* U.S. says wrongly denied disgorgement penalty
* Companies argue racketeering law improperly invoked
* Say case raises free speech issues
* Supreme Court could decide reach of racketeering statute (Adds additional companies petitioning court, quote from Lorillard spokesman)
By Dan Margolies
WASHINGTON, Feb 19 (Reuters) - The government and three cigarette makers separately asked the U.S. Supreme Court on Friday to review a racketeering verdict against major tobacco companies that was upheld by an appeals court last year.
Altria Group Inc’s (MO.N) Philip Morris USA unit and two co-defendants filed to overturn the verdict, while the government argues the appeals court wrongly denied the disgorgement of billions of dollars in ill-gotten gains by the tobacco industry.
In May, a three-judge panel of the U.S. Court of Appeals for the District of Columbia affirmed a trial judge’s verdict against the cigarette makers, finding they violated federal anti-racketeering laws by conspiring to lie about the dangers of smoking.
If the Supreme Court agrees to take the case, it could redefine the reach of the Racketeer Influenced and Corrupt Organizations Act.
Besides Philip Morris, maker of Marlboro cigarettes, the appeals court ruling was challenged Friday by Lorillard Inc LO.N, home of the Kent and Newport brands, and the R.J. Reynolds Tobacco unit of Reynolds American Inc RAI.N, maker of Camel and other cigarettes.
The case was filed in 1999 by the Clinton administration, which originally sought $289 billion in damages. During the original trial, which began in 2004, the Justice Department under the Bush administration scaled back its demands to $14 billion for anti-smoking campaigns.
The government had also sued Vector Group Ltd’s (VGR.N) Liggett Group, British American Tobacco Plc (BATS.L) and its Brown & Williamson unit and two now defunct industry groups: the Council for Tobacco Research and the Tobacco Institute.
U.S. District Judge Gladys Kessler ruled in 2006 that the companies broke the law and could no longer use expressions such as “low tar” or “light” in their cigarette marketing. But she said she did not have the authority to force them to fund a smoking cessation program.
The appeals court found that Kessler was limited to “forward-looking” remedies aimed at future racketeering violations but properly precluded imposing smoking-cessation and public-education remedies.
The Supreme Court may take months to decide whether to review the case.
“There is a lot of risk here for the industry,” said Edward Sweda, senior attorney for the Tobacco Products Liability Project at Northeastern University School of Law in Boston.
Sweda said that if the Supreme Court agreed with the government, cigarette makers might find themselves ordered to cough up hundreds of millions, or even billions of dollars, for anti-tobacco advertising.
In its petition to the Supreme Court, the government argued that the appeals court had “eviscerated the relief available” in the biggest civil racketeering case ever brought by the United States.
The ruling “thwarted” the trial court’s efforts to craft appropriate relief “to remedy the ongoing effects of fifty years of unlawful racketeering activity — unlawful acts that have harmed and continue to harm the lives and health of many millions of Americans,” the government stated.
The tobacco companies argued in their petitions that the government had improperly invoked the racketeering statute and that the appeals court was overly deferential to Kessler.
“Given the critical underlying legal issues in this case, we strongly believe it is ripe for review by the Supreme Court,” said Michael Robinson, a spokesman for Lorillard.
Because the case raised free speech issues, the companies argued, the appeals court was obliged to make an independent examination of the record.
A judge or jury “should not have the virtually unreviewable authority to make factual findings that deny a defendant its fundamental First Amendment freedoms,” Philip Morris said in its petition.
The companies also argued that the appeals court erred when it found that a group of corporations could form a racketeering “enterprise” — a notion they said conflicted with the language of the racketeering law.
The appeals court found that Philip Morris, Lorillard, Reynolds and the other defendants had formed such an enterprise, by informally associating, coordinating research and conducting marketing activities with one another. (Reporting by Dan Margolies; Editing by Tim Dobbyn and Gerald E. McCormick)