Whittling Down Tobacco Defendants: And Then There Were Three . . . or Four . . . or maybe a whole lot more . . .

December 23, 2010 11:45 pm by Gene Borio

Judge Kessler’s Order # 7 (below) offers a succinct precise of the issues addressed during Monday’s Status Hearing.

Now that the Supreme Court has upheld Kessler’s judgment, all that’s left in the tobacco case is to determine the specifics of Kessler’s Order #1015 “Final Judgment and Remedial Order” (Aug. 17, 2006 ). Not so simple; this issue has many forks, and each fork has many tines, including:

1. Who exactly is subject to the order now?

And then there were three . . .

Only Altria/Philip Morris, RJ Reynolds and Lorillard remain as definite defendants. Some subsidiaries may be named and added.

The big international issue is that BATCo refuses to abide by any part of Order #1015, and will file an argument that, in light of the Supreme Court’s ruling in Morrison v. National Australia Bank Ltd., last June, a securities fraud case against a foreign entity, it is not subject to US laws for any of its activities outside of the US, no matter their impact within the US.

The DOJ’s Status Report states,

Defendant British American Tobacco (Investments) Limited (“BATCo”) has not complied with several aspects of this Court’s order, including its obligation to pay the United States’ costs; create and provide public access to a document website; and other obligations. BATCo has notified the United States that it believes that there is currently not a “final decision” (as required for an appeal as of right), and that as a result, the Court’s injunction has no force as to BATCo (in part because it expects to argue at some point that the Court should reconsider its injunction in light of Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010)).

However, the United States respectfully submits that BATCo cannot simply exempt itself from this Court’s injunction. Accordingly, the government will file a motion to compel BATCo’s compliance in the near future. BATCo’s position is particularly ironic, given that it continues to withhold the Foyle Memorandum, which apparently helps demonstrate the extent of its willingness to subvert the legal process to protect its positions, including in the United States.

BATCo’s 11/24/2010 STATUS REPORT states,

BATCo is the only defendant that was found liable in this case based on the ’substantial direct effects on the United States’ of its foreign conduct; liability against the remaining defendants was grounded upon domestic conduct. As discussed in Section I.F of ‘Defendants’ Praecipe Regarding the Court’s August 12, 2010 Order,’ however, the D.C. Circuit’s decision permitting RICO to regulate ‘foreign activities’ with ’substantial, direct, and foreseeable effects’ has now been called into question by a subsequent Supreme Court decision, Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (June 24, 2010). Indeed, Morrison thoroughly invalidates the reasoning on which this Court (and the D.C. Circuit) expressly relied in concluding that RICO reached BATCo’s conduct outside the United States under the ‘effects’ test. While the government does not deny this result, it maintains that Morrison is irrelevant to the outcome of this case, relying on several alternative theories of liability that, in BATCo’s view, are not only legally invalid but are also waived because they were not preserved at trial.

“As detailed below, Morrison’s impact on this case from both a liability and remedial perspective,2 the legal validity (and adequacy of preservation) of the government’s new-found alternative theories for applying RICO to BATCo, and the question of whether the inclusion of BATCo’s foreign subsidiaries in a revised remedial order ’satisfies Rule 65(d)’ of the Federal Rules of Civil Procedure all ‘present matters of law only’ that ‘can be decided on the briefs without any kind of evidentiary hearing.’ See Order #5 at ¦ 3. For other remedial matters involving disputed factual issues, such as requirements for document coding and corrective statements, BATCo agrees with the other defendants that there is no need for any evidentiary hearings at this time, and that the Court should instead appoint a mediator/neutral in an effort to narrow or resolve the remaining differences between the parties.”

As to the companies’ subsidiaries: Altria has apparently informed the government of its relevant subsidiaries; Reynolds and Lorillard have agreed to name their subsidiaries depending on whether they relate to the business of cigarettes.

According to the DOJ’s 11/24/2010 Status Report:

“Defendant R.J. Reynolds opposes naming Reynolds American in the injunction or otherwise making it subject to the injunction. The Court’s determination may benefit from additional evidence as to the extent to which Reynolds American is involved in the manufacture, marketing, or sale of cigarettes.

“Yesterday counsel for R.J. Reynolds informed the government of the existence of R.J. Reynolds Tobacco C.V., a ’sister company’ of Defendant R.J. Reynolds incorporated in the Netherlands, and provided a lengthy agreement relating to this entity. The government is currently examining this new material.”

BATCo refuses to name subsidiaries. But the DOJ’s 11/24/2010 Status Report states,

“Some of BATCo’s prior wholly-owned subsidiaries, such as Brown & Williamson and British American Tobacco Australia Services, Ltd. (’BATAS’), went on to play crucial roles in the racketeering Enterprise—including activities that they engaged in after BATCo sold or transferred them, in whole or in part, to other BAT affiliates.”

2. The parties need to agree on the specifics of:

–Corrective statements and their placement in retail stores. DOJ has to provide concrete requests here; it is apparently market testing statements now.

–Document Coding, ie what fields should be required, and should they be applied to the millions documents already coded. A Special Master with expertise in technology will undoubtedly be retained to help deal with the incredibly difficult coding issue.

–The Minnesota Document Depository. The Depository, says Tobacco, is expensive to maintain, duplicative since the companies have the documents on their own sites, and besides–nobody uses it. DOJ strongly disagrees, especially since a recent report from the Univ. of Calif. found there were tens of thousands of documents in the depository that were not on company websites.

–Disaggregated Marketing Data. The specifics of the companies’ marketing data is reported to the FTC but, since it contains trade secrets, is not released to the public, or other Government departments. DOJ wants it released to other departments that have an interest in determining whether the companies are marketing to teens.










Civil Action No. 99-2496 (GK)


The Court held a lengthy Status Conference, as scheduled, on December 20, 2010. Based on the representations of Counsel and discussions about the future progress of this case, it is hereby

ORDERED, that, by consent of the Parties, Defendant Council for Tobacco Research-USA, Inc. and Defendant Tobacco Institute, Inc. are dismissed; and it is further

ORDERED, that the Government shall file its Motion to Compel BATCo to comply with Order #1015 by December 28, 2010; BATCo shall file its opposition by January 21, 2011; the Government shall file its reply by February 7, 2011; BATCo shall file its reply by February 21, 2011; the Government’s and BATCo’s opening briefs shall contain no more than 45 pages; and the Government’s and BATCo’s replies shall contain no more than 25 pages; and it is further

ORDERED, that, by consent of the parties, Brown and Williamson Holdings is deemed not to be a defendant and is therefore not subject to Order #1015; and it is further

ORDERED, that the Government shall continue preparation of its Corrective Statements and shall submit such Corrective Statements and related documents by February 3, 2011; Intervenors and Defendants shall respond to the Government’s submission by March 3, 2011; and it is further

Case 1:99-cv-02496-GK Document 5846 Filed 12/22/10

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ORDERED, that the Government shall file a Motion to Compel production of disaggregated marketing data by February 3, 2011; Intervenors and Defendants shall file oppositions to the Government’s motion by March 3, 2011; and the Government shall file a reply by March 13, 2011; and it is further

ORDERED, that, if there is to be any litigation regarding the Minnesota Depository-a subject discussed at some length at this Status Conference–Defendants must file an appropriate motion under Federal Rule of Civil Procedure 60(b); and it is further

ORDERED, that, as to the following issues, about which parties have been holding fruitful discussions, parties are to file a joint status report no later than February 3, 2011 regarding the degree to which they have reached agreement:

1. Which subsidiaries are covered by Order #1015;

2. Coding;

3. Whether only the Government may move to enforce the agreement;

4. Whether any other judge may enforce the agreement or whether only this Court may do so;

5. Point-of-sale displays; and

6. Mandatory meet-and-confer meetings; and it is further


Case 1:99-cv-02496-GK Document 5846 Filed 12/22/10

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ORDERED, that a further Status Conference is to be held on February 22, 2011, at 10:00 a.m.

December 22, 2010 /s/

Gladys Kessler

United States District Judge

Copies via ECF to all counsel of record


Case 1:99-cv-02496-GK Document 5846 Filed 12/22/10

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