We’ve been saying it for years (here and here, for instance), and now we can cite authority from one of the nation’s most distinguished jurists, Judge Ralph Winter of the Second Circuit: the 1998 tobacco settlement was skillfully designed to create the sort of cartel among cigarette manufacturers that would have gotten tobacco executives packed off to jail had not state attorneys general been on hand to bestow their blessing. In a case called Freedom Holdings, Inc. v. Spitzer (yes, the New York AG, a vocal defender of the 1998 travesty, continues to be on the wrong side), a three-judge panel headed by Winter reinstated a lawsuit by a cigarette importer challenging the deal’s anticompetitive provisions.
The first question, wrote Winter, is whether the “scheme of market control created by the statute would constitute a per se violation of the Sherman Act if brought about by an agreement among private parties.” You bet it would: “Had the executive of the major tobacco companies entered into such an arrangement without the involvement of the States and their attorneys general, those executives would long ago have had depressing conversations with their attorneys about the United States Sentencing Guidelines.” True, there’s a “state action immunity doctrine” which immunizes the results of market-regulating schemes that are “in furtherance of legitimate state policy goals and limit[ ] unnecessary anticompetitive effects” and are actively supervised by the state. But the challengers deserve a chance, he wrote, to show that the cartelization scheme adopted for tobacco flunks this test. “Until now the State has relied in a conclusory fashion on the claimed benefits to public health as a showstopper rendering further analysis or discussion irrelevant,” wrote Winter. But: “It suffices to say here that … the relationship of such benefits to the restraint on competition is not obvious and may even be counterproductive.” Judge Sonia Sotomayor joined Winter’s opinion, and Judge Robert Sack concurred with some reservations. (Mark Hamblett, “Challenge to Tobacco Settlement Is Revived”, New York Law Journal, Jan. 7). Thus far, defenders of the 1998 deal have enjoyed a near-perfect record in protecting it from unwelcome scrutiny, as with the squelching of Judge Charles Ramos’s inquiry into the ethics of tobacco fees (see Aug. 10) and the continued suppression of ethics investigations in Texas (see Dec. 20). Is their luck about to change? (& letter to the editor Aug. 16).
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