Ruling May Hurt Case Against Tobacco Cos.

An appeals court says the federal government cannot use a racketeering law to seek a huge penalty against the tobacco industry.

The decision by a panel of the U.S. Court of Appeals (search) for the District of Columbia Circuit dealt a major blow to the government's attempt to hold cigarette makers accountable for decades of alleged deceit about the dangers of smoking, ruling the Justice Department can't seek $280 billion in penalties.

Friday's 2-1 ruling comes in the midst of a monthslong trial in U.S. District Court on the government's lawsuit contending the industry knew about the health dangers of smoking but hid that information from the public. The trial will continue while the government considers an appeal.

Even if the decision stands, U.S. District Judge Gladys Kessler could impose restrictions on the tobacco companies, such as limiting marketing or requiring the industry to fund public health campaigns or smoking cessation programs.

Still, the appeals court decision was a major win for tobacco companies. Wall Street (search) greeted it by sending stock prices of cigarettes makers sharply higher.

Charles A. Blixt, executive vice president and general counsel for R.J. Reynolds Tobacco Co., said the ruling "dramatically transforms" the government's lawsuit.

Government lawyers were reviewing the ruling and had no immediate comment, Justice Department spokeswoman Kimberly Smith said. Government lawyers could request a rehearing in front of the three judges, ask for the full appeals court to consider the case or appeal to the Supreme Court.

The $280 billion is the most ever sought in a civil racketeering trial. The government has described the sum as an estimate of money the companies earned illegally through fraudulent activities such as marketing to children and denying doing so.

The trial, which comes six years after the states reached settlements worth $246 billion with the industry to recoup the cost of treating sick smokers, is in its fifth month and probably will continue for several more.