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TABLE OF CONTENTS
INTRODUCTION AND SUMMARY…..1
I. RATHER THAN DEFEND THE GOVERNMENT’S PROPOSED REMEDIES, THE INTERVENORS’ BRIEF URGES THE COURT TO ADOPT NEW REMEDIES THAT WERE NOT THE SUBJECT OF EVIDENCE AT TRIAL…..2
II. INTERVENORS’ ARGUMENT THAT THEIR PROPOSALS CAN BE AUTHORIZED AS “DIVESTITURE” UNDER 18 U.S.C. § 1964(a) IS MERITLESS AND THEY OFFER NO VIABLE ARGUMENT THAT THEIR PROPOSED REMEDIES WOULD PREVENT AND RESTRAIN RICO VIOLATIONS…..6
A. Reducing the Number of Smokers Is Not “Divestiture” of an “Interest in the Enterprise”…..7
B. Intervenors Offer No Viable Argument that Their Proposed Remedies Would “Prevent and Restrain” RICO Violations …..9
III. INTERVENORS’ PROPOSALS ALSO VIOLATE NUMEROUS OTHER REQUIREMENTS FOR EQUITABLE RELIEF…..13
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TABLE OF AUTHORITIES
Cobell v. Norton, 334 F.3d 1128 (D.C. Cir. 2003) …..18
English v. Cunningham, 269 F.2d 517 (D.C. Cir. 1959) …..18
Food & Drug Administration v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000)…..17
Lindsey v. Takoma-Pierce County Health Dep’t, 195 F.3d 1065 (9th Cir. 1999) …..17
Lorillard Tobacco Co. v. Reilly, 533 U.S. 525 (2001)…..17
People Who Care v. Rickford Bd. of Ed., Sch. Dist. No. 205, 111 F.3d 528 (7th Cir. 1991)…..15
Richardson v. United States, 418 U.S. 166 (1974) …..6
Rockwood v. City of Burlington, 21 F. Supp. 2d 411 (D. Vt. 1998) …..17
Securities Exchange Commission v. First Jersey Sec., Inc., 101 F.3d 1450 (2d Cir. 1996)…..9
United States v. Bausch & Lomb, 321 U.S. 707 (1947)…..18
United States v. Bonanno Organized Crime Family of La Cosa Nostra, 683 F. Supp. 1411, aff’d, 879 F.2d 20 (1989)…..8
United States v. Carson, 52 F.3d 1173 (2d Cir. 1995)…..9
United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) ….. passim
United States v. Philip Morris USA Inc., 396 F.3d 1190 (D.C. Cir. 2005) ….. passim
United States v. Turkette, 452 U.S. 576 (1981) …..8
18 U.S.C. § 1964….. passim
Federal Cigarette Labeling and Advertising Act, 15 U.S.C. §§ 1331-41 …..17
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Fed. R. Civ. P. 65…..pasim
U.S. Const. Amend. I …..16
U.S. Const. Amend. VII…..16
Webster’s 9th New Collegiate Dictionary (1983) ….. 7-8
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,
TOBACCO-FREE KIDS ACTION FUND, et al.,
PHILIP MORRIS USA INC. (f/k/a ) PHILIP MORRIS INCORPORATED, et al.,
Civil Action No. 99-CV-2496 (GK)
Next Scheduled Court Appearance: None
JOINT DEFENDANTS’ RESPONSE TO PLAINTIFF-INTERVENORS’ POST-TRIAL BRIEF
INTRODUCTION AND SUMMARY
Having been granted leave to intervene for the limited purpose of supporting the remedies advanced at trial by the Government (insofar as they differ from the Government’s proposed post-trial remedies), the Intervenors chose instead to use their 112-page brief to jettison the remedies that the Government advanced at trial and instead substitute modified remedies of their own invention. This bait-and-switch tactic should not be countenanced, and it renders the Intervenors’ brief virtually useless. Of course, the newly minted remedies advanced by the Intervenors were not the subject of proof at trial, and Defendants were never given notice of them, or allowed to litigate them, as required by United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001).
Nor do the Intervenors offer any meaningful contribution to the necessary legal analysis. They fail to offer any viable argument that their proposed remedies satisfy the “prevent and restrain” requirement set forth in 18 U.S.C. § 1964(a) and United States v. Philip Morris USA, Inc., 396 F.3d 1190 (D.C. Cir. 2005). Their arguments are flatly inconsistent with the reasoning of the Court of Appeals and amount to the untenable assertion that any remedy that discourages smoking automatically “prevents and restrains” RICO violations by the Defendants. Smoking reduction is a legitimate public health goal, but it is not the purpose of the RICO statute. The one new argument that Intervenors press forcefully is patently frivolous: they contend that various remedies (cessation, countermarketing, public education, and youth smoking reduction) can be justified as “divestiture” of the Defendants’ “interest” in the “enterprise” under 18 U.S.C. § 1964(a). P-I Br. at 26, 32, 49. This argument hinges on the bizarre notion that the associationin- fact “enterprise” in this case includes the individual smokers who were the victims of the alleged fraud. Of course, this theory of “enterprise” is diametrically opposed to the enterprise
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theory advanced by the Government at trial and is unsupported by any proof in the record. Any such proof would be impossible in any event: no one would rationally contend that the victims of the alleged fraud were “purposeful” participants in the alleged “enterprise” designed to defraud them. In any event, the RICO statute plainly speaks of divestiture of interests in property, not of imagined interests in people.
At bottom, the Intervenors’ brief — like the very fact of their intervention — simply underscores the extent to which this civil RICO lawsuit has degenerated into a public policy freefor- all, with segments of the public health community vying for this Court’s attention and lobbying for adoption of their favorite “anti-smoking” wish-lists. But this lawsuit is not a seminar or public debate on the best ways to reduce smoking; it is a legal proceeding in which the Court’s jurisdiction is sharply limited to taking actions necessary to “prevent and restrain” RICO violations. The Intervenors’ brief does nothing to advance the Government’s case on this crucial point and should be disregarded.
I. RATHER THAN DEFEND THE GOVERNMENT’S PROPOSED REMEDIES, THE INTERVENORS’ BRIEF URGES THE COURT TO ADOPT NEW REMEDIES THAT WERE NOT THE SUBJECT OF EVIDENCE AT TRIAL
The Intervenors’ avowed purpose for intervening in this case after trial — and the Court’s principal reason for allowing such intervention — was to ensure that someone would defend the remedies that the Government had presented at trial, but which the Government revised during closing and in its post-trial remedies order.1 In an astounding about-face, the Intervenors now
1 E.g., Memorandum in Support of Motion to Intervene by the Tobacco-Free Kids Action Fund, American Cancer Society, American Heart Association, Americans for Nonsmokers’ Rights, and National African American Tobacco Prevention Network, at 13-14 (“having an opportunity — as parties to this action — to advocate adherence to the Government’s prior position may be the only way intervenors can protect their interests”); id. at 4 (complaining that “during its closing argument . . . the United States abruptly changed course on [the $130 billion cessation program proposed by Dr. Fiore] and instead informed the Court that it seeks only $10 billion for an industry-funded cessation program”); id. at 5 (conceding that intervenors were
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abandon the specific remedies that the Government presented at trial, apparently unable to resist the creative urge to modify those remedies even after the trial is over. Moreover, contrary to their representation when they intervened that they “do not seek to present any additional evidence in this case” (Motion to Intervene, at 2) or “seek to test any of the evidence that has already been produced” (id.) they do exactly that in an attempt to support their new remedies.
For example, rather than defend the 25-year $130 billion cessation program advanced by the Government (and Dr. Fiore) at trial, the Intervenors now seek to transform the program into one that will never end, unless and until less than 10% of remaining smokers want or intend to quit. (According to Intervenors, that percentage currently stands at 70%.) (P-I Br. at 6). This 10% figure is absolutely unsupported by any evidence at trial and, in fact, was never mentioned at trial. Certainly, Defendants were never given notice that it would be an issue.
The same goes for numerous other revised remedies now advanced by the Intervenors.
• Intervenors propose that the American Legacy Foundation (“ALF”) countermarketing effort be funded at $600 million per year — 50% more than the Government requests. P-I Br. at 55-57. But this amount was never mentioned at trial and is unsupported by any proof.2
“adequately represented” until the Government altered “what it had previously informed the Court was necessary to fund an effective cessation program”); Mem. Op. re Order #987, at 3, filed July 22, 2005.
2 Intervenors argue that that the requested $600 million is within the “range” of figures set forth by Dr. Eriksen. P-I Br. at 55-56. Not even Dr. Eriksen, however, recommended these funding levels for ALF. Instead, he stated that a $300-$900 million range was appropriate for state funded programs in the aggregate and gave no testimony as to why this level of funding would be appropriate for a program funded by Defendants. See Eriksen WD 5/9/05 at 10:15-23. Further, Intervenors fail to provide any support for their increases to Dr. Eriksen’s figures.
Specifically, Intervenors recommend increasing the proposed $400 million funding for countermarketing by 50% to $600 million annually and increasing the total funding for the program to $525 million-$1.575 billion, which represents an increase over Dr. Eriksen’s suggested range. P-I Br. at 56. Intervenors adjusted their figure, not only for inflation and population increases as Dr. Eriksen recommended, but also for alleged increases in Defendants’ marketing expenditures (the vast majority of which represent price competition), which Dr. Eriksen never recommended. See P-I Br. at 56-57; Eriksen WD (5/9/05) at 10:15-23.
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• Just as they propose to extend the cessation program, Intervenors propose to extend the countermarketing program forever or, until such time as “tobacco use declines to no more than five percent of youth.” P-I Br. at 58. But they identify no evidence that such a number is reasonably attainable, or that it has anything to do with preventing and restraining RICO violations, or that it is the reflection of anything more than their own arbitrary whimsy. Identical objections apply to the Intervenors’ demands that the programs continue until 90% of children under the age of 12 understand the “comparative health risks” of various tobacco products or understand the disease risks (at least in Intervenors’ opinion) of second hand smoke. P-I Br. at 60.
• First, Intervenors’ “youth smoking” remedy substitutes shortened time periods for the targets that Dr. Gruber testified were “reasonable.” P-I Br. at 71. There is no testimony to support this change. JDFOF Ch. 13, § V.C.1.a.3
• Second, Intervenors claim that the “proper” measure of youth smoking is not the daily smoking measurement proposed by Dr. Gruber but a 30-day measurement. P-I Br. at 73-75. Plaintiffs cite to nothing in the record that proves that this measure “more fully addresses and rapidly measures the defendants’ marketing that impacts youth.” Id. at 75.
• Third, Intervenors would discard Dr. Gruber’s $3000 per excess youth smoker penalty and replace it with a per-pack penalty. P-I Br. at 78-79. Even apart from the impermissibility of a “penalty,” Intervenors ignore Dr. Gruber’s testimony that his $3000 per smoker penalty was the “upper limit” of what Defendants would earn from a lifetime of sales to a smoker who begins smoking before age 21, 5/10/05 (p.m.) Tr. at 20745:7-11 (Gruber), and the extensive evidence that this amount already substantially exceeds that amount. JDFOF Ch. 13, §§ V.C.3. and V.C.3..a. Nor is there any basis in the record for Intervenors’ proposed formula for computing the penalty, which depends critically on the price elasticity of thirty day youth smoking. P-I Br. at 77. The article cited for Intervenors’ chosen price elasticity (a) is not in evidence; (b) was not cited anywhere in the Government’s proposed findings4; (c) does not satisfy the requirements of FRE 803(8) because it was never read into the record; and (d) does not support Intervenors’ proposed elasticity numbers in any event.5
3 Intervenors’ reliance on the 1997 Proposed Resolution as evidence that youth smoking reduction targets are reasonable, P-I Br. at 72-73, is wholly misplaced given that the Court and Dr. Gruber himself have recognized the proposed resolution was a product of political horsetrading and did not demonstrate that the youth targets were achievable on the proposed timetable. 5/16/05 (a.m.) Tr. at 21046-47; 5/10/05 (a.m.) Tr. at 20655; JDFOF § V.C.1.d, ¶¶ 321-26.
4 Intervenors erroneously state the article was cited in paragraph 457 of Section V of the Government’s proposed findings. P-I Br. at 77.
5 Additionally, the document allegedly supporting the magnitude of the price increase necessary to pass the Government’s proposed penalty on to smokers (JD-013285; P-I Br. at 75-76) was not admitted into evidence.
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• The Government proposed a ban on motor sport brand sponsorships. The Intervenors would dramatically expand this provision beyond motor sports to encompass “any brand name sponsorship of any other team, group, event or activity that results in exposure of a brand name sold in the United States.” P-I Br. at 83. (emphasis added).
• For example, Intervenors would preclude Defendants from “entering into any relationship with another person” that has the purpose, inter alia, of “limiting . . . effectiveness of public or private strategies designed to prevent or reduce tobacco use or its harms or promote the creation of smoke-free environments.” (P-I Br. at 92-93).
• Intervenors add additional requirements concerning disposal of documents, disclosure of documents produced in foreign litigation, disclosure of materials to the American Legacy Foundation, and disclosure of payments to third parties. P-I Br. at 96-102. As support for these proposals, they rely largely on various amicus briefs, which themselves rely upon new evidence that was neither admitted nor even introduced at trial. See, e.g., P-I Br at 96, 99 (citing Brief of Amicus Curiae Tobacco Legal Consortium and Others at 2-4, 8-9) (pp. 2-4 and p. 8, n.3 of brief constitute new evidence); P-I Br. at 100 (citing generally to Brief of Amicus Curiae The Regents of the University of California (majority, if not all, of attachments at pp. 21-50 of brief constitute new evidence)).
• Intervenors request that this Court give the IO the discretion to extend Defendants’ funding of a countermarketing program based on any violations of the Court’s order. P-I Br. at 67. They also propose numerous other additional powers for the IO — (e.g., monitoring grants to third parties and the activities of international subsidiaries, affiliates or agents, and sanctioning the use of ineffective youth tobacco use prevention programs). These provisions have no counterpart in the Government’s proposal and were not litigated at trial.6
6 Intervenors also rely upon a recent complaint filed by the State of Vermont alleging that Reynolds violated the MSA by marketing Eclipse with express health claims. P-I Br. at 22. But that complaint was never offered into evidence or mentioned at trial. Nor can the mere filing of a complaint be evidence of the truth of the allegations asserted therein. Moreover, Intervenors’ endorsement of the Vermont complaint simply highlights the contradictory Catch-22 liability theories being pursued in this case. The Government faults Reynolds for not making stronger and earlier health claims for Eclipse, i.e., for not going far enough. GFOF, § III, ¶¶ 1185, 1248, 1269-71. Intervenors, by contrast, assert that the claims made were fraudulent because they went too far.
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The post-trial assertion of these new, enlarged remedies by Intervenors violates the “cardinal principle of our system of justice that factual disputes must be heard in open court and resolved through trial-like evidentiary proceedings.” Microsoft Corp., 253 F.3d at 101 (reversing remedy when imposed without adjudication of that remedy at trial); see also Joint Deefndants’ Corrected Post-Trial Brief (“JD Post-Trial Br.”). None of these new remedies was the subject of proof at trial and it is far too late to raise them now. If the Intervenors wanted to intervene for purposes of advancing remedies not even presented by the Government at trial they should have said so in their motion to intervene and should have moved to intervene long ago so that they could have presented appropriate evidence and identified these issues in timely fashion. Having failed to do so, they may not now encumber this proceeding with proposed remedies that were never litigated.7
II. INTERVENORS’ ARGUMENT THAT THEIR PROPOSALS CAN BE AUTHORIZED AS “DIVESTITURE” UNDER 18 U.S.C. § 1964(a) IS MERITLESS AND THEY OFFER NO VIABLE ARGUMENT THAT THEIR PROPOSED REMEDIES WOULD PREVENT AND RESTRAIN RICO VIOLATIONS
A crucial issue in this case is what types of remedies are permitted under 18 U.S.C. § 1964(a) in light of the Court of Appeals’ decision in United States v. Philip Morris, USA, Inc., 396 F.3d 1190 (D.C. Cir. 2005). Intervenors’ arguments on that issue do nothing to shore up the defects in those advanced by the Government.
7 Intervenors’ attempt to second-guess the litigation strategy of the United States — particularly in a lawsuit arising under a RICO provision that gives a claim only to the Government — violates Articles II and III of the Constitution. E.g., Richardson v. United States, 418 U.S. 166 (1974). Public interest groups do not have standing to intervene simply in order to play arm-chair quarterback to the Government’s litigation strategy. Moreover, Intervenors’ brief fails to support the allegations in their Complaint that they possess Article III standing.
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A. Reducing the Number of Smokers Is Not “Divestiture” of an “Interest in the Enterprise”
Intervenors offer only one new argument in their attempt to satisfy 18 U.S.C. § 1964(a). They contend that the smoking cessation, countermarketing, public education, and youth smoking remedies can be justified on the ground that they amount to “divestiture” of “an interest in the enterprise” within the meaning of 18 U.S.C. § 1964(a). This argument — not advanced by the Government — is meritless.
RICO permits divestiture only of a defendant’s “interest in the enterprise.” 18 U.S.C. § 1964(a) (emphasis added).8 Thus, the Intervenors embrace the untenable position that the “enterprise” in this case includes individual smokers and that forcing Defendants to pay for their cessation (or to otherwise encourage them to quit) “divests” defendants of this “interest” in the enterprise. (P-I Br. at 32). The fundamental flaw in this theory is that the Government has never advanced an enterprise theory that includes individual smokers as members of the enterprise. Nor could the Government advance such a theory. The Government’s theory is that the Defendants — not their supposed victims — constituted an association-in-fact enterprise. GFOF § 1.A, ¶ 2. Moreover, it is inconceivable that the alleged victims of the fraud possessed the requisite “purposeful” desire to associate with the enterprise that allegedly was devoted to defrauding them. JD Post-Trial Br. at 14.
Even apart from this glaring flaw in the Intervenors’ argument, individual smokers are not a legal “interest” capable of being divested. 18 U.S.C. § 1964(a) obviously refers to divestiture of a property interest, not some abstract “interest” in human beings or customers.
8 To the extent that Intervenors suggest (P-I Br. at 26) that their remedies can be justified as “divestiture” of “assets” that are the product of Defendants’ fraud irrespective of whether those “assets” are part of the “enterprise,” their argument contradicts the text of the statute. “Divestiture” of assets allegedly accumulated through fraud but which do not amount to interests “in the enterprise” is outside the confines of the statute.
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E.g., Webster’s 9th New Collegiate Dictionary 369 (1983) (primary definition of “divest” includes reference to “property, authority, or title”). Indeed, the decision in United States v. Turkette, 452 U.S. 576, 592 (1981) relied upon by the Intervenors confirms that the divestiture remedy was designed to “strik[e] a mortal blow against the property interests of organized crime.” Id. at 592 (emphasis added).9
Furthermore, as Intervenors recognize, divestiture is only appropriate insofar as it “separate[s] the RICO criminal from the enterprise.” P-I Br. at 34 (quoting Philip Morris USA, Inc., 396 F.3d at 1198). But, as Defendants have shown (JD Post-Trial Br. at 28-30) the entities by which the Government claims Defendants organized the “enterprise” no longer exist. Indeed, Intervenors acknowledge that equitable relief is inappropriate unless Defendants “are likely to run the organization in a manner detrimental to the public interest.” P-I Br. at 27 (quoting S. Rep. No. 617 at 82) (emphasis added). But they nowhere explain how Defendants could possibly run an “organization” that does not even exist.
Finally, the Intervenors cannot escape the fact that merely mislabeling their proposed remedies as a form of “divestiture” does not satisfy RICO’s statutory requirement that these remedies “prevent and restrain” future RICO violations. See 18 U.S.C. § 1964(a); Philip Morris U.S.A., Inc., 396 F.3d 1198. In other words, even if Intervenors’ proposals for reducing the
9 Intervenors’ attempt to invoke Turkette’s statement that one purpose of RICO is to “divest [the defendant] of its ill-gotten gains” (P-I Br. at 34 n.5) echoes the Government’s previous unsuccessful attempt to invoke this same language before the Court of Appeals. United States v. Philip Morris USA, Inc., 396 F.3d 1190, 1198-1201 (D.C. Cir. 2005). The attempt to twist this language to support the Government’s position is no more convincing in this context than it was in the context of disgorgement and should once again be rejected.
Another reason that the proposed reduction of the number of smokers cannot be characterized as a “divestiture” is that this is obviously not something for which Defendants would be compensated. But stripping defendants of a true “interest” without any compensation would be tantamount to forfeiture — not divestiture — and is impermissible under 18 U.S.C. § 1964(a). See United States v. Bonanno Organized Crime Family of La Cosa Nostra, 683 F. Supp. 1411, 1442, 1449 (E.D.N.Y. 1988), aff’d, 879 F.2d 20 (1989).
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number of smokers could possibly be viewed as a “divestiture” of an “interest in the enterprise,”
they still would not be permissible under RICO unless such “divestiture” had the effect of “preventing and restraining” future RICO violations. See, e.g., SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1475 (2d Cir. 1996) (“a divestiture order under RICO must be designed to prevent future conduct rather than to remedy past wrongdoing”) (citing United States v. Carson, 52 F.3d 1173, 1181-82 (2d Cir. 1985)). By its nature, Intervenors’ “divestiture” theory focuses on the effects of Defendants’ past conduct — not on future violations. Moreover, as explained below, Intervenors’ arguments that the remedies “prevent and restrain” violations are no different (and no better) than those advanced by the Government.
B. Intervenors Offer No Viable Argument that Their Proposed Remedies Would “Prevent and Restrain” RICO Violations
Defendants already demonstrated that both smoking cessation programs and corrective advertising (or “countermarketing”) programs are inherently backward-looking and thus impermissible under 18 U.S.C. § 1964(a) and United States v. Philip Morris USA, Inc. See Joint Defs.’ Mem. of P. & A. in Supp. of Their Mot. for J. on Partial Findings Pursuant to Fed. R. Civ. P. 52(c) With Respect to Certain Remedies Sought by the United States (“JD Rule 52 Mem.”), at 6, 9-10, 12-13, 16-19. They also made a similar showing in their post-trial brief that a number of additional remedies — including the so-called Gruber remedy — did not satisfy the “prevent and restrain” standard. See JD Post-Trial Br. at 172-75; 182-85. By their nature, these remedies are designed to repair or remedy the effects of past violations – not to prevent future violations from taking place. Indeed, the true aim of the proposed remedies — as the Intervenors candidly admit at several points — is to “reduce tobacco consumption,”10 not to prevent and restrain
10 See, e.g., P-I Br. at 68 (advocating “strategy to reduce tobacco consumption” and noting that proposed remedy “furthers critical public health purposes”).
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RICO violations. It is unsurprising that the public health groups who have intervened here voice support for such public health goals, but such concerns do not satisfy the demands of RICO.
The Intervenors nevertheless urge that their remedies satisfy the “prevent and restrain” requirement, taking the far-reaching and untenable position that any action that reduces the number of smokers (or potential smokers) makes future frauds potentially less profitable and thereby “prevents and restrains” such future frauds. They urge that smoking cessation will “dramatically shrink the market of addicted smokers” and “thus, dramatically reduc[e] the economic benefit to the defendants of continuing to engage in [wrongful practices”]. P-I Br. at 30. Likewise, public education and countermarketing will prevent and restrain future violations “by fully informing and hence ‘remov[ing] from the [smoking] marketplace a population of consumers and potential consumers,’ thus eliminating the incentive ‘to market to [and presumably to defraud] this population.’” Id. at 69 (quoting Bazerman WD, 65:7-20). In a similar vein, the youth smoking reduction remedy will assertedly “prevent and restrain violations of RICO by shrinking the customer base of youth smokers.” Id. at 81. See also id. at 6, 7, 30-31, 49.11 In short, Intervenors contend that anything that reduces the pool of actual or potential smokers (i.e., Defendants’ customer base) “prevents and restrains” by making any future fraud potentially less profitable.
11 As noted (JD Post-Trial Br. at 99) neither youth smoking nor youth marketing is a RICO violation. Thus, even if “financial disincentives (P-I Br. at 77) were enough to satisfy the “prevent and restrain” standard – and they are not – an incentive to take no actions that “have the impact of encouraging youth to use [cigarettes]” (id.), has no obvious relation to putative violations of RICO. See JD Post-Trial Br. at 94-105, JDFOF Ch. 13, § V.C.3. Moreover, Intervenors appear to concede that the purpose of any alleged misstatements related to youth marketing is not to deceive consumers into smoking — as required by the mail and wire fraud statutes (JD Post-Trial Br. at 24) — but to “placat[e] the public, public officials and regulatory agencies.” P-I Br. at 15; see also id. at 19 (arguing that Defendants’ adoption of the voluntary advertising code was a response “to the threat of federal regulation and growing public pressure”).
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This limitless interpretation of the statutory “prevent and restrain” requirement is utterly incompatible with both common sense and with the Court of Appeals’ decision in United States v. Philip Morris, USA, Inc. It defies common sense to contend that merely making a business less lucrative is the same thing as “preventing” or “restraining” the defendant from engaging in fraud in the conduct of that business. And Intervenors’ argument runs headlong into the Court of Appeals’ unequivocal rejection of a “deterrence” standard for “prevent and restrain” in United States v. Philip Morris. The Government had argued that disgorgement “deters” violations of RICO by making them unprofitable, i.e., by depriving Defendants of all profits associated with the illegal activities. The Court disagreed, reasoning that such a “deterrence” argument “goes too far” and would essentially render the limiting phrase “prevent and restrain” meaningless. 396 F.3d at 1200; accord id. at 1202, 1204 (Williams, J., concurring) (“pure deterrence [is] an impermissible objective of orders under § 1964(a)”; rejecting the “supposition that whatever hurts a civil RICO violator necessarily serves to ‘prevent and restrain’ future violations.”) (internal quotation and citations omitted).12
At bottom, Intervenors’ argument that reducing the market for a defendant’s products “prevents and restrains” fraud fails for the same reasons as the Government’s argument that its countermarketing remedy would “inoculate” smokers against future frauds. Rather than “prevent or restrain” violations, as the statute requires, both the Government and Intervenors contend that
12 Judge Williams’ flat rejection of the deterrence rationale in his concurring opinion reveals as disingenuous Intervenors’ attempts to use as support Judge Williams’ statement that the calculus of “returns to crime versus the possible costs” can alter the likelihood of criminal action. PI-Br. at 6 (quoting Philip Morris USA, Inc., 396 F.3d at 1203 (Williams, J., concurring)). As noted (JD Rule 52 Reply at 6 n.5), the thrust of Judge Williams’ concurrence — including the passage they cite — is utterly incompatible with Intervenors’ strained interpretation of “prevent and restrain.” Instead Judge Williams’ concurrence argues that section 1964(a) contemplates remedies that directly prevent and restrain violations, such as injunctions against conduct that violates the statute. Id.
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their remedies, at best, would remediate or mitigate the effects of future, as well as past, frauds. As Intervenors put it, the remedies would “depriv[e] the defendants of the future benefits of their continuing and future wrongful acts.” P-I Br. at 4. This is insufficient. See Defs.’ Reply Memo. in Supp. of Their Mo. for J. on Partial Findings Pursuant to Fed. R. Civ. P. 52(c) with Respect to Certain Remedies Sought by the United States (“JD Rule 52 Reply”), at 12-13. Indeed, such theories are indistinguishable from the theories that this Court deemed insufficient in Order #886.
RICO’s “prevent and restrain” requirement requires that a remedy actually stop future violations from occurring, not merely by mitigate their effects or theoretically make them less profitable by shrinking the size of a defendants’ business (i.e., in this case reducing smoking levels generally). See JD Rule 52 Reply at 4. As Defendants have already shown, neither the Government nor Intervenors can circumvent the Court of Appeals’ decision by requesting remedies merely designed to “undo hypothetical effects of future violations.” JD Post-Trial Br. at 163. It makes no sense to argue that the Court can remedy the hypothetical effects of potential future violations when, as the Court of Appeals held, it may not remedy the real effects of actual past violations. On the contrary, it makes much more sense to forbid violations going forward and to punish any future violations of the Court’s order with stiff application of the Court’s contempt powers. See JD Post-Trial Br. at 163-64.13
In short, Intervenors’ “prevent and restrain” theories are no more viable than those advanced by the Government.
13 Finally, Intervenors point to no empirical evidence that any of their proposed remedies would even “deter” future RICO violations, much less “prevent and restrain” such violations. For example, there is no logical connection between their arbitrary benchmark of only 10% of remaining smokers wishing to quit and deterrence. Certainly, there is no record evidence to support it.
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III. INTERVENORS’ PROPOSALS ALSO VIOLATE NUMEROUS OTHER REQUIREMENTS FOR EQUITABLE RELIEF
Defendants’ principal brief identified 15 constraints on the Court’s equitable power in this case in addition to the requirements of United States v. Microsoft Corp. (supra, § I) and United States v. Philip Morris USA, Inc. (supra, § II).14 Intervenors’ brief essentially ignores these legal principles. For example, Intervenors fail to show how any of their requested remedies are closely related to the alleged RICO violations, as required by basic principles of equity. JD Post-Trial Br. at 149. The mere payment of money to an anti-smoking program does not satisfy the requirement. JD Post-Trial Br. at 166. As another example, it follows from the fact that most of the proposed remedies do not even arguably “prevent and restrain” RICO violations at all, that they obviously are not, as required, “narrowly tailored” to achieve that purpose. Id. at 150. Likewise, many of the proposed remedies — i.e., cessation, youth marketing, countermarketing, monitoring — amount to an invitation for this Court impermissibly
14 JD Post-Trial Br. at 146-62. Those 15 requirements are that (1) each remedy must have been proven necessary and effective by competent, admissible evidence to accomplish its legitimate objectives; (2) each remedy must be directed at preventing and restraining acts similar or closely related to the acts by which Defendants conducted or participated in the conduct of the enterprise; (3) each remedy must be narrowly tailored to the accomplishment of its legitimate objective, i.e., preventing and restraining likely future RICO violations by Defendants; (4) each remedy must “mak[e] due provision for the rights of innocent persons” as required by 18 U.S.C. § 1964(a); (5) each remedy must “be specific in terms” and “describe in reasonable detail, and not by reference to the complaint or other document, the act or acts sought to be restrained,” as required by Fed. R. Civ. P. 65(d); (6) each remedy must be judicially manageable and enforceable and not unduly entangle the Court in Defendants’ day-to-day management decisions; (7) no remedy may require a Defendant to do something that is beyond its control; (8) each remedy must satisfy the balance of the equities test and not be subject to affirmative or equitable defenses; (9) no remedy may interfere with or displace the regulatory authority of agencies created by Congress to regulate the conduct at issue; (10) the Court may neither assume the powers assigned by the Constitution to the Executive or Legislative branches nor delegate its own Article III powers to court-appointed officers; (11) no remedy may violate Defendants’ constitutional rights to free speech; (12) an injunction may only enjoin parties to the action, their agents and those persons in active concert or participation with them; (13) no remedy may enjoin or regulate conduct outside the United States unless that conduct has a direct and substantial effect within the United States; (14) no injunction may enjoin conduct that is already the subject of an existing, enforceable injunction; and (15) a jury trial must be afforded for any remedy that amounts to damages.
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to usurp the roles of the legislative or executive branches in regulating tobacco. This violates the requirements that a remedy not interfere with or displace the authority of regulatory agencies, that it not arrogate the powers of the legislative and judicial branches, and that any remedy be judicially manageable. Id. at 152-58. And the Intervenors do not even respond to the case law holding that injunctive relief should not issue as to conduct that is already enjoined.
Moreover, there are additional specific defects associated with each of the categories of remedies embraced by the Intervenors.
Because the 10% benchmark now proposed by the Intervenors played no part in the trial, it is unsurprising that Intervenors can point to no evidence supporting their use of that percentage. There is no evidence to support Intervenors’ raw supposition that the 10% benchmark has anything whatsoever to do with Defendants’ propensity to commit RICO violations. But the case law establishes that a remedy must be supported by evidence. JD Post- Trial Br. at 161. Moreover, Intervenors’ attempt to obtain by judicial fiat what they and others were unable to secure through the so-called McCain Bill or various regulatory initiatives is an inappropriate use of Article III powers and amounts to a request that this Court usurp the prerogatives of the executive and legislative branches. JD Post-Trial Br. at 155-58. And Intervenors simply highlight the First Amendment difficulties with this remedy when they state that the IO can extend the program for five years if a Defendant has the temerity to “mak[e] a public statement inconsistent with the relevant public health findings published by the Federal Government.” P-I Br. at 46.
To the extent that Intervenors’ proposal adopts Dr. Fiore’s estimates of the costs of a cessation program, it suffers from the same defects that plague his testimony. For example, the
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Department of Health and Human Services has previously expressed the view that the counseling component of a national quitline would cost only an incremental $30-40 million annually — not even 2% of the $2.1 billion budgeted by Dr. Fiore. JD FOF, Ch. ____, ¶ ____. And the record demonstrates that the Free & Clear Group Health data from which Dr. Fiore computed his $3.2 billion annual estimate for a national quitline network (a) are for a non-profit entity whose data is from a highly unrepresentative sample, and (b) do not support Dr. Fiore’s 16% participation rate, since Free & Clear showed only an 8% participation rate. JDFOF Ch. 13, ¶¶ 181-196; see also 5/17/05 Tr. at 21450:11-14.
Again, to the extent that the Intervenors now assert entirely new aspects of the “countermarketing” remedy, they obviously fail to point to evidence submitted at trial to support such new remedies. For example, as noted, there is no evidentiary foundation for the $600 million per year that the Intervenors would allocate to the ALF for this program — an increase of over 50% over the already-inflated amounts requested in the Government’s order. Nor can Intervenors identify any evidence that supports their assertion (P-I Br. at 56) that increased funding is necessary due to the Defendants’ own marketing expenditures.15
The proposed imposition of a 5% youth smoking target on the countermarketing remedy adds the additional vice of “command[ing] the defendants to do something that is beyond their control.” People Who Care v. Rickford Bd. of Ed., Sch. Dist. No. 205, 111 F.3d 528, 533 (7th Cir. 1997); see also JD Post-Trial Br. at 153-54 – 174-75. There is no showing in this record that Defendants have the power to reduce youth smoking levels below 5%. Nor is there any showing
15 All that Dr. Eriksen testified was that a small countermarketing budget relative to tobacco industry marketing budgets would limit the success of a “traditional mass market media campaign.” Eriksen WD 5/19/15 at 15:12-17.
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that they have the power to ensure that 90% of persons under the age of 12 understand the “comparative health risks” of different tobacco products or the disease risks of ETS. P-I Br. at 59-62; P-I Remedies Order § IV.C, ¶¶ 1-5. And, of course, Intervenors offer no evidence to support their speculation that these benchmark percentages have anything to do with Defendants’ potential commission of future RICO violations or the percentages that would naturally exist in the absence of such violations.
C. Youth Smoking Reduction
The youth smoking proposal now championed by Intervenors does nothing to solve the defects in the Government’s proposed order. Like that proposal, it ignores the fact that neither youth smoking nor youth marketing is a RICO violation (JD Post-Trial Br. at 161-62, 172-77), and that the penalties would have to be paid regardless of whether or not Defendants’ engaged in future RICO violations (JDFOF Ch. 13, § VB). Moreover, it fails to account for the rights of innocent persons as required by 18 U.S.C. § 1964 (c) (JD Post-Trial Br. at 151-52); it amounts to a thinly disguised (and unconstitutional) penalty (Id. at 153-54, 172-75); it violates the First Amendment (Id. at 158-59, 175-76); and, as a legal, not an equitable, remedy it deprives Defendants of their right to a jury trial under the Seventh Amendment. Id. at 177-82.
D. Prohibitory Injunctions
Intervenors offer no new arguments to justify the Government’s proposed prohibitory injunctions. And to the extent that Intervenors’ proposed ban on brand-name sponsorship — or any other provision (P-I Br. at 93) — is intended to apply to Defendants’ foreign non-party subsidiaries and affiliates, it violates Fed. R. Civ. P. 65(d) and limits on this Court’s jurisdiction. JD Post-Trial Br. at 207. Moreover, Intervenors’ proposed expansive prohibition of commercial speech that is not deceptive would violate the First Amendment (JD Post-Trial Br. at 158-59);
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their proposed “tombstone” advertising requirement would violate both the First Amendment and the Federal Cigarette Labeling and Advertising Act (“FCLAA”), 15 U.S.C. §§ 15331-41;16 and their proposed restrictions on (a) the use of consumer marketing databases (P-I Br. at 87) and (b) relationships with third parties (P-I Br. at 92-93) are impermissibly untethered to potential RICO violations or even to youth marketing.
E. Document Disclosure
To the extent that Intervenors propose new document disclosure remedies, they cannot support those remedies by reference to the evidence admitted at trial. Moreover, like the Government’s proposal, Intervenors’ proposal would require disclosure of confidential information (including to ALF), in violation of the legal principle set out at JD Post-Trial Br. at 208-09.
Of course, the additional “monitoring” proposals now recommended by Intervenors, which were nowhere mentioned at trial, are not supported by any competent evidence, a defect which independently demands their rejection. See JD Post-Trial Br. at 214-16.
Nor does Intervenors’ monitoring proposal correct any of the defects that plague the Government’s existing proposal. See JD Post-Trial Br. at 213-33. The sweeping powers that Intervenors (and the Government) propose be granted to the IO and the IHO run roughshod over
16 See Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 566-67 (2001) (tobacco advertising restrictions violated First Amendment); FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 128, 161 (2000) (holding that FDA lacked authority to promulgate “text-only” advertising restrictions because FCLAA set forth a comprehensive federal scheme to govern tobacco advertising); cf. Lindsey v. Takoma-Pierce County Health Dep’t, 195 F.3d 1065, 1073 (9th Cir. 1999) (FCLAA preempted ordinance permitting only tombstone outdoor tobacco advertising); Rockwood v. City of Burlington, 21 F. Supp. 2d 411, 420 (D. Vt. 1998) (FCLAA preempted ordinance designed to reduce youth smoking by requiring only black and white text cigarette advertisements and finding that tombstone advertising requirement violated First Amendment).
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the Article III-based requirements of Cobell v. Norton, 334 F.3d 1128 (D.C. Cir. 2003). See JD Post-Trial Br. at 222-23. Virtually all of the cases relied upon by Intervenors are already distinguished in Defendants’ principal brief. And, far from supporting the Government’s position, United States v. Bausch & Lomb Optical Co., 321 U.S. 707 (1944) (cited by Intervenors at pp. 38, 109-10) struck down a provision that delegated to the executive branch what kinds of reports defendant would be required to submit. See also English v. Cunningham, 269 F.2d 517, 524 (D.C. Cir. 1959) (“[D]efendants may not . . . be placed under obligation to comply with future Monitors’ recommendations, the terms of which are not known”). In short, the monitoring proposal violates not only Article III but also Fed. R. Civ. P. 65(d), the narrow tailoring requirement, and all the other equitable principles violated by the Government’s monitoring proposal.
It bears noting that the monitoring proposal would place this Court at the vortex of an intrusive program of tobacco company oversight. This approach not only has the disadvantage of making the already-protracted trial in this case effectively perpetual but would also force this Court (and its representatives) to assume the mantle of “Tobacco Czar” — a virtual “Agency of Tobacco Control.” The only justification offered for this burdensome intrusion is Defendants’ alleged “long history of circumventing both voluntarily undertaken and legally binding obligations.” P-I Br. at 103.17 But no evidence was introduced at trial that Defendants would likely violate whatever prohibitory injunction this Court might impose if — against the
17 Intervenors characterize as “circumvention” any legal response to a new legal requirement, as long as they believe it would ultimately have a negative impact on public health by increasing or maintaining tobacco consumption. They cite no authority, for example, for the proposition (P-I Br. at 20) that this Court should somehow punish Defendants for allegedly responding to the ban on television advertising by taking the perfectly legal action of increasing spending on the types of advertising and promotion that Congress chose not to prohibit.
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evidence — it finds both a RICO violation and a reasonable likelihood of future violations. In fact, numerous authorities hold that it is error to assume that a defendant will not heed the Court’s orders. JD Post-Trial Br. at 161 n.80. And, in the event of such contempt, this Court has available its considerable powers to enforce contempt sanctions in order to effect compliance. The intrusive monitoring remedies requested are thus not only inappropriate and unconstitutional, but unnecessary as well.
Like the Government’s proposed remedies themselves, Intervenors’ proposed modifications to the Government’s proposals should be rejected.
DATED: September 14, 2005 Respectfully submitted,
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
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Theodore V. Wells, Jr. (D.C. Bar No.
James L. Brochin (D.C. Bar No. 455456)
PAUL, WEISS, RIFKIND, WHARTON &
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
Robert F. McDermott (D.C. Bar No. 261164)
Peter J. Biersteker (D.C. Bar No. 358108)
Jonathan M. Redgrave (D.C. Bar No. 474288)
51 Louisiana Avenue, N. W.
Washington, D.C. 20001-2113
Telephone: (202) 879-3939
Fax: (202) 626-1700
Robert C. Weber
Paul G. Crist
901 Lakeside Avenue
Cleveland, Ohio 44114-1190
Telephone: (216) 586-3939
Fax: (216) 579-0212
Attorneys for Defendant
R. J. Reynolds Tobacco Company
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
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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.
Edward C. Schmidt (D.C. Bar No. 199315)
Matthew D. Schwartz (D.C. Bar No. 436619)
THOMPSON COBURN LLP
1909 K Street, N.W.
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
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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
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
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.,
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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.