Is Big Tobacco RICO Suave?

In what may be the most important decision in the never-ending storm of tobacco litigation, the Mississippi Supreme Court upheld the dismissal of a lawsuit brought by Owens Corning (OTC BB: OWENQ) against Altria Group (NYSE: MO  ) , R.J. Reynolds (NYSE: RJR  ) , and other cigarette manufacturers. Executives with Altria's Philip Morris USA unit think this may mark the end of third-party lawsuits against tobacco companies.

The suit claimed tobacco companies bore partial liability for asbestos-related injuries to Owens Corning employees because smoking added to the health risks of asbestos exposure. Mercifully, the court saw through Owens Corning's attempt to dispose of billions in liabilities on an easy target. Courts have repeatedly dismissed these types of indirect claims, and this judgment was consistent with previous Altria cases.

Although the tobacco industry has been reasonably successful in cases of this type, they've cost the industry dearly in settlement and litigation expenses. And don't think for a moment the end is in sight simply because third-party litigation is essentially over.

There's still the federal racketeering suit that won't go away. Last week, a federal judge rejected the industry's claim that the government's $289 billion suit, brought under the Racketeer Influenced and Corrupt Organizations (RICO) act, amounted to "regulation by litigation," violating the Constitutional separation of powers. RICO is the act put in place to prosecute mobsters in the 1970s.

The federal government knew for years that tobacco was dangerous and linked to disease, as did just about every U.S. citizen. The RICO suit claims tobacco companies misled the American public about the health effects of tobacco by denying that smoking caused disease. Yet it's almost impossible to find anyone who believed the tobacco companies, or was legitimately misled by their denials, once the negative health effects were proven. Here again, it's a money grab designed to suck the life out of tobacco companies and bring them further under government control.

So few people see the sweet irony in this situation. The more money tobacco companies owe governments, the more incentive there is to keep them in business. The racketeering case goes to trial in September, so if you're looking to make a quick buck suing tobacco companies, you better get to it before Uncle Sam lays claim to what's left in the coffers.

Despite its litigation risk, many investors dig Altria for its dividend. What's Mathew Emmert digging inMotley Fool Income Investor, though? You can sign up for a free 30-day trial to find out.

Fool contributorChris Mallontakes a lot of flak for his views on tobacco companies and he owns shares of Altria.


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