Defense Files Remedies Witness List

April 24, 2005 11:18 pm by Gene Borio

On Thursday, April 21, the Defense offered its list of 17 witnesses whom it may call to rebut DOJ’s proposed remedies, should Defendants be found guilty of RICO violations.

The DOJ’s remedies are concentrated on public health and on removing the companies’ incentives to profit from any damage their actions may cause to the health of the nation. To challenge these public-health-oriented remedies, the Defense has pulled together a diverse group of CEOs, statisticians, economists, and professors of business and law.

A recurring theme is the “competitive environment” facing the companies and the industry. This will be addressed by the CEOs, the Vice-Presidents and others.

Some witnesses will address the potential “collateral effects” of the DOJ remedies–specifically, such effects on “innocent third parties” such as shareholders, bondholders, employees, and state governments.

Speaking of state governments, the industry’s compliance with MSA’s restrictions will be highly touted by several witnesses.

The science behind tobacco-related loss estimates will be statistically challenged, as will the Legacy youth smoking prevention studies, and Michael Fiore’s national cessation program proposal.

A couple of unique witnesses:

Professor Dan Prentice, a barrister and professor at Oxford University, is being offered as an expert on English corporate law, and will address some prickly transatlantic BATCo issues:

Professor Prentice is expected to testify that certain remedies that have been proposed by Plaintiff may require the express permission of BATCo’s shareholders over whom BATCo has no control. Professor Prentice is also expected to testify that certain proposed remedies are inconsistent with English corporate law and could lead to shareholder actions against BATCo and/or other liabilities under English law. Professor Prentice is also expected to testify as to the enforceability of certain remedies in England.

James A. Brickley, Ph.D., Professor of Business Administration at the University of Rochester, seems to be the witness who will most directly address the remedies of Dr. Max Bazerman, specifically, “court-ordered structural changes” and “removal of defendants’ senior management.” In addition,, he will address “whether other, more narrowly tailored remedies available to the Court could prevent and restrain any alleged future wrongdoing.”

Text of the Defendants’ notice and witness list follow:

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PDF file of Defense’ Notice of Filing

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA,

Plaintiff,

PHILIP MORRIS USA INC.,

f/k/a PHILIP MORRIS INC., et al.,

Defendants.

Civil Action No. v. : 99-2496 (GK)

Next Scheduled Court Appearance: Trial (ongoing)

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DEFENDANTS’ NOTICE OF FILING DEFENDANTS’ LIST OF REMEDIES WITNESSES

Pursuant to Order #894 and Order #912,1 Defendants submit the attached chart which identifies the witnesses whom Defendants may offer during the remedies phase of their case, along with a description of the testimony expected to be offered from each witness.2

Dated: April 21, 2005

Respectfully submitted,

/s/ Jonathan M. Redgrave

Robert F. McDermott, Jr. (D.C. Bar No. 261164)

Peter J. Biersteker (D.C. Bar No. 358108)

Jonathan M. Redgrave (D.C. Bar No. 474288)

JONES DAY

51 Louisiana Avenue, N.W.

Washington, D.C. 20001-2113

Facsimile: (202) 626-1700

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1 Defendants have previously noted, and incorporate by reference herein, their objections to Plaintiff’s efforts to develop additional evidence during trial. See, e.g., Defendants’ Memorandum Regarding Non-Disgorgement Remedies Pursuant to Order #875 (filed February 22, 2005).

2 Defendants reserve the right to supplement this list with any of the witnesses previously identified by Defendants on their trial witness lists on April 5, 2004, as well as with any witnesses who may be called to respond to previously undisclosed testimony or opinions of Plaintiff’s remedies witnesses.

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2

Robert C. Weber

Paul G. Crist

David B. Alden

JONES DAY

North Point

901 Lakeside Avenue

Cleveland, Ohio 44114-1190

Telephone: (216) 586-3939

Facsimile: (216) 579-0212

Attorneys for Defendant

R.J. Reynolds Tobacco Company

/s/ Jonathan M. Redgrave for

Timothy M. Broas (D.C. Bar No. 391145)

WINSTON & STRAWN LLP

1700 K Street, N.W.

Washington, D.C. 20006-3817

Telephone: (202) 282-5000

Dan K. Webb

Thomas J. Frederick

WINSTON & STRAWN LLP

35 West Wacker Drive

Chicago, Illinois 60601-9703

Telephone: (312) 558-6700

Theodore V. Wells, Jr. (D.C. Bar No. 468934)

James L. Brochin (D.C. Bar No. 455456)

PAUL, WEISS, RIFKIND, WHARTON &

GARRISON LLP

1285 Avenue of the Americas

New York, New York 10019-6064

Telephone: (212) 373-3000

Attorneys for Defendants

Philip Morris USA Inc.

(f/k/a Philip Morris Incorporated) and

Altria Group, Inc.

(f/k/a/ Philip Morris Companies Inc.)

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/s/ Jonathan M. Redgrave for

Kenneth N. Bass (D.C. Bar No. 386070)

KIRKLAND & ELLIS LLP

655 15th Street, N.W., Suite 1200

Washington, D.C. 20005

Telephone: (202) 879-5000

David M. Bernick

Stephen R. Patton

KIRKLAND & ELLIS LLP

200 East Randolph Drive, Suite 5900

Chicago, Illinois 60601

Telephone: (312) 861-2000

Attorneys for Defendant

Brown & Williamson Holdings, Inc.

/s/ Jonathan M. Redgrave for

J. William Newbold

Michael B. Minton

Richard P. Cassetta (D.C. Bar No. 457781)

THOMPSON COBURN LLP

One US Bank Plaza, Suite 3500

St. Louis, Missouri 63101-1693

Telephone: (314) 552-6000

OF COUNSEL:

Gene E. Voigts

Richard L. Gray

SHOOK, HARDY & BACON LLP

2555 Grand Blvd.

Kansas City, Missouri 64108-2613

Telephone: (816) 474-6550

Attorneys for Defendant

Lorillard Tobacco Company

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4

/s/ Jonathan M. Redgrave for

Bruce G. Sheffler

David L. Wallace

CHADBOURNE & PARKE LLP

30 Rockefeller Plaza, 34th Floor

New York, New York 10112-0219

Telephone: (212) 408-5100

Attorneys for Defendant

British American Tobacco (Investments)

Limited (f/k/a British-American Tobacco

Company Limited)

/s/ Jonathan M. Redgrave for

J. William Newbold

Michael B. Minton

Richard P. Cassetta (D.C. Bar No. 457781)

Jason A. Wheeler

THOMPSON COBURN LLP

One US Bank Plaza, Suite 3500

St. Louis, Missouri 63101-1693

Telephone: (314) 552-6000

Steven Klugman

Steven S. Michaels

DEBEVOISE & PLIMPTON LLP

919 Third Avenue

New York, New York 10022

Telephone: (212) 909-6000

Attorneys for Defendant

The Council for Tobacco Research-U.S.A., Inc.

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5

/s/ Jonathan M. Redgrave for

Aaron H. Marks

Leonard A. Feiwus

Nancy E. Straub

KASOWITZ, BENSON, TORRES

& FRIEDMAN LLP

1633 Broadway

New York, New York 10019-6799

Telephone: (212) 506-1700

Attorneys for Defendant

Liggett Group Inc.

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PDF file of Defendants List of Remedies Witnesses

DEFENDANTS’ APRIL 21, 2005 LIST OF REMEDIES WITNESSES

Name Description of Testimony

Lynn J. Beasley

Ms. Beasley is the President and Chief Operating Officer of R.J. Reynolds Tobacco Company (”RJRT”). Ms. Beasley is expected to testify to issues related to her position as a senior executive of RJRT, including, without limitation: (1) the current and anticipated competitive environment facing RJRT in the U.S. cigarette market, including factors that led to the merger of RJRT and the domestic cigarette manufacturing operations of Brown & Williamson Tobacco Corporation in 2004; (2) the impact of the MSA and related agreements on the business of RJRT; (3) the importance of various marketing and advertising programs to RJRT’s ability to compete in the marketplace for the business of adult smokers, including competition for potentially reduced exposure products; (4) the numerous restrictions impacting RJRT’s business operations (for example, legal, regulatory and voluntary restrictions), as well as the managerial structures, reporting requirements and other oversight in place to assure compliance with those obligations and restrictions, and the company’s continued commitment to compliance with those obligations and restrictions; and (5) the practical and competitive implications of certain remedies proposed by the Government. Ms. Beasley may also respond to evidence presented by the Government, including testimony of expert and fact witnesses, with respect to RJRT.

Ronald Bernstein

Mr. Ronald Bernstein is the President and Chief Executive Officer of Liggett Group Inc. (”Liggett”). Mr. Bernstein is expected to testify regarding issues related to his position as the top executive of Liggett, including, without limitation: (1) the current and anticipated competitive environment facing Liggett in the U.S. cigarette market; (2) the impact of certain settlement agreements, the MSA and other related agreements on the business of Liggett; (3) the importance of various marketing programs aimed at adult smokers to Liggett’s competitive position; (4) Liggett’s continued commitment to compliance with all legal, regulatory and judicial obligations and managerial structures, reporting requirements and oversight in place to assure such compliance; and (5) the practical and competitive problems with certain remedies proposed by the Government. Mr. Bernstein may also respond to the testimony of the Government’s expert and fact witnesses, including with respect to any testimony concerning Liggett.

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James A. Brickley, Ph.D.

James A. Brickley, Ph.D., is the Gleason Professor of Business Administration at the William E. Simon Graduate School of Business Administration, University of Rochester. Dr. Brickley will testify based upon: (1) his expertise in the economics of organizations, corporate governance, finance, managerial economics, and organizational architecture; and (2) literature and other materials considered and disclosed in his expert report, deposition or through supplemental disclosures. Dr. Brickley will offer expert testimony in response to the testimony of Dr. Max Bazerman on the following topics, as will be more fully addressed in Dr. Brickley’s expert report and deposition in this case: (1) Dr. Bazerman’s testimony that the defendants will continue engaging in misconduct unless the Court intervenes; (2) the potential costs that Dr. Bazerman’s recommendations will impose on innocent third parties, such as defendants’ shareholders, employees and other stakeholders, including Dr. Bazerman’s proposal that the Court adopt a process that would employ Court-appointed monitors who would consider a menu of potential Court-ordered structural changes, such as changes in compensation and promotion plans, the removal of defendants’ senior management, and changes in defendants’ oversight and reporting arrangements; and (3) whether other, more narrowly tailored remedies available to the Court could prevent and restrain any alleged future wrongdoing by defendants.

Dennis W. Carlton, Ph.D.

Dennis W. Carlton, Ph.D., a professor of Economics at the University of Chicago School of Business and a Senior Managing Director of Lexecon, is expected to testify based upon (1) his expertise in economics and applied mathematics, including professional experience, education, training, teaching and research as will be further set forth in his expert report, and to the extent described further at the deposition taken in this case; and (2) literature and other materials considered and disclosed in his expert report, deposition or through supplemental disclosures. Dr. Carlton will offer expert testimony on the following topics, as will be more fully addressed in his expert report and deposition in this case: (1) his analysis of and opinions relating to competition in the tobacco industry; (2) the failure of plaintiff’s experts to demonstrate the merits or effectiveness of the Government’s proposed remedies; (3) the lack of nexus between the proposed remedies and Defendants’ alleged past or future conduct; and (4) potential collateral effects of the remedies proposed by the Government. Dr. Carlton may also address additional testimony and opinions disclosed by Plaintiff’s witnesses in the course of deposition, discovery, and/or at trial.

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Daniel R. Fischel

Daniel R. Fischel, the Lee and Brena Freeman Professor of Law and Business at the University of Chicago Law School and a Senior Managing Director of Lexecon, is expected to testify based upon (1) his expertise in law and economics, including professional experience, education, training, teaching and research as will be further set forth in his expert report, and to the extent described further at the deposition taken in this case; and (2) literature and other materials considered and disclosed in his expert report, deposition or through supplemental disclosures. Professor Fischel will offer expert testimony regarding the responsiveness of corporate directors and managers to clearly delineated injunctive restrictions on the activities of their corporations, and offer his analysis of and rebuttals to the proposed remedies offered by the Government’s expert, Max Bazerman. As will be more fully addressed in his expert report, Professor Fischel may provide opinions regarding the relevance of the decision-making literature and research relied upon by Dr. Bazerman, established legal and corporate governance structures and practices that bear upon compliance with the law and court orders, the collateral impacts that Dr. Bazerman’s proposed remedies may have on the tobacco industry, the public, and other third parties. Finally, Professor Fischel may address additional testimony and opinions disclosed by Plaintiff’s witnesses in the course of deposition, discovery, and/or at trial.

Donald R. House, Ph.D.

Donald R. House, Ph.D., an economist and president of RRC, Inc., based in Bryan, Texas, is expected to testify based upon: (1) his expertise in economics, including his professional experience, education, training, teaching and research as will be further set forth in his expert report and curriculum vitae, and to the extent described further at the deposition taken in this case; and (2) literature, documents to be disclosed by the Government and other relevant materials considered and disclosed in his expert report, deposition or through supplemental disclosures. Dr. House will testify with respect to the appropriateness of — and the bases for — the scope, costs and components of Dr. Fiore’s proposed smoking cessation program. Dr. House will also discuss similarities between Dr. Fiore’s program and existing public and private cessation programs, including those covered by various state, federal and private insurance plans and health care programs. Dr. House will also testify about the costs, scope, extent of coverage, and efficacy of existing and planned smoking cessation programs. Finally, Dr. House may address additional testimony and opinions disclosed by the Government’s witnesses in the course of deposition, discovery and/or trial.

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Susan M. Ivey

Ms. Ivey is the President and Chief Executive Officer of Reynolds American Inc. (“Reynolds American”) and the Chairman and Chief Executive Officer of R.J. Reynolds Tobacco Co. (“RJRT”), which is a wholly-owned subsidiary of Reynolds American. Ms. Ivey is expected to testify to issues related to her position as the senior executive of RJRT, including, without limitation: (1) the current and anticipated competitive environment facing RJRT in the U.S. cigarette market, including factors that led to the merger of RJRT and the domestic cigarette manufacturing operations of Brown & Williamson Tobacco Corporation in 2004; (2) the impact of the MSA and related agreements on the business of RJRT; (3) the importance of various marketing and advertising programs to RJRT’s ability to compete in the marketplace for the business of adult smokers, including competition for potentially reduced exposure products; (4) the numerous restrictions impacting RJRT’s business operations (for example, legal, regulatory and voluntary restrictions), as well as the managerial structures, reporting requirements and other oversight in place to assure compliance with those obligations and restrictions, and the company’s continued commitment to compliance with those obligations and restrictions; and (5) the practical and competitive implications of certain remedies proposed by the Government. Ms. Ivey may also respond to evidence presented by the Government, including testimony of expert and fact witnesses, with respect to RJRT.

Martin L. Orlowsky

Martin L. Orlowsky, Chairman, President, and Chief Executive Officer of Lorillard Tobacco Company, is expected to testify as a fact witness concerning the effect of the MSA on Lorillard Tobacco Company; the effect that the Government’s proposed remedies would have on Lorillard Tobacco Company, its employees and third parties; and Lorillard’s continuing commitment to comply with all internal and external restrictions concerning the sale of its product. Mr. Orlowsky may also respond to any testimony given by Government’s fact and expert witnesses pertaining to Lorillard Tobacco Company.

Steven C. Parrish

Steven C. Parrish is the Senior Vice President of Corporate Affairs of Altria Group, Inc. Mr. Parrish may testify in response to the testimony of the Government’s remedies witnesses, including with respect to any testimony concerning Altria Group, Inc. Such testimony may include, without limitation: (1) corporate policies and practices relating to compensation and promotion; and (2) the practical and competitive problems with certain remedies proposed by the Government, including the need for such remedies and their potential impact on innocent third parties such as shareholders, employees, and state governments.

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Professor Dan Prentice

Professor Dan Prentice is a practising barrister, a member of the Oxford Law Faculty, a Fellow of Pembroke College, Oxford and holds the position of Allen & Overy Professor of Corporate Law at Oxford University. Professor Prentice is being offered as an expert on English corporate law and is expected to testify about the interplay between English corporate law and the remedies proposed by plaintiff, including those related to corporate governance identified by Dr. Bazerman. Professor Prentice is expected to testify that certain remedies that have been proposed by Plaintiff may require the express permission of BATCo’s shareholders over whom BATCo has no control. Professor Prentice is also expected to testify that certain proposed remedies are inconsistent with English corporate law and could lead to shareholder actions against BATCo and/or other liabilities under English law. Professor Prentice is also expected to testify as to the enforceability of certain remedies in England. Professor Prentice is expected to testify based upon his expertise in English corporate law, including his professional experience, education, training, teaching and research.

Donald B. Rubin, Ph.D.

Professor Donald B. Rubin is a Professor of Statistics in the Department of Statistics at Harvard University. Professor Rubin is likely to testify, as fully detailed in his previous expert disclosures in this case as well as additional reliance materials that will be identified on April 30, 2005, that: (1) the defendants’ alleged misrepresentations and suppression of information about the health risks of smoking had essentially no effect on smoking initiation or smoking cessation; (2) there is a statistically reliable and valid way to estimate the effect of defendants’ alleged wrongdoing on a variety of endpoints, such as health-care costs or proceeds; and (3) the Government’s experts — Drs. Gruber and Wyant — did not employ those methods and, consequently, their estimates are neither reliable nor valid. In addition, Professor Rubin is expected to address the efficacy of certain components of the national smoking cessation program described by Dr. Fiore, particularly the counseling, medication, media campaign, and the efforts to mobilize communities.

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Bryan K. Stockdale

Mr. Stockdale is the Vice President, Sales Strategy and Operations, of R.J. Reynolds Tobacco Company (”RJRT”). Mr. Stockdale is expected to testify regarding issues related to his position at RJRT, including: (1) the current and anticipated competitive environment facing RJRT in the U.S. cigarette market, particularly at retail; (2) the MSA and other restrictions and policies impacting RJRT’s retail marketing practices; and (3) where appropriate given his knowledge, background and experience, the practical and competitive implications of remedies proposed by the Government. Mr. Stockdale may also respond to evidence presented by the Government, including the testimony of expert and fact witnesses, with respect to RJRT.

Michael E. Szymanczyk

Michael E. Szymanczyk is the Chairman and Chief Executive Officer of Philip Morris USA Inc. Mr. Szymanczyk may testify in response to the testimony of the Government’s remedies witnesses, including with respect to any testimony concerning Philip Morris USA Inc. Mr. Szymanczyk’s testimony may include, without limitation: (1) corporate policies and practices relating to compensation and promotion; (2) the practical and competitive problems with certain remedies proposed by the Government, including the need for such remedies and their potential impact on innocent third parties such as shareholders, employees, and state governments; and (3) the current and anticipated competitive environment facing Philip Morris USA in the U.S. cigarette market.

William E. Wecker, Ph.D.

Dr. William E. Wecker is the President of William E. Wecker Associates, Inc., an applied mathematics consulting firm in Novato, CA. Dr. Wecker is likely to testify, as fully detailed in his previous expert disclosures in this case, that the estimates of the Government’s experts — Drs. Gruber and Wyant — of the health-care costs, morbidity, mortality and years of potential life lost that are “attributable” to smoking are unreliable and inflated. In addition, Dr. Wecker is likely to testify about the reliability of certain of the new calculations, such as the estimate of lifetime “proceeds” from “youth” smokers, made by Dr. Gruber in connection with the remedy described in Dr. Gruber’s March and April 2005 expert disclosures. Dr. Wecker is also expected to offer testimony regarding the study methods and findings in the Farrelly 2002 and 2005 articles regarding youth awareness, attitudes, beliefs, intentions, and behavior. His testimony will be based on the Legacy Media Tracking Study data, the facts, data, and methods disclosed in the Farrelly articles, the facts, data, and methods disclosed on the American Legacy Foundation’s web site, www.americanlegacy.org., and on his own analysis of the available data and study materials.

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Roman L. Weil, Ph.D., CPA, CMA

Professor Weil is the V. Duane Rath Professor of Accounting at the Graduate School of Business at the University of Chicago. Professor Weil will likely to testify generally about the competition in the market for cigarettes in the United States prior to and after the adoption of the Master Settlement Agreement. On the basis of both historical experience and general principles of economics and accounting, Professor Weil is also expected to testify about the likely effect of the remedies described, explicitly or implicitly, in the testimony of the Government’s remedies witnesses, including Ms. Healton, Dr. Fiore, and Dr. Gruber, on (a) competition in the market for cigarettes in the United States; (b) the defendant cigarette manufacturers, including their economic incentives to avoid future RICO violations, profitability, and ability to survive; and (c) innocent persons, such as defendants’ shareholders, bondholders, and employees.

Janet Wittes, Ph.D.

Janet Wittes, Ph.D., is the President of Statistics Collaborative Inc. She is expected to offer testimony and opinions on studies examining the impact of anti-smoking advertisements and media campaigns and to respond to the anticipated testimony of the Government’s witnesses on those issues, including Farrelly MC, Davis KC, Haviland, ML, et al., “Evidence of a Dose-Response Relationship Between ‘Truth” Antismoking Ads and Youth Smoking Prevalence, American Journal of Public Health, 95(3):425-431 (2005), and Farelly MC, Healton CG, Davis KC, et al., “Getting to the Truth: Evaluating National Tobacco Countermarketing Campaigns,” American Journal of Public Health, 92(6):901-907 (2002). She may also be asked to comment on the evidence presented by the Government, to the extent such evidence is within her knowledge and expertise.

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