Joint Defendants Memorandum Supporting Their Motion To Strike Certain Remedies

July 21, 2005 5:16 pm by Gene Borio

Full text of: Joint Defendants Memorandum Supporting Their Motion To Strike Certain Remedies (PDF, July 20, 2005)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA,

Plaintiff,

v.

PHILIP MORRIS INCORPORATED, et al.,

Defendants.

Civil Action No. 99-CV-2496 (GK)

Next Scheduled Court Appearance: None

JOINT DEFENDANTS MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF THEIR MOTION FOR JUDGMENT ON PARTIAL FINDINGS PURSUANT TO FED. R. CIV. P. 52(c) WITH RESPECT TO CERTAIN REMEDIES SOUGHT BY THE UNITED STATES

I.

Introduction

The centerpiece of the Governments proposed order filed on June 27, 2005 consists of two remedies: a smoking cessation program and a public education program. These measures, which the Government itself characterizes as remedial, are on their face categorically barred by the D.C. Circuits prior opinion dismissing the Governments disgorgement claim. Defendants are therefore entitled to judgment with respect to these remedies.

In dismissing the Governments disgorgement claim, the D.C. Circuit squarely held that Section 1964(a) is limited to forward-looking remedies that are aimed at future violations, and does not permit a district court to order remedies focused on remedying the effects of past conduct. United States v. Philip Morris USA Inc., 396 F.3d 1190, 1198 (D.C. Cir. 2005). In so holding, the D.C. Circuit expressly rejected the argument that a remedys general deterrent effect alone could make it a proper remedy under Section 1964(a). Id. at 1200.

**———————————————————

2

Immediately after issuance of the D.C. Circuits opinion, this Court raised the question whether certain of the non-disgorgement remedies sought by the Government including its proposed smoking cessation and public education programs were also precluded by the appellate opinion. After reviewing the parties memoranda of law on this issue, this Court issued Order #886 addressing the scope and meaning of the Court of Appeals opinion. In that Order, this Court stated that the Governments Memorandum regarding the scope of the Court of Appeals ruling and which, if any, non-disgorgement remedies are available reads as if Judge Sentelle had never written his Opinion. Id. at 4. This Court underscored that [v]irtually all of the arguments in the Governments submission which had rested heavily on arguments that smoking cessation and public education remedies would have a deterrent effect and would remedy the continuing effects of alleged past wrongdoing were rejected by Judge Sentelle in his 2-1 Opinion and are simply not the law to be followed. Id. at 4-5. The Court continued:

Judge Sentelles Opinion, as this Court reads it, simply does not permit nondisgorgement remedies to prevent and restrain the effects of past violations of RICO. Rather, this Courts jurisdiction is limited to forward-looking remedies that are aimed at future violations of RICO. United States v. Philip Morris USA, Inc., et al., 2005 WL 267948, *7 (D.C. Cir., February 4, 2005). In fashioning its remedies testimony, the Government must be mindful of the plain, explicit language of Judge Sentelles 2-1 Opinion.

Order #886 at 5.

Nevertheless, the Court decided that it would not at that time rule out the smoking cessation and public education remedies as a matter of law, but would instead afford the Government one last opportunity to present evidence that will meet the new appellate standard announced by Judge Sentelle (id. at 5) i.e., evidence that smoking cessation and public education programs are forward-looking remedies that are aimed at future violations and are not focused on remedying the effects of past conduct.

**———————————————————

3

The Government has now had that opportunity, and it has utterly failed to present evidence in support of its various remedies that meets the D.C. Circuits standard. Indeed, as the Governments own experts admitted, the Governments proposed smoking cessation and public education remedies, far from being designed to prevent and restrain future RICO violations, are expressly remedial measures that seek to redress alleged harms caused by Defendants alleged past conduct. Accordingly, pursuant to Fed. R. Civ. P. 52(c), Defendants are entitled to judgment on partial findings with respect to these remedies.1

II.

Factual Background

On June 27, 2005, the Government filed a proposed order that for the first time set forth the precise remedies that it seeks in this case. See Government Proposed Final Judgment and Order. Under the heading, Funding for Remedial Measures, the proposed order contemplates payments by Defendants totaling $14 billion over ten years to fund a national smoking cessation program and a public education campaign. See id. at IV.A.

Of the total, $10 billion would be paid over the first five years to fund the national smoking cessation program described in the Governments proposed order, as follows:

1. $500,000,000 of each quarterly payment for the first five years after the date of this Final Judgment and Order shall be paid to an organization with the capacity to draw together necessary resources for the efficient and effective administration of a national smoking cessation program (hereinafter Cessation Administrative Organization), for the creation, oversight and

————

1 As will be detailed in Defendants forthcoming proposed findings of fact and trial brief, all of the Governments proposed remedies, as well as its underlying claims, are legally and factually defective on numerous grounds. Defendants trial brief will constitute its memorandum of points and authorities in support of their Rule 52(c) motion for judgment on these remaining issues, if such a motion is determined to be necessary to preserve these issues for appeal. However, Defendants focus here on the Governments proposed smoking cessation and public education remedies because: (1) these remedies are the primary forms of relief sought in the Governments proposed remedies order and comprise the vast portion of the monetary relief being sought, and (2) this Court has previously indicated in Order #886 that these remedies potentially run afoul of the D.C. Circuits opinion.

Moreover, the Governments position on these remedies is cited as the purported basis for the intervention motion now pending before the Court. For these reasons, Defendants submit that the most efficient course would be for this Court to make clear now that these remedies cannot be awarded in this case and issue judgment to that effect.

**———————————————————

4

administration of a National Smoking Cessation Quitline Network and the provision of smoking cessation therapy to all American smokers who can be offered treatment at the funding levels provided in this Final Judgment and Order.

The National Smoking Cessation Quitline Network shall be administered to provide:

a. A network for universal access to evidence-based, multi-session, proactive telephone counseling and FDA-approved medications for tobacco cessation, which shall be provided at no cost to a minimum of the first 2,500,000 smokers requesting treatment each year; and

b. A national media campaign to encourage cessation and publicize the availability of cessation therapies through the National Smoking Cessation Quitline Network.

c. If permitted by the funding levels provided in this Final Judgment and Order, the Cessation Administrative Organization shall also be permitted to make grants for:

(i) Research to develop new smoking cessation counseling and medication therapies; and

(ii) Training and education to ensure that clinicians in the United States have the knowledge, skills, and support systems necessary to help smokers quit tobacco use.

Id. at IV.B.1.

The remaining $4 billion would be paid out over ten years for public education, described in the Governments proposed order as follows:

1. $100,000,000 of each quarterly payment for ten years following the date of this Final Judgment and Order shall be paid to the American Legacy Foundation to continue and supplement its activities and functions as established by and specified in Section VI of the Master Settlement Agreement. The American Legacy Foundation shall also carry out a nationwide, sustained advertising and education program to educate smokers and nonsmokers of all ages about the comparative disease risks of low and ultra low tar cigarettes and the disease risks associated with exposure to secondhand smoke.

Id. at IV.C.1. The functions of the Foundation as established by and specified in Section VI of the Master Settlement Agreement include, inter alia, carrying out a nationwide sustained

**———————————————————

5

advertising and education program to (A) counter the use by Youth of Tobacco Products, and (B) educate consumers about the cause and prevention of diseases associated with the use of Tobacco Products, developing and disseminating criteria for effective cessation programs, and commissioning studies, funding research, and publishing reports on factors that influence Youth smoking and substance abuse and developing strategies to address the conclusions of such studies and research . . . . Master Settlement Agreement (MSA) VI(f) (U.S. Ex. 64359) (admitted pursuant to Order #860).

Although the Governments proposed order thus did (for the first time in this five-andone- half-year-old case) set forth in detail what it is requesting in the way of smoking cessation and public education programs, it did not address the fundamental question raised by this Court in Order #886: how are these remedies consistent with the D.C. Circuits opinion?

III.

Argument

A. Rule 52(c) Permits The Entry Of Judgment Once The Opposing Party Has Been Fully Heard On An Issue

Fed. R. Civ. P. 52(c) permits the Court to enter judgment as a matter of law in a bench trial where a party has been fully heard on an issue and the court finds against the party on that issue.2 Such judgment may be entered against both plaintiffs and defendants and with respect to issues or defenses that may not be wholly dispositive of a claim or defense. Advisory Committee Note to 1993 Amendments to Fed. R. Civ. P. 52. In ruling on a Rule 52(c) motion, a district court may not draw any special inferences in favor of the non-movant . . . . Instead, the

—–

2 A judgment entered pursuant to Fed. R. Civ. P. 52(c) shall be supported by findings of fact and conclusions of law as required by subdivision (a) of this rule. A memorandum opinion is sufficient to comply with this requirement. See Maryland Casualty Co. v. W.R.Grace & Co., 1995 U.S. Dist. LEXIS 13715, at *3 (S.D.N.Y. Sept. 20, 1995) (This opinion constitutes the courts findings of fact and conclusions of law. Fed. R. Civ. P. 52(a).).

**———————————————————

6

court must weigh the evidence, resolve any conflicts in it, and decide where the preponderance lies. United States v. Ervin & Assocs., Inc., 298 F. Supp. 2d 91, 92-93 (D.D.C. 2004).

B. The Governments Proposed Smoking Cessation Remedy Is Barred By The D.C. Circuits Opinion

The Government has now been afforded the opportunity granted in this Courts Order #886 to show how its proposed smoking cessation remedy satisfies the standard announced by the D.C. Circuit. As detailed below, it has completely failed to make any such showing. Unlike a prospective injunction, a smoking cessation program is simply not a forward-looking remed[y] that [is] aimed at future violations of RICO. United States v. Philip Morris USA Inc., 396 F.3d at 1198. To the contrary, the entire concept of a smoking cessation program is to address the addiction of smokers allegedly deceived by fraudulent conduct that has already occurred. As such, it is exactly the type of remedy that the D.C. Circuit has deemed impermissible in a 1964(a) case: a remedy focused on remedying the effects of past conduct. Id. Accordingly, Defendants are entitled to judgment on this remedy as a matter of law under Fed. R. Civ. P. 52(c).

1. The D.C. Circuit Opinion

The D.C. Circuits central rationale in ruling out disgorgement as a remedy is that 18 U.S.C. 1964(a) authorizes only remedies that prevent and restrain future RICO violations.

The Court repeated this point throughout the opinion:

Section 1964(a)s prevent and restrain language indicates that the jurisdiction is limited to forward-looking remedies that are aimed at future violations. United States v. Philip Morris USA Inc., 396 F.3d at 1198 (emphasis added).

The goal of [Section 1964(a)] . . . is to prevent or restrain future violations Id. (emphasis added). Congress intended to limit relief under 1964(a) to forward-looking orders. Id. at 1200.

**———————————————————

7

The remedies authorized under the statute are all aimed at separating the RICO criminal from the enterprise so that he cannot commit violations in the future. Id. at 1198 (emphasis in original).

Disgorgement is not an allowable remedy because it is awarded without respect to whether defendant will act unlawfully in the future and is measured by past conduct. Id. (first emphasis added; second in original).

Based on the remedies listed in the statute, Section 1964(a) authorizes only remedies that are directed toward future conduct and separating the criminal from the RICO enterprise to prevent future violations. Id. at 1200 (emphases added).

Critically for present purposes, the D.C. Circuit went on to make clear that, because Section 1964(a) is thus limited to forward-looking remedies aimed at future violations, the statute does not allow courts to award remedies aimed at addressing the consequences of violations that have already taken place. The D.C. Circuit thus flatly stated that Section 1964(a) does not permit a district court to order remedies focused on remedying the effects of past conduct. Id. at 1198. As the D.C. Circuit observed, RICO provides for a comprehensive set of remedies and [w]hen Congress intended to award remedies that addressed past harms as well as those that offered prospective relief, it said as much. Id. at 1200.

Finally, the D.C. Circuit also made clear that the Government cannot circumvent this limitation by arguing that remedies aimed at undoing the effects of past violations would also deter future violations by reducing the incentive to violate RICO. Any backward-looking remedy including disgorgement itself could be argued to be forward-looking in this metaphysical and attenuated way. For this reason, the D.C. Circuit reasoned that such an argument goes too far and would essentially render meaningless the prevent and restrain language and the limits on available remedies:

It is true, as the Government points out, that disgorgement may act to prevent and restrain future violations by general deterrence insofar as it makes RICO violations unprofitable. However, as the Second Circuit also observed, this

**———————————————————

8

argument goes too far. If this were adequate justification, the phrase prevent and restrain would read prevent, restrain, and discourage and would allow any remedy that inflicts pain.

Id. at 1200 (quotation omitted); see also id. at 1202, 1204 (Williams, J., concurring) (pure deterrence [is] an impermissible objective of orders under 1964(a); the Courts holding that 1964(a) limits the equity court to forward-looking remedies entails rejection of the supposition that whatever hurts a civil RICO violator necessarily serves to prevent and restrain future violations) (quotation omitted).

2. This Courts Order #886

Less than one week after the D.C. Circuit issued its opinion, this Court ordered the parties to file memoranda of law addressing the scope and meaning of the Court of Appeals decision regarding non-disgorgement remedies in civil RICO cases. Order #875 at 1 (Feb. 10, 2005).

In its memorandum, the Government attempted to contrive two rationales to salvage its proposed smoking cessation remedy. First, notwithstanding the D.C. Circuits holding that Section 1964(a) does not permit remedies focused on remedying the effects of past conduct, the Government contended that smoking cessation was an available remedy because it was designed to cure the ill effects of Defendants past unlawful conduct. United States Memorandum Regarding Non-Disgorgement Equitable Remedies (Gov. Feb. Mem.”) at 2. Second, notwithstanding the D.C. Circuits ruling that notions of deterrence cannot transform an impermissible backward-looking remedy into a permissible forward-looking one, the Government asserted that a smoking cessation program was an available remedy because it would have a deterrent effect: such a remedy allegedly would deprive Defendants of the incentive to violate the law with respect to the design and marketing of light cigarettes and reduce the economic benefit from doing so. Id. at 10. The resulting deterrent effect, the Government maintained, would tend to prevent future unlawful conduct. Id.

**———————————————————

9

On February 28, 2005, this Court issued Order #886 addressing these Government arguments. This Court stated that these arguments read[] as if Judge Sentelle had never written his Opinion. Order #886 at 4. In this Courts words, [v]irtually all of the arguments made by the United States in its Memorandum were arguments relied upon by this Court in its original opinion and by Judge Tatel in his dissent. The fact of the matter is that those arguments were rejected by Judge Sentelle in his 2-1 Opinion and are simply not the law to be followed at this time. Id. at 4-5. To the contrary, as this Court reads it, [the D.C. Circuits opinion] simply does not permit non-disgorgement remedies to prevent and restrain the effects of past violations of RICO. Rather, this Courts jurisdiction is limited to forward-looking remedies that are aimed at future violations of RICO. Id. at 5 (quotation omitted). This Court concluded with a clear directive: although it was giving the Government a final opportunity to present evidence meeting the dictates of the D.C. Circuits opinion, the Government was obliged to make a showing as to how its proposed smoking-cessation program comports with the plain, explicit language of the appellate standard established by D.C. Circuits opinion. Id. at 5.

3. The Government Has Not Made The Showing Required By Order #886

The parties and the Court have now concluded a remedies trial that lasted several weeks. The Government has now had the full opportunity contemplated by Order #886. But while it introduced testimony about how a smoking cessation program might be designed and opinion about why it would be good social policy, the Government simply did not confront let alone overcome the original, central defect in its proposed smoking cessation remedy.

Whether such a program would be good or bad as a policy matter, or whether it would benefit the public health, the fact remains that a smoking cessation program is aimed at ameliorating the effects of past violations (that is, the addiction of smokers allegedly deceived by fraudulent

**———————————————————

10

conduct) and has nothing to do with preventing Defendants from violating RICO in the future.3 As such, it simply cannot be squared with the D.C. Circuits opinion.

Indeed, it has long been clear from the Governments own submissions that the smoking cessation remedy is not forward-looking, is not aimed at future violations of RICO, and hence is not consistent with the D.C. Circuits opinion. For example, in its February memorandum leading up to Order #886, the primary argument the Government made in support of the smoking cessation remedy that this Court should read the D.C. Circuits opinion as somehow preserving the availability of remedies designed to cure the ill effects of Defendants past unlawful conduct (Gov. Feb. Mem. at 2-7) is simply an admission that the remedy is precisely the form of attempt to redress the effects of past violations of RICO that this Court has since correctly read the D.C. Circuit opinion to forbid.

The Government presented absolutely nothing during the remedies trial the opportunity afforded it by this Court to meet the D.C. Circuits standard that remotely shows otherwise. To the contrary, to the limited extent the Government addressed the D.C. Circuit standard at all, its presentation simply underscores why the smoking cessation remedy is inconsistent with the D.C. Circuits opinion.

First, the Government continued to advance arguments of a piece with those already rejected by the D.C. Circuit and this Court in Order #886. Thus, when directly asked by the Court in closing argument how its smoking cessation remedy would prevent and restrain future RICO violations by the Defendants, counsel for the Government repeated the general

————

3 See, e.g., Thompson v. American Tobacco Co., 189 F.R.D. 544, 553 (D. Minn. 1999) (smoking cessation remedy is compensatory damages); Arch v. American Tobacco Co., 175 F.R.D. 469, 484 (E.D. Pa. 1997) (smoking cessation program is just another form of treatment and a disguised request for damages); In re Tobacco Cases (II), No. JCCP-4042, 2001 WL 34136870, at *9 (Cal. Super. Ct. Apr. 11, 2001) (same).

**———————————————————

11

deterrence argument that this Court has already stated it reads the D.C. Circuit opinion to foreclose:

THE COURT: How can a cessation program, no matter how desirable it may be on public health grounds, how can it prevent and restrain future RICO violations by the defendants?

MR. BRODY: Your Honor, it can do it by removing the incentive for defendants to engage in exactly the types of activities they have engaged in for decades in the future. . . .

Trial Tr. at 23097. As detailed above, the D.C. Circuit has categorically rejected this overbroad deterrence argument. Indeed, that argument would apply equally (if not even more strongly) to disgorgement itself: disgorgement likewise might be said to remov[e] the incentive for defendants to engage in these alleged activities in the future. In fact, as this Court observed in Order #886, the Government had previously made exactly this deterrence argument in support of its disgorgement claim, but the D.C. Circuit flatly rejected the argument in no uncertain terms. Order #886 at 4-5; see United States v. Philip Morris USA Inc., 396 F.3d at 1200.

Second, the Governments proposed remedies order on its face shows that the smoking cessation program does not meet the D.C. Circuits standard. For example, the proposed order expressly states that the $10 billion in smoking cessation funding is to be required even if Defendants wholly comply with the law in the future, thereby making clear that the remedy is not aimed at future violations. And this is further laid bare by the Governments proposed remedies orders provision that the smoking cessation program is to apply to current smokers with no restrictions on eligibility for treatment: by definition, a cessation program for people who already smoke has nothing to do with, and cannot be aimed at, future violations.4

————

4 Government Proposed Final Judgment and Order IV(B)(1)(a), (2).

**———————————————————

12

Third, although testimony by the Governments experts is at bottom irrelevant to the legal issue of whether a smoking cessation program is forward-looking within the meaning of the D.C. Circuits opinion,5 it does bear mention that what little those witnesses did say about this issue also confirms that the program is not consistent with that opinion. For example, the Governments first cessation expert, Dr. David Burns, testified that the purpose of a smoking cessation program would be to mitigate the damage that has been caused by [Defendants past] conduct. Trial Tr. at 13619. In other words, Dr. Burns candidly admitted what the Government earlier acknowledged in its February memorandum, but is now straining to deny: that a smoking cessation program is not a forward-looking remed[y] that [is] aimed at future violations, but rather is precisely the kind of remedy focused on remedying the effects of past conduct that the D.C. Circuit has ruled out.

Nor did any other witness put on by the Government contradict Dr. Burns on this point or offer even a single word about how the proposed smoking cessation remedy is supposed to impact Defendants future conduct, much less prevent and restrain future RICO violations. As this Court is aware, the Governments main cessation witness was Dr. Michael C. Fiore. Dr. Fiore testified at length about the perceived social policy and public health need for a comprehensive national smoking-cessation program and about how such an extraordinarily important program might be designed and implemented. Fiore Written Direct at 16-17. But he offered nothing at all about how this program was supposed to prevent and restrain future violations of the law. To the contrary, he acknowledged that in crafting this program which, after all, was taken almost verbatim from a policy initiative developed by the U.S. Interagency

————

5 In this regard, the D.C. Circuit majority expressly rejected the dissents contention that the issue of whether a particular remedy is forward looking and would prevent and restrain future violations is an issue of fact that could be resolved on the basis of expert testimony. See United States v. Philip Morris USA Inc., 396 F.3d at 1198-

**———————————————————

13

Committee on Smoking and Health for enactment by Congress he looked not at what would prevent or restrain Defendants misconduct, but rather at what was needed in order to help smokers quit tobacco use in America. Id. at 21. Far from purporting to justify the program as tied to or aimed at future violations by Defendants, Dr. Fiore repeatedly cited improving public health as the purpose of his proposed comprehensive national smoking cessation program.6

Indeed, on cross-examination, Dr. Fiore explicitly disclaimed any intention to offer testimony about how his proposed smoking cessation remedy would prevent and restrain future misconduct by the defendants:

Q: Is it correct that the Department of Justice lawyers who retained you in this lawsuit instructed you that it was not your responsibility to address the capacity of your cessation plan to prevent and restrain future misconduct by the defendants?

A: I believe I was told that other expert witnesses would be addressing that topic.

Q: And you are not offering any expert opinion testimony on whether your national cessation plan will prevent and restrain future misconduct by the tobacco companies; correct?

A: Thats correct.

Trial Tr. at 21547 (emphasis added). And of course, no other expert witnesses ever offered any testimony to address[] that topic.

————

1201; id. at 1204 (Williams, J., concurring) (Obviously [the Governments experts] testimony cannot alone resolve the issue, turning legal analysis of the statute into a fact battle among experts.).

6 See, e.g., id. at 18 (proposed remedy hold[s] tremendous promise for producing dramatic decreases in tobacco use and its resulting human and economic costs); id. at 19 (evidence shows that every component that I have recommended to the Court will by itself result in reductions in tobacco use rates); id. at 20 (Having barrierfree access to evidence-based smoking cessation therapy is absolutely essential if a program is going to reach the largest number of smokers and thereby help the maximum number of smokers to quit.); Trial Tr. at 21280 (And the proposal that I submitted to the court, the results of the Subcommittee on Cessation really have this 32 million, the people who want to quit as the target of the report, and those are the people that are the goal of a comprehensive program that would help people to quit.); id. at 21303 (I would hope that any program would really be built around an outcome, and that outcome is to be able to ensure that every one of those 32 million Americans who tell us today they want to quit are able to achieve that goal.).

**———————————————————

14

Finally, in its rebuttal closing argument, the Government offered a totally new purported justification for its proposed smoking cessation remedy: that the proposal of a $10 billion fiveyear program was based on an initial factual finding that we asked the Court to make that defendants would be highly likely to continue violating RICO immediately following judgment. Your Honor can make such a factual finding that defendants will continue to commit fraud for at least one year. Id. at 23385.

In other words, in a last effort to salvage its smoking cessation program, the Government is now asserting that this Court should purport to predict the future and find as a factual matter that notwithstanding any injunction this Court may enter or other remedy it may order the Defendants will continue to violate RICO going forward. But the Governments notion that it can somehow avoid the D.C. Circuits proscription through a conclusive presumption that Defendants will violate the law in the future is simply unsupportable.

To begin, the Governments argument continues to miss the central point of the D.C.

Circuit’s opinion. The basic rationale of the D.C. Circuits opinion is that Congress has determined that the forward-looking remedies permitted by Section 1964(a) those enumerated in the statute and any similar to it are adequate to prevent and restrain future misconduct and are in any event the only remedies that a district court has authority to impose. United States v. Philip Morris USA Inc., 396 F.3d at 1200-01; see also id. at 1203-04 (Williams, J., concurring). The Court, of course, can assess penalties for any future violation of an injunction or other element of the courts decree that in fact takes place. But the proposition that the Court can conclusively presume that a future violation will occur in the face of an injunction, and in so doing expand its remedial powers beyond those otherwise authorized by the statute, is just as much an illegitimate effort to circumvent RICOs comprehensive and reticulated

**———————————————————

15

remedial scheme as the D.C. Circuit held the Governments disgorgement claim to be. Id. at 1200.

Indeed, the Governments new argument could apply equally to disgorgement itself. If a conclusive presumption of future violations would allow a court to impose a remedy designed to anticipate and remedy those future violations, such as the Government’s smoking cessation scheme, there seems to be no logical reason why disgorgement would not be similarly available against that defendant as well. The same logic i.e., requiring a defendant, prospectively, to “undo” violations that have not yet occurred but are presumed inevitable would apply in that context, too. To borrow this Courts words, this is simply not the law to be followed after the D.C. Circuits ruling. Order #886 at 5.

Finally, the Governments argument on its face reveals that it cannot be squared with the D.C. Circuits opinion. Inherent in the proposed conclusive presumption is the admission that the cessation program would not prevent and restrain future violations. Indeed, such a presumption rests on the notion that Defendants cannot be prevented or restrained, and that the future violations will occur regardless of whether the cessation program is ordered. Even on its own terms, then, the Governments new contention still acknowledges that the cessation program would not meet the D.C. Circuits standard: the program would not prevent or restrain future RICO violations, but would at most remedy the effects of violations after they occur.7 But, as

————

7 Aside from this patent inconsistency with the D.C. Circuits opinion, a conclusive presumption that Defendants will violate the law in the future not to mention the imposition of billions of dollars of penalties on Defendants now for the presumed future violations, whether or not the violations actually occur would be totally irrational and would contravene elementary notions of due process. At bottom, the Government is contending that Defendants alleged prior wrongdoing their supposed propensity to violate RICO allows this Court not only to determine their guilt for future violations, but to presume conclusively that those yet-to-occur violations will in fact take place, even in the face of a potential injunction. This argument runs afoul not just of the bar on the use of propensity evidence to determine guilt (see, e.g., Old Chief v. United States, 519 U.S. 172, 180-82 (1997), but more fundamentally of the due process proscription on the use of irrebuttable presumptions. As the Supreme Court has explained, irrebuttable presumptions have long been disfavored under the Due Process Clause, and are forbidden when th[e] presumption is not necessarily or universally true in fact, and when the [Government] has

**———————————————————

16

this Court recognized in Order #886, the D.C. Circuit expressly held that Section 1964(a) does not permit a district court to order remedies focused on remedying the effects of past conduct. Philip Morris USA Inc., 396 F.3d at 1198.

C. The Governments Proposed Public Education Remedy Is Also Barred By The D.C. Circuits Opinion.

The Government fared no better in complying with the D.C. Circuit’s opinion and Order #886 with respect to its proposed public education program. As with smoking cessation, this Court in Order #886 indicated that the arguments the Government had made to that point chiefly, that such a program would inoculate the public against the alleged fraud and thereby protect the public from being negatively impacted by Defendants violations (see Gov. Feb. Mem. at 11-12) were foreclosed by the D.C. Circuits opinion. See Order #886 at 4.

Indeed, just like smoking cessation, the entire concept of a public education program is to redress the effects of RICO violations, not to prevent violations from occurring in the future.8 Once again, the Governments own arguments lay this bare. The essence of the Governments argument is that an education program will prevent and restrain future misconduct, and it will do so by inoculating youth who are subject to defendants continuing marketing. Trial Tr. at 23427. But this argument shows that the remedy is impermissibly aimed at preventing effects of

————

reasonable alternative means of making the crucial determination. Cleveland Bd. Of Educ. v. LaFleur, 414 U.S.

632, 644-45 (1974). Far from being necessarily or universally true in fact, a conclusive presumption that civil RICO defendants will necessarily violate an injunction in the future and incur the penalties for doing so is, as Judge Williams explained at length, wholly counterintuitive. 396 F.3d at 1204-05 (Williams, J., concurring). Indeed, the kind of irrebuttable presumption inherent in the Government’s proposal is even more irrational and inappropriate than the presumption addressed in LaFleur and similar decisions. In the usual case, a presumption provides a way to resolve a factual issue that, while perhaps unknown, is at least knowable. Here, by contrast, the presumption establishes a fact that is not only unknown, but unknowable unless the Court is assumed to have truly prophetic powers.

8 See, e.g., Texas Carpenters Health Ben. Fund v. Philip Morris, Inc., 21 F. Supp. 2d 664, 667 (E.D. Tex. 1998), affd, 199 F.3d 788 (5th Cir. 2000) (plaintiffs sought injunctive relief requiring Tobacco to fund a remedial public education campaign on the health consequences of smoking) (emphasis added); State v. Philip Morris, Inc., 686 N.Y.S.2d 564, 568-69 (Sup. Ct. N.Y. Cty. 1998) (Plaintiffs requested, inter alia, that defendants be enjoined [t]o take affirmative steps to undo public harm in New York State caused by their deceit . . ., including the funding of a corrective public education campaign. . . .) (emphasis added).

**———————————————————

17

alleged violations after they have occurred, and is not aimed at preventing future violations from taking place. At bottom, to the limited extent this argument addresses future violations at all, it is simply a reprise of the Governments deterrence argument i.e., Defendants might have less incentive to engage in future frauds because they will be less profitable if those who might otherwise be deceived can successfully be inoculated. This is no different from saying that the threat of disgorgement deters fraud by threatening the confiscation of any profits thereby derived the precise argument rejected by the D.C. Circuit in this case.9

As with smoking cessation, the Government has presented nothing during the opportunity afforded it by this Court that suggests otherwise. To the contrary, the Governments witnesses during the remedies phase and before did little more than opine at length about why a public education program would be good social policy and promote public health. For example, the Governments first public education witness, Dr. Biglan, focused on the alleged effectiveness of multifaceted counter-marketing campaigns in promoting public health. But Dr. Biglan offered no testimony how these campaigns would serve to prevent and restrain future RICO violations by defendants. See Biglan Written Direct at 436-61.

Nor did the other witnesses offered by the Government, Drs. Healton and Eriksen, present any such testimony. To the contrary, Dr. Healton acknowledged that the purpose and focus of her proposed public education remedy was to improve public health; she offered no testimony at all as to whether the remedy would impact defendants future conduct, much less prevent and restrain future RICO violations. Healton Written Direct at 10, 38; Trial Tr. At 20831-32 (emphasizing that her focus in developing the proposed public education remedy was

————

9 There is also an independent reason for rejecting the Governments public education/youth smoking prevention program: that youth marketing is indisputably not a RICO violation. Rather, the Government contends that Defendants alleged misrepresentations about whether they marketed to youth amounts to mail or wire fraud

**———————————————————

18

to improve matters from a public health standpoint). For his part, Dr. Eriksen expressly acknowledged that the purpose of any public education campaign is to redress Defendants alleged past conduct, not to prevent and restrain future misconduct:

Q. Please explain what you mean by a counter-marketing campaign to correct the misperceptions of the glamour, acceptability, appeal and safety of tobacco use.

A. In order to redress the tobacco companies conduct which I have just referred to above, I would recommend that a counter-marketing campaign be directed to the American public.

Q. Would a single national campaign be adequate to redress Defendants conduct?

A. No. Since the conduct has been ongoing for such a long time and covered such a wide range of areas, a single national campaign would be inadequate to redress it. Rather, I would recommend a counter-marketing campaign with various components, each of which would address some of the tobacco company conduct I have discussed above.

Eriksen Written Direct at 3 (emphasis added); see also id. at 4 (The marketing of cigarettes has lasted decades, and so should an effort to tell the truth about smoking and counter the pervasive cigarette marketing campaigns.). And like Dr. Healton, Dr. Eriksen further admitted that the ultimate purpose of each remedy he proposed was to improve public health. Trial Tr. at 21091-92. 10 Indeed, he measured the efficacy of the remedies by the extent to which they

—–

under RICO. Any appropriate remedy in his case must be directed at stopping the allegedly illegal conduct i.e., lying about youth marketing rather than the youth marketing itself, which is not illegal under RICO.

10 See also Eriksen Written Direct at 4 ([E]ffective communication campaigns need to be able to reach their target audience with strategic and culturally appropriate messages that will contribute to behavior change); id. at 5 (Countermarketing activities can promote smoking cessation and decrease the likelihood of initiation. Countermarketing campaigns also can have a powerful influence on public support for tobacco control activities and provide an educational climate that can enhance the efficacy of school- and community-based efforts.) (quoting 2000 SGR at 20, U.S. Ex. 18,264); id. at 6 (an effective and sustained effort aimed at young people to counter this influence [cigarette marketing efforts] is needed).

**———————————————————

19

reduced smoking (Eriksen Written Direct at 10) not by the extent to which they prevented or restrained future violations.11

Nor did the Government offer anything better in closing arguments to explain how the proposed public education program would prevent and restrain future misconduct by Defendants.

Counsel for the Government offered only conclusory assertions that repeated arguments, such as the inoculation and deterrence arguments made by the Government in its February memorandum, that Order #886 has already read the D.C. Circuit opinion to foreclose. See, e.g., Trial Tr. 23398 (theres nothing like money to prevent and restrain); id. at 23427 (a public education program will prevent and restrain future misconduct, and it will do so by inoculating youth who are subject to defendants continuing marketing; id. at 23053 (a counter-marketing campaign will prevent and restrain future misconduct . . . by inoculating youth who are subject to defendants continuing marketing).

In short, as with smoking cessation, the Government has now been fully afforded the opportunity granted by Order #886 to show how its proposed public education program is consistent with the appellate standard. It has utterly failed to do so, and Defendants are accordingly entitled to judgment on this remedy as well under Fed. R. Civ. P. 52(c).

11 Unlike other Government witnesses, Dr. Eriksen at least acknowledged the D.C. Circuits standard, testifying that his role is to talk about remedies insofar as they will prevent and restrain future tobacco industry conduct. Trial Tr. at 21065. But he did not follow up this statement with any real explanation how his proposed public education remedy would do anything of the sort. To the contrary, Dr. Eriksen who admitted that he was not an expert on the efficacy of legal remedies (see id.) offered only a self-proclaimed common sense view that increasing public education about the hazards of smoking would ultimately translate into pressure that could be placed on the tobacco companies for changing their practices and behavior. Id. at 21194. This speculation about possible generalized pressure does not come close to satisfying the D.C. Circuits requirement that any remedy must prevent and restrain future RICO violations.

**———————————————————

20

IV.

Conclusion

For the foregoing reasons, Joint Defendants respectfully ask that their Motion for Judgment on Partial Findings be granted.

DATED: July 20, 2005 Respectfully submitted,

/s/ Jane E. Chang 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

Fax: (202) 282-5100

Dan K. Webb

Thomas J. Frederick

WINSTON & STRAWN LLP

35 West Wacker Drive

Chicago, Illinois 60601-9703

Telephone: (312) 558-5600

Fax: (312) 558-5700

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

Fax: (212) 757-3990

Attorneys for Defendants

Altria Group Inc. and Philip Morris USA Inc

**———————————————————

21

/s/ Jane E. Chang for ______________________

Robert F. McDermott (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

Telephone: (202) 879-3939

Fax: (202) 626-1700

Robert C. Weber

Paul G. Crist

JONES DAY

North Point

901 Lakeside Avenue

Cleveland, Ohio 44114-1190

Telephone: (216) 586-3939

Fax: (216) 579-0212

Attorneys for Defendant

R. J. Reynolds Tobacco Company

/s/ Jane E. Chang for ______________________

David E. Mendelson (D.C. Bar No. 471863)

KlRKLAND & ELLIS LLP

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

Washington, D.C. 20005

Telephone: (202) 879-5000

Fax: (202) 879-5200

David M. Bernick

Stephen R. Patton

Renee D. Honigberg

KIRKLAND & ELLIS LLP

200 East Randolph Drive, Suite 5900

Chicago, Illinois 60601

Telephone: (312) 861-2000

Fax: (312) 861-2200

Attorneys for Defendant

Brown & Williamson Tobacco Holdings, Inc.

**———————————————————

22

/s/ Jane E. Chang for ______________________

Edward C. Schmidt (D.C. Bar No. 199315)

Matthew D. Schwartz (D.C. Bar No. 436619)

THOMPSON COBURN LLP

1909 K Street, N.W.

Suite 600

Washington, D.C. 20006

Telephone: (202) 585-6900

Fax: (314) 552-7597

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

Fax: (314) 552-7597

Gene E. Voigts

Richard L. Gray

SHOOK, HARDY & BACON LLP

2555 Grand Blvd.

Kansas City, Missouri 64108-2613

Telephone: (816) 474-6550

Fax: (816) 421-2708

Attorneys for Defendant

Lorillard Tobacco Company

/s/ Jane E. Chang 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)

**———————————————————

23

/s/ Jane E. Chang for ______________________

Steven Klugman

Steven S. Michaels

DEBEVOISE & PLIMPTON LLP

9 1 9 Third Avenue

New York, New York 10022

Telephone: (212) 909-6000

J. William Newbold

Michael B. Minton

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

Jason A. Wheeler

THOMPSON COBURN

One US Bank Plaza, Suite 3500

St. Louis, Missouri 63101-1693

Telephone: (314) 552-6000

Attorneys for Defendant

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

Inc.

/s/ Jane E. Chang for ______________________

James A. Goold

COVINGTON & BURLING

120 1 Pennsylvania Avenue, N. W.

Washington, D.C. 20004-2401

Telephone: (202) 662-6000

Attorneys for Defendant

The Tobacco Institute, Inc.

4 Responses to “Joint Defendants Memorandum Supporting Their Motion To Strike Certain Remedies”

  1. tobacco observer Says:

    So this is interesting. Tobacco is asking for summary partial judgment on ALL of the various gov’t remedies (just as I predicted right after they filed their formal list of requested remedies).

    Previously, Kessler specifically asked the gov’t to come up with remedies that comply with the DCCA’s requirement to be prospective and be specifically tailored to prevent future RICO violations. It certainly seems like they didn’t (couldn’t?) do it.

    So then, Kessler is now obligated to decide if these remedies are valid or not as a matter of law, just as she said she would. If not, that would effectively shut down this case.

    Of course, the same legal principles would apply to the public health groups that Kessler just said she would allow to enter this trial. Tobacco indirectly addressed this in their filing. The sort of public health measures that the gov’t has asked for (and presumeably the public health groups will ask for) aren’t aimed at any specific RICO violations, and are therefore impermissible.

    As a side issue, I believe Kessler’s stated rationale for allowing entry of these third parties into this case is faulty. She said their input would be valuable. Maybe so, but its not as if they haven’t had input here. . .they’ve been participating all along in this trial. For example, Matt Myers from Tobacco free kids has testified at trial. So has Cheryl Heaton, executive director of the Legacy Foundation, and so has the Surgeon General of the United States! So for Kessler to claim that there hasn’t been input in this case from the public health community is disingenuous. The gov’t has *already* invited them into this case, and they’ve already participated.

    So presumeably the public health groups are going to ask for more money for bigger and more spectacular anti-tobacco programs (of which, by pure coincidence, of course, they happen to be the natural recipients) but I sort of doubt that these groups are going to be able to come up with legally viable remedies where the gov’t lawyers couldn’t.

  2. krueger Says:

    “if these remedies are valid…If not, that would effectively shut down this case.”

    Nope. It would shut down Justice’s specific remedy requests. It would not shut down the Judge’s authority to find Big Tobacco guilty. Nor would it prevent the Judge from ordering other remedies. In these proceedings the Judge has wide latitude to fashion a judgment that fits Big Tobacco’s violations of the law.

    http://www.tobacco.neu.edu/litigation/cases/DOJ/ccadc_disgorgement.htm

    Of course, this is all moot if the Supreme Court decides disgorgement is back on the table:

    http://tobacco.neu.edu/litigation/cases/pressreleases/certpetitionfiled.htm

  3. tobacco observer Says:

    >>Nope. It would shut down Justice’s specific remedy requests.

    Right. Those are all the big headline-grabbing ones. Without those, the case is hamstrung.

    >>It would not shut down the Judge’s authority to find Big Tobacco guilty.

    The Judge has no authority to find tobacco “guilty” of anything. This is a civil trial. The can only be a finding of liability. If so, there may (or may not) be remedies available afterwards, depending on the likelihood of future violations, etc.

    >>Nor would it prevent the Judge from ordering other remedies. In these proceedings the Judge has wide latitude to fashion a judgment that fits Big Tobacco’s violations of the law.

    Yes, in theory she does, but in practice she has to create permissible remedies based on both evidence presented at trial and compliant with the specific restrictions enumerated by the DCCA. She can’t just make up anything she wants, and the DCCA has already given her crystal clear guidelines on the type of injunctive relief that is available to her.

    Those more or less amount to “if you do it again, you’ll have to pay a big fine”. . .and they prospectively cost tobacco nothing. In fact, most of the alleged racketeering behaviors are already enjoined by the MSA (or regulated by Congress) anyway, so in practice those sorts of remedies wouldn’t even restrict tobacco’s activities at all. At best they would just provide another level of enforcement.

    Incidentally, the likelihood of the Supreme Court of the USA taking on the disgorgement issue in interlocutory appeal is remote. They virtually never review cases without a complete record (ie until the case is over) and since the second highest court in the country has heard this issue not once but twice (in en-banc petition for the second time), there is no urgency for them to make an exception in this case.

  4. krueger Says:

    Ah, more “legal analysis”.

    Once again I’m reminded of legal analysis by financial analysts:

    “….always seem to read the law very narrowly, in the way that favors their clients, er, I mean companies.” Wake-Up Call / The Tobacco Tar Pit, David Smith, July 17, 2000.

    Hey, I’m sure Big Tobacco would like it if everyone read the law narrowly in the way that favored its profits. Including judges and juries.

    But in the real world, sometimes that doesn’t happen. Sometimes getting 14 year olds to slow poison is found to break a law or two. Sometimes lying to the public, the customers, the Congress, and the courts, is found to break a law or two. Sometimes secretly engineering product for addiction is found to break a law or two. Sometimes all remedies are not off the table.

    Sometimes Big Tobacco is held accountable for what it does. It happens. Contrary to what you might hear from financial analysts, sometimes Big Tobacco is found guilty. Sometimes everybody doesn’t read the law narrowly to let Big Tobacco off the hook.

Leave a Reply

The primary purpose of this site is to provide information in a timely manner. Postings should be informative. The usual rules apply: No libel, no profanity, no personal abuse, keep it on topic, and short.

If you are scheduled as a court witness, CHECK with your lawyer before posting anything here!