“A stay pending appeal is an extraordinary remedy with a demanding burden placed upon the moving party. Defendants cannot meet that burden here, because none of the four factors that a court examines when considering a motion for a stay pending appeal favors any abeyance of this Court’s injunctive decree: first, issuance of a stay will substantially harm other parties, second, the public interest lies wholly with preventing death and disease caused by cigarette smoking; third, defendants are unlikely to prevail on the merits of their appeal in this case; and fourth, defendants have failed to identify any harm sufficient to tip the balance in their favor. As such, defendants’ motion for a stay pending appeal should be denied.”
Text follows of:
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 INC., et al.,
No. 99-CV-02496 (GK)
Next scheduled appearance: None Scheduled
UNITED STATES’ MEMORANDUM IN OPPOSITION TO CERTAIN DEFENDANTS’ MOTION TO STAY THE FINAL JUDGMENT AND REMEDIAL ORDER PENDING APPEAL
A stay pending appeal is an extraordinary remedy with a demanding burden placed upon the moving party. Defendants cannot meet that burden here, because none of the four factors that a court examines when considering a motion for a stay pending appeal favors any abeyance of this Court’s injunctive decree: first, issuance of a stay will substantially harm other parties, second, the public interest lies wholly with preventing death and disease caused by cigarette smoking; third, defendants are unlikely to prevail on the merits of their appeal in this case; and fourth, defendants have failed to identify any harm sufficient to tip the balance in their favor. As such, defendants’ motion for a stay pending appeal should be denied.
The Court has discretion to grant a stay of the final judgment and remedial order pending appeal pursuant to Federal Rule of Civil Procedure 62(c). A stay pending appeal is “always an extraordinary remedy.” Brotherhood of Ry. and S. S. Clerks, Freight Handlers, Exp. and Station Emp. v. National Mediation Bd., 374 F.2d 269, 275 (D.C. Cir. 1966) (stay denied). The party who makes a motion for stay pending appeal effectively asks the court “to delay the implementation of its decision until the court of appeals has had an opportunity to consider the validity of that ruling.” United States. v. Texas, 523 F. Supp. 703, 729 (E.D. Tex. 1981). “Since such an action interrupts the ordinary process of judicial review and postpones relief for the prevailing party at trial, the stay of an equitable order is an extraordinary device which should be sparingly granted.” Id.; Henderson v. Stalder, 281 F. Supp.2d 866, 870-71 (E.D. La. 2003); Philipp Bros., Inc. v. U.S., 640 F. Supp. 261, 265-66 (C.I.T. 1986); Dellums v. Smith, 577 F. Supp. 1456, 1457 (N.D. Cal. 1984) (“a disfavored remedy”).
On a motion for stay, the moving party is obliged “to justify the court’s exercise of such an extraordinary remedy.” Cuomo v. U.S. Nuclear Regulatory Comm’n, 772 F.2d 972, 978 (D.C. Cir. 1985). This heavy burden is on the moving party to demonstrate that the issuance of a stay pending appeal is warranted. Texas, 523 F. Supp. at 729; Larios v. Cox, 305 F. Supp.2d 1335, 1337 (N.D. Ga. 2004) (demanding burden is placed upon the moving party). In fact, the D.C. Circuit has criticized stays granted in cases involving appeals from non-monetary judgments. Omnioffices, Inc. v. Kaidanow, 201 F. Supp.2d 41, 43 (D.D.C. 2002) (citing FTC v. TRW, Inc., 628 F.2d 207, 210 n.3 (D.C. Cir. 1980)).
In exercising the discretion granted by Rule 62(c), the Court must weigh four factors: “(1) Has the appealing party made a strong showing that it is likely to prevail on the merits of its appeal?; (2) Has the appealing party shown that without a stay, it will be irreparably injured?; (3) Would the issuance of a stay substantially harm other parties interested in the proceedings?; and (4) Where lies the public interest?” Wash. Metro. Area Transit Comm’n v. Holiday Tours, Inc., 559 F.2d 841, 842-43 (D.C. Cir. 1977) (citing Virginia Petroleum Jobbers Ass’n v. Federal Power Comm’n, 259 F.2d 921, 925 (D.C. Cir. 1958)). These four factors interrelate on a sliding scale and must be balanced against each other. Davenport v. International Broth. of Teamsters, AFL-CIO, 166 F.3d 356, 360-61 (D.C. Cir. 1999); Serono Lab. v. Shalala, 158 F.3d 1313, 1318 (D.C. Cir. 1998); Mova Pharmaceutical Corp. v. Shalala, 140 F.3d 1060, 1066 (D.C. Cir. 1998) (“balances the litigant’s showings in these four areas”); Carabillo v. ULLICO Inc. Pension Plan and Trust, 355 F. Supp.2d 49, 53 (D.D.C. 2004) (“evaluate and balance the strengths of the movant’s arguments as to each of the four factors”); Omnioffices, Inc. v. Kaidanow, 201 F. Supp.2d 41 (D.D.C. 2002) (“balancing of the equities”); Nader v. Blackwell, 230 F.3d 833, 834 (6th Cir. 2000) (factors are not prerequisites but are “interrelated considerations that must be balanced together”).
In this instance, the public interest and the harm that would result to the public if defendants were granted a stay is significant enough to outweigh any of the other factors for the Court’s consideration. Together with the fact that defendants are unlikely to succeed on the merits, any potential harm to defendants is far outweighed. As such, defendants’ motion should be denied.
A. The Public Interest Weighs Heavily Against A Stay Pending Appeal
In this case, the substantial harm that will be inflicted on the American public if defendants are not immediately enjoined from future unlawful conduct outweighs all other factors. Indeed, the harm to the public – disease and death caused by Defendants’ unlawful actions – is irreparable. The Court should not permit Defendants to continue to engage in fraudulent activity related to the manufacturing, marketing, promotion, health consequences or sale of cigarettes during the pendency of their anticipated appeal, nor should defendants be permitted to escape the obligation to make corrective statements, provide document disclosure, and comply with the other equitable remedies imposed by the Court.
In considering the prospect of harm to others that would result from a stay, the Court tests that harm for substantiality, likelihood of occurrence, and adequacy of proof. Lightfoot v. District of Columbia, 2006 WL 175222, *9 (D.D.C. 2006); Cuomo, 772 F.2d at 977 (citing Wisconsin Gas Co. v. FERC, 758 F.2d 669, 674 (D.C. Cir. 1985)). These three elements – substantiality, likelihood of occurrence, and adequacy of proof – have already been analyzed, weighed, and confirmed in the Court’s 1653-page final opinion, entered after a nine-month trial. Among the substantial harms to the American public, the Court determined that:
[o]ver the course of more than 50 years, Defendants lied, misrepresented, and deceived the American public, including smokers and the young people they avidly sought as ‘replacement smokers,’ about the devastating health effects of smoking and environmental tobacco smoke, they suppressed research, they destroyed documents, they manipulated the use of nicotine so as to increase and perpetuate addiction, they distorted the truth about low tar and light cigarettes so as to discourage smokers from quitting, and they abused the legal system in order to achieve their goal – to make money with little, if any, regard for individual illness and suffering, soaring health costs, or the integrity of the legal system.
Final Op. at 1500-01. The harm to the American public if the stay is granted completely overshadows any injury to defendants if the stay is not granted, and for this reason, the requested stay should be denied. “Where the public interest, public welfare and the public health is a matter of concern in such litigation . . . no possible delay or obstruction should be permitted.” United States v. Nutrition Serv., Inc., 234 F. Supp. 578, 579 (D. Pa.1964), aff’d 347 F.2d 233 (3d Cir. 1965); see also SK & F, Co. v. Premo Pharmaceutical Labs., Inc., 481 F. Supp. 1184, 1190- 91 (D.N.J. 1979), aff’d 625 F.2d 1055 (3d Cir. 1980) (stay denied because “ [t]here should not be one patient exposed to the risk of being harmed” by the generic look-alike drug) (emphasis added). Likewise, granting a stay in the present case would be wholly contrary to the public interest. Extraordinary harm will be suffered by the public and other interested parties if a stay is granted and defendants are permitted to continue violating the law and attempting to deceive and mislead smokers and potential smokers, including young people.
Furthermore, defendants have made a feeble to non-existent argument regarding these two factors: (a) that a stay of the judgment will further the public interest, and (b) that a stay of judgment will not substantially harm others. Courts in the District of Columbia have held that, if the moving party makes a particularly weak showing on even one factor, “the other factors may not be enough to compensate.” Carabillo v. ULLICO Inc. Pension Plan and Trust, 355 F. Supp.2d 49, 53 (D.D.C. 2004); Dodd v. Fleming, 223 F. Supp.2d 15, 20 (D.D.C.2002) (citing Taylor v. Resolution Trust Corp., 56 F.3d 1497, 1507 (D.C. Cir. 1995), amended on other grounds, 66 F.3d 1226 (D.C.Cir.1995)).
Defendants simply maintain that the United States cannot show that defendants will violate RICO during the pendency of an appeal. This ignores the fact, however, that the United
States submitted a mountain of evidence during the trial of this matter that defendants, left unchecked, are likely to continue their fraudulent behavior. And this Court specifically held, as is explained in more detail below, that these defendants are likely to engage in future RICO violations. Final Op. at 1602-05. Defendants simply have no basis at this stage to maintain that they will be unable to commit RICO violations during a stay because “the public is overwhelmingly aware of the health risks of smoking and because defendants are already subject to the broad prohibitions against wrongful conduct outlined by the MSA,” Defendants’ Mem. at 24. The United States proved during the trial of this matter that most people – especially young people at the point of smoking initiation – have a deficient understanding of the risks associated with smoking. Final Op. at 1000-06. In particular, many people incorrectly perceive a lessened risk associated with smoking light or low tar cigarettes. Final Op. at 819-21. The United States likewise proved that the MSA, for a multitude of reasons, is insufficient to protect against defendants’ continuing fraudulent activity. Final Op. at 1610-13.
Defendants’ most brazen, and correspondingly most exposed, argument is that imposition of this Court’s remedial order “will likely have significant negative effects on the public.” Defendants’ Mem. at 24. Defendants catalog these supposed negative effects as an increase in the price of cigarettes and shifting market share from defendants to competitors who are not bound by the MSA or this Court’s rulings. First off, there is no evidence – other than defendants’ self interested protestations – that enforcement of this Court’s order will necessarily cause a rise in the price of cigarettes. And again, this Court has already dispensed with the contention that certain of the defendants’ obligations under the MSA sufficiently prohibit defendants from continuing their fraudulent practices. Of course, defendants’ argument that it should be relieved
of the dictates of this Order to prevent harm to the public that will result in shifting market share to competitors not subject to the dictates of this Order, is, in itself, nonsensical. Moreover, it implies that the public has an interest in buying cigarettes from defendants rather than manufacturers who have not been found liable for racketeering – an implication that was not and could not be borne out by the evidence. In short, to claim that this Court’s Order will create significant negative effects on the public in the face of this Court’s thoroughly reasoned, supported, and detailed 1653 page Opinion concluding that Defendants have “marketed and sold their lethal product with zeal, with deception, with a single-minded focus on their financial success, and without regard for the human tragedy or social costs that success exacted,” Final Op. at 4, is nothing short of insulting.
With respect to defendants’ argument that a stay is necessary to protect “other innocent persons such as defendants’ suppliers, distributors, other creditors, employees, and farmers,” Defendants’ Mem. at 25, it is important to note that defendants have not been enjoined from operating their businesses; the only remedies imposed are those intended to curtail defendants fraudulent conduct consisting of RICO violations. It is less than compelling, therefore, for defendants to argue that a stay of the order imposing those remedies is important and necessary so that defendants’ suppliers and distributors can continue to profit from defendants’ fraudulent conduct during the pendency of an appeal, while leaving other innocent parties, i.e., the general public, subject to defendants’ illegal conduct.
B. Defendants are Not Likely to Prevail on the Merits
Defendants argue that on appeal they are likely to prevail on four issues: specific intent, light/low tar descriptors, likelihood of future violations, and evidentiary hearing on
government’s proposed remedies. The moving party’s ability to demonstrate the existence of a serious legal question or likelihood of success on appeal becomes of even less consequence in light of the balance of the remaining three factors the Court must consider. Brown v. Artery Organization, Inc., 691 F. Supp. 1459, 1461 (D.D.C. 1987). In the present case, harm to the public and contravention of the public interest significantly tip the scale in favor of denying the motion for stay. However, even if this were not the case, defendants’ arguments related to the likelihood of success on the merits inevitably fail.
The standard governing appellate review of a district court’s findings of fact is that set forth in Federal Rule of Civil Procedure 52(a): “Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses.” Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573 (1985). The reviewing court may not undertake to duplicate the role of the lower court. Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 123 (1969) (“In applying the clearly erroneous standard to the findings of a district court sitting without a jury, appellate courts must constantly have in mind that their function is not to decide factual issues de novo.”) If the district court’s account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently. Anderson, 470 U.S. at 574. Where there are two permissible views of the evidence, the fact finder’s choice between them cannot be clearly erroneous. United States v. Yellow Cab Co., 338 U.S. 338, 342 (1949).
During the seven-year history of this complex case, millions of documents were exchanged; more than one thousand orders were entered; eighty-four witnesses testified live
during a trial which lasted approximately nine months. This Court spent over a year analyzing and weighing the testimony and related evidence, resulting in a thoroughly reasoned, fully supported 1653-page opinion.
With respect to the legal questions raised, defendants do no more than recite the same arguments they previously, unsuccessfully advanced. The burden of demonstrating the likelihood of success on the merits is a heavy one, and most movants find themselves unable to meet this standard. Wright, Miller & Kane, 11 Federal Practice & Procedure § 2904 (1995); see also David G. Knibs, Federal Court of Appeals Manual § 21.5 (4th ed. Supp. 2003) (recognizing that few district court judges would find the movant likely to prevail on the merits, as doing so would be ‘tantamount to conceding reversible error’).
As explained below, defendants fail to demonstrate the likelihood of prevailing on the merits of the four issues raised in their brief: (1) whether the Court applied the correct standard for specific intent; (2) whether the Court properly prohibited brand descriptors; (3) whether the Court improperly found that defendants are likely to commit future RICO violations; and (4) whether the Court imposed remedies without a hearing, thus violating defendants’ constitutional protections.
1. Specific Intent
Defendants argue that the correct standard for specific intent is whether “any single employee of any defendant actually harbored the specific intent to commit mail or wire fraud.” Defendants’ Mem. at 15. This Court rejected Defendants’ theory that “a corporate state of mind can only be established by looking at each individual corporate agent at the time s/he acted.”
Final Op. at 1580.1 The Court concluded that “[t]o do so would create an insurmountable burden for a plaintiff in corporate mail and wire fraud cases and frustrate the purposes of the statute.”
There is “every reason in public policy” why a corporation, which can only act through its agents and officers, and which profits by their actions, should be held liable when the totality of circumstances demonstrate that such corporation collectively knew what it was doing or saying was false, but did it or said it nevertheless, even if it is impossible to determine the state of mind of the individual agent or officer at the time. Indeed, if it were otherwise, Defendants could avoid liability by simply dividing up duties to ensure that fraudulent statements were only made by uninformed employees.
Final Op. at 1580-81. Instead, the Court ruled that “the specific intent required for liability under 18 U.S.C. §§ 1341 and 1343 is demonstrated by each Defendant’s public statements and representations, its collective knowledge and the collective knowledge of the Enterprise of which it was a part, and its willful disregard of that knowledge.” Final Op. at 1584. Defendants heavily rely on Saba v. Compagnie Nationale Air France, 78 F.3d 664 (D.C. Cir. 1996) to support their objection to the Court’s standard. The Court, however, embraced Saba in reasoning that because a company’s fraudulent intent may be inferred from all of the circumstantial evidence including the company’s collective knowledge (citing Saba v. Compagnie Nationale Air France, 78 F.3d 664, 668 (D.C. Cir. 1996)), the specific intent of individual Defendants and their employees could be inferred from the collective knowledge of each defendant company itself and the reckless disregard of that knowledge evidenced in statements made by, and on behalf of, each defendant company. Final Op. 1581-82 (citing United States v. Reid, 533 F.2d 1255, 1264 (D.C. Cir. 1976) (fraudulent intent may be inferred
1 Note that the Court likewise rejected “the theory of collective intent that the Government advocates – i.e., that aggregation of different states of minds of various corporate actors is sufficient to demonstrate specific intent in cases where individuals within a corporation make fraudulent statements.” Id.
from the modus operandi of the scheme); United States v. Alston, 609 F.2d 531, 538 (D.C. Cir. 1979) (fraudulent intent may be proven by inference from the totality of the circumstances); United States v. Sawyer, 85 F.3d 713, 733 (1st Cir. 1996) (by indirect or circumstantial evidence); United States v. Munoz, 233 F.3d 1117, 1136 (9th Cir. 2000) (intent standard satisfied by evidence establishing reckless disregard for truth or falsity of a statement, as well as willful blindness).
The Court’s Findings of Fact fully support its conclusion. The Court explicitly found the deliberate steps taken by defendants to protect, execute, and further the fraudulent scheme by making statements that they knew were not true. Most of the authors of the fraudulent statements alleged as Racketeering Acts were executives, including high level scientists at each of the defendant companies who would reasonably be expected to have knowledge of the company’s internal research, public positions, and long term strategies. The evidence in the record, including each defendant’s “purposeful and conscious actions taken in light of its collective knowledge, reveals a ‘cumulative pattern’ of decisions, actions, and inaction that is powerful circumstantial evidence of specific fraudulent intent.” Final Op. at 1582 (citing In re WorldCom, Inc. Sec. Litig., 352 F. Supp. 2d 472, 499 (S.D.N.Y. 2005)).
In addition, the Court found that specific intent to defraud was established by (1) the reckless disregard of defendants’ representatives for the truth of their public statements about the health effects of smoking, smoking and nicotine addiction, and other smoking and health issues, and (2) defendants’ active support, with both funding and manpower, of the numerous other bodies whose structures, functions, and activities were undertaken in furtherance of the fraudulent scheme. Final Op. at 1583. Given the Court’s reasoned analysis and supporting
detailed and specific findings of fact applied to its solid interpretation of the relevant case law and public policy considerations, defendants are not likely to prevail on the merits of its claim.
2. Prohibition on the Use of Descriptors
Defendants contend that they “have a substantial argument under well-established principles of law that RICO, as a general statute, should not apply to descriptors that are governed by a specific, statutorily-authorized regulatory scheme.” Defendants’ Mem. At 17. In its Final Opinion, this Court stated, “Defendants claim that prohibition of their deceptive use of descriptors would improperly invade the primary jurisdiction of the FTC,’ JD PFOF, ch. 13 ¶ 599, but ‘[t]he FTC does not impose, regulate, or require [descriptors]. How those terms are applied, and on which brands, is entirely up to the tobacco companies.’ Henningfield WD, 56:8- 11. Further, Defendants’ claim reiterates their previous argument that such relief is preempted by the FTC Act, an argument which the Court has already rejected. See United States v. Philip Morris, Inc., 263 F. Supp.2d 72, 74 (D.D.C. 2003).” Final Op. at 1632, n. 52. The Court denied defendants’ summary judgment motion with respect to preemption.
On summary judgment, the Court relied on the Supreme Court’s decision in FCC v. NextWave Personal Communications, Inc., 537 U.S. 293 (2003), holding that “when two statutes are capable of coexistence, it is the duty of the courts, absent a clearly expressed congressional intention to the contrary, to regard each as effective.” NextWave at 304. Each federal statute must be regarded as effective in the absence of “inherent conflict.” Id. The Court noted that “Defendants ignore the fact that RICO is a broad statute that often overlaps with more specifically targeted laws and regulations. Nevertheless, under Borden and NextWave, the relevant issue is not whether one of two overlapping statutes is more specific than the other, but
whether the statutes actually conflict.” United States v. Philip Morris, Inc., 263 F. Supp.2d at 77 (specifically distinguishing Radzanower v. Touche Ross & Co., 426 U.S. 148 (1976)). The Court went on to hold that RICO does not conflict with the FTCA or the FCLAA. Id. at 78-81. The Court continued that “Defendants advance the related claim that ‘the Court is literally being asked to impose liability for the companies’ adherence to FTC mandates’ regarding the disclosure of tar and nicotine yields. In fact, what the Government claims is that the Defendants knowingly misled consumers with advertisements that suggested, for example, that ‘light’ cigarettes were less hazardous. The specific advertisements which the Government claims were intentionally misleading, and which are the subject of these Motions, were certainly not mandated by the FTC.” Id. at 81 (internal citation omitted).
In support of their claim that there is a reasonable likelihood that they will prevail on the merits, defendants do not attack the reasoning employed by the Court, instead merely citing, in summary fashion, the same statutory construction cases presented to and rejected or distinguished by the Court on summary judgment. Nor do defendants refute the Court’s finding that the FTC does not impose, regulate, or require descriptors, but rather rely on several cases in markedly different procedural postures, analyzing, in most cases, whether various state statutes are preempted by federal law.
Defendants rely heavily on Watson v. Philip Morris Cos., 420 F.3d 852 (8th Cir. 2005). In Watson, however, there was no preemption analysis and the court explicitly “express[ed] no views on the merits.” Watson, 420 F.3d at 854. In fact, in Watson, the Eighth Circuit did nothing more than hold that the case was properly removed to federal court, based on 28 U.S.C.
§ 1442(a) (the “Federal Officer Removal Statute”)2. This preliminary procedural posture differs significantly from this case, in which the Court received extensive evidence on this subject during a nine-month trial. As the United States pointed out in its post-trial briefing, defendants called as a witness Joseph Mulholland, a longtime FTC employee, who rejected Defendants’ claim that the FTC has given special focus to cigarette advertising:
The Commission is charged by Congress with identifying deceptive and unfair acts and practices in all areas of intrastate [sic] commerce. Over the past approximately 60 years, the Commission has, at various times, conducted investigations and brought enforcement actions concerning the tobacco industry. The tobacco industry is simply one of the numerous types of commerce that the FTC has looked at over this period of time. To the best of my knowledge, the agency has never focused, nor at any given time have more than a handful of staff focused, on cigarette-related issues.
Mulholland WD, 5:7-18. In response to Defendants’ own questioning about the FTC’s approach to brand descriptors such as “light” and “lowered tar,” Mulholland confirmed that “the FTC has never taken an official position on the use of descriptors and has never defined or recognized the descriptors used by cigarette manufacturers in their advertisements.” Id. at 26:22-27:3. See also, JD005450 at 5189 (1969 FTC Report concluding that three separate FTC studies “amply demonstrate the futility in relying upon voluntary regulation of cigarette advertising to achieve any significant changes in the content and meaning of cigarette advertising”). It can hardly be disputed that the factual underpinning for this Court’s determination is far more developed than that in Watson.
2 The Watson court noted, “[i]n contrast to the district court’s decision in this case, every other district court confronted with tobacco companies alleging they were acting under a federal officer has remanded the case to state court. See Virden [v. Altria Group, Inc.,], 304 F.Supp.2d 832; Paldrmic v. Altrial Corp. Servs., 327 F.Supp.2d 959 (E.D.Wis. 2004); Tremblay v. Philip Morris, 231 F.Supp.2d 411 (D.N.H. 2002).” Id. at 857.
Moreover, defendants maintain that Watson stands for the proposition that the Eighth Circuit found “a conflict between claims challenging the use of descriptors and the FTC’s regulations because ‘[t]he very combination [plaintiffs] challenge as deceptive is the same combination the FTC requires to not be deceptive’.” Defendants’ Mem. At 17. That characterization of Watson is flatly wrong. The Eighth Circuit was neither analyzing, nor did it find, whether there was a conflict between the use of descriptors and the FTC’s regulations. Rather, the court looked at the scope and breadth of FTC regulation over Philip Morris’ labeling of cigarettes as lights, solely to determine whether the requirements for removal under the Federal Officer Removal Statute were met.
Defendants’ reliance on the other cited cases is likewise misplaced. In Flanagan v. Altria Group, Inc., No. 05-71697, 2005 WL 2769010 (E.D. Mich. Oct. 25, 2005), the Eastern District of Michigan analyzed Michigan law to determine whether a claim for deceptive marketing pursuant to the Michigan Consumer Protection Act (“MCPA”) was preempted by federal law. In finding preemption appropriate, the court held, “[i]n light of this authority, and especially in light of the Michigan courts’ liberal definition of ‘specifically authorized’ under the MCPA’s exemption provision, the Court finds that Defendants’ alleged conduct falls outside the reach of the MCPA.” Id. at *21. Similarly, in Sullivan v. Philip Morris USA, Inc., No. 03-796, 2005 WL 2123702 (W.D. La. Aug. 31, 2005), the Western District of Louisiana first analyzed whether plaintiffs’ Louisiana state law claims (redhibition, breach of express and implied warranties, and intentional misrepresentation) were preempted by the Federal Cigarette Labeling Act, 15 U.S.C. § 1334(b) (1969), finding that they were not. Next, the court considered whether plaintiffs’ state law claim pursuant to the Louisiana Unfair Trade Practices and Consumer Protection Act
(“LUTPCA”) were not actionable pursuant to an exemption clause of that statute which exempts from liability “any conduct that complies with section 5(a)(1) of the Federal Trade Commission Act. . .” (emphasis added). Again, in determining an issue solely of state law, the court distinguished this Court’s denial of summary judgment on preemption grounds, United States v. Philip Morris, Inc., 263 F. Supp.2d 72 (D.D.C. 2003), maintaining that “[n]either U.S. v. Philip Morris, Inc., nor Buckman addresses § 51:1406(4) of the LUTPA which expressly states that LUTPA does not apply to conduct if it is in compliance with § 5 of the FTCA.” Sullivan, 2005 WL 2123702 at *28. See also, Prado-Alvarez v. R.J. Reynolds, 313 F. Supp.2d 61 (D.P.R. 2004) (analyzing whether state law tort claims were preempted by federal law); Price v. Philip Morris, Inc., 848 N.E.2d 1 (Ill. 2005) (preemption analysis based solely on Illinois state law). These cases, all analyzing various state statutory provisions and applying varying standards pursuant to state law statutory schemes, are simply an inappropriate point of comparison to the issue of whether the United States’ RICO claims were preempted by the FTCA or the FCLAA.
Thus, defendants have failed to show they have a reasonable likelihood of prevailing on the merits of this claim.
3. Likelihood of Continuing RICO Violations
Again, defendants write their argument as if the trial never took place and the Court did not enter explicit findings of fact and conclusions of law on the issue of the likelihood of future RICO violations. Defendants simply maintain – as they did before and during the trial – that “the MSA, along with destroying the structure of the alleged enterprise, prohibits much of the conduct that this Court criticized in its Findings of Fact. See, e.g., MSA § III(r) (JD-045158) (prohibiting ‘material misrepresentation of fact regarding the health consequences of using any
Tobacco Product’). In light of the MSA the likelihood of future RICO violations is extremely low, if it even exists at all.” Defendants’ Mem. at 18.
Defendants ignore, however, that this Court concluded that the MSA simply does not prevent defendants from committing future RICO violations. The Court found that Defendants’ fraudulent conduct has continued in the face of or been adapted to circumvent the provisions of the MSA. More specifically, the Court found that, among other things, “Defendants’ assertions that, as a result of the MSA,, they are now new companies headed by changed management are simply not accurate. Wells TT, 9/22/04, 213:24, 220:17-21; Szymanczyk TT, 4/7/05, 18110:7- 10.” Final Op. at 1494, ¶ 4077. The Court also found that “Defendants have not lowered their total marketing and promotion expenditures in response to the MSA’s prohibition on billboard advertising and its restrictions on print advertising. To the contrary, they have both increased their marketing expenditures and shifted those increased expenditures toward price-based promotions. Dolan WD, 145:10-146:22; Krugman WD, 101:16-102:9.” Final Op. at 1497, ¶ 4083 (internal citation omitted). Moreover, the Court found that not only have defendants perpetually marketed their products to youth and vehemently denied doing so, but they have consistently continued these practices despite the existence of the MSA. See generally Final Op. at ¶¶ 2997, 2998, 3024, 3026, 3031, 3032, 3033, 3056, 3067, 3075, 3087, 3126, 3129, 3131, 3137, 3164, 3260, 3301, and 3302. Defendants simply do not address these findings.
In light of these findings, the Court concluded that the MSA has not sufficiently altered defendants’ conduct. The Court stated that “[a]s this Court has already noted: ‘In arguing that the MSA obviates the need for injunctive relief, Defendants implicitly ask the Court to make the following two assumptions: that Defendants have complied with and will continue to comply
with the terms of the MSA, and that the MSA has adequate enforcement mechanisms in the event of noncompliance.’ United States v. Philip Morris Inc., 116 F. Supp.2d at 149 (D.D.C. 2000). First, Defendants have not fully complied with the letter or spirit of the MSA.” Final Op. at 1610. After providing several examples of how defendants have thwarted the MSA, the Court continued, “[s]econd, the Court is unable to rely upon the states to vigorously enforce the MSA.” Final Op. at 1611. The Court detailed several reasons for its conclusion: (1) state enforcement of the MSA depends on resources that may not be adequately available; (2) the MSA provision that authorizes state attorneys general to inspect defendants’ books and interview personnel begins expiring this year; (3) mandatory consultation and discussion for every alleged violation of the MSA leads to time consuming enforcement efforts; and (4) two defendants – BATCo and Altria – are not subject to the provisions of the MSA. See Final Op. at 1611-13.
As a result, this Court concluded that there is a likelihood of present and future violations of RICO. The Court held that
[f]or the Court to enter injunctive remedies, there need only be a reasonable likelihood that the unlawful conduct set in motion by the conspirators will continue. The evidence in this case clearly establishes that Defendants have not ceased engaging in unlawful activity. Even after the Complaint in this action was filed in September, 1999, Defendants continued to engage in conduct that is materially indistinguishable from their previous actions, activity that continues to this day. For example, most Defendants continue to fraudulently deny the adverse health effects of secondhand smoke which they recognize internally; all Defendants continue to market “low tar” cigarettes to consumers seeking to reduce their health risks or quit; all Defendants continue to fraudulently deny that they manipulate the nicotine delivery of their cigarettes in order to create and sustain addiction; some Defendants continue to deny that they market to youth in publications with significant youth readership and with imagery that targets youth; and some Defendants continue to suppress and conceal information which might undermine their public or litigation positions. See generally Findings of Fact Section V. Significantly, their conduct continues to further the objectives of the overarching scheme to defraud, which began by at least 1953. Their continuing conduct misleads consumers in order to maximize Defendants’
revenues by recruiting new smokers (the majority of whom are under the age of 18), preventing current smokers from quitting, and thereby sustaining the industry. As Defendants’ senior executives took the witness stand at trial, one after another, it became exceedingly clear that these Defendants have not, as they claim, ceased their wrongdoing or, as they argued throughout the trial, undertaken fundamental or permanent institutional change.
Final Op. at 1604-05.
In analyzing this issue, the Court recognized that
To determine whether there is a “reasonable likelihood” of future violations, the following factors must be considered: “ whether a defendant’s violation was isolated or part of a pattern,  whether the violation was flagrant and deliberate or merely technical in nature, and  whether the defendant’s business will present opportunities to violate the law in the future.” [SEC v. First City Financial Corp., 890 F.2d 1215, 1228 (D.C. Cir. 1989)] (citing Savoy Indus., 587 F.2d at 1168); Bilzerian, 29 F.3d at 695. None of these three factors is determinative; rather, “the district court should determine the propensity for future violations based on the totality of circumstances.” First City, 890 F.2d at 1228 (citing SEC v. Youmans, 729 F.2d 413, 415 (6th Cir. 1984).
Final Op. at 1602 (quoting U.S. v. Philip Morris, 116 F. Supp.2d at 148). The Court did a thorough analysis of the totality of the circumstances, including credibility determinations made during the presentation of evidence, and concluded, based on specific and detailed findings of fact, that
[t]he Findings of Fact demonstrate that Defendants’ conduct “overwhelmingly satisfied each of the [D.C. Circuit’s] three First City factors.” First City, 890 F.2d at 1228. First, Defendants’ RICO violations were not “isolated.” On the contrary, the Findings of Fact describes more than 100 predicate acts spanning more than a half-century. Second, Defendants’ RICO violations were not “technical in nature.” As discussed above, Defendants’ numerous misstatements and acts of concealment and deception were made intentionally and deliberately, rather than accidentally or negligently, as part of a multi-faceted, sophisticated scheme to defraud. Third, as this Court has already found, Defendants’ business of manufacturing, selling and marketing tobacco products “present[s] opportunities to violate the law in the future.” Philip Morris, 116 F. Supp.2d at 149 (alteration in original).
Final Op. at 1603.
Thus, given the Court’s adherence to well settled law and its detailed findings of fact supporting its legal conclusion that there is a reasonable likelihood that defendants’ violations of RICO will continue in the future, and defendants’ failure to legitimately contest these findings and conclusions, there is little likelihood that defendants will prevail on the merits of this claim.
4. Evidentiary Hearing on Remedies
Defendants argue that the Court, by imposing remedies in this action, violated the dictate of United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001). Defendants not only misconstrue the holding of Microsoft, but wholly fictionalize the process by which remedies in this case were litigated. As such, defendants are unlikely to prevail on the merits of this claim.
In Microsoft, the D.C. Circuit held that “the District Court erred when it resolved the parties’ remedies-phase factual disputes by consulting only the evidence introduced during trial and plaintiffs’ remedies phase submissions, without considering the evidence Microsoft sought to introduce. U.S. v. Microsoft Corp., 253 F.3d at 103. Notably, in that instance, the trial court denied Microsoft the ability to present and contest evidence in the face of factual disputes on remedies. The Court of Appeals did nothing more than prohibit such a blanket denial of Microsoft’s right to be heard. In a completely different situation, here, the parties fully briefed issues related to the remedies sought by the United States (only some of which were eventually imposed by the Court), defendants deposed remedy-specific witnesses, were afforded significant document discovery specifically related to remedies issues, and had a full contested trial on remedies. If defendants failed to present evidence or effectively dispute evidence presented by the United States during the remedies portion of the trial, they cannot now be heard to complain
that their failure is somehow tantamount to a deprivation of their right to be heard, warranting reversal of the Court’s order.
Similarly, defendants’ contention that “the Order imposes remedies not previously sought,” Defendants’ Mem. at 19, is blatantly false. Defendants had notice of each of the remedies imposed in this Court’s order throughout the course of the remedies phase of trial.
Each of the remedies were subject to discovery by defendants, and presented in the direct testimony of various United States’ witnesses.3 Defendants, of course, had the opportunity – and
3 The United States first gave notice to defendants as to what remedies it was seeking in United States’ Responses to Joint Defendants’ Fourth Set of Continuing Interrogatories to Plaintiff, dated December 14, 2001 (“U.S. Response to Fourth Set of Interrogatories”). Among other remedies, the United States gave notice that it sought (a) general injunctive relief enjoining defendants from continuing their racketeering activity and making deceptive statements in violation of RICO, U.S. Response to Fourth Set of Interrogatories, at 2; (b) general document disclosure, U.S. Response to Fourth Set of Interrogatories, at 12, 23, 41; (c) prohibition on the use of descriptors, such as “light” and “low tar,” U.S. Response to Fourth Set of Interrogatories, at 14; and (d) imposition of corrective statements by defendants, U.S. Response to Fourth Set of Interrogatories, at 43. Moreover, pursuant to the Written Direct testimony of Dr. Michael Eriksen during the remedies portion of the trial, defendants received further notice of the remedies sought by the United States. Dr. Eriksen opined on the need for, among other remedies, (a) corrective communications, Eriksen WD, at 11, 23; (b) disclosure of disaggragated marketing data, Eriksen WD, at 11-20; (c) prohibition on the use of “light” and “low tar” descriptors*, Eriksen WD, at 22-23; and (d) document disclosure, Eriksen WD, at 23- 24. Defendants had the opportunity to and did cross-examine Dr. Eriksen about these remedies during his testimony in the remedial phase of the trial. See, Trial Tr. at 21101 - 21131 (corrective communications); 21131 - 21139 (disclosure of disaggragated marketing data); 21139 - 21141 (document disclosure); and 21227 - 21232 (use of “light” descriptors).
*Although this testimony eventually was excluded by the Court, see Order 973, it nevertheless served to provide defendants notice that the United States sought a prohibition on the use of “light” and “low tar” descriptors. Moreover, throughout the trial, the United States presented a massive amount of evidence that defendants intentionally misled consumers by using “light” and “low tar” descriptors. By way of example, see generally the testimony of Dr. David Burns, Dr. Jack Henningfield, Dr. William Farone, Dr. Robert Dolan. See also U.S. 58700 (NCI Monograph 13, concluding that descriptors are inherently deceptive); U.S. 86658 (World Health Organization Scientific Advisory Committee on Tobacco, concluding that descriptors are inherently misleading and should be banned).
did – cross-examine the United States’ witnesses, as well as to call its own witnesses to refute the specific remedies proposed.
Significantly, this Court held that
Defendants argue that they were not given sufficient notice of the remedies the Government requests. As the circuit courts have held, however, “surprise alone is not a sufficient basis for appellate reversal; appellant must also show that the procedures followed resulted in prejudice.” Socialist Workers Party v. Illinois State Bd. Of Elections, 566 F.2d 586, 587 (7th Cir. 1977) (finding that fair notice was given where appellants received a brief from opponent seeking injunctive relief and where more formal notice would not have provided defendants with greater opportunity to alter the result); see also United States v. Microsoft, 253 F.3d 34, 103 (D.C. Cir. 2001) (finding that fair notice was not given where defendants were denied a “basic procedural right to have disputed facts resolved through an evidentiary hearing”). Where injunctive relief is sought, both parties must be given an opportunity to have a remedies hearing. See generally Fed. R. Civ. P. 65. In Microsoft the court failed to allow defendants a hearing on remedies, despite their repeated requests. By stark contrast, in this action, Defendants received the Government’s proposed remedies almost two months before the remedies trial and had an additional twelve days after the conclusion of the liability phase to prepare for the remedies phase. Defendants participated in a fourteen day remedies trial which was fully briefed, and at which thirteen witnesses testified. They had a full opportunity to cross-examine all Government witnesses. Moreover, Defendants point to no specific witness they were unable to cross-examine and no substantive area of testimony they were unable to rebut because of the alleged lack of notice. Accordingly, the Government’s remedies requests do not abrogate Defendants procedural rights.
Final Op. at 1627-28. Based on the demonstrably adequate notice and full evidentiary hearing afforded defendants on issues related to the remedies, it is not likely that Defendants will prevail on the merits of this claim.
C. Defendants’ Claimed Irreparable Harm Does Not Tip the Balance in Favor of Granting a Stay
As has been demonstrated, because of the enormous public interest in the health and lives of the American public associated with instituting the Court’s remedial order and defendants’ failure to demonstrate a likelihood that it will prevail on the merits, the balance of equities tips
heavily in favor of denying defendants’ motion for a stay pending appeal. Defendants have not shown that they will suffer irreparable harm significant enough to upset this balance. Despite the harm claimed by defendants, in light of the substantial and specific findings of fact that defendants engaged in a 50 year concerted fraud to deceive the public about the overwhelmingly destructive health effects of their product for their own financial advancement, without regard for the enormous cost to individuals and society as a whole, those claims simply do not warrant a stay of remedial provisions intended to address their ongoing deception. Jordan v. Evans, 355 F. Supp.2d 72, 82 (D.D.C. 2004) (citing Virginia Petroleum Jobbers Ass’n v. FPC, 259 F.2d 921, 925 (D.C. Cir. 1958) (per curiam)) (“mere injuries, however substantial, in terms of money, time and energy” were not sufficient to justify a stay of judgment).
Defendants have not claimed, nor can they claim, that the remedial actions ordered by the Court will result in the complete destruction of their business. See Lightfoot v. District of Columbia, 2006 WL 175222, *7-8 (D.D.C. 2006) (citing Wisconsin Gas Co. v. FERC 758 F.2d 669, 673-74 (D.C. Cir. 1985), cert. denied, 476 U.S. 1114 (1986)); WMATC v. Holiday Tours, 559 F.2d at 843 n.3) (complete destruction of business constitutes “severe economic impact”); see also Varicon Int’l v. Office of Personnel Mgmt., 934 F.Supp. 440, 447-48 (D.D.C. 1996) (finding no irreparable harm due to lost contract where movant’s revenue would decline by 10%); Bristol-Myers Squibb Co. v. Shalala, 923 F. Supp. 212, 220-21 (D.D.C. 1996) (finding no irreparable harm where movant would lose $80 million dollars, less than 1% of its total sales); TGS Tech., Inc. v. United States, Civ. No. 92-0062, 1992 U.S. Dist. LEXIS 195, at *10 (D.D.C. Jan. 14, 1992) (finding no irreparable harm where lost contract constituted 20% of movant’s business); Gulf Oil Corp. v. Dept. of Energy, 514 F.Supp. 1019, 1026 (D.D.C. 1981) (finding no
irreparable harm where lost contracts accounted for only 2.7% of its total business); accord Power Mobility Coalition v. Leavitt, 404 F.Supp.2d 190, 204 (D.D.C. 2005) (only economic loss that threatens the survival of a movant’s business amounts to irreparable harm). To the contrary, defendants will survive and continue to “profit from selling a highly addictive product which causes diseases that lead to a staggering number of deaths per year, an immeasurable amount of human suffering and economic loss, and a profound burden on our national health care system.” Final Op. at 3-4.
The declarations filed in support of defendants’ motion for a stay do not provide justification for a stay, but rather make clear defendants’ inability to show requisite harm enough to tip the balance of equities in favor of granting a stay. Throughout all of the supporting declarations filed by defendants runs the theme that defendants’ cost of implementing the remedial provisions is so great as to establish irreparable harm enough to warrant a stay pending appeal. By way of example, see, e.g., Declaration of David Beran, Executive Vice President of Finance, Planning and Information of Philip Morris USA Inc. (“Beran Dec.”) at ¶ 16 ($35 million estimate to comply with ban on descriptors); ¶ 26 ($30 million estimate to comply with requirement to disseminate corrective statements via package onserts); ¶ 29 ($2.1 million estimate to run corrective statements in newspaper ads); ¶ 30 ($2.9 million estimate to run corrective statements in television ads); ¶ 36 ($100 million estimate to display corrective statements in retail locations); Declaration of Randy B. Spell, Executive Vice President of Marketing and Sales for Lorillard Tobacco Company (“Spell Dec.”) at ¶ 4 ($750 thousand estimate to display corrective statements in retail locations); ¶ 5 ($1.9 million estimate to remove from retail locations point of sale materials containing descriptors); ¶ 5 ($1.7 million estimate to
replace at retail locations point of sale materials); ¶9 ($3.66 million estimate to run corrective statements in television ads); ¶ 10 ($2.7 million estimate to run corrective statements in newspaper ads); Declaration of J. Brice O’Brien, Senior Vice President – Consumer Marketing of R.J. Reynolds Tobacco Company (“O’Brien Dec.”) at ¶ 30 ($125 million total estimate to comply with remedial provisions of order). Without regard for the accuracy or legitimacy of these estimates, objectively, these may be substantial sums of money. Defendants’ claims of irreparable injury, however, must be considered in light of the facts of this case. The Court made several specific findings of fact about the defendants’ annual expenditures on marketing and promotion. To wit, the Court found that:
From 1998 to 1999, Defendants’ total advertising and promotional expenditures rose 22.3% to $8.24 billion, the highest ever reported to the FTC by the cigarette companies. Id. Defendants’ marketing spending rose from $6.6 billion in 1994 to almost $12 billion in 2001. Dolan WD, 61:15-16.
Final Op. at 1122;
Philip Morris’s marketing spending increased significantly in every year from 1998 to 2002. Its 1997 budget for total spending, including advertising, events, price, direct mail, point of sale materials, and all other marketing activities was $1.6 billion, while its total spending in 2002 was projected to more than triple to $5 billion. 2085298135-8136 (US 25253); LeVan PD, United States v. Philip Morris, 6/25/02, 73:4-75:1.
Final Op. at 1123;
According to David Beran, Executive Vice President of Strategy, Communications and Consumer Contact for Philip Morris, in 2004, Philip Morris’s marketing expenditures were $6.56 billion, of which $5.587 billion was for price promotions, and $252.1 million was for product promotions. Beran TT, 4/18/05, 19417:17-19418:1 (Confidential — Under Seal). The large majority of Philip Morris’s marketing funds are for promotional activities which occur at retail locations. Beran WD, 15; 2085298135-8136 (US 25253); Beran TT, 4/18/05, 19273:10-17, 19274:5-10. The large jump in Philip Morris marketing expenditures in the recent past is attributable to increases in price and product promotion. Beran TT, 4/18/05, 19274:11-25.
Final Op. at 1123;
Defendants have engaged in a large post-MSA spending increase on various forms of promotion at the retail level. In 2000, tobacco companies spent $9.57 billion dollars to market their products, the overwhelming majority of which was spent on marketing aimed at retail locations such as convenience stores. In those retail locations in 2000, tobacco companies spent $4.26 billion on point of sale advertising (e.g., in-store signs) and promotional allowances (payments to retailers for prime shelf space and in-store displays, as well as volume discounts and buydowns or rebates) and $3.52 billion on retail value added items such as purchase-related gifts and multi-pack discounts. Combining the figures for point of sale advertising and promotional allowances, tobacco companies spent approximately 81.2% of their marketing expenditures at retail locations. Chaloupka WD, 73:16-91:7.
Final Op. at 1155. Thus, the estimates provided by defendants to comply with the remedial provisions of this Court’s order pale in comparison to the gargantuan size marketing and promotion budgets of defendants, and in particular the huge sums of money already being spent on in-store retail marketing. As such, defendants have not shown irreparable injury sufficient to tip the balance in favor of a stay.
Moreover, defendants’ supporting declarations are replete with vagaries and speculative claims of harm. See, e.g., Beran Dec. at ¶ 7 (prohibition on brand descriptors “will be costly to implement and will likely result in some loss of PM USA’s market share”) (emphasis added); ¶ 17 (“the ban on these descriptors may negatively impact PM USA’s market share. These Courtordered changes to PM USA’s packaging, and the consumer confusion and erosion of brand equity that may ensue, may, in and of itself, contribute to the loss of PM USA’s share of this market segment. This impact may be ongoing. . .”) (emphasis added); Spell Dec. at ¶ 7 (with respect to the ban on descriptors, “[i]t is reasonable to assume under those circumstances that Lorillard will lose some of its existing customers”) (emphasis added); O’Brien Dec. at ¶ 30 (points out that “the loss of a single market share point will represent the loss of over $100
million annually in income to Reynolds,” but does not aver beyond conjecture that Reynolds will lose a market share point); Affidavit of Murray Gilliland Charles Anderson, Company Secretary of BATCo (“Anderson Aff.”) at ¶ 5 (the ban on descriptors “will likely cause BATCo to lose vital market shares – to its competitors which are not parties to the present action – in those markets where BATCo manufactures cigarettes for sale with such descriptors. Once lost, BATCo might never be able to regain these shares.”) (emphasis added).
These self-serving statements of potential harm are simply too equivocal to warrant a stay in the face of the clear and weighty interest of the public disfavoring a stay and defendants’ failure to show a likelihood of prevailing on the merits. Courts in this circuit have held that “if a party makes no showing of irreparable injury, the court may deny the motion for injunctive relief without considering the other factors.” CityFed Financial Corp. v. OTS, 58 F.3d 738, 747 (D.C. Cir.1995) (cited in Dodd v. Fleming, 223 F. Supp.2d 15, 20 (D.D.C. 2002) and Carabillo, 355 F. Supp.2d at 53). Where, as here, the other factors weigh heavily against defendants’ claim of irreparable injury, the Court should deny their motion for a stay.
Defendants have failed to establish that they have a substantial case on the merits and have further failed to demonstrate that the balance of equities or the public interest strongly favors the granting of a stay. For these reasons, the United States requests that the Court deny Defendants’ motion for stay.
Dated: September 12, 2006
PETER D. KEISLER
Assistant Attorney General
/s/ Stuart Schiffer
Deputy Assistant Attorney General
/s/ Linda M. McMahon
LINDA M. McMAHON
(DC Bar No. 446130)
/s/ Mary Jo Moltzen
MARY JO MOLTZEN
United States Department of Justice
Post Office Box 14524
Ben Franklin Station
Washington, DC 20044-4524
Attorneys for Plaintiff
United States of America