Hemi Group set up a websitebuydiscountcigarettes.comto sell cigarettes from low-tax or tax-free regions to people in high-tax areas, including New York City. Hemi Group, Jemez Pueblo, [image-nocss] N.M., has no duty to charge, collect or remit the city's tax. But federal law, specifically the Jenkins Act, requires out-of-state vendors to file reports with state tobacco tax administrators identifying the names and addresses of in-state customers.
New York City filed a lawsuit under the Racketeer Influenced and Corrupt Organizations Act, claiming Hemi Group's business constitutes mail and wire fraud, causing the city to lose tens of millions of dollars in potential cigarette taxes.
The district court dismissed the case, but the 2nd Circuit revived the RICO claim, ruling that the city's alleged injurylost tax revenuewas "business or property" under RICO, and came about "by reason of" the purported fraud.
But Chief Justice Roberts ruled that the city "cannot satisfy the causation requirement" that any injury was caused by the alleged frauds.
"Here, the conduct directly responsible for the city's harm was the customers' failure to pay their taxes," Roberts wrote. "And the conduct constituting the alleged fraud was Hemi's failure to file Jenkins Act reports. Thus ... the conduct directly causing the harm was distinct from the conduct giving rise to the harm."
In a dissenting opinion, Justice Stephen Breyer said Hemi Group's failure to provide the Jenkins Act information "proximately caused New York City to lose tobacco revenue." He added that the city's revenue loss "falls squarely within the bounds of the kinds of harm that the Jenkins Act seeks to prevent."
"The statute is titled 'An act to assist states in collecting sales and use taxes on cigarettes,' " Breyer noted.
Meanwhile, Altria Group Inc.'s Philip Morris USA unit and other U.S. cigarette-makers asked a federal appeals court to block federal trial courts from applying a 2006 Florida decision they claim would deprive them of a fair trial in thousands of death and injury suits in the state, according to a report from Businessweek.
The companies argue that a series of factual findings endorsed by the Florida Supreme Court in a 2006 decision, including that the companies sold defective products, that they conspired to hide information about the health effects of smoking and that they made false statements about their products, can't fairly be applied in any of 4,000 cases against them in Florida federal court.
The companies claim that applying the 2006 ruling, which came in the Florida's "Engle" tobacco class action, "would compromise an arbitrary deprivation of the defendants' federal due process rights," as a lower judge ruled in August 2008.
The plaintiffs, smokers and their families who are suing the cigarette-makers individually, claim the findings are based on ample evidence. They argue that the federal courts are required to apply state law in the cases and can't review the state Supreme Court's decision, according to the report. A decision in the smokers' favor would make it easier for smokers to win verdicts in the cases.
In Florida state courts, which instruct jurors on the factual findings endorsed by the state Supreme Court, smokers have won several of the post-Engle cases that have gone to trial. These include a $30 million verdict against Reynolds and an $8 million verdict against Philip Morris. The cases are being appealed.
The Engle case was filed in 1994 and named after a Florida smoker named Howard Engle who was the lead plaintiff. After more than a decade of litigation in the Florida courts, the Florida Supreme Court in 2006 rejected a $245 billion punitive damage verdict in the case and ruled that it couldn't continue as a class action on behalf of smokers statewide who were addicted to nicotine and developed cancer or other smoking-related illnesses.
At the same time, Florida's high court upheld a series of factual findings made by a Miami jury in the case and said those findings would apply in all of the individual suits filed by smokers who had been part of the Engle class. The U.S. Supreme Court declined to review the case.
In the appeal today in Atlanta federal court, the companies aren't challenging findings by the Engle jury, upheld by the Florida Supreme Court, that smoking is addictive and that it can cause illnesses including cancer, emphysema and heart disease.
In addition to Richmond, Virginia-based Phillip Morris, the biggest U.S. cigarette maker, the companies in the case include No. 2 R.J. Reynolds Tobacco Co., a unit of Reynolds American Inc., and No. 3 Lorillard Tobacco, a unit of Lorillard Inc.
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