October 15, 2001 - Judge Upholds Dismissal of Suit Against R.J. Reynolds Tobacco Holdings

Oct. 13--R.J. Reynolds Tobacco Holdings Inc. won a sizable legal victory yesterday when a federal appellate court affirmed a lower court's dismissal of a lawsuit filed by Canada that accused RJR of smuggling cigarettes into Canada.

The 2nd U.S. Circuit Court of Appeals decision in New York was "clearly good news for RJR as well as the broad tobacco industry," said Martin Feldman, the tobacco analyst at Salomon Smith Barney. Feldman said that if Canada appeals to the U.S. Supreme Court, the high court "probably won't take the case," but if it does accept it for review, "it will only endorse" what the appellate court has ruled.

The government of Canada sued RJR, its R.J. Reynolds Tobacco Co. unit, several currently and formerly linked companies and the Canadian Tobacco Manufacturers Council in 1999, alleging the companies violated U.S. racketeering laws by conspiring to defraud Canada through an international smuggling scheme.

The Canadian government claimed it suffered $1 billion in damages, including lost tax revenue, because of the alleged smuggling operation.

Last year a federal district court judge dismissed Canada's lawsuit, basing the decision on the so-called Revenue Rule, an 18th century common law rule which allows a court to decline to enforce another country's tax laws.

The appellate judges voted 2-1 to uphold the lower federal court's dismissal of the suit. The appellate court upheld the district court dismissal also citing the Revenue Rule.

"Today's decision is an important victory for international law because, after a thorough analysis of the Revenue Rule, the court affirmed that foreign governments cannot use our country's judicial system to enforce their revenue laws," said Daniel W. Donahue, senior vice president and deputy general counsel for R.J. Reynolds Tobacco, in a statement.

A call to the Canadian Justice Department seeking comment was not immediately returned.

Donahue said the ruling has implications for other cases, including those filed by Belize, Honduras, Ecuador, and the European Community and its 10 member states.

In those cases, the plaintiffs bring up many of the same allegations as have been aired in the Canadian suit.

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