United States v. Philip Morris USA Inc. ( 2016 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,
Plaintiff,
and
TOBACCO-FREE KIDS ACTION
FUND, et al.,
Intervenors-Plaintiffs, Civil Action No. 99-2496 (GK)
v.
PHILIP MORRIS USA INC., et al.,
Defendants,
and
ITG BRANDS LLC, et al.,
Post-Judgment Intervenors as to
Remedies
MEMORANDUM OPINION
More than 15 years ago, the United States filed this RICO action against the major cigarette
manufacturers operating in 1999. In 2006, after years of discovery, pre-trial litigation, and a nine-
month bench trial, this Court issued an Opinion containing over 4,000 findings of fact and
concluding that the Government had proven by "overwhelming evidence" that the Defendants had
maintained an illegal racketeering enterprise in violation of the Racketeer Influenced and Corrupt
OrganizationAct("RICO"), 18U.S.C. § 1962(d). See U.S. v.PhilipMorrisUSA.Inc.,449F. Supp.
2d 1 (D.D.C. 2006) ("Original Opinion"). Thereafter, in 2009, the Court of Appeals affirmed the
greater part of the District Court's Remedial Order. U.S. v. Philip Morris USA. Inc., 566 F.3d 1095
(D.C. Cir. 2009) ("Affirmance Opinion"). In that Opinion, the Court of Appeals rejected the
Defendants' challenge to the corrective-disclosures remedy, vacating only the requirement that the
statements be published on retail displays. Id. at 1138-44. Significantly, in that Opinion, the Court
of Appeals ruled that the corrective statements would qualify as commercial speech and satisfy the
First Amendment and would prevent Defendants from misleading consumers through fraudulent
marketing in the future. Id. at 1143-45. The Court of Appeals then remanded the case to the
District Court to draft the required corrective disclosures.
Thereafter, the Court prepared five separate sets of bullet points and ordered the cigarette
manufacturers to disseminate them in the public media. U.S. v. Philip Morris USA. Inc., 907 F.
Supp. 2d 1 (D.D.C. 2012) ("Corrective Statement Opinion I").
Four of the original Defendants -- Philip Morris USA Inc., Altria Group, Inc., R.J. Reynolds
Tobacco Company, and Lorillard Tobacco Company -- appealed, arguing that the corrective
statements exceeded this Court's remedial authority under RICO and violated the First Amendment.
In 2015, the Court of Appeals ruled that a number of the arguments raised by the Defendants
had been waived for failure to have raised them at an earlier appropriate time. Other arguments were
denied on the basis of the law-of-the-circuit doctrine. U.S. v. Philip Morris USA, Inc., 801F.3d250,
261-63 (D.C. Cir. 2015) ("Corrective Statement Opinion II"). Most importantly, the Court of
Appeals upheld all of the corrective statements prepared by this Court-- except for one sentence only
-- namely, the preamble to the statements themselves.
Thereafter, this Court was led to believe by the Parties that mediation might be successful;
unfoftunatel~il was not--:-TlieParties were tlien given time to suOmifDriefs ana proviOe actual___ ------------ --·
language to correct the one sentence that the Court of Appeals had rejected.
-2-
Despite the fact that the Court of Appeals accepted the five topics that the Court had chosen
to include and had rejected one sentence in the preamble designed to introduce the beginning of each
of those topics, Defendants submitted a 40 page opening brief in opposition to the opening briefs
of the Government and the Public Health Intervenors. In that brief, Defendants rewrote much of the
five statements already approved by the Court of Appeals. Thus, when all is said and done,
Defendants would now have this Court return to the drawing board and start the process all over
again.
That is ridiculous -- a waste of precious time, energy, and money for all concerned -- and a
loss of information for the public. The Court has no intention of following that path, although it is
obvious that Defendants are, once again, attempting to stall any final outcome to this long-standing
litigation.
After careful reading of all the briefs, the Court concludes that the revised wording of the
preambles submitted by the Government and Intervenors has remedied the concern of the Court of
Appeals in its 2015. Opinion and Remand. Corrective Statement Opinion II, 801 F.3d at 261-63.
The Court of Appeals ruled that the phrase "deliberately deceived the American public" in the
preambles could not be used because it "disclose[d] defendants' prior deceptive conduct" instead
of using language that "would prevent and restrain future RICO violations by '[r]equiring
Defendants to reveal the previously hidden truth about their products."' Id. (emphasis in original).
The Government and Intervenors have totally withdrawn that phrase and the preambles have been
shortened. The Government and Intervenors' reworking of the text, as set forth herein, is fully
consistent witlltlie CouftOfAppealS' ruling tliat notliing in tlie corrective statements coulQ refer to---- - ----- ----- -
the past fraudulent conduct of Defendants.
-3-
Prior introductory text United States' proposed introductory text
A Federal Court has ruled that Altria, R.J. A Federal Court has ordered Altria, R.J.
Reynolds Tobacco, Lorillard, and Philip Morris Reynolds Tobacco, Lorillard, and Philip Morris
USA deliberately deceived the American public USA to make this statement about [particular
about [particular topic], and has ordered those topic].
companies to make this statement.
Here is the truth:
Here is the truth:
A. Adverse Health Effects of Smoking
A Federal Court has ordered Altria, R.J. Reynolds Tobacco, Lorillard, and Philip
Morris USA to make this statement about the health effects of smoking.
Here is the truth:
• Smoking kills, on average, 1,200 Americans. Every day.
• More people die every year from smoking than from murder, AIDS, suicide,
drugs, car crashes, and alcohol, combined.
• Smoking causes heart disease, emphysema, acute myeloid leukemia, and
cancer of the mouth, esophagus, larynx, lung, stomach, kidney, bladder, and
pancreas.
• Smoking also causes reduced fertility, low birth weight in newborns, and
cancer of the cervix.
B. Addictiveness of Smoking and Nicotine
A Federal Court has ordered Altria, R.J. Reynolds Tobacco, Lorillard, and Philip
Morris USA to make this statement about the addictiveness of smoking and nicotine.
Here is the truth:
• Smoking is highly addictive. Nicotine is the addictive drug in tobacco.
• Cigarette companies intentionally designed cigarettes with enough nicotine
to create and sustain addiction.
• It's not easy to quit.
-4-
.~.
• When you smoke, the nicotine actually changes the brain -- that's why
quitting is so hard.
C. Lack of Significant Health Benefit from Smoking "Low Tar," "Light," "Ultra
Light," "Mild," and "Natural" Cigarettes
A Federal Court has ordered Altria, R.J. Reynolds Tobacco, Lorillard, and Philip
Morris USA to make this statement about selling and advertising low tar and light
cigarettes as less harmful than regular cigarettes.
Here is the truth:
• Many smokers switch to low tar and light cigarettes rather than quitting
because they think low tar and light cigarettes are less harmful. They are not.
• "Low tar" and "light" cigarette smokers inhale essentially the same amount
of tar and nicotine as they would from regular cigarettes.
• All cigarettes cause cancer, lung disease, heart attacks, and premature death--
lights, low tar, ultra lights, and naturals. There is no safe cigarette.
D. Manipulation of Cigarette Design and Composition to Ensure Optimum
Nicotine Delivery
A Federal Court has ordered Altria, R.J. Reynolds Tobacco, Lorillard, and Philip
Morris USA to make this statement about designing cigarettes to enhance the
delivery of nicotine.
Here's the truth:
• Altria, R.J. Reynolds Tobacco, Lorillard, and Philip Morris USA
intentionally designed cigarettes to make them more addictive.
• Cigarette companies control the impact and delivery of nicotine in many
ways, including designing filters and selecting cigarette paper to maximize
the ingestion of nicotine, adding ammonia to make the cigarette taste less
harsh, and controlling the physical and chemical make-up of the tobacco·
blend.
• When you smoke, the nicotine actually changes the brain -- that's why
·---quitting is so narcl.
-5-
E. Adverse Health Effects of Exposure to Second Hand Smoke
A Federal Court has ordered Altria, R.J. Reynolds Tobacco, Lorillard, and Philip
Morris USA to make this statement about the health effects of secondhand smoke.
Here is the truth:
• Secondhand smoke kills over 38,000 Americans each year.
• Secondhand smoke causes lung cancer and coronary heart disease in adults
who do not smoke.
• Children exposed to secondhand smoke are at an increased risk for sudden
infant death syndrome (SIDS), acute respiratory infections, ear problems,
. severe asthma, and reduced lung function.
• There is no safe level of exposure to secondhand smoke.
The Court has reached this conclusion for the following reasons:
First, and most importantly, the Government and Intervenors have removed the phrase in the
preambles to each of the five topics contained in this Court's ruling that Defendants "deliberately
deceived the American public." Not only did that change comply with the ruling of the Court of
Appeals, it also shortened the introductory preambles so as to make reading them a little easier for
the public.
The newly crafted preambles do not in any way send a message to the public that Defendants
deceived them in the past, nor that Defendants are being punished for their previous conduct.
Because the preambles are now shorter and explain what each statement is about, why they are being
made, and who is making them, there is simply no support for Defendants' argument that even the
new sanitized preambles will convey to members of the public that they have been deceived in the
- - - - - - - ------------~----·
past.
-6-
Second, the Government and Intervenors have retained the wording "Here is the Truth,"
which Defendants complained about, so as to make clear to the public that the following commentary
in each of the five topics is, in fact, the truth. Again, retention of that phrase is consistent with the
Court of Appeals' ruling that"[ r]equiring defendants to reveal the previously hidden truth about their
products will prevent and restrain them from disseminating false and misleading statements, thereby
violating RICO, in the future." Affirmance Opinion, 566 F.3d at 1140.
Third, the Government and Intervenors have, out of an abundance of caution, removed the
word "falsely" from statement C's introduction which refers to the lack of significant health benefits
from smoking "Low Tar," "Light," "Ultra Light," "Mild," and "Natural" cigarettes.
Fourth, as the Court of Appeals noted, many of the objections and arguments made by
Defendants have already been waived for failure to have raised them earlier, and, therefore, cannot
be raised again now, or were denied under the law-of-the-circuit doctrine. Corrective Statement
Opinion II, 801 F.3d at 252, 257.
Fifth, the Government and Intervenors changed the term "filtered" cigarettes in the second
bullet point to refer to "low tar" cigarettes because "filtered" was confusing and not totally accurate.
As to the Defendants' own proposals, there are many serious problems. First example -- the
Defendants watered down the preambles so that the first words a member of the public would read
are that a Federal Court has "determined" that you should know the following, thereby omitting the
clear, straightforward introduction that "a Federal Court Ordered [Defendants] to make this
statement," followed by a separate line saying "Here is, the Truth." In addition, the tobacco
companies completely removeci-tneir names from tile corrective statements.
-7-
·.
Second example -- Defendants complain that the statements attribute the Court's order to
them. However, in 2006, all Defendants except Altria and Philip Morris USA actually proposed
mandatory attribution language. Given the fact that the Court accepted the request, R.J. Reynolds
and Lorillard are obviously estopped at this late date from objecting to the use of their names.
Altria and Philip Morris, thought not estopped in 2006, remained silent when ordered to
submit their views on attribution in Order #1025 at 2. Since they never articulated views on the
subject, they have waived any objections they now have.
Defendants also argue that the statements proposed by the Government and Intervenors do
not meet the First Amendment standard. In its 2012 decision, this Court examined the issue of First
Amendment standards for commercial speech, and concluded that Zauderer v. Office of Disciplinary
Counsel of the Supreme Court of Ohio, 471 U.S. 626, 651 (1985), articulated the correct standard
to apply. The Court of Appeals never questioned this ruling. Consequently, this Court sees no
reason whatsoever to reexamine that decision.
In order to buttress their argument, Defendants rely upon American Meat Inst. v. U.S. Dept.
of Agriculture, 760 F.3d 18, 26 (D.C. Cir. 2014) (en bane). However, that case was discussing
disclosures aimed at "informing consumers about a particular product trait," by "making ... 'purely
factual and uncontroversial information' accessible to the recipients." Id. (emphasis added). The
Court of Appeals' most recent decision in this case makes it clear that under RICO "disseminating
corrective statements on the proposed topics would prevent and restrain future RICO violations by
'[r]equiring Defendants to reveal the previously hidden truth about their products."' Affirmance
- ---opinion, 80TF3aar261-(quofing S-66-F~3cl aci-i-40)-:-In this case, tn-e-frve-n:rptcs-cuntairretl-in-the
statements are aimed at preventing and restraining the Defendants from continuing their fraudulent
-8-
and deceptive activities. Id. In other words, American Meat Inst. is totally distinguishable from this
case.
Defendants also raise the issue that no implementation order may be issued at this time. They
argue that the Court should reject the Government's proposal and adopt their proposed language to
the Implementation Consent Order which was reached June 2, 2014. The Government and
Intervenors request that certain "minor changes" be made in the Consent Order implementing the
corrective statement remedies under Order# 1015 and Order #34-Remand. While it is true that it is
well established that after hearing from parties, a court may alter a consent order in conformance
with the terms of a consent decree and changed circumstances, see ~' United States v. W. Elec.
Co., 894 F.2d 430, 434 (D.C. Cir. 1990), it is also true that "[a] court may not enter a consent decree
that imposes obligations on a party that did not consent to the decree," Local No. 93, Intern. Ass'n~
of Firefighters, AFL-CIO C.L.C. v. City of Cleveland, 478 U.S. 501, 529 (1986). It is also true that
a court may modify an existing order when it "is based on an earlier judgment that has been
reversed[.]" Fed. R. Civ. P. 60(b)(5) (emphasis added). Such modifications must be "suitably
tailored" to the changes requested by the Court of Appeals' decision and "must preserve the essence
of the parties' bargain[.]" Pigford v. Veneman, 292 F.3d 918, 927 (D.C. Cir. 2002).
In this case, the parties did negotiate for well over a year to reach the proposed Consent Order
on implementation of that Order. The Parties made it clear to the Court that the proposed Order
reflected compromises and negotiated trade-offs by all parties. Indeed, the Intervenors' brief, at page
13, agrees that the Consent Order "reflected a 'complex' agreement hammered out through many
montns of negotiation ana compromises on allsiaes[~]"-Intervenors'-Br. acrT[DRCN0:-6172].
-9-
The Government is now proposing a series of modifications to the Consent Order. At least
one (and perhaps more) of the Government's requested modifications are of significant importance
to the Defendants. The one that Defendant seem most upset about appears to be the Government's
request to change the "Trigger Date." The Consent Order provides that the Defendants will begin
publishing corrective statements within a specific named time period after a "Trigger Date." The
Consent Order defines "Trigger Date" as "the date on which appeals are exhausted in the appeal
noticed from Order #34-Remand ... and in any timely appeals noticed from this Consent Order."
Order #51-Remand, § I(L). In other words, the Defendants were relieved from publishing any of the
corrective statements until the very last available appeal (including even a possible appeal to the
Supreme Court). In its brief, the Government now requests that the Court modify the Consent
Order's "Trigger Date" to mean "the date of this Order" (i.e., whatever Order this Court issues in
response to the Parties' briefing).
Obviously, this would be an extremely important change in the underlying Consent Order.
Moreover, the Consent Order clearly states that the term of the agreement "cannot be modified or
amended without written consent by all parties." Order #51-Remand, § VI(IO). According to the
Defendants, "[t]he Government has nevertheless proposed modifications to the Consent Order that
are inconsistent with the parties' agreement and not required by the D.C. Circuit's decision." Defs.'
Br. at 33 [Dkt. No. 6175]. Given the language of the Consent Order, the Court concludes that the
Defendants' objection to the request of the Government and Intervenors to make what they consider
to be minor changes in the Consent Order is inconsistent with the language cited above from the
-------------consenCOraer.
-10-
Oddly enough, despite their position on the Trigger Date, Defendants themselves also ask
for certain changes to the Consent Order. Defs.' Br. at 30~33. The Court cannot help but note that
what is sauce for the goose is sauce for the gander. Consequently, again relying on the clear
language of the Consent Order, and this Court's own knowledge from the Parties about the
difficulties they had in negotiating that document, the Court concludes that neither Party at this time
may make any unilateral changes in the Consent Decree.
For all these reasons and, in accordance with the Remand of the Court of Appeals, this Court
adopts the corrective statements submitted by the Government and contained on pages 4-6 herein.
February 8, 2016
Gr``~
Gladys~ .
United States District Judge
Copies via ECF to all counsel of record
-11-