its position in court that Congress has indeed
authorized the recoupment litigation. Although such an
appropriation should not be interpreted by a court as overcoming
the presumption against liability created in Standard Oil,
there is at least a possibility that some court would accept the
theory that if Congress authorizes funds for the suit, that
implicitly changes the liability rule. This is a strong reason for
Congress not to approve the request. If it does so, Congress should
explicitly provide that it is not changing the underlying liability
rules.
The
third and rather dubious step the DOJ took toward the filing of a
suit was to hire a consultant, Michael Ciresi, who was the lead
attorney hired by Minnesota in its suit against the tobacco
companies. It is odd, to say the
least, that a Department with some of the best and brightest
attorneys in the country thought it had to formally consult an
outside lawyer.
The
DOJ says that Ciresi's knowledge of the tobacco industry documents
made him valuable, but the content of those documents is irrelevant
to whether the federal government has a valid cause of action to
recover Medicare costs. What is even more improper is that the DOJ
would not publicly disclose the complete terms of its contract with
Ciresi. Ciresi's law firm demanded about $550 million in fees from
its work on the Minnesota case. Although Ciresi supposedly
agreed to work at a "reduced" hourly rate for the federal
government until June 30 of this year, the DOJ has not ruled out
the use of outside contingency-fee lawyers in the future.
In
addition to these tangible steps, several Administration officials
have said that the litigation will proceed. Interestingly, the
clearest statements have come from White House political and policy
advisers and not the Administration's top lawyers. Bruce Reed,
White House Domestic Policy Adviser, said the steps the
Administration has taken demonstrate "that we are serious [about
filing suit] and that the administration is moving full steam
ahead."
Rahm Emanuel, former Senior Advisor to the President for Policy and
Strategy, believed that the DOJ would never have revisited its
views if the White House had not pressured it to do so.
Although DOJ officials are "under heavy
pressure" to bring suit, they reportedly still favor special
legislation that would authorize it. Attorney General Reno has
said that she now is confident the Department can bring suit, but
she has not said how or under what theory it will be done.
According to The Wall Street Journal, "Ironically, one of
the department's most ardent naysayers of the suit was
civil-division chief Frank Hunger, widower of Vice President Al
Gore's sister, who died from smoking-related lung cancer in
1984."
When the DOJ expressed its serious legal qualms about pursuing a
case "that it doubts it can win on the merits...The White House
argued that the fight was more political than legal: Just sue and
the industry will settle." According to the same
article, "The Justice Department eventually relented and put
together a team stocked with longtime tobacco industry foes."
Apparently, the DOJ has found some
anti-tobacco activists who are not concerned with manipulating the
litigation process for cause-oriented purposes. At this point, they
just want tens of millions of dollars from Congress for their
efforts; the basis for the suit apparently will come later.
QUESTIONS REGARDING A LIABLITY THEORY
Not
only should Congress reject a special appropriation for the
litigation at this time, but it also should enact an express ban on
the use of staff time or appropriated money for a recoupment
lawsuit against the tobacco industry. The prohibition should remain
in effect at least until the Attorney General and other DOJ
officials provide the appropriate congressional committees with
some important information regarding the government's theory of
liability and damages.
The
most important questions the Administration should answer about its
liability theory include the following:
-
Is special legislation necessary to grant
the federal government a cause of action to recover Medicaid and
Medicare costs?
-
Will the DOJ take the position that an
appropriation for attorneys to pursue the litigation would serve as
an authorization to bring suit?
-
What is the precise legal basis of such a
suit? Congress should insist on a formal, detailed legal opinion
from the Attorney General, or one from the Office of Legal Counsel
that she has endorsed.
-
If the DOJ has changed its position and
believes that special legislation is not necessary, what change in
law justified this reversal?
-
Will the DOJ attempt to eliminate its
requirement to prove that particular defendants caused actual
damages in particular individuals?
-
Will the DOJ ignore the normal rules of
causation and medical science and assert that all cigarettes are
exactly the same in the way they affect individual smokers?
-
Will the DOJ try to prevent the defendants
from raising any of their traditional legal defenses, such as the
assumption of risk, proximate causation, and the normal statute of
limitations?
-
The federal government provided free
cigarettes to active duty military personnel until 1974. However,
it has denied veterans' requests for coverage of diseases linked to
smoking because it said that smokers assumed the risk of such
illness. Will it approve those claims now?
-
What other industries will the government
target with recoupment-type litigation (alcohol manufacturers, the
automobile industry, the fast food and "junk food" industries)? If
it has no current plans for such litigation, how can Congress
assure itself that the DOJ will not simply change its position as
it did in the tobacco litigation?
-
What other outside legal consultants and
supposed "experts" will the DOJ hire, and will the DOJ make the
terms of their contracts public?
QUESTIONS REGARDING A THEORY OF
DAMAGES
Although President Clinton points to
tobacco-related diseases as the basis of the government's loss, the
economics of such diseases actually proves the opposite. The
private costs of smoking cigarettes do seem rather high to those
who do not smoke them, but that is true of many
activities. As for the "burden" supposedly imposed on government,
the economic costs of smoking borne by government are more than
offset by the savings in government retirement and health programs
from the early death of smokers who otherwise would require
benefits for a longer period and different end-of-life care.
In
short, smoking has more of an effect on the timing of government
expenditures and not as much impact on total costs. Even the
venerable New England Journal of Medicine, an anti-smoking
journal of great distinction, concluded that smoking saves health
care expenditures: "If people stopped smoking, there would be a
savings in health care costs, but only in the short term.
Eventually, smoking cessation would lead to increased health care
costs."
This means that state and federal tobacco taxes are a windfall to
government and tobacco use is an economic boon to public
treasuries.
Some
researchers doubt whether the actuarial savings to government
health programs alone cover the total "social" cost of
tobacco-related illnesses (which include both private and public
costs), but almost every government and independent researcher has
concluded that the government has no net loss in revenue as a
result of smoking. Two years ago, the U.S. Department of Health and
Human Services' Food and Drug Administration (FDA) published a
regulation (which was later struck down) that contained the
following admission:
[T]he most detailed research on the issue
of whether smokers pay their own way is the 1991 study by Manning,
et al....[who] concluded that there is no net externality, because
the sum of all smoking-related externalities is probably less than
the added payments imposed on smokers through [then] current
Federal and State excise taxes.
Just
last year, the Congressional Research Service also concluded that,
"all in all, smoking has apparently brought financial gain to both
the federal and state governments."
As a
legal matter, even if the government could show that smoking in
general imposed net costs on Medicare or some other program, that
would not be enough to establish that it suffered any damages from
tobacco company conduct. As one tobacco lawyer convincingly argued,
the government must show that the industry's wrongful conduct
(assuming any can be proven) caused an increased level of
consumption, and then it must show how much that increase in
consumption cost the government. Because any alleged
misconduct probably had no discernible impact on the rate of
smoking, this burden seems almost insurmountable.
The
above-cited studies showing no net cost to government did not even
consider the much higher implicit "taxes" that will now be paid by
smokers to the state governments under the tobacco settlement
reached last year. The government's revenue on cigarettes averaged
roughly $0.53 per pack before the settlement. That figure could double
with the incredible $246 billion the tobacco companies agreed to
pay the states. But either figure is large compared with the $0.28
that the tobacco companies are estimated to make per pack of
cigarettes. If previous taxes enriched
the state and federal governments enormously (and they surely did),
then the new payments have no claim to being a "user fee" at all.
Moreover, because smokers are disproportionately represented in the
lower income levels, this windfall to government is highly
regressive.
Thus, the tobacco tax and tobacco
litigation "payments" can be described as a highly regressive cash
cow with a nanny state-social engineering goal. That many people
are untroubled by the paternalistic punch of this particular
revenue scheme should make it no less problematic as a precedent
for future social engineering.
To
accept the reasoning of the anti-tobacco activists means that it is
appropriate to kill by taxation or litigation any legal industry if
it contributes to some risk and becomes unpopular. And there are
plenty of activists who want to do just that. Among the current
targets are manufacturers of lead-based paints; alcohol (which
surpasses tobacco in externality costs); guns; chemicals; meat and
milk (or fatty foods in general); caffeinated beverages; cars; fast
food; "junk food"; and pharmaceuticals (if they have unintended
consequences). Indeed, the activists have as good a basis for going
after television manufacturers and network broadcasters because TV
viewing induces sloth, which is certainly not healthful.
One
need not be an apologist for the tobacco companies to oppose this
trend. Even if the government itself resists the temptation to use
the tobacco tactics against any other industry, there is no way to
contain the legal precedents once they emerge from Pandora's box.
Surely state or private litigants will want to use them, even if
the federal government hesitates (at first) to do so. This is one
of the primary costs of bending the rule of law to "get" a
supposedly bad actor. Once bent, the rule of law is not very
effective in containing the evil winds that will surely blow.
With
this in mind, the most important questions Congress should ask the
Administration regarding its damage theory include the
following:
-
Plaintiffs seeking damages in civil
litigation must have a good-faith basis for the amount sought in
damages. Since the FDA, other government officials, and every
reputable study have confirmed that there is no net economic loss
to the government from tobacco-related illness, how can the
government bring a claim in good faith?
-
If the normal rules of a subrogation suit
will not apply, then the collateral source rule that limits
set-offs should not apply either. What are the precise elements of
economic damage the government will seek to recover, and what
set-offs will the government's theory allow? If an aggregate cost
theory of damages is proposed, shouldn't the tobacco companies be
entitled to prove aggregate savings?
-
What are the total Medicare costs and
savings associated with smoking, and what portion of them is the
result of alleged tobacco company misconduct? How much was tobacco
consumption increased by the alleged tobacco company misconduct,
and how did that increase affect overall government costs? Can the
foregoing be proven by anything other than conjecture, or will the
government rely on rhetorical and emotional arguments alone?
-
The federal government should not use
tax-funded litigators in an unfounded suit or to impose significant
costs and force an unfair settlement. To prevent this type of
abuse, will the federal government offer to pay the tobacco
companies reasonable attorneys' fees if the government brings a
lawsuit and loses? Should Congress expressly require such an award
of attorneys' fees out of the DOJ's appropriation? If not, why
not?
-
Congress was unable to agree on any new
tobacco taxes as part of the debate on tobacco legislation last
year. Why should Congress allow a suit that seeks to substitute
litigation before an emotionally charged jury for its own lawmaking
power?
-
Because the costs of any potential award
would be passed on to smokers who are primarily poor or low-income
workers, why does the Administration favor this large and
regressive form of tax to fund Medicare and related programs? Is
the litigation social engineering masquerading as law, or does the
Administration really intend this massive wealth transfer from the
poor to the rich?
Legislation to End Litigation Abuse
Senator Mitch McConnell (R-KY) recently
introduced legislation that would prevent the worst abuses of the
"different rules for different defendants" approach to law. The
Litigation Fairness Act of 1999 (S. 1269) provides that a state or
federal government lawsuit to recover expenses paid on behalf of
another person would have to prove the same elements and allow the
same defenses as would apply in a suit brought by the person on
whose behalf the services were provided or paid. Despite some
federalism concerns with regard to its application to the states, S. 1269
would go a long way toward preventing the worst abuses in federal
recoupment litigation.
The
Litigation Fairness Act and measures like it deserve special
attention in Congress because unprincipled recoupment litigation
against many industries is being pursued and discussed actively.
Unfortunately, even legislation like S. 1269 might not prevent
frivolous or politically motivated suits from being filed in the
hope that an unfair settlement could be procured. Congress should
do even more to stop inappropriate litigation from ever being
filed. In the context of a federal lawsuit against the tobacco
companies to "recover" nonexistent Medicare expenses, there will be
several opportunities for Congress to do just that.
RECOMENDATIONS
To
protect the rule of law against unprincipled litigation abuse, and
to defend the separation of powers by which Congress makes the
essential regulatory and taxing decisions for American industries,
lawmakers and judges should take the following actions:
-
Congress should not appropriate any
money for a baseless suit or for one that
violates principles of fundamental fairness under the common
law. Congress should inform the Administration that no special
appropriation will be considered again until the Attorney General
submits a detailed legal opinion that includes a legitimate theory
of liability and damages and provides satisfactory responses to
numerous unanswered questions.
-
Congress should enact an express
prohibition against the use of any federal funds to file such a
suit until and unless Congress is satisfied with the answers to
the questions raised about the Administration's liability and
damage theories.
-
Congress should
seriously consider permanent legislation that would prevent abusive
government reimbursement lawsuits and provide fair treatment to all
defendants.
-
The federal courts should follow the
Supreme Court's instruction and summarily dismiss any federal claim
for reimbursement that is not expressly authorized by statute,
and the courts should not hesitate to award attorneys' fees to the
defendants for frivolous or bad-faith litigation.
CONCLUSION
Adherence to the rule of law is a defining
principle that separates arbitrary and tyrannical government from a
constitutional democracy. Despite some recent attacks on the rule
of law, it remains a bedrock principle of America that no rogue
leader can quickly or easily undermine.
Nevertheless, the rule of law and respect
for it are not immune from erosion. Like all liberties, the rule of
law must be sustained and defended with constant vigilance. Even
small exceptions to the rule of law over time will tend to weaken
its protections for everyone. Because the potential federal tobacco
litigation would endanger such protections, no one should surrender
or compromise in response to demagogic attacks.
Congress and the American people need to
keep in mind that the contemplated federal lawsuit is not simply a
policy issue with short-term consequences. The President's decision
to try to pursue a federal tobacco lawsuit is so wrongheaded on so
many different levels that it can be explained only by a belief
that the potential political payoff of demonizing an unpopular
industry outweighs the damage to important legal principles.
But
the rule of law is equally important no matter how strong the
public consensus that the perceived evil should be stopped. As a
line attributed to St. Thomas More illustrates, we defend the rule
of law not so much for the person asserting its protection but for
our own sake.
Todd F.
Gaziano is a Senior Fellow in Legal Studies at The Heritage
Foundation.