6143 - STATEMENT OF POINTS AND AUTHORITIES IN SUPPORT OF UNOPPOSED MOTION FOR AN ORDER AUTHORIZING TRANSFER OF CERTAIN CIGARETTE BRANDS AND BUSINESSES TO ITG BRANDS, LLC 4/30/15

May 11, 2015 1:28 pm by Gene Borio

The PDF is Here

EXCERPT:

This Court’s Final Judgment and Remedial Order, Order #1015, allows a defendant to transfer cigarette brands and businesses to a non-defendant when the entity acquiring the assets “submits itself to the jurisdiction of the Court” and “applies for and obtains” an order from the Court “subjecting it to the provisions” of Order #1015 as of the date of transfer. Non-party ITG Brands, LLC (“ITG Brands”) seeks to acquire certain cigarette brands and businesses from two defendants. Accordingly ITG Brands seeks an order permitting it and two of its U.S. affiliates to submit to this Court’s jurisdiction . . .

The moving parties have met and conferred with plaintiffs, the United States and Intervenors, regarding their motion. Plaintiffs have authorized the moving parties to state that plaintiffs do not oppose the motion or the relief requested. The moving parties are also authorized to state that defendants Altria Group Inc. and Philip Morris U.S.A., Inc. do not oppose the motion or the relief requested.

The moving parties also respectfully request expedited consideration of their motion and related pleadings.

END EXCERPT

FULL TEXT:

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 1 of 20

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA,

Plaintiff,

and

TOBACCO-FREE KIDS ACTION FUND, et al.

Plaintiff-Intervenors,

v.

PHILIP MORRIS USA, INC., et al., Defendants,

and

ITG BRANDS, LLC, COMMONWEALTH BRANDS, INC., AND COMMONWEALTH-ALTADIS, INC.,

(Proposed) Post-Judgment Parties Regarding Remedies.

Civil Action No.: 99-2496 (GK)

STATEMENT OF POINTS AND AUTHORITIES IN SUPPORT OF UNOPPOSED MOTION FOR AN ORDER AUTHORIZING TRANSFER OF CERTAIN CIGARETTE BRANDS AND BUSINESSES TO ITG BRANDS, LLC, PURSUANT TO ORDER #1015

This Court’s Final Judgment and Remedial Order, Order #1015, allows a defendant to transfer cigarette brands and businesses to a non-defendant when the entity acquiring the assets “submits itself to the jurisdiction of the Court” and “applies for and obtains” an order from the Court “subjecting it to the provisions” of Order #1015 as of the date of transfer. Order #1015, §

IV.20. Non-party ITG Brands, LLC (“ITG Brands”) seeks to acquire certain cigarette brands 1

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 2 of 20

and businesses from two defendants. Accordingly ITG Brands seeks an order permitting it and two of its U.S. affiliates to submit to this Court’s jurisdiction, to become subject to certain provisions of Order #1015 and subsequent orders supplementing and modifying it (collectively “Order #1015”), and to become parties to the litigation for the sole and limited purpose of compliance with Order #1015. Defendants R.J. Reynolds Tobacco Company (“RJRT”) and Lorillard Tobacco Company (“Lorillard Tobacco”) also move, along with ITG Brands, for an order authorizing the proposed transfer of the cigarette brands and businesses to ITG Brands.

The moving parties have met and conferred with plaintiffs, the United States and Intervenors, regarding their motion. Plaintiffs have authorized the moving parties to state that plaintiffs do not oppose the motion or the relief requested. The moving parties are also authorized to state that defendants Altria Group Inc. and Philip Morris U.S.A., Inc. do not oppose the motion or the relief requested.

The moving parties also respectfully request expedited consideration of their motion and related pleadings. The moving parties are not requesting a hearing. If the Court feels that a hearing is necessary, all parties have authorized the moving parties to represent that they will make themselves available at the Court’s earliest possible convenience. Plaintiffs and defendants Altria Group Inc. and Philip Morris U.S.A., Inc. have authorized the moving parties to inform the Court that they do not oppose the request for expedition.

I. RELEVANT FACTS AND BACKGROUND

A. Introduction

In July 2014, Reynolds American, Inc. (“RAI”), the indirect parent company of defendant RJRT, entered into an agreement with Lorillard, Inc. (“Lorillard”), the parent company of defendant Lorillard Tobacco, under which Lorillard will merge with and into a subsidiary of

2

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 3 of 20

RAI. A copy of the Merger Agreement is attached as Exhibit 1, and a detailed description of the merger mechanics and its practical consequences for defendants RJRT and Lorillard Tobacco is contained in the Notice of Transaction Involving Defendants R.J. Reynolds Tobacco Company and Lorillard Tobacco Company filed April 7, 2015 (Dkt. No. 6141). In conjunction with this merger, RAI and ITG Brands entered into an agreement whereby, following the closing of the merger agreement, RAI’s subsidiaries will sell certain cigarette brands and other assets to ITG Brands. A copy of the Asset Purchase Agreement (“APA”) relating to that transaction is attached as Exhibit 2.

Pursuant to the APA, ITG Brands will acquire the Winston, Kool, and Salem cigarette brands manufactured by RJRT, along with associated intellectual property and the inventory and assets necessary to manufacture and sell those brands. APA § 2.01.1 ITG Brands will also acquire the Maverick cigarette brand manufactured by Lorillard Tobacco with associated intellectual property and the inventory and assets necessary to manufacture and sell that brand. Id. § 2.01. Collectively, the Winston, Salem, Kool, Maverick, and Doral (if Doral is part of the acquisition) cigarette brands are called the “Acquired Brands” in the motion papers and proposed unopposed Order.

In connection with this transaction, Lorillard and ITG Brands entered into an agreement whereby, immediately prior to the closing of the merger agreement, Lorillard and its subsidiaries will transfer Lorillard Tobacco’s current manufacturing facility in Greensboro, North Carolina and certain other assets to ITG Brands. A copy of the Transfer Agreement is attached as Exhibit I to the APA. Along with the Acquired Brands, therefore, ITG Brands will also acquire Lorillard Tobacco’s manufacturing operation and other facilities in Greensboro, North Carolina, along

1 ITG Brands may acquire RJRT’s Doral cigarette brand as well, if the combined market share of the other three brands is lower than 4.9% for the three months before closing. Id. § 2.05.

3

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 4 of 20

with Lorillard Tobacco’s existing infrastructure. ITG Brands will continue to employ most of Lorillard Tobacco’s employees and assume all contracts necessary to operate the transferred businesses. Id. In connection with the transaction, during a transition period of approximately eighteen months, RJRT will continue manufacturing the Winston, Salem, and Kool (and, if applicable, Doral) brands for ITG Brands, while ITG Brands will manufacture the Kent, Newport, Old Gold, and True brands for RJRT in the Greensboro facility. Id. Ex. G, § 6.11.

ITG Brands will pay $7.1 billion for the Acquired Brands, manufacturing facility, and other significant assets described above. The shareholders of RAI, Lorillard, and ITG Brands’s ultimate parent company, Imperial Tobacco Group PLC, all approved the transaction on January 28, 2015. See Press Releases, attached as Exhibits 5, 6, and 7. The transaction is awaiting approval from the Federal Trade Commission (“FTC”).

B. ITG Brands and this Court’s Order #1015 ITG Brands was formed in 1986 under the name Lignum-2, Inc. Affidavit of Rob Wilkey dated April 29, 2015 (“Wilkey Aff.”), attached as Exhibit 3, ¶ 3; Name Change Documents attached as Exhibit 4. ITG Brands is now a Texas limited liability company headquartered in Fort Lauderdale, Florida. Wilkey Aff. ¶ 4. Its ultimate parent company is Imperial Tobacco Group PLC, a U.K. company that is the fourth-largest tobacco company in the world. Id. . ITG Brands, under its current name and previously as Lignum-2, has sold cigarettes in the U.S. since its formation in 1986. It has been a party to the Master Settlement Agreement (“MSA”) since February 1999, and has never been sued by any state for violations of the MSA’s conduct restrictions or for any conduct similar to that alleged against defendants in this action. Id. ¶ 18. ITG Brands currently owns one cigarette brand, Rave. Id.¶ 4.

4

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 5 of 20

ITG Brands has two affiliates in the U.S. that are also involved in the cigarette business, Commonwealth Brands, Inc. (“Commonwealth”) and Commonwealth-Altadis, Inc. (“Commonwealth-Altadis”). Commonwealth manufactures several brands of cigarettes, with its largest brand by market share being USA Gold. It also contract manufactures ITG Brands’s current brand, Rave, for ITG Brands. Commonwealth-Altadis provides operational services to Commonwealth and also provides such services to ITG Brands for Rave. Id. ¶ 6. Commonwealth has also been an MSA participant since 1998, and has not been sued by any state for violations of the MSA’s conduct restrictions or for any conduct similar to that alleged against defendants in this action. Id. ¶ 19. There are currently no other affiliates of ITG Brands, Commonwealth, or Commonwealth-Altadis that perform any functions covered by the requirements of Order #1015 related to cigarettes sold in the United States. Id. ¶ 14,

After the transfer, ITG Brands will own cigarette brands constituting just over seven percent of the U.S. cigarette market and will be the third-largest cigarette company in the U.S. by market share. Id. ¶ 10. ITG Brands will be headquartered in Lorillard Tobacco’s former facilities in Greensboro, North Carolina. ITG Brands will operate using Lorillard Tobacco’s former manufacturing facilities, operational capacity and infrastructure, and the majority of its management, sales and marketing, technical, and other employees. Id. ¶ 12. ITG Brands has been engaged in planning and preparation since July 2014 to ensure that it will be ready to take over the operations when the transfer takes place. Id.. Using these substantial resources, ITG Brands will carry out and execute all functions subject to the provisions of Order #1015, as supplemented and modified by subsequent orders, with respect to the Acquired Brands. Id. ¶ 13. In addition, ITG Brands, Commonwealth, and Commonwealth-Altadis will continue to carry out and execute certain functions subject to the provisions of Order #1015 with respect to cigarette

5

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 6 of 20

brands that are not Acquired Brands. Id.. Commonwealth-Altadis will also continue to perform

operational functions for Commonwealth for a short period of time after closing. After a short

transition period ITG Brands will perform operational services for Commonwealth under arm’s

length contracts in addition to performing operational services in connection with the Acquired

Brands and its own current cigarette brand Rave. Id. .

II. ARGUMENT

This Court’s Final Judgment and Remedial Order (“Final Judgment”), Order #1015, governs defendants’ transfer of cigarette brands or businesses. Paragraph 20 provides that a defendant may transfer cigarette brands or cigarette businesses to a non-defendant only if that party “submits to the jurisdiction of this Court” and the Court, after determining that the party “has the capacity to comply with the obligations contained in the Final Judgment,” issues an order subjecting the party to the provisions of the Final Judgment.2

ITG Brands was not sued by the United States and is not a defendant in this case. In order to purchase the Acquired Brands and related businesses from RJRT and Lorillard Tobacco

2 In full, Paragraph 20 provides: Transfer of Tobacco Brands or Businesses. No Defendant shall sell or otherwise transfer or permit the sale or transfer of any of its cigarette brands, brand names, cigarette product formulas or cigarette businesses (other than a sale or transfer of cigarette brands or brand names to be sold, product formulas to be used, or cigarette businesses to be conducted, by the acquiror or transferee exclusively outside of the United States) to any person or entity unless (1) such person or entity is already a Defendant subject to this Final Judgment and Remedial Order, or (2) prior to the sale or acquisition, such person or entity (a) submits to the jurisdiction of this Court; and (b) applies for and obtains an Order from this Court subjecting such person or entity to the provisions of this Final Judgment and Remedial Order as of the date of the sale or transfer. No such Order will be entered, and no sale or transfer of any Defendant’s cigarette brands, brand names, cigarette product formulas or cigarette businesses (other than a sale or transfer of cigarette brands or brand names to be sold, product formulas to be used, or cigarette businesses to be conducted, by the acquiror or transferee exclusively outside of the United States) shall be allowed, unless this Court first determines that such person or entity has the capacity to comply with the obligations contained in this Final Judgment and Remedial Order. The sale or transfer by a Defendant of any of its cigarette brands, brand names, cigarette product formulas or cigarette businesses shall not relieve that Defendant from its joint and several liability under this Final Judgment and Remedial Order.

6

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 7 of 20

as described above, ITG Brands seeks to become subject to the jurisdiction of this Court as of the date of transfer, to become subject to Order #1015, and to become a party to the litigation for the sole and limited purposes of compliance with Order #1015.

During the involved and protracted discussions that took place prior to the submission of this motion, plaintiffs requested that ITG Brands’s entire affiliated U.S. cigarette business be subject to Order #1015. As described above, two of ITG Brands’s U.S. affiliates, Commonwealth and Commonwealth-Altadis, also engage in the U.S. cigarette business. These affiliates are not acquiring any assets from any defendant and Paragraph 20 of Order #1015 therefore does not apply to them. Notwithstanding this, and the fact that defendants aren’t subject to any similar requirement, Commonwealth and Commonwealth-Altadis have agreed in good faith that their cigarette businesses will also become subject to certain provisions of Order #1015, as will the cigarette operations of future affiliates that perform functions covered by the provisions of Order #1015 in the United States.

ITG Brands will have the required capacity to comply with Order #1015. It is currently small, but has operated in the United States for almost 30 years without any accusation of misconduct like that involved in this litigation. After the transaction closes, ITG Brands will be the third-largest cigarette company in the United States with an approximate market share of seven percent, thousands of employees, and total assets for which it will have paid $7.1 billion. See Wilkey Aff. ¶ 10 and Section II.C, infra. As noted above, ITG Brands will also own and operate Lorillard Tobacco’s current manufacturing facility, and will acquire the equipment necessary to affix corrective statement “onserts” on the packages of the Acquired Brands. ITG Brands will also acquire the majority of Lorillard Tobacco’s operational facilities and infrastructure, and will employ most of its management and other employees. Wilkey Aff. ¶ 12.

7

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 8 of 20

It has also agreed to set up a “hotline” and website to permit anonymous reports from employees and contractors who observe potential violations of Order #1015. Id. ¶ 22-26.

The movants respectfully request, therefore, that this Court enter the proposed Order which accompanies their motion (“proposed Order”). Section A below addresses ITG Brands’s and affiliates’ submission to this Court’s jurisdiction. Section B addresses their submission to Order #1015 and describes in detail the scope of the proposed Order. Section C explains ITG Brands’s capacity to comply with Order #1015, as required by Paragraph 20.

A.

Concurrent With The Acquisition of the Acquired Brands, ITG Brands, Commonwealth, and Commonwealth-Altadis Submit to This Court’s Jurisdiction in Accordance with Order #1015, and Seek to Become Parties For the Sole and Limited Purpose of Compliance with Order #1015

In Order #1015, this Court directed that any non-defendant acquiring cigarette brands, brand names, cigarette product formulas, or cigarette businesses from a defendant must submit to this Court’s jurisdiction as a condition of transfer. ITG Brands will do so in the event that the transaction described above closes, and asks this Court to enter the attached proposed unopposed order recognizing ITG Brands’s submission to the Court’s jurisdiction for purpose of compliance with Order #1015. As noted above, even though there is no requirement in Order #1015 that they do so, ITG Brands’s affiliates Commonwealth and Commonwealth-Altadis will also submit to the Court’s jurisdiction for the purpose of compliance with specified provisions of Order #1015. These entities also ask the Court to make them parties to this litigation for the sole and limited purpose of future compliance with Order #1015, as well as participation in future proceedings regarding the parameters and applicability of that Order. See Fed. R. Civ. P. 65(d) (“parties” are subject to injunctions).

8

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 9 of 20

B.

ITG Brands, Commonwealth, and Commonwealth-Altadis Seek to Assume Obligations Under Order #1015

Order #1015 requires that a non-defendant acquiring cigarette brands, brand names, cigarette product formulas, or cigarette businesses from a defendant must become subject to Order #1015. Accordingly, ITG Brands seeks to assume, as of the date of transfer, the obligations of Order #1015 as described below. Its affiliates Commonwealth and Commonwealth-Altadis will also assume certain obligations under Order #1015, as will future affiliates that engage in functions covered by Order #1015’s provisions. The proposed Order submitted along with this motion sets out the manner in which Order #1015 will apply to these entities, as described in detail below. The proposed Order and its provisions have been discussed with plaintiffs, who have no objection. They have also been discussed with defendants Altria Group Inc. and Philip Morris U.S.A., Inc., and those defendants have no objection to them.

The proposed Order first contains a set of unopposed findings, in paragraphs 1 through

12. The findings describe the transaction and find that ITG Brands will have the requisite capacity to comply. They find that ITG Brands, Commonwealth, and Commonwealth-Altadis all submit to the jurisdiction of the Court in accordance with Order #1015; that they seek to assume certain obligations under Order #1015; and that after the transaction they seek to be parties to this litigation for the sole and limited purpose of compliance with Order #1015 and proceedings thereon. They reflect that after the transaction, ITG Brands, Commonwealth, and Commonwealth-Altadis will be performing the functions subject to the provisions of Order #1015 for the Acquired Brands. Further, they find that ITG Brands, Commonwealth, and Commonwealth-Altadis consent to entry of the Order and understand their obligations under it. Finally, the findings recognize what RJRT already confirmed in the Notice of Transaction Involving Defendants R.J. Reynolds Tobacco Company and Lorillard Tobacco Company filed 9

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 10 of 20

on April 7, 2015 (Dkt. No. 6141), that RJRT will assume the obligations of Lorillard Tobacco under Order #1015 as set forth in that Notice.

The operative provisions of the proposed Order make ITG Brands, Commonwealth, and Commonwealth-Altadis subject to this Court’s jurisdiction, make them subject to certain provisions of Order #1015, and contain detailed provisions that set out how Order #1015 will apply to them. In particular:

. Paragraph 1 provides that the proposed Order will take effect concurrently with the transfer of the Acquired Brands, brand names, cigarette product formulas, and cigarette businesses.

. Paragraph 2 provides that as of the effective date ITG Brands, Commonwealth, and Commonwealth-Altadis submit to, and will be subject to, this Court’s jurisdiction for purposes of compliance with Order #1015, and will become parties to this litigation for the sole and limited purpose of complying with Order #1015 on the terms set out in the proposed Order.

. Paragraph 3 further provides that if an affiliate, defined broadly to include companies under common ownership, assumes functions covered by Order #1015 in the United States or activities directly, substantially, and foreseeably related to such functions, the cigarette business of such “Affiliate” will be subject to certain provisions of Order #1015 as well. The definition of “affiliate” in the Order is very slightly adapted from the definition of affiliate used in the Master Settlement Agreement.

. Paragraphs 4 and 5 provide, consistent with Order #1015, that ITG Brands, Commonwealth, and Commonwealth-Altadis will provide actual notice of the proposed Order to officers, directors, subsidiaries, Covered Subsequent Affiliates and ultimate parent, and that it

10

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 11 of 20

will apply to all persons who act in actual concert and participation with ITG Brands, Commonwealth, or Commonwealth-Altadis who receive actual notice of the proposed Order.

. Paragraph 6 provides generally that ITG Brands, Commonwealth, and Commonwealth Altadis, as well as Covered Subsequent Affiliates that perform functions that may be covered by Order #1015, will be subject to all provisions of Order #1015 and subsequent orders related to it except as otherwise specified in the Order. The United States and ITG Brands’s, Commonwealth’s, and Commonwealth-Altadis’s ultimate parent company have also entered a side letter agreement regarding this paragraph, attached hereto as Exhibit 10. Generally, ITG Brands and the other entities covered by the Order will be subject without limitation to the “anti-fraud” provisions of Order #1015, including the injunction against “committing any act of racketeering, as defined in 18 U.S.C. § 1961(1), relating in any way to the manufacturing, marketing, promotion, health consequences or sale of cigarettes in the United States,” Order #1015, § II.A.1; the injunction against activities related to the Center for Tobacco Research, the Tobacco Institute, or the Center for Indoor Air Research and successor or affiliated entities as specified in Order #1015, § II.A.2; the injunction against “making, or causing to be made in any way, any material false, misleading, or deceptive statement or representation, or engaging in any public relations or marketing endeavor that is disseminated to the United States public and that misrepresents or suppresses information concerning cigarettes,” including the examples specified in Order #1015, § II.A.3; and the injunction against conveying any express or implied health message or health descriptor for any cigarette brand either in the brand name or on “any packaging, advertising or other promotional, informational or other material,” including the examples listed in Order #1015, § II.A.4, or from “representing directly, indirectly, or by implication, in advertising, promotional, informational or other material, public statements or by

11

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 12 of 20

any other means, that low-tar, light, ultra light, mild, natural, or low-nicotine cigarettes may result in a lower risk of disease or are less hazardous to health than other brands of cigarettes,” id..

. Paragraphs 7-12 govern how the parties will comply with the Corrective Statement requirements.

o Paragraphs 7 and 8 provide that Corrective Statements will not be required in any media or by any method for any specific cigarette brand that is not an Acquired Brand. They also provide that ITG Brands and its affiliates will not be required to publish the Corrective Statements in newspapers or on television. This is because RJRT will continue to be responsible for publication of all corrective statements by all methods and in all media as directed by Order #1015, § II.B, including publication in newspapers, on television, and on websites, and, after the merger of Lorillard Tobacco with and into RJRT, RJRT will assume Lorillard Tobacco’s obligations regarding publication of the corrective statements on television, in newspapers, on onserts (other than for transferred brands), and on applicable websites (subject, of course, to the outcome of any appeals on these issues). See Notice of Transaction Involving Defendants R.J. Reynolds Tobacco Company and Lorillard Tobacco Company filed on April 7, 2015 (Dkt. No. 6141).

o Paragraph 9 governs how ITG Brands and affiliates will provide Corrective Statements. Thus, while RJRT will continue to be responsible for its and Lorillard’s responsibilities for placing Corrective Statements on television and in newspapers, ITG Brands (and in some limited circumstances Commonwealth, Commonwealth-Altadis, and possibly other affiliates) will be responsible for providing Corrective Statements on onserts to packaging, on websites, and in social media if it is used. Specifically, ITG Brands will provide Corrective

12

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 13 of 20

Statements on the packaging for the Acquired Brands, with the preambles tailored slightly to reflect truthfully that ITG Brands was not named as a defendant and was not found liable. ITG Brands (which has no websites at present) will also put Corrective Statements on websites that promote or advertise the Acquired Brands or cigarettes generally, also with the language tailored to reflect that ITG Brands was not named as a defendant and was not found liable. Commonwealth, Commonwealth-Altadis, and other affiliates which have websites that promote or advertise the Acquired Brands will also put Corrective Statements on those websites.

o Paragraph 10 provides that ITG Brands is subject to any future order that the Court may issue regarding Point of Sale Corrective Statements (subject of course to the outcome of any appeal) but further provides that it does not waive its right to participate in proceedings and make arguments on the applicability of Point of Sale Corrective Statements.

o Paragraph 11 provides that ITG Brands, Commonwealth, and Commonwealth-Altadis will be on the same timeline as defendants for providing Corrective Statements on onserts and websites.

o Paragraph 12 provides that defendants and ITG Brands will not be able to avoid their obligations to place Corrective Statements on onserts to packaging by contracting with or for another party to manufacture products for them, given that ITG Brands and RJRT will be engaged in a reciprocal manufacturing agreement for the first few months after closing. Wilkey Aff. ¶ 9.

. Paragraph 13 moves on from Corrective Statements to govern how ITG Brands and affiliates will comply with Order #1015’s document disclosure requirements. None of these parties currently has a document website. Id. ¶ 17. Moreover, none of them has any documents currently subject to disclosure under Order #1015. ITG Brands and Commonwealth-Altadis

13

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 14 of 20

have not been named as defendants in a lawsuit involving smoking and health and although Commonwealth has been named in six such actions, they were all dismissed without any documents being produced. Id.. Accordingly, ITG Brands will be required to establish a website only when it or an affiliate is actually required to make documents or materials public under Order #1015 § II.C.10.a(2)-(3). ITG Brands’s and its affiliates’ obligations to make documents public will be prospective only. The obligation to make documents public will end at the same time as the obligation ceases for defendants.

. Paragraph 14 governs how ITG Brands and affiliates will comply with the requirement to disclose disaggregated marketing data. ITG Brands, which will be selling the Acquired Brands, will have the same obligations as defendants under this provision. Commonwealth and Commonwealth-Altadis, which will not be selling the Acquired Brands, will have obligations to provide prospective marketing data only, except that Commonwealth will provide two years of data previously provided to the Federal Trade Commission to serve as a baseline for future data. As with document disclosure, the joining parties’ obligations to produce disaggregated marketing data will end when defendants’ obligations end.

. Paragraph 15 provides that Paragraph 20 of Order #1015 regarding future transfers applies only to the Acquired Brands, brand names, cigarette product formulas, or cigarette businesses.

. Paragraph 16 provides that the newly-joining parties are not responsible for costs.

. Paragraph 17 addresses Order #51-Remand in light of the pending appeal.

. Paragraph 18 provides that if any of the applicable provisions of Order #1015 and subsequent related orders are modified in a way that affects all defendants, that modification will presumptively apply to ITG Brands, Commonwealth, and Commonwealth-Altadis.

14

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 15 of 20

. Paragraph 19 governs capitalized terms not otherwise defined in the Order,

C. ITG Brands Will Have the Capacity to Comply with Order #1015

Order #1015 requires that this Court, before permitting the transfer of cigarette brands and businesses to a non-defendant, make a determination that the acquiring entity has “the capacity to comply with the obligations contained in” Order #1015. Both the United States and Intervenors have reviewed ITG Brands’s representations regarding its future capacity to comply as set out in this section and the accompanying Affidavit of Rob Wilkey, and have authorized ITG Brands to state that they do not dispute those representations.

Immediately following the acquisition of the Acquired Brands and cigarette businesses discussed above, ITG Brands will have the “capacity” – financial resources, employees, infrastructure, and manufacturing facilities – to comply with the requirements of Order #1015. Although it is currently a small company, ITG Brands has been in business selling tobacco products for almost three decades. Wilkey Aff. ¶ 3. After the transfer, ITG Brands will own cigarette brands (and related intellectual property, assets, and contracts) whose sales constitute about seven percent of the U.S. cigarette market, it will have thousands of employees, and will be the third-largest tobacco company in the U.S. by market share. Id. ¶ 10. It will also acquire Lorillard Tobacco’s manufacturing and other facilities in Greensboro, North Carolina, along with the majority of Lorillard Tobacco’s management, sales, and services infrastructure. It will continue to employ most of Lorillard Tobacco’s current employees. Id. ¶ 9; APA § 2.01. RJRT will continue temporarily to manufacture most of the Acquired Brands for ITG Brands under contract in RJRT’s facility under a Reciprocal Manufacturing Agreement. APA § 6.11, Ex. G. ITG Brands will also acquire the manufacturing infrastructure and equipment necessary to affix

15

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 16 of 20

the corrective statement onserts on the packages of the Acquired Brands as required by Order #1015. Wilkey Aff. ¶ 9.

It should be noted that FTC approval of the sale of the Acquired Brands and assets to ITG Brands requires ITG Brands to demonstrate to the FTC that it is a “competitively and financially viable” participant in the market. See Negotiating Merger Remedies, Statement of the Federal Trade Commission’s Bureau of Competition, at 10 (Jan. 2012) (“a buyer must be competitively and financially viable; a proposed buyer that does not satisfy these tests will be rejected, and the parties will be required to propose an acceptable one”; “The staff will … evaluate a proposed buyer to determine whether it has (1) the financial capability and incentives to acquire and operate the assets, and (2) the competitive ability to maintain or restore competition in the market.”) (available at www.ftc.gov/system/files/… merger-remediesstmt.pdf); United States v. Monsanto Co., 2008 U.S. Dist. LEXIS 107340, *8 (D.D.C. Nov. 6, 2008) (requiring divestiture to an acquirer with “the intent and capability (including the necessary managerial, operational, technical, and financial capability and intellectual property rights) of competing effectively…”). Indeed, courts regularly disapprove divestitures proposed as a remedy to challenges to mergers if the acquiring company does not have the capacity to operate effectively in the future. FTC v. Owens-Corning Fiberglas Corp., 1987 U.S. Dist. LEXIS 14655, **4-5 (N.D. Ohio Feb. 3, 1987).

In addition, ITG Brands and its affiliates Commonwealth and Commonwealth-Altadis have affirmed that they already operate in conformance with the anti-fraud and marketing provisions of Order #1015, as required by the terms of the Master Settlement Agreement (“MSA”) and the federal Family Smoking Prevention and Tobacco Control Act. See MSA § III (prohibition against marketing or advertising to youth and other advertising and marketing

16

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 17 of 20

restrictions); id. § III(r) (“No Participating Manufacturer may make any material misrepresentation of fact regarding the health consequences of using any Tobacco Product”); id. § III(o), (p) (Center for Tobacco Research and similar associations to be disbanded; limitation on participation in future trade associations) (MSA provisions attached as Exhibit 8); R.J. Reynolds Tobacco Co. v. FDA, 696 F.3d 1205 (D.C. Cir. 2012) (“The [Family Smoking Prevention and Tobacco Control Act] bans advertising or labeling using the descriptors ‘light,’ ‘mild,’ ‘low,’ or similar descriptors.”).

ITG Brands joined the MSA as a Subsequent Participating Manufacturer in February 1999 (under its previous name, Lignum-2), even though (as it affirms) it was never sued and was never accused of engaging in any of the conduct that gave rise to the lawsuits that were settled by the MSA. Wilkey Aff. ¶ 18; Nat’l Ass’n of Attys General, List of Participating Manufacturers and Brands, attached as Exhibit 9. Commonwealth has been a party to the MSA as a Subsequent Participating Manufacturer since November 1998. Id. ¶ 19 Although the MSA gives the states the right to sue an MSA participant in state courts if it violates the MSA provisions, MSA § VII, ITG Brands and Commonwealth affirm that no state has ever sued them for conduct violations under the MSA, and further affirm that no state has ever sued ITG Brands, Commonwealth, or Commonwealth-Altadis (which is not a party to the MSA because it does not manufacture cigarettes) for any conduct similar to that alleged against defendants in this action. Wilkey Aff. ¶ 18-20. Moreover, if the transaction closes ITG Brands, Commonwealth, and Commonwealth- Altadis intend to incorporate in their compliance programs compliance with the specific terms of Order #1015. Among other things, the companies affirm that they have always operated in accordance with the Food & Drug Administration laws regulating tobacco, the MSA, and each and every regulatory provision that governs their conduct. Wilkey Aff. ¶ 21.

In addition, if the transaction closes the joining parties will expand their existing compliance policies to encompass this Court’s prohibitions against false and misleading

17

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 18 of 20

statements, as set forth in Order #1015, § II.A.3. They will expressly include compliance with Order #1015’s prohibitions on false and misleading statements as part of the policies governing responsible business conduct established for executives, employees, and contractors. Wilkey Aff. ¶ 23. The policy as it relates to Order#1015 will be provided to all executives, employees, and contractors. Id. ITG Brands, Commonwealth, and Commonwealth-Altadis will encourage employees and contractors to report any violations of law they observe, including any potential violations of the companies’ obligations under Order #1015 § II.A.3 regarding false and misleading statements, and will undertake a good-faith investigation and any action reasonably necessary to follow up on such reports. Id. ¶ 24. Employees and contractors will also be able to report such violations or misconduct to their immediate managers, to senior management involved in ensuring corporate compliance, to human resources, or to the CEO of ITG Brands. Id. ITG Brands will also put in place (or cause to be put in place) a 24-hour hotline and website on which employees and contractors for all three companies can report potential instances of misconduct. Employees and contractors will be able to make such a report anonymously through this hotline if they choose, and, if they do not choose to make the report anonymously, their identities will remain confidential. Id. ¶ 25. The policy will contain assurances of non- retaliation for good faith reports, and allegations of retaliation will themselves be investigated as a potential disciplinary issue. Id. Notably, no defendant has been required to establish such a program.

In sum, ITG Brands is an established, albeit small at present, cigarette company in existence for almost 30 years. It will gain substantial resources and infrastructure as a result of this transaction. It will institute policies that will make Order #1015 a specific focus of

18

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 19 of 20

compliance efforts, thus undertaking obligations not imposed on defendants. Accordingly, ITG Brands unquestionably will have the “capacity to comply” with Order #1015.

III. CONCLUSION For the foregoing reasons, movants respectfully request that the Court enter the proposed unopposed order accompanying their motion.

Dated: April 30, 2015

Respectfully submitted,

s/ Noel J. Francisco

Noel J. Francisco (D.C. Bar No. 464752)

Peter J. Biersteker (D.C. Bar No. 358108)

JONES DAY

51 Louisiana Avenue, N. W.

Washington, D.C. 20001-2113

Telephone: (202) 879-3939

Fax: (202) 626-1700

Geoffrey K. Beach

WOMBLE CARLYLE SANDRIDGE & RICE,

PLLC

One West Fourth Street

Winston-Salem, NC 27101

Telephone: (336) 721-3600

Facsimile: (336) 733-8389

Attorneys for Defendant R.J. Reynolds Tobacco

Company

Michael B. Minton

A. Elizabeth Blackwell

THOMPSON COBURN LLP

One U.S. Bank Plaza, Suite 3500

St. Louis, MO 63101-1693

Telephone: (314) 552-6000

Facsimile: (314) 552-7597

Attorneys For Defendant Lorillard Tobacco

Company

19

Case 1:99-cv-02496-GK Document 6143 Filed 04/30/15 Page 20 of 20

BAKER & HOSTETLER LLP

s/ Robert J. Brookhiser, Jr.

Robert J. Brookhiser, Jr. (D.C. Bar No.

202168)

Elizabeth B. McCallum (D.C. Bar No.

451361)

BakerHostetler LLP

Washington Square, Suite 1100

1050 Connecticut Avenue, NW

Washington, DC 20036-5304

Telephone: 202-861-1500

Facsimile: 202-861-1783

Email: rbrookhiser@bakerlaw.com,

emccallum@bakerlaw.com

Attorneys for (Proposed) Post-Judgment Parties

Regarding Remedy ITG Brands, LLC,

Commonwealth Brands, Inc., and

Commonwealth-Altadis, Inc.

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on this 30th day of April, 2015, a true and correct copy of the foregoing was served by operation of the electronic filing system of the United States Court for the District of Columbia upon all counsel who have consented to receive notice of filings in the matter styled U.S. v. Philip Morris USA, Inc, et al., Case No. 99-2496 (GK).

s/ Noel J. Francisco

Noel J. Francisco (D.C. Bar No. 464752)

Peter J. Biersteker (D.C. Bar No. 358108)

JONES DAY

51 Louisiana Avenue, N. W.

Washington, D.C. 20001-2113

Telephone: (202) 879-3939

Fax: (202) 626-170

20

Leave a Reply

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

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