Schwab Defendants’ Opposition to Collateral Estoppel

September 10, 2006 4:00 am by Gene Borio

Text follows of:

Schwab Defendants Opposition to Collateral Estoppel, September 8, 2006

Note: This was a particularly dirty PDF to translate to text, and I’m not positive I’ve caught all the errors; always double-check the original pdf file before citing. — gb

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UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK

BARBARA SCHWAB et a!., individually and on behalf of all others similarly situated,

Plaintiffs,

V.

PHILIP MORRIS USA INC. et al.,

Defendants.

Civ. Action No. 04-CV- 1945

(JBW) (SMG)

DEFENDANTS’ BRIEF IN RESPONSE TO THE COURT’S AUGUST 18, 2006 ORDER AND IN OPPOSITION TO COLLATERAL ESTOPPEL BASED ON UNITED STATES V PHILIP MORRIS

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TABLE OF CONTENTS

INTRODUCTION … 1

ARGUMENT … 3

I. Legal Framework Governing Collateral Estoppel … 3

II. Collateral Estoppel Is Inappropriate In Light Of Past Verdicts And Decisions In Similar Cases In Favor Of The Defendants … 6

A. The Jury’s Defense Verdict In Blue Cross Is Inconsistent With DOJ … 7

B. Numerous Other Verdicts Considering Similar Allegations Reached Conclusions Contrary To That In DOJ … 11

C. DOJ Is Inconsistent With Other Courts’ Determinations That The Use Of The Lights Descriptor Is Not Deceptive … 13

III. Collateral Estoppel Would Be Inappropriate Because The DOJ Court’s Lights Findings Were Not Necessary To The Judgment … 15

IV. Collateral Estoppel Would Be Inappropriate Because DOJ’s Lights Findings Were Not Identical To The Issues Here . . . 17

V. Applying Collateral Estoppel Would Cause Severe Prejudice And Would Not Conserve Judicial Resources … 19

VI. The Appeal Of The DOJ Decision Further Counsels Against Applying Collateral Estoppel . . . 20

VII. The DOJ Decision Does Not Cure The Deficiencies In Plaintiffs’ Proofs . . . 22

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TABLE OF AUTHORITIES

CASES Page(s)

Acevedo-Garcia v. Monroig,

351 F.3 d 547 (1st Cir. 2003) . . . 20

Aetna Cas. & Sur. Co. v. Gen. Dynamics Corp.,

968 F.2d 707 (8th Cir. 1992) . . . 4, 5

Alabama v. Ted’s Game Enter.,

893 So. 2d 355 (Ala. Civ. App. 2002) . . . 4

Appel v. McNeil-P. P.C., Inc.,

No. 95 CV 192, 1996 WL 705279 (E.D.N.Y. Nov. 26, 1996) . . . 7

Appling v, State Farm Mut. Auto, Ins. Co.,

340 F.3d 769 (9th Cir. 2003) . . . 5, 7

Boguslavsky v. Kaplan,

159 F.3d 715 (2d Cir. 1998) . . . 4, 17, 19

Buckingham v. Fed. Land Bank Ass’n,

398 N.W.2d 873 (Iowa 1987) . . . 6

Conte v. Justice,

996 F.2d 1398 (2d Cir. 1993) . . . 4

Copeland v. Merrill Lynch & Co.,

47 F.3d 1415 (5th Cir. 1995) . . . 20

El Ranchito, inc. v. City of Harvey,

207 F. Supp. 2d 814 (N.D. 111. 2002) . . . 6

Envtl. Def. v. EPA,

369 F.3d 193 (2d Cir. 2004) . . . 3

Estate of Portnoy v. Cassna Aircraft Co.,

612 F. Supp. 1147 (S.D. Miss. 1985). . . . 5

Flanagan v. Altria Group, Inc.,

No. 05-71697, 2005 WL 2769010 (ED. Mich. Oct. 25, 2005) 14

GeIb v. Royal Globe Ins. Co.,

798 F.2d 38 (2d Cir. 1986) . . . 4, 23

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Gould v. Mossinghoff,

711 F.2d 396 (D.C. Cir. 1983) . . . 17

Grill v. United States,

516 F. Supp. 15 (E.D.N.Y. 1981) . . . 7

Grubbs v. United Mine Workers of Am.,

723 F. Supp. 123 (W.D. Ark. 1989) . . . 6

Halyalkar v. New York,

527 N.E.2d 1222 (N.Y. 1988) . . . 6

Hardy v. Johns-Manville Sales Corp.,

681 F.2d 334 (5th Cir. 1982) . . . 6, 10, 13

Harrison v. Celotex Corp.,

583 F. Supp. 1497 (E.D. Tenn. 1984) . . . 7,10

Hoppe v. G.D. Searle & Co.,

779 F. Supp. 1425 (S.D.N.Y. 1991) . . . 7

In re Benedictin Prods. Liab. Litig.,

749 F.2d 300 (6th Cir. 1984) . . . 6

In re Microsoft Corp. Antitrust Litig.,

355 F.3d 322 (4th Cir. 2004) . . . 21

In re Owens,

532 N.E.2d 248 (Iii. 1988) . . . 6

In re Spector,

22 B. R. 226 (Bankr. N.D.N.Y. 1982) 15

In re Tobacco Cases II, No. JCCP 4042,

2004 WL 2445337 (Cal. Super. Ct. Aug. 4, 2004) . . . 19

Insolia v. Philip Morris, Inc.,

53 F. Supp. 2d 1032 (W.D. Wis. 1999), aff’d in relevant part and overruled in part on other grounds, No. 99-2654, 99-2693,

2000 WL 772872 (7th Cir. Jun. 16, 2000) . . . 12

Jack Faucett Assocs., Inc. v. AT&T,

744 F.2d 118 (D.C. Cir. 1984) . . . 5, 10, 13

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Jaffree v. Wallace,

837 F.2d 1461 (11th Cir. 1989) . . . 21

Jean Alexander Cosmetics Inc. v. L’Oreal USA, Inc.,

–F.3d –, 2006 WL 2337267 (3d Cir. Aug. 14, 2006) . . . 5

Kramer v. Showa Denko K.K.,

929 F. Supp. 733 (S.D.N.Y. 1996) . . . 15

Lavetter v. Int’l Playtex,

706 F. Supp. 722 (D. Ariz. 1988) . . . 7

LeBlanc-Sternberg v. Fletcher,

67 F.3d 412 (2d Cir. 1995) . . . 7

Martin v. Malhoyt,

830 F.2d 237 (D.C. Cir. 1987) . . . 3, 21

Mazzocki v. State Farm Fire & Cas. Corp.,

766 N.Y.S.2d 719 (App. Div. 2003) . . . 3

Ornellas v. Oakley,

618 F.2d 1351 (9th Cir. 1980) . . . 21

Parklane Hosiery Co. v. Shore,

439 U.S. 322 (1979) passim

Price v. Philip Morris, Inc.,

848 N.E.2d 1 (111. 2005) . . . 13

Raynor v. Richardson Merrill, Inc.,

643 F.Supp. 238 (D.D.C. 1986) . . . 7

Remington Rand Corp. v. Amsterdam-Rotterdam Bank, N. V.,

68 F.3d 1478 (2d Cir. 1995) . . . 5, 20

SEC v. Monarch Funding Corp.,

192 F.3d 295 (2d Cir. 1999) 3, 15, 20

South Carolina Nat’l Bank v. Atl. States Bankcard Ass’n.

896 F.2d 1421 (4th Cir. 1990) . . . 21

State Farm Fire & Cas. Co. v. Century home Components, Inc.,

550 P.2d 1185 (Or. 1976) . . . 13

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Staten Island Rapid Transit Operating Auth. v. Interstate Commerce Comm’n,

718 F.2d 533 (2d Cir. 1983) . . . 3, 20

Stichting v. Schreiber,

327 F.3d 173 (2d Cir. 2003) . . . 4

Sullivan v. Philip Morris USA Inc.,

No. 03-796, 2005 WL 2123 702 (W.D. La. Aug. 31, 2005) . . . 14

Sun City Taxpayers’ Ass’n v. Citizens Utils. Co.,

45 F.3d 58 (2d Cir. 1995). . . . 14

Tar Landing Villas Owners’ Ass’n v. Town of Atlantic Beach,

307 S.E.2d 181 (N.C. Ct. App. 1983) . . . 6

Tucker v. Arthur Anderson & Co.,

646 F.2d 721 (2d Cir. 1981) . . . 15, 23

United States v. Alcan Aluminum Corp.,

990 F.2d 711 (2d Cir. 1993) . . . 3

United States v. Alfano,

34F.Supp.2d827,834(E.D.N,Y,1999) . . . 13

United States v. Alaska,

521 U.S. 1 (1997) . . . 2, 15, 23

United States v. Hussein,

178 F.3d 125, 129 (2d Cir. 1999) . . . 21, 23

United States v. Philip Morris Inc.,

396 F.3d 1190 (D.C. Cir. 2005) . . . 22

Uzdavines v. Weeks Marine, Inc.,

418 F.3d 138 (2d Cir. 2005) . . . 2, 17

Watson v. Philip Morris Cos.,

420 F.3d 852 (8th Cir. 2005), petition for cert. filed & invitation to US. Solicitor General to participate pending, 74 U.S.L.W. 3588 (U.S. May 22, 2006) (No. 05-1284) . . . 14

White Motor Corp. v. Teresinski,

214 Cal. App.3d 754 (Cal. Ct. App.1989) . . . 6

14

Winters v. Diamond Shamrock Chem. Co.,

149 F.3d 387 (5th Cir. 1998) . . . 5

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STATUTES

18 U.S.C. § 1962 . . . 23

18 U.S.C. § 1964 . . . 23

MISCELLANEOUS

Restatement (Second) of Judgments § 29 (1982) . . . 7

Wright & Miller, 18A Fed. Proc. & Prac. Juris. 2c1 § 4433 21, 21,22 . . . 21, 22

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INTRODUCTION

Defendants submit the following in response to the Court’s August 18, 2006 Order providing that “all parties shall address whether any… findings of fact and conclusions of law [from United States v. Philip Morris, Inc., Civ. A. 99-2496 (D.D.C. Aug. 17, 2006) (”DOJ”)] should collaterally estop defendants from re-litigation of the issues in the present suit.” Order at 2(Aug. 18, 2006).

This Court has already addressed this precise issue and has rejected applying collateral estoppel in this case based on DOJ:

I have tentatively decided not to apply collateral estoppel even though an argument can be made based on the Illinois case and possibly what will come down from the Washington, D.C. case in view of the very extensive cigarette litigation, much of which has been won by the defendants and because the material supporting other judgments will possibly need to come before the jury as evidence in connection with possible damages anyway. So I don’t believe I’m going to find favorably to the plaintiffs on that issue.

Tr. of Civil Cause Before Honorable Jack B. Weinstein (Aug. 31, 2005) at 37-38. Nothing has changed that justifies a different result now. Indeed, this Court has similarly rejected plaintiffs’ request to apply collateral estoppel based on Henley v. Philip Morris, Inc., No. 995172 (Ca. Super. Ct.). The Court concluded that “the defendants have won so many of the tobacco cases that applying the rule of the Restatement according conclusive effect to the last of the series of litigations is inappropriate.” Memo. & Order on Pls.’ Mot. for Collateral Estoppel and Partial Summ. J. (Sept. 27, 2005) (”Henley Order”) at 2.

There is, in fact, even less reason to consider the application of collateral estoppel to this case at this time, given the nature of the motions currently before the Court. Nothing in the DOJ findings can cure the deficiencies in plaintiffs’ proofs. The findings cannot help plaintiffs satisfy their burden of proving causation, reliance, or injury, in overcoming the statute of limitations, or

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in meeting the requirements of Rule 23. This Court should rule on the pending motions — and deny class certification and grant defendants summary judgment — without ever reaching the issue of collateral estoppel.

However, in response to the Court’s inquiry on the merits, we submit that, as this Court has recognized, it would be fundamentally unfair (and violative of due process) to apply collateral estoppel here. The DOJ court’s findings are inconsistent with numerous other case decisions, most notably the decision of the jury in Blue Cross and Blue Shield of New Jersey Inc. v. Philip Morris, Inc., No. 98 CV 3287 (E.D.N.Y.). There, after a full trial on the merits, the jury rejected RICO claims based on identical lights fraud allegations. Indeed, Blue Cross did not simply involve identical fraud allegations — it involved many of the same experts on behalf of both plaintiffs and defendants. The jury plainly made different determinations about the same experts from those of the DOJ court. To apply collateral estoppel in the face of these conflicting factual determinations based on essentially the same evidence would be fundamentally unfair and unlawful. See, e.g., Parklane Hosiery Co. v. Shore, 439 U.S. 322, 330 & n. 14 (1979).

Collateral estoppel based on DOJ is also ill-advised and unwarranted for a number of other reasons. Given that the DOJ court treated the government’s broad ranging allegations (extending far beyond the alleged lights fraud) as a single scheme, the court’s low tar findings were not “necessary” to its judgment, and thus cannot provide the basis of collateral estoppel. See, e.g., United States v. Alaska, 521 U.S. 1, 13 (1997). In addition, plaintiffs cannot show that the issues are identical, because the alleged predicate acts addressed low tar cigarettes that are not at issue in this lawsuit and because the DOJ court did not address the critical issue here -whether smokers failed to receive less tar and nicotine from each light cigarette. See, e.g., Uzdavines v. Weeks Marine, Inc., 418 F.3d 138, 146 (2d Cir. 2005). In addition, the DOJ court’s

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findings do not apply to Liggett Group, Inc. (”Liggett”), and it would be unfair and inefficient to apply collateral estoppel where a defendant would still be entitled to litigate those issues. See, e.g., Staten Island Rapid Transit Operating Auth. v. Interstate Commerce Comm ‘n, 718 F.2d 533, 542 (2d Cir. 1983); SEC v. Monarch Funding Corp., 192 F.3d 295, 304 (2d Cir, 1999). Finally, it makes no sense to apply collateral estoppel based on the DOJ court’s lights findings since the decision will certainly be appealed, and any reversal would then require the reversal of any finding in this case predicated upon an application of collateral estoppel.’

For these reasons, defendants respectfully request that this Court reaffirm its previous rulings and decline to apply collateral estoppel based on DOJ.2

ARGUMENT

1. Legal Framework Governing Collateral Estoppel

This Court inquired about the collateral estoppel effects of both “the findings of fact and conclusions of law.” Order at 1 (emphasis added). Collateral estoppel does not apply to conclusions of law. See, e.g., Envtl. Def. v. EPA, 369 F.3d 193, 203 (2d Cir. 2004) (”where pure questions of law — unmixed with any particular set of facts — are presented to a court, the interests of finality and judicial economy may be outweighed by other substantive policies”) (quoting United States v. Alcan Aluminum Corp., 990 F.2d 711, 719 (2d Cir. 1993)); Mazzocki v. State Farm Fire & Cas. Corp., 766 N.Y.S.2d 719, 721 (App. Div. 2003) (”collateral estoppel is inapplicable because interpretation of the policy language presents a pure question of law”);

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1 As explained below, the pending appeal in DOJ means that, if collateral estoppel were appropriate (and it is not), the Court should at a minimum defer its ruling until after the appeal is resolved. See, e.g., Martin v. Malhoyt, 830 F.2d 237, 264 (D.C. Cir. 1997)

2 B.A.T. Industries p.l.c. has reserved all rights and defenses, including but not limited to the defense of lack of personal jurisdiction, and nothing herein shall constitute a waiver of any of these rights and defenses.

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Alabama v. Ted’s Game Enter., 893 So. 2d 355, 364 (Ala. Civ. App. 2002) (”There is ample authority for the proposition that pure questions of law are not subject to the doctrine of collateral estoppel as are questions of law and fact.”). For this reason alone, collateral estoppel would be inappropriate with respect to the legal issues identified in this Court’s order (issues 4-6), which address what constitutes a violation of RICO.

To invoke collateral estoppel with respect to findings of fact, the Court must find that (1) the issues in both proceedings are identical, (2) the issue in the prior proceeding was litigated and actually decided, (3) there was a full and fair opportunity for litigation in the prior proceeding, and (4) the issue previously litigated was necessary to support a valid and final judgment on the merits. See, e.g., Boguslavsky v. Kaplan, 159 F.3d 715, 720 (2d Cir. 1998); Ge/b v. Royal Globe Ins. Co., 798 F.2d 38, 44 (2d Cir. 1986); Aetna Cas. & Sur. Co. v. Gen. Dynamics Corp., 968 F.2d 707, 711 (8th Cir. 1992).

The doctrine of collateral estoppel is “premised on notions of due process and fairness.” Conte v. Justice, 996 F.2d 1398, 1400 (2d Cir. 1993); see also, e.g., Stichting v. Schreiber, 327 F.3d 173, 184 (2d Cir. 2003) (”The doctrines of collateral estoppel in general, and of privity in particular, are shaped by fundamental notions of due process.”). Accordingly, in addition to the threshold prerequisites described above, the Supreme Court has cautioned that courts should not

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3 There are two categories of collateral estoppel — defensive collateral estoppel and offensive collateral estoppel:

[O]ffensive use of collateral estoppel occurs when the plaintiff seeks to foreclose the defendant from litigating an issue the defendant has previously litigated unsuccessfully in an action with another party. Defensive use occurs when a defendant seeks to prevent a plaintiff from asserting a claim the plaintiff has previously litigated and lost against another defendant.

Parklane Hosiery, 439 U.S. at 326 n.4.

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apply collateral estoppel if doing so would be unfair to the defendant. See Parklane Hosiery, 439 U.S. at 329-30. In particular, as explained in greater detail below, courts have recognized that it would be unfair to apply collateral estoppel where “the judgment relied on is inconsistent with other decisions.” Jack Faucett Assocs., inc. v. AT&T, 744 F.2d 118, 125-26 (D.C. Cir. 1984). And regardless of whether the prerequisites are satisfied, it is within the trial court’s discretion not to apply collateral estoppel. See, e.g., Appling v, State Farm Mut. Auto. Ins. Co., 340 F.3d 769, 775 (9th Cir. 2003); Remington Rand Corp. v. AmsterdamRotterdam Bank, N. V., 68 F.3d 1478, 1486 (2d Cir. 1995); Aetna, 968 F.2d at 711.

In this case, any possible exercise of collateral estoppel based upon DOJ would be “nonmutual offensive collateral estoppel,” because plaintiffs were not a party to DOJ and its effect would be to prevent defendants from litigating certain issues. Courts have recognized that the use of nonmutual offensive collateral estoppel is “potentially dangerous,” because it is “too fraught with drumhead potential to allow its application without the specific limitations that the Supreme Court, other courts, and legal scholars have enunciated.” Jack Faucett, 744 F.2d at 133. Accordingly, “[w]here offensive estoppel is involved, the element of ‘fairness’ gains special importance.” Id. at 125; see also, e.g., Jean Alexander Cosmetics Inc. v. L ‘Oreal USA, Inc., –F.3d —-, 2006 WL 233 7267, at *4 (3d Cir. Aug. 14, 2006) (”non-mutual offensive collateral estoppel presents a unique potential for unfairness”); Winters v. Diamond Shamrock Chem. Co., 149 F.3d 387, 395 n.9 (5th Cir. 1998) (”Usually, when offensive collateral estoppel is at issue, the restrictions on the use of the doctrine are more stringent.”). Courts across the country have recognized that they should be more cautious in applying the doctrine of collateral estoppel offensively as compared to defensively. See, e.g., Estate of Portnoy v. Cassna Aircraft Co., 612 F. Supp. 1147, 1150 (S.D. Miss. 1985) (”offensive collateral differs substantially from

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defensive collateral estoppel and should therefore be viewed with stricter scrutiny”); In re Owens, 532 N.E.2d 248, 252 (Ill. 1988) (”[C]ourts must be more cautious in allowing estoppel to be used offensively than in allowing it to be used defensively.”). 4 And courts have noted that this concern is particularly appropriate in the mass tort context, where a defendant often faces numerous lawsuits with inconsistent results. See, e.g., Hardy v. Johns-Manville Sales Corp., 681 F.2d 334, 345-46 n.13 (5th Cir. 1982) (”The injustice of applying collateral estoppel in cases involving mass torts is especially obvious.”); In re Benedictin Prods. Liab. Litig., 749 F.2d 300, 305 n. 11(6th Cir. 1984) (interpreting Parklane as holding “that offensive collateral estoppel could not be used in mass tort litigation”).

For the reasons set forth below, the DOJ decision is not the appropriate basis for collateral estoppel.

II. Collateral Estoppel Is Inappropriate In Light Of Past Verdicts And Decisions In Similar Cases In Favor Of The Defendants

One of the critical factors in determining whether the application of collateral estoppel would be unfair is whether the judgment that is the basis for the request for collateral estoppel is inconsistent with other prior verdicts in the defendant’s favor. Parklane Hosiery, 439 U.S. at

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4 See also, e.g., Grubbs v. United Mine Workers of Am., 723 F. Supp. 123, 126-27 (W.D. Ark. 1989) (”the doctrine of non-mutual offensive collateral estoppel should be cautiously invoked”); Buckingham v. Fed. Land Bank Ass’n, 398 N.W.2d 873, 876 (Iowa 1987) (”Although offensive use of issue preclusion is allowed in Iowa, it is more restrictively and cautiously applied than defensive issue preclusion.”) (citation omitted); Tar Landing Villas Owners’ Ass ‘n v. Town of Atlantic Beach, 307 S.E.2d 181, 185 (N.C. Ct. App. 1983) (cautioning courts to “strictly scrutinize whether to apply the doctrine [of offensive collateral estoppel] in light of judicial economy and fairness to the other party”); Halyalkar v. New York, 527 N.E.2d 1222, 1227 (N.Y. 1988) (”While offensive use of collateral estoppel has been permitted, the fact that the doctrine is sought to be employed offensively by a nonparty to the prior litigation may, in some situations, raise legitimate concerns about the fairness of its application.”) (citations omitted); El Ranchito, Inc. v. City of Harvey, 207 F. Supp. 2d 814, 820 (N.D. Ill. 2002) (”Offensive collateral estoppel is permitted in Illinois, but it is to be employed with ‘caution.”) (citation omitted); White Motor Corp. v. Teresinski, 214 Cal. App. 3d 754, 763 (Cal. Ct. App. 1989) (”the offensive use of collateral estoppel is more closely scrutinized than the defensive use of the doctrine”).

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330 & n. 14; LeBlancSternberg, 67 F.3d at 434 (”Parklane Hosiery counsels against the application of nonmutual offensive collateral estoppel in cases where… the judgment relied on as the basis for estoppel is itself inconsistent with an earlier judgment in favor of the defendant.”). 5

This principle forecloses the use of collateral estoppel. As this Court previously recognized, it would be fundamentally unfair and inappropriate to apply collateral estoppel when the conclusions in DOJ are contrary to verdicts in a number of other courts. See Henley Order at 2 (”the defendants have won so many of the tobacco cases that applying the rule of the Restatement according conclusive effect to the last of the series of litigations is inappropriate”). 6

A. The Jury’s Defense Verdict In Blue Cross Is Inconsistent With DOJ

Most notably, the DOJ findings are directly contradicted by Blue Cross and Blue Shield of New Jersey Inc. v. Philip Morris. Inc.. No. 98 CV 3287 (E.D.N.Y.) — tried in this Court -in which the jury returned a defense verdict on RICO claims based on identical lights fraud allegations. See Blue Cross Verdict Form at IV, V (Ex. 1). 7 As this Court summarized in ruling on the post-trial motions in Blue Cross, the plaintiffs there alleged that light cigarettes “lacked significant health benefits over conventional cigarettes… because of an effect called

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5 See also, e.g., Raynor v. Richardson Merrill, Inc., 643 F.Supp. 238, 246 (D.D.C. 1986); Appling, 340 F.3d at 776-77;Appel v. McNeil-P.P.C., Inc., No. 95 CV 192, 1996 WL 705279 (E.D.N.Y. No. 26,1996); Hoppe v. G.D. Searle & Co., 779 F. Supp. 1425 (S.D.N.Y. 1991); Lavetter v. Int’l Playtex, 706 F. Supp. 722, 723 (D. Ariz. 1988); Harrison v. Celotex Corp., 583 F. Supp. 1497, 1503 (E.D. Tenn. 1984); Grill v. United States, 516 F. Supp. 15, 16 (E.D.N.Y. 1981); see also generally Restatement (Second) of Judgments § 29(4) and comment f (1982).

6 Citations to numerous defense verdicts won by certain defendants in this case are provided in Philip Morris USA Inc.’s Opp. to Pls. Mot. for Collateral Estoppel and Part. Summ. J., at 8-14 & n.4-n.6 (Aug. 19, 2005), and in Defendants’ Brief in Opp. to Pls. Renewed Mot. for Part. Summ. J. on Collateral Estoppel and Existence of a Conspiracy, at 3-4 & n.4 (Aug. 11, 2006).

7 Citations to “Ex. are citations to the exhibits to the Declaration of David Kouba in Support of Defendants’ Brief in Response to the Court’s August 18, 2006 Order and in Opposition to Collateral Estoppel Based On United States v. Philip Morris.

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compensation: smokers of light cigarettes tend to smoke more, inhale more deeply, and hold the smoke in their lungs longer, in order to maximize their absorption of nicotine.” Re-Amended Order at 39, Blue Cross, No. 98-CV-3287 (E.D.N.Y. Nov. 16, 2001) (Ex. 2) (”Re-Amended Order”). From their opening statement, the Blue Cross plaintiffs made clear that lights fraud allegations were a critical component of their claims:

[The cigarette companies] promoted low-tar, low-nicotine cigarettes. They advertised those lowtar, low-nicotine cigarettes as having tar and nicotine level milligrams — it’s on the package -as measured by the Federal Trade Commission smoking machine. And they let the American public know and believe these cigarettes were safer, these were better for you, when they knew that the FTC — the Federal Trade Commission’s machine, just like an automaton, just puffs at [sic] away at whatever program you put it in, and it doesn’t have anything to do with the amount of tar that actually goes into a smoker’s lungs. They knew that, in fact, smokers compensated by puffing more, taking deeper puffs, taking more cigarettes when it’s low-tar and low-nicotine.

Tr. of Proceedings at 374, Blue Cross & Blue Shield of New Jersey v. Philip Morris inc., No. 98 CV 3287 (E.D.N.Y. Mar, 26, 2001) (Ex. 3); see also, e.g., Blue Cross Second Am. Compl. + 173 (defendants “designed their so-called ‘light’ products so that advertised tar and nicotine labels understate the amounts of tar and nicotine actually ingested by human smokers”) (Ex. 4). 8

Indeed, as Exhibit 5 demonstrates, plaintiffs and defendants in Blue Cross called many of the same expert witnesses that testified in DOJ. In fact, four of the five witnesses upon whom the DOJ court principally relied for its lights findings — Drs. Burns, Benowitz, Farone, and

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8 Even plaintiffs here have acknowledged the similarities between the allegations in Blue Cross and those in this case, asserting that “[t]he Blue Cross case involved the same misrepresentation of fact as this case — that ‘low tar’ or ‘light’ cigarettes pose significantly lower health risks than ordinary cigarettes.” Pls. Objections to Judge Gold’s May 12, 2005 Or. Granting Defs.’ Mot. in Part to Take Absent Class Member Disc. at 10 (May 23, 2005).

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Samet, see DOJ Opinion ¶¶ 2129-30 (relevant pages attached as Exhibit 6) — all testified for plaintiffs in Blue Cross. See Ex. 59

Thus, this Court’s trial in Blue Cross involved the same statute as DOJ (RICO), the same allegations of lights fraud, and even the same witnesses. Yet the result was fundamentally different — the Blue Cross jury rejected plaintiffs’ RICO claims. Clearly, the jury made different determinations as to how to credit the witnesses than did the DOJ court. Indeed, the DOJ court made clear that its lights fraud findings were based largely on its subjective credibility determinations of the witnesses. For example, the court attributed its heavy reliance on Dr. Bums’ testimony to its determination that he was “totally credible”:

The Court finds that the testimony of Dr. Bums is totally credible and persuasive on each of the issues which he discussed, including low tar cigarettes and their relative health effects… Dr. Bums’s demeanor during his testimony, which spanned nearly two full days and consisted mostly of cross-examination, further demonstrated his credibility. He fully answered the questions posed to him by well-prepared counsel, he was totally versed in the complex scientific areas about which he was questioned, he was neither evasive nor combative, and demonstrated an enormous familiarity with the science of smoking and lung cancer.

DOJ Opinion + 2129; see also id. + 2130 (finding the testimony of Drs. Samet, Benowitz, and Farone with respect to lights issues to be “highly credible”). By contrast, the court rejected the testimony of defendants’ expert Dr. Dixon — who also testified in Blue Cross on lights issues — as “not credible, especially when compared to the totally contrary evidence of government experts.” Id. ++ 2 101 n.25.

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9 Notably, however, the DOJ court did not have the benefit of several experts that have been designated in this case and whose opinions refute the court’s findings. See, e.g., Declaration of Peter A. Valberg ++ 24-71 (June 30, 2005) (addressing plaintiffs’ compensation allegations); Declaration of Errol Zeiger ++ 10-36 (June 21, 2005) (addressing plaintiffs’ mutagenicity and smoke chemistry allegations).

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In rejecting plaintiffs’ RICO allegations, the Blue Cross jury must be presumed to have reached different determinations about the same witnesses. See, e.g., Jack Faucett, 744 F.2d at 129 (’ “The inference… is that the outcomes may have been based on equally reasonable resolutions of doubt as to the probative strength of the evidence. . .’”) (citation omitted). To apply collateral estoppel here would be to reject those determinations in favor of the determinations of the DOJ court. This would be improper: “[i]t seems most inappropriate for this Court to pick out one case upon which the jury reached a verdict for the plaintiff, and accord it preclusive effect, and at the same time to ignore all the others in which equally competent juries have reached the opposite conclusion.” Harrison, 583 F. Supp. at 1503; see also, e.g., Hardy, 681 F.3d at 346 (”Not only does issue preclusion in such cases appear arbitrary to a defendant who has had favorable judgments on the same issue, it also undermines the premise that different juries reach equally valid verdicts.”).

In fact, it would be particularly inappropriate to cast aside Blue Cross when the findings there were made — in the words of this Court — by an “unbiased and intelligent” jury. ReAmended Order, at 12. As the Court observed:

The {Blue Cross] jury was remarkably focused, always on time, always concentrating on the evidence, arguments and instructions. A number of its members took extensive notes. It read and studied the court’s written charge as it was delivered and took the charge into the jury room. During its deliberations the jury had all the admitted documents as well as the key depositions. It appeared to take a critical view of much of the expert testimony which would have supported a verdict of hundreds of millions of dollars.

Id. at 15.

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In sum, the Blue Cross jury’s verdict alone demonstrates that applying collateral estoppel here would be unfair. 10

B. Numerous Other Verdicts Considering Similar Allegations Reached Conclusions Contrary To That In DOJ

Nor is Blue Cross alone. For example, in Iron Workers Local Union No. 17 Insurance Fund v. Philip Morris, Inc., No. 1:97-CV-1422 (N.D. Ohio), plaintiffs brought federal RICO claims based in part on the same allegations of lights fraud presented in DOJ and Blue Cross:

Recent studies demonstrate that cigarettes advertised as low tar and low nicotine have higher concentrations of nicotine… nevertheless, the cigarette manufacturers have successfully identified “light” cigarettes to consumers as a reduced tar and nicotine product. The cigarette manufacturers have accomplished this deception though several strategies.

Iron Workers Compl. + 208 (Ex. 8). As in Blue Cross, however, the Iron Workers jury rejected plaintiffs’ RICO allegations, returning a defense verdict. See Iron Workers Verdict Form (Ex. 9).

Other juries have likewise refused to impose liability when considering lights fraud theories similar to those considered in DOJ. For example:

• Longden v. Philip Morris USA Inc. The plaintiff sought to recover under a fraud theory, alleging that “[defendants] and their co-conspirators have made affirmative material misrepresentations, have omitted material facts, and have concealed material information concerning the health risks associated with smoking cigarettes, particularly ‘light’ or ‘low tar/low nicotine’ cigarettes.” See Compl. + 130, Longden v. Philip Morris [USA] Inc., No. 00-C442 (N.H. Super. Ct. May 17, 2000) (Ex. 10). The jury returned a defense verdict. See Verdict Form, Longden v. Philip Morris USA Inc., No. 00-C-442 (N.H. Super. Ct. Nov. 24, 2003) (Ex. 11).

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10 In addition, in Falise v. American Tobacco Co., also tried in this Court, the plaintiffs made lights allegations as an integral part of the RICO conspiracy claims: “The defendant manufacturers designed their ‘light’ products so that advertised tar and nicotine levels understate the amounts of tar and nicotine actually ingested by smokers.” No. 97-CV-7392 (JBW), Pls. First. Amended Compl. ¶¶ 90-91, 183 (Ex. 7). As this Court is well-aware, the Falise jury split and did not reach a verdict on plaintiffs’ claims. Plaintiffs did not pursue these claims further.

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• Tune v. Philip Morris Inc. The plaintiff alleged that “[p]ublicly the cigarette companies then implied in their advertising and promotions, that filtered low tar, low nicotine cigarettes were healthy. The advertising and promotion was simply a ploy because the cigarette companies knew through their own research in the early 1970’s that smokers compensate for the lack of nicotine and low tar.” First Am. Compl. & 45(f), Tune v. Brown & Williamson Tobacco Co.. No. 97-4678 (Fla. Cir. Ct. Mar. 9, 1998) (Ex. 12). Once again, the jury returned a defense verdict. See Verdict, Tune v. Philip Morris Inc., No. 97-4678 (Fla. Cir. Ct. May 24, 2002) (Ex. 13).

• Kimball v, R.J. Reynolds Tobacco Co. The plaintiff alleged that “Reynolds, in concert with other cigarette manufacturers created deceptive descriptors for the low tar cigarettes.” Am. Compl. + 40, Kimball v. R.J. Reynolds Tobacco Co., No. CVO3-0664 (W.D. Wash. May 28, 2003) (Ex. 14). Likewise, the plaintiff alleged that “[e]ach conspirator developed low tar products that were specifically engineered to deliver higher levels of tar and nicotine to smokers than would be expected based on FTC testing. The conspirators knew that smokers would ‘compensate.” Id. + 92. The jury found for defendants on all of plaintiff’s claims. See Verdict Form, Kimball v. RJ. Reynolds Tobacco Co., No. CVO3-0664 (W.D. Wash. May 16, 2006) (Ex. 15).

• Vandenburg v. Brown & Williamson Tobacco. Plaintiffs alleged that “the manufacturing defendants actually knew, or in the discharge of ordinary care should have known… [that] the FTC method of measuring ‘tar & nicotine’ levels underestimated the levels of nicotine actually delivered.” Am. Pet. + 32(g), Vandenburg v. Brown & Williamson Tobacco. No. 03CV237238 (Mo. Cir. Ct., Jackson County Oct. 7, 2005) (Ex. 16). The jury returned a defense verdict. See Judgment on Jury Verdict at Part II, Vandenburg v. Brown & Williamson Tobacco. No. 03CV237238 (Mo. Cir. Ct., Jackson County Feb. 22, 2006) (Ex. 17).11

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11 Although this Court did not specificially inquire about the DOJ court’s conspiracy findings, see Order, it would be similarly inappropriate to apply collateral estoppel based on those findings in light of the numerous defense verdicts on similar conspiracy-based claims. See, e.g., Compl. + 32, Carter v. Philip Morris Corp., No. 4567 (Pa. Ct. Com. Pl. Sept. 1, 1999) (Ex. 18) (conspiracy allegations); Verdict Form + 11, Carter v. Philip Morris Corp., No. 4567 (Pa. Ct. Com. Pl. Jan. 26, 2003) (Ex. 19) (defense verdict); Compl. ++ 181-87, Eiser v. Am. Tobacco Co., No. 004367 (Pa. Ct. Com. Pl. Mar. 30, 1999) (Ex. 20) (conspiracy allegations); Verdict Form, Eiser v. Am. Tobacco Co., No. 004367 (Pa. Ct. Com. Pl. Aug. 15, 2003) (Ex. 2 1) (defense verdict); Am. Compl. + 29, Tompkin v. Am, Tobacco Co., No. 5:94CV1302 N.D. Ohio Jan. 22, 1999) (Ex. 22) (conspiracy allegations); Verdict, Tompkin v. Am. Tobacco Co., No. 5 :94CV 1302 (N.D. Ohio Oct. 5, 2001) (Ex. 23) (defense verdict); Insolia v. Philip Morris, Inc., 53 F. Supp. 2d 1032, 1044-46 (W.D. Wis. 1 999) (granting summary judgment in favor of defendants on claims of conspiracy to committ fraudulent concealment and fraudulent misrepresentation), aff’d in relevant part and overruled in part on other grounds, No. 99-2654, 99-2693, 2000 WL 772872 (7th Cir. Jun. 16, 2000); see also Philip Morris USA Inc.’s Opp. to Pls.’ Mot. for Collateral Estoppel and Partial Summ. J., at 8-14 (Aug. 19, 2005).

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To be sure, these are general jury verdicts without the same level of specificity found in the DOJ opinion. But as the D.C. Circuit has explained with respect to inconsistent prior decisions, “[i]t is enough if that inconsistent determination undermines the court’s confidence in the earlier decision.” Jack Faucett, 744 F,2d at 130. Indeed, as noted above, fundamental fairness mandates that courts err on the side of rejecting offensive collateral estoppel if there is any doubt as to whether a prior judgment might be inconsistent. See supra at 4-6. Moreover, because the burden of proof on collateral estoppel rests with the party seeking estoppel, see United States v. Alfano, 34 F. Supp. 2d 827, 834 (E.D.N.Y. 1999), plaintiffs affirmatively must prove that the prior RICO judgments are not inconsistent. Here, there is no way to establish this. See Hardy, 681 F.2d at 348 (reasoning that without proof that the inconsistent defense verdicts were in fact reconcilable with prior decisions, it would be unfair to estop the defendants from offering their defense); State Farm Fire & Cas. Go, v. Century Home Components, Inc., 550 185 (Or. 1976) (”since the jury [in the later case] returned a general verdict, we do not know in which respects it found defendant negligent and, given the substantial similarity of some of the allegations and the basic thrust of the negligence alleged, we are unable to conclude that it found defendant negligent on the basis of conduct not submitted to the jury in the [first case].”).

C. DOJ is Inconsistent With Other Courts’ Determinations That The Use Of The Lights Descriptor Is Not Deceptive

In addition to these jury verdicts for the defendants, the DOJ court’s findings are also inconsistent with the decisions of a number of courts holding that the Federal Trade Commission (”FTC”) concluded that the use of descriptors such as “lights” was _not_ deceptive. For example, in Price v. Philip Morris, Inc., 848 N.E. 2d 1 (Ill. 2005), the Illinois Supreme Court held that lights fraud claims under the Illinois Consumer Fraud and Deceptive Business Practices Act failed as a matter of law because the FTC had “specifically authorized” the use of the “lights”

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descriptor. Id. at 50. Similarly, the Eighth Circuit recognized, based on its extensive review of the history of FTC regulation, that the FTC determined that the “lights” descriptor was “not . . . deceptive.” Watson v, Philip Morris Cos., 420 F.3d 852, 862 (8th Cir. 2005) (emphasis in original), petition for cert. filed & invitation to U .S. Solicitor General to participate pending, 74 U.S.L.W. 3588 (U.S. May 22, 2006) (No. 05-1284). And other courts have agreed. See Flanagan v. Altria Group, Inc., No. 05-71697, 2005 WL 2769010, at *6 (E.D. Mich. Oct. 25, 2005) (granting summary judgment dismissing lights consumer fraud claim because the FTC “specifically authorized” the lights descriptor); Sullivan v. Philip Morris USA Inc., No. 03796, 2005 WL 2123702, at *9 (W.D. La. Aug. 31, 2005) (granting summary judgment dismissing lights consumer fraud claim because the defendant’s conduct “complie[d] with section 5(a)(1) of the Federal Trade Commission Act”) (interlocutory appeal pending on other issues); but see Aspinall v. Philip Morris Cos. Inc.. No. 98-6002. slip op. (Mass. Super, Ct. Aug. 9, 2006) (declining to apply state law statutory exemption to use of lights descriptor on packages) (subject to possible reconsideration) (Ex. 24).

These decisions are flatly inconsistent with the DOJ decision. Defendants cannot have engaged in racketeering activity if the very conduct alleged to be deceptive — the use of the “lights” descriptor — was authorized and determined not to be deceptive by a federal agency. See, e.g., Sun City Taxpayers ‘Ass’n v. Citizens Utils. Co., 45 F.3d 58, 62 (2d Cir. 1995) (rejecting RICO action alleging fraud during a rate-setting process because any rate that is “approved by the governing regulatory agency” is “per se reasonable” and cannot form the basis of a RICO action). As a result, the DOJ court’s finding that the “lights” descriptor is deceptive is inextricably based on a conclusion that the FTC never authorized its use.

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In light of these inconsistent determinations — including in a jury verdict tried before this Court — there is no basis for this Court to change its position on the applicability of collateral estoppel.

IlI. Collateral Estoppel Would Be Inappropriate Because The DOJ Court’s Lights Findings Were Not Necessary To The Judgment

Plaintiffs also cannot show, as they must to invoke collateral estoppel, that the DOJ court’s findings with respect to light cigarettes were “_necessary_ to a court’s judgment.” United States v. Alaska, 521 U.S. 1, 13 (1997) (emphasis in original); see also, e.g., Parklane, 439 U.s. at 326 n.5 (collateral estoppel only “precludes relitigation of issues actually litigated and necessary to the outcome”); Tucker v. Arthur Anderson & Co., 646 F.2d 721, 728 (2d Cir. 1981) (”In order to operate as an estoppel, however, the determination of the issue must have been essential to the judgment.”). In particular, if there is any doubt as to what findings were necessary to the court’s judgment, collateral estoppel may not be applied. See, e.g., Monarch Funding Corp., 192 F.3d at 309 (”[w]hen a court cannot ascertain what was litigated and decided, issue preclusion cannot operate”) (citation omitted); Kramer v. Showa Denko K.K., 929 F. Supp. 733, 750 (S.D.N.Y. 1996) (”Case law is clear that collateral estoppel is inapplicable in cases where there is any ambiguity regarding which issues actually were decided in the prior proceeding.”) (citation omitted); In re Spector, 22 B.R. 226, 231 (Bankr. N.D.N.Y. 1982) (”reasonable doubts as to what was decided by a prior judgment should be resolved against using it as an estoppel”) (citation omitted).

The DOJ litigation was not limited to allegations regarding light cigarettes. Instead, the Government made a number of different allegations of racketeering over a fifty year span, including the defendants’ position on the relationship between smoking and disease, the addictiveness of nicotine, and the effects of environmental tobacco smoke, as well as allegations

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of youth targeting and document destruction. See, e.g., DOJ Opinion at 1-2. Indeed, the vast majority of the DOJ court’s 1,653 page opinion addresses alleged racketeering other than the lights fraud alleged here. See id. at i-xxix (table of contents).

The DOJ court, however, rejected the argument that, by making these broad-ranging allegations, the Government had alleged several separate fraudulent schemes. Instead, the court concluded that it was dealing with a single scheme with different components: “The individual components must be viewed not independently but in context of the entire scheme to defraud.” Id. at 1502. Based on this view, the DOJ court explained that it was not necessary for the Government to show that each defendant committed two predicate acts identified with each component: “It is sufficient to prove by the totality of the circumstances that the defendant devised a scheme intended to defraud which included one or more of the individual component schemes alleged.” Id.

As a result, it was not “necessary” or “essential” to the DOJ court’s findings that each of the defendants here engaged in predicate acts sufficient to give rise to RICO liability based only on low tar cigarettes. In fact, the majority of the defendants in this case were not alleged by the government to have committed even two predicate acts relating to the low tar component of the scheme. See DOJ Opinion at 1515 n. 16 (including Lorillard Tobacco Company, Altria Group, Inc., British American Tobacco (Investments) Limited, and B.A.T Industries p.l.c.). Yet the DOJ court held each defendant liable for the entire allegedly fraudulent scheme. DOJ Order at 2 (Ex. 25). In addition, even as to those defendants against whom the Government alleged two or more predicate acts related to low tar cigarettes, it is unclear whether any such acts were “necessary” for RICO liability, as liability could have been based upon predicate acts relating to other components of the alleged scheme.

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This illustrates precisely why the DOJ court’s “single scheme” approach forecloses any collateral estoppel effect. For instance, it is undeniable that, if the Government in DOJ had brought only the lights racketeering allegations at issue here, the Government’s allegations would have been insufficient as to certain defendants because of the failure to allege two predicate acts. Yet a finding of collateral estoppel here would enable plaintiffs to bypass these deficiencies in the Government’s proof and foreclose these defendants from defending themselves on certain issues. This is fundamentally unfair, violates due process, and is another reason why collateral estoppel would be inappropriate.

IV. Collateral Estoppel Would Be Inappropriate Because DOJ’s Lights Findings Were Not Identical To The Issues Here

Nor can plaintiffs establish that the issues were “identical.” See, e.g., Boguslavsky, 159 F.3d at 720 (issues in the two proceedings must be “identical”); Gould v. Mossinghoff, 711 F.2d 396, 398-99 (D.C. Cir. 1983) (”Fundamental to any application of the doctrine [of collateral estoppel] is that the issue or issues previously determined be identical to the issue or issues presently barred.”); Uzdavines, 418 F.3d at 146.

First, the issues are not identical because the alleged predicate acts at issue in DOJ dealt only with low tar cigarettes — and not the light cigarettes at issue here, The DOJ opinion specifically identifies the “alleged Racketeering Acts relating to” the “claimed [low tar] scheme.” DOJ Opinion at 1515 n.16. None of the eight “alleged Racketeering Acts” identified by the DOJ court addresses the use of “lights” descriptor or any cigarette labeled as “lights.” See id. at Appendix III (nos. 36, 37, 39, 47, 48, 53, 119, 124). To the contrary, the only brands addressed in the “alleged Racketeering Acts” are low tar brands (Vantage, True, Merit, and Carlton) that are not at issue here. In short, the specific predicate acts alleged in DOJ were not

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based on light cigarettes at all and therefore plaintiffs cannot establish that the issues were identical.

Second, the DOJ court’s conclusion that defendants had fraudulently marketed low tar cigarettes was predicated on its determination that compensation is “essentially complete,” DOJ Opinion + 2074, and thus low tar cigarettes do not “provide any clear health benefit.” Id. + 2025. But in addressing whether the compensation is “essentially complete,” the DOJ court was not examining whether it was complete on a per cigarette basis. In fact, nowhere did the court conclude that compensation was complete on a per cigarette basis.

Instead, in making its findings, the DOJ court explicitly considered whether smokers compensated by increasing the number of cigarettes smoked per day. See, e.g., id. + 2096 (”Daily smoke exposure takes into account… the tendency of smokers of lower FTC-yield cigarettes to smoke more cigarettes.”); Id. + 2109 (”a substantial fraction of people who switch from high-tar and nicotine to low-tar and nicotine cigarettes use increased numbers of cigarettes . . . as a mechanism of compensation”) (citation and quotations omitted). The DOJ court distinguished a recent public health report concluding that “changes in cigarettes since the 1950s have probably tended to reduce the risk for lung cancer” based on its determination that the report was considering the risk on a per cigarette basis, and thus “did not apply to individuals who increased the number of cigarettes they consumed as they shifted to low yield cigarettes.” Id. + 2119 (citations omitted). In fact, the DOJ court based its compensation findings primarily on the testimony of Dr. Benowitz, Id. ++ 2068-69, 2071-75, 2085-86, 2095-2103, who has made clear in his testimony in this case that light cigarettes deliver less tar and nicotine to the majority of smokers on a per cigarette basis. Deposition or INca! Benowitz at 10, 102-03 (EX. 20) see

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also Defs. Suppl. Br. in Opp. to Pls.’ Mot. for Class Cert. and Appointment of Class Representatives and Co-Lead Counsel at 30 (”Defs, Supp. Opp.”).

Accordingly, regardless of whether the DOJ court’s findings are correct, they are irrelevant here. The most that the “lights” descriptor could have represented to consumers was that one light cigarette would deliver less tar and nicotine than one full-flavored cigarette. No consumer could have reasonably interpreted the “lights” descriptor to mean that he or she would receive less tar and nicotine from light cigarettes no matter how many cigarettes he or she smoked. See In re Tobacco Cases II, No. JCCP 4042, 2004 WL 2445337, at *20 (Cal. Super. Ct. Aug. 4, 2004) (”[N]o reasonable smoker (even if addicted and therefore vulnerable) can believe that the amount of tar and nicotine consumed by smoking does not depend on the actual number of cigarettes smoked, regardless of whether they are regular or Lights.”). As a result, the issue here is whether plaintiffs can show that they failed to receive less tar and nicotine from each light cigarette. The DOJ court did not address this precise issue, and this is another reason why plaintiffs cannot establish that the issues are identical.

V. Applying Collateral Estoppel Would Cause Severe Prejudice And Would Not Conserve Judicial Resources

This Court should also refuse to apply collateral estoppel here because the DOJ court’s findings with respect to lights did not apply to all of the defendants in this case. As a result, applying collateral estoppel would severely prejudice certain defendants who could not possibly be subject to collateral estoppel and would not result in any gained judicial efficiency.

In particular, the DOJ court concluded that the final judgment did not apply to Liggett, also a defendant in this case. DOJ Order at 2. As a result, any finding that arguably was essential to the judgment against the other DOJ defendants should not be collaterally estopped as to Liggett. See, e.g., Boguslavsky, 159 F.3d at 720 (holding that the issue previously litigated

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must have been “necessary to support a valid and final judgment on the merits”) (citation and quotation omitted).

It plainly would be improper and prejudicial to apply collateral estoppel to some, but not all, defendants in this case. See, e.g., Staten Island Rapid Transit Operating Auth., 718 F.2d at 542 (applying collateral estoppel to “some parties but not to others would constitute ‘inequitable administration of the laws”) (citation omitted). Further, it would defeat any efficiencies that might be gained with collateral estoppel, since Liggett would retain the right to present full defenses to these allegations. “When the efficiency rationale for collateral estoppel fails, however, courts have understandably declined to apply the doctrine.” Monarch Funding Corp., 192 F.3d at 304; see also, e.g., Acevedo-Garcia v. Monroig, 351 F.3d 547, 576-77 (1st Cir. 2003) (”Where even one issue of liability must be made available to defendants in the second trial, granting preclusive effect to the other issues may not result in efficiency gains because introduction of the ‘live’ issue may require introduction of some of the same evidence pertinent to the estopped issue.”). Accordingly, because collateral estoppel would not result in gained efficiency, this reason also counsels in favor of not applying the doctrine. 12

VI. The Appeal Of The DOJ Decision Further Counsels Against Applying Collateral Estoppel

This Court should also refuse to apply collateral estoppel as a matter of its own discretion. There is no doubt this Court has such discretion. Remington Rand Corp., 68 F.3d at 1486; see also, e.g., Acevedo-Garcia, 351 F.3d at 574; Copeland v. Merrill Lynch & Co., 47 F.3d 1415, 1423 (5th Cir. 1995). The Parklane Hosiery Court noted that in exercising its discretion, a

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12 In addition, defendant B.A.T. Industries was dismissed from the DOJ case well before trial for lack of personal jurisdiction, with that court finding in particular that there was no showing that “BAT Ind[ustries] participated in a RICO conspiracy either with the Defendants affiliated with it or with the non-affiliated Defendants.” U.S. v. Philip Morris, Inc., 116 F. Supp. 2d 116, 122 (D.D.C. 2000).

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court should take into account (among other things) concerns regarding judicial economy and fairness to defendants. 439 U.S. at 329.

Here, the DOJ decision will be appealed, and any later reversal in DOJ would require a reversal of any liability here if such liability is based on the DOJ court’s findings. Indeed, “{aJ judgment that has been vacated, reversed, or set aside on appeal is thereby deprived of all conclusive effect, both as res judicata and as collateral estoppeL” Jaffree v, Wallace, 1461, 1466 (11th Cir. 1988). Accordingly, “[aJ reversed or dismissed judgment cannot serve as the basis for a disposition on the ground of res judicata or collateral estoppel.” Ornellas v. Oakley, 618 F.2d 1351, 1356 (9th Cir. 1980); see also, e.g., South Carolina Nat’l Bank v. Atl. States Bankcard Ass’n, 896 F.2d 1421, 1430-31 (4th Cir. 1990); Wright & Miller, 18A Fed. Proc. & Prac. Juris. 2d § 4433, at 88 & n.18. Cognizant of the tenuous nature of a judgment that is pending appeal, the D.C. Circuit has cautioned that “care should be taken in dealing with judgments that are final, but still subject to direct review.” Martin, 830 F.2d at 264.

Any subsequent reversal on the issue of RICO liability would deprive the DOJ judgment of any conclusive effect and render it inappropriate to serve as the basis for collateral estoppel. And any partial reversal would likewise render certain findings inappropriate. See, e.g., In re Microsoft Corp. Antitrust Litig., 355 F.3d 322, 328-39 (4th Cir. 2004) (in applying collateral estoppel based on an appealed judgment, the court “must limit itself to those facts critical and necessary to the judgment actually affirmed”). For example, an appellate court might determine that, although defendants committed RICO violations, the DOJ court incorrectly determined the years during which the Enterprise existed. Such a finding would create significant problems, as certain findings would lose their preclusive effect as being no longer essential to the JJUJ judgment. See, e.g., United States v. Hussein, 178 F.3d 125, 129 (2d Cir. 1999). Permitting this

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case to proceed to trial without permitting defendants to litigate the existence of those issues in the Court’s August 18, 2006 order would threaten to waste massive amounts of time and resources. This fact further warrants the Court exercising its discretion and refusing to find collateral estoppel based on DOJ.13

At a minimum, because of these risks, should this Court be inclined to apply collateral estoppel, it should “defer consideration of the preclusion question until the appellate proceedings addressed to the prior judgment are concluded.” Martin, 830 F.2d at 264; see also, e.g., Wright & Miller, 18A Fed. Proc. & Prac. Juris. 2d §4433, n.18 (recommending that a court inclined to apply collateral estoppel based on a judgment subject to appeal should stay the case or defer its decision pending the appeal).

VII. The DOJ Decision Does Not Cure The Deficiencies In Plaintiffs Proofs

Finally, this Court should never reach the issue of collateral estoppel because the doctrine cannot cure the deficiencies in plaintiffs’ proofs or the deficiencies in their motion for class certification. As defendants have explained in moving for summary judgment and opposing class certification, plaintiffs have no means of establishing on a class-wide basis — as requested by the Court (over defendants’ objections) — the percentage of class members with valid claims. For example, plaintiffs offer no evidence of (1) the percentage of class members who believed the alleged misrepresentation and who relied on their allegedly mistaken belief in purchasing light cigarettes, 14 (2) the percentage of class members who failed to receive less tar and nicotine

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13 A reversal in DOJ is not a mere hypothetical. Indeed, the D.C. Circuit previously reversed the DOJ court’s conclusion that the Government could seek disgorgement under RICO. See United States v. Philip Morris USA Inc., 396 F.3d 1190 (D.C. Cir. 2005).

” See, e.g., Defs. Supp. Opp. at 7-21.

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from each light cigarette, 15 (3) the percentage of class members who suffered an “injury to business or property, ,16 and (4) the percentage of class members who did not have notice of their alleged injury before the statute-of-limitations period began in May 2000.17

DOJ does not address any of these issues and does not offer any determination of the percentage of class members with valid claims. Indeed, the Government in DOJ was not litigating on behalf of individual smokers. Rather, the Government merely sought equitable relief and therefore was not required to demonstrate that anyone was actually defrauded. See 18 U.S.C. § 1962, 1964.18 Again, it is axiomatic that only those “issues of fact or law necessary to a court’s judgment” are precluded by collateral estoppel. Alaska, 521 U.S. at 13 (emphasis in original); see also Parklane, 439 U.S. at 326 n.5; Hussein, 178 F.3d at 129; Tucker, 646 F.2d at 728; Geib, 798 F.2d at 44. The most critical issues in this case cannot meet this test — they were not necessary to the DOJ court’s judgment and thus cannot be the subject of collateral estoppeL

For example, the DOJ court did not determine whether an individual lights smoker had been defrauded, whether that individual relied upon that fraud, and whether that individual was injured. The DOJ court likewise offered no findings as to what percentage of putative class members here could establish all of these elements. As this Court has previously explained, it is these critical elements that are most crucial at this stage of these proceedings:

THE COURT: That’s been litigated over and over again. I don’t see that as a big problem. It’s not their knowledge. That’s your

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15 See, e.g., Defs. Supp. Opp. at 28-34.

16 See, e.g., Defs. Supp. Opp. at 35-41.

17 See, e.g., Defs. Supp. Opp. at 21-28.

18 The Government was precluded by operation of section 1964(a) from seeking monetary damages for injury to business or property. In particular, in a civil case the Government may only request equitable relief under section 1964(a), and only individual plaintiffs can seek treble damages under section 1964(c).

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big problem. It’s the knowledge, as I understand it, of your plaintiffs and what they thought and why they bought cigarettes.

Nov. 7, 2005 Hr’ g Tr. at 9-10. Because DOJ does not inform these issues, it cannot cure the deficiencies in plaintiffs’ proofs, and thus there is no need even to consider collateral estoppel.

CONCLUSION

For the foregoing reasons, defendants respectfully request that the Court decline to apply collateral estoppel based on DOJ.

Dated: September 8, 2006

Respectfully submitted,

ARNOLD & PORTER LLP

[signed] Murray R. Garnick (MG-2549)

Judith Bernstein-Gaeta

James M. Rosenthal

555 Twelfth Street, N.W.

Washington, D.C. 20004

(202) 942-5000

Attorneys for Defendant Philip Morris USA Inc.

and

On Behalf of All Counsel in Attached Appendix of Counsel

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APPENDIX OF COUNSEL

Theodore M. Grossman

Mark A. Belasic

JONES DAY

North Point

901 Lakeside Avenue

Cleveland, Ohio 44114-1190

(216) 586-3939

- and -

Todd R. Geremia (TG-4454)

Steven P. Harte (SH-8484)

JONES DAY

222 East 41St Street

New York, New York 10017-6702 (212) 326-3939

Attorneys for Defendant R.J. Reynolds Tobacco Co. and Defendant Brown & Williamson Tobacco Holdings (f/k/a/ Brown & Williamson Tobacco Corporation), individually and as successor by merger to The American Tobacco Company

Guy M. Struve (GMS-4506)

Frances Bivens

Matthew S. Stewart

DAVIS POLK & WARDWELL

450 Lexington Avenue

New York, New York 10017

(212) 450-4000

Attorneys for Defendant Altria Group, Inc.

Gregory M. Loss (GL-5953)

CHADBOURNE & PARKE LLP

30 Rockefeller Plaza

New York, New York 10112

(212) 408-5100

Attorneys for Defendant British American Tobacco (Investments) Limited

Alan Mansfield (AM-3266)

Stephen Saxl (SS-1028)

GREENBERG TRAURIG, LLP

200 Park Avenue, 29th Floor

New York, New York 10 166

(212) 801-9200

- and -

William L. Allinder

SHOOK, HARDY & BACON LLP

2555 Grand Boulevard

Kansas City, Missouri 64108-2613

(816) 474-6550

Attorneys for Defendant Lorillard Tobacco Company

David M. Bemick

KIRKLAND & ELLIS LLP

AON Building

200 East Randolph Drive

Chicago, Illinois 60601

(312) 861-2000

Attorneys for Defendant Philip Morris USA Inc.

Thomas Riley (TR- 1850)

CHADBOURNE & PARKE LLP

30 Rockefeller Plaza

New York, New York 10112

(212) 408-5100

Attorneys for Defendant B.A.T Industries p.l.c.

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