United States v. Philip Morris USA ( 2011 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA, :
:
Plaintiff, :
: Civil Action No.
v. : 99-2496 (GK)
:
PHILIP MORRIS USA, Inc., :
et al. :
:
Defendants. :
MEMORANDUM OPINION
This civil action brought by the United States under the
Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18
U.S.C. §§ 1961-1968, is now before the Court on Plaintiff’s Motion
to Compel Defendant British American Tobacco (Investments)
Limited’s (“BATCo’s”) Compliance [Dkt. No. 5847] and Defendant
BATCo’s Motion for Reconsideration [Dkt. No. 5849]. Upon
consideration of the respective Motions, Oppositions, Replies, and
the entire record herein, and for the reasons stated below,
Plaintiff’s Motion to Compel is granted in part and denied in part
and Defendant BATCo’s Motion for Reconsideration is granted in part
and denied in part.
I. BACKGROUND
On August 17, 2006, this Court issued a lengthy opinion
finding that all Defendants, including BATCo, “(1) have conspired
together to violate the substantive provisions of RICO, pursuant to
18 U.S.C. § 1962(d), and (2) have in fact violated those provisions
of the statute, pursuant to 18 U.S.C. § 1962(c).” U.S. v. Philip
Morris USA, Inc., et al., 449 F. Supp. 2d 1, 26 (D.D.C. 2006). In
particular, the Court held that Defendants “knowingly and
intentionally engaged in a scheme to defraud smokers and potential
smokers, for purposes of financial gain, by making false and
fraudulent statements, representations, and promises.” Id. at 852.1
On May 22, 2009, the Court of Appeals for the District of Columbia
Circuit affirmed this Court’s judgment of liability and affirmed
major provisions in its remedial order.2 U.S. v. Philip Morris USA,
Inc., et al., 566 F.3d 1095, 1150 (D.C. Cir. 2009), cert. denied,
130 S. Ct. 3501 (2010).
Unlike the other Defendants, BATCo is a corporation organized
under the laws of England and Wales with its principal place of
business in England. Although BATCo’s scientists and officials did
1
The extensive factual findings of the Court may be found at
Philip Morris, 449 F. Supp. 2d at 34-851.
2
The Court of Appeals remanded the case with directions to
(1) evaluate the extent to which Brown & Williams Holdings is
reasonably likely to commit future violations; (2) determine which
subsidiaries of the Defendants should be included in the remedial
order; (3) reformulate the prohibition on the use of health
messages or descriptors to exempt foreign activities that have no
substantial, direct, and foreseeable domestic effects; and (4)
consider the rights of innocent third parties and clarify
accordingly the remedial order’s provisions regarding point-of-sale
displays. Philip Morris, 566 F.3d at 1150. The Court of Appeals
also ordered this Court to dismiss CTI and TI from the suit, as
those organizations had dissolved, id., and that has been done. The
Court has already addressed the first two issues, in Orders #7
[Dkt. No. 5846] and #13 [Dkt. No. 5877].
2
attend certain meetings with the other Defendants in the United
States, “many of BATCo’s activities and statements took place
outside of the United States.” Philip Morris, 449 F. Supp. 2d at
43, 51-52, 82, 125, 228, 873. Accordingly, this Court held BATCo
liable under RICO because “BATCo’s activities and statements
furthered the Enterprise’s overall scheme to defraud, which had a
tremendous impact on the United States.” Id. at 873.
On December 28, 2010, the United States filed a Motion to
Compel BATCo’s Compliance (“U.S. Mot.”) with the Court’s Final
Order #1015, dated August 17, 2006. On January 21, 2011, BATCo
opposed the United States’ Motion and moved for reconsideration of
the Court’s Final Order #1015 (“BATCo Mot.”). BATCo argues that the
Supreme Court’s intervening decision in Morrison v. National
Australia Bank Ltd., 130 S. Ct. 2869, 177 L.Ed.2d 535 (2010),
rejected the “effects” test for extraterritoriality, thereby
invalidating the basis for BATCo’s liability under RICO. BATCo Mot.
1. On February 7, 2011, the United States filed its reply and
opposition [Dkt. No. 5861]. On February 21, 2011, BATCo filed its
reply [Dkt. No. 5868].
II. STANDARD OF REVIEW
The central issue presented by these two motions is whether
BATCo’s Motion for Reconsideration should be granted due to an
intervening change of controlling law. The parties agree that
3
BATCo’s Motion may be considered under Federal Rule of Civil
Procedure 60(b)(5). U.S. Opp’n 1 n. 1, 2; BATCo Mot. 9 n. 5.
Rule 60(b)(5) provides, in relevant part, that a district
court may grant relief from a final order if “applying it
prospectively is no longer equitable.” Fed. R. Civ. P. 60(b)(5)
(2011). The Supreme Court has held that “it is appropriate to grant
a Rule 60(b)(5) motion when the party seeking relief from an
injunction or consent decree can show ‘a significant change either
in factual conditions or in law.’” Agostini v. Felton, 521 U.S.
203, 215, 117 S. Ct. 1997, 138 L.Ed.2d 391 (1997) (quoting Rufo v.
Inmates of Suffolk County Jail, 502 U.S. 367, 384, 112 S. Ct. 748,
116 L.Ed.2d 867 (1992)). The Court went on to explain that “[a]
court may recognize subsequent changes in either statutory or
decisional law.” Agostini, 531 U.S. at 215 (citing Railway
Employees v. Wright, 364 U.S. 642, 652-653, 81 S.Ct. 368, 5 L.Ed.2d
349 (1961) (consent decree should be vacated under Rule 60(b) in
light of amendments to the Railway Labor Act); Rufo, 502 U.S. at
393 (vacating denial of Rule 60(b)(5) motion and remanding so
District Court could consider whether consent decree should be
modified in light of Bell v. Wolfish, 441 U.S. 520, 99 S.Ct. 1861,
60 L.Ed.2d 447 (1979)); Pasadena City Bd. of Ed. v. Spangler, 427
U.S. 424, 437-438, 96 S.Ct. 2697, 49 L.Ed.2d 599 (1976) (injunction
should have been vacated in light of Swann v. Charlotte-Mecklenburg
Bd. of Ed., 402 U.S. 1, 91 S.Ct. 1267, 28 L.Ed.2d 554 (1971))); see
4
also Potter v. District of Columbia, 558 F.3d 542, 554 (D.C. Cir.
2009).3
In its Motion, BATCo erroneously relies on Rule 54(b),
although it suggests that Rule 60(b)(5) could serve as an
alternative procedural vehicle. Rule 54(b) states, in relevant
part, that “any order or other decision, however designated, that
adjudicates fewer than all the claims or the rights and liabilities
of fewer than all the parties does not end the action as to any of
the claims or parties and may be revised at any time before the
entry of a judgment adjudicating all the claims and all the
parties’ rights and liabilities.” Fed. R. Civ. P. 54(b). In order
to meet the requirements of Rule 54(b), BATCo contends that “this
Court’s July 29, 2010 [O]rder entering the D.C. Circuit’s mandate
as the judgment of this Court is not a final judgment, because
3
BATCo argues that its Motion may also be considered under
Rule 60(b)(6). Rule 60(b)(6) permits a district court to grant
relief from a final order for “any other reason that justifies
relief.” Fed. R. Civ. P. 60(b)(6). The Supreme Court has held that
only exceptional or extraordinary circumstances can justify relief
under Rule 60(b)(6). Ackermann v. United States, 340 U.S. 193,
199-202, 71 S. Ct. 209, 95 L.Ed. 207 (1950). Our Court of Appeals
has further cautioned that the Rule “should be only sparingly
used.” Twelve John Does v. District of Columbia, 841 F.2d 1133,
1140 (D.C. Cir. 1988) (quoting Good Luck Nursing Home, Inc. v.
Harris, 636 F.2d 572, 577 (D.C. Cir. 1980)). Most importantly,
“[i]ntervening developments in the law by themselves rarely
constitute the extraordinary circumstances required for relief
under Rule 60(b)(6).” Agostini, 521 U.S. at 239; see also Acree v.
Republic of Iraq, No. 08-5375, 2009 WL 1953503, at *1 (D.C. Cir.
Feb. 17, 2009). For these reasons, the Court concludes that Rule
60(b)(6) does not apply in this instance.
5
there has been no final resolution of all the claims and requests
for relief as to all the parties.”4 BATCo Mot. 8-9 n. 5.
BATCo is simply wrong about the scope of Rule 54(b). The
Federal Circuit has held that “Rule 54(b), which concerns the power
of the trial court before appeal, is not applicable” where the
Court of Appeals has affirmed a portion of the judgment. King
Instrument Corp. v. Otari Corp., 814 F.2d 1560, 1563 (Fed. Cir.
1987) (emphasis in original); Nat’l Australia Bank v. U.S., 74 Fed.
Cl. 435, 438 (Fed. Cl. 2006); Home Savings of America, F.S.B. v.
U.S., 69 Fed. Cl. 187, 190 (Fed. Cl. 2005); see also Jones v.
District of Columbia, 646 F. Supp. 2d 42, 46-47 (D.D.C. 2009) (res
judicata applies to claims upon which judgment is affirmed by the
Court of Appeals, even when judgment is reversed as to other
claims).
Therefore, in light of King Instrument Corp., Rule 54(b) has
no applicability to this case, since appeals have been exhausted
and the judgment of liability has been affirmed by the Court of
Appeals. See King Instrument Corp., 814 F.2d at 1563; Jones, 646 F.
Supp. 2d at 46-47.
Consequently, the Court concludes that Rule 60(b)(5), not Rule
54(b), properly governs BATCo’s Motion for Reconsideration.
4
The order BATCo refers to is not, in fact, an order of this
Court. Rather, it is the Mandate of the Court of Appeals, entered
by the Clerk of that court. See Mandate of USCA, July 29, 2010
[Dkt. No. 5817].
6
III. ANALYSIS
A. Intervening Change of Law Under Rule 60(b)(5)
The dispositive issue presented in both Motions is whether
RICO continues to have extraterritorial reach after the Supreme
Court’s decision in Morrison, 130 S. Ct. 2869. BATCo contends that
“Morrison changed the law concerning the use of the ‘effects’ test
to measure extraterritoriality and invalidated the legal basis for
both the D.C. Circuit’s and this Court’s rulings with respect to
BATCo’s RICO liability.” BATCo Mot. 9. The Government argues that
Morrison applied only to Section 10(b) of the Securities Exchange
Act and not to RICO, because “Morrison did not turn principally on
the presumption against extraterritoriality.” U.S. Mot. 8.
Fortunately, Morrison’s language is clear. “When a statute
gives no clear indication of an extraterritorial application, it
has none.” Morrison, 130 S. Ct. at 2878. “Rather than guess anew in
each case, we apply the presumption in all cases, preserving a
stable background against which Congress can legislate.” Id. at
2881 (emphasis added). That language demonstrates that the Supreme
Court intended the presumption against extraterritoriality to apply
to all statutes, not simply the Exchange Act. This conclusion is
further confirmed by the structure of Justice Scalia’s majority
opinion. In Section IIIA, that opinion sets out the Supreme Court’s
general rule on extraterritoriality, to be applied “in all cases,”
and then in Section IIIB specifically applies that general rule to
7
the Exchange Act. See id. at 2875-2888. The Government’s argument
ignores the plain language of Morrison and ignores its presumption
against territoriality and accompanying rejection of the “effects”
test. Therefore, the Court concludes that the ruling in Morrison
must be applied to RICO.5 Id. at 2880-81.
Two courts––the Court of Appeals for the Second Circuit and
the District Court for the Southern District of New York––have each
considered RICO’s extraterritorial reach in light of Morrison. Both
have held that the RICO statute does not contain evidence of
Congressional intent to apply extraterritorially, and therefore
does not overcome Morrison’s presumption. Norex Petroleum Ltd. v.
Access Indus., Inc., 631 F.3d 29, 32-33 (2d Cir. 2010);6 Cedeno v.
5
Indeed, it would make particularly little sense to confine
Morrison proscription against the “effects” test to the Exchange
Act, as RICO’s “effects” test was explicitly borrowed from the
Exchange Act context. See, e.g., N. S. Fin. Corp. v. Al-Turki, 100
F.3d 1046, 1051 (2d Cir. 1996) (“Although there is little caselaw
in this Circuit regarding the extraterritorial application of RICO
. . . guidance is furnished by precedents concerning subject matter
jurisdiction for international securities transactions and
antitrust matters.”); Philip Morris, 449 F. Supp. 2d at 873 (citing
Al-Turki).
6
The Second Circuit did note, “we have no occasion to
address––and express no opinion on––the extraterritorial
application of RICO when enforced by the government pursuant to
Sections 1962, 1963 or 1964(a) and (b).” Norex, 631 F.3d at 33. The
United States argues that in cases of civil and criminal
enforcement by the Government there is a presumption of
extraterritorial application under U.S. v. Bowman, 260 U.S. 94, 27
S. Ct. 655, 51 L.Ed. 956 (1922). See U.S. Mot. 19-27. As Defendants
point out, however, Bowman only applied the relevant criminal
statute to extraterritorial conduct because the statute was based
on “the right of the government to defend itself against
(continued...)
8
Intech Group, Inc., 733 F. Supp. 2d 471, 473-74 (S.D.N.Y. 2010).
Indeed, this Court has already ruled that “‘RICO itself is silent
as to its extraterritorial application.’” U.S. v. Philip Morris
USA, Inc., et al., 477 F. Supp. 2d 191, 197 (D.D.C. 2007) (quoting
Poulos v. Caesars World, Inc., 379 F.3d 654, 663 (9th Cir. 2004)).
The Government argues that because some of the predicate acts
which may give rise to a “racketeering activity” prohibited by RICO
are extraterritorial in nature Congress must have assumed that RICO
would have extraterritorial scope in general. U.S. Mot. 20-23. The
question under Morrison, however, is whether Congress intended RICO
to criminalize extraterritorial activity. As Judge Rakoff explained
in rejecting the same argument in Cedeno,
it is plain on the face of the statute that
the statute is focused on how a pattern of
racketeering affects an enterprise: it is
these that the statute labels the “Prohibited
activities,” 18 U.S.C. § 1962. But nowhere
does the statute evidence a concern with
foreign enterprises, let alone a concern
sufficiently clear to overcome the presumption
against extraterritoriality . . . . RICO is
not a recidivist statute designed to punish
6
(...continued)
obstruction, or fraud wherever perpetrated, especially if committed
by its own citizens, officers, or agents.” Bowman, 260 U.S. at 98(emphasis added). Bowman distinguished this category from crimes
against individuals, which “must, of course, be committed within
the territorial jurisdiction of the government.” Id.; see also U.S.
v. Gatlin, 216 F.3d 207, 2011 n. 5 (2d Cir. 2000) (explaining that
the “Bowman rule” does not apply to crimes against private
individuals). As the Defendants’ criminal enterprise does not
implicate “the right of the government to defend itself,” Bowman
poses no obstacle to the proper application of Morrison here.
Bowman, 260 U.S. at 98.
9
someone for committing a pattern of multiple
criminal acts. Rather it prohibits the use of
such a pattern to impact an enterprise . . . .
Thus, the focus of RICO is on the enterprise
as the recipient of, or cover for, a pattern
of criminal activity.
733 F. Supp. 2d at 473-74. In short, whether or not a criminal
enterprise committed a predicate act with extraterritorial
scope––and, in any case, no such extraterritorial predicate act is
implicated here––there is no evidence that Congress intended to
criminalize foreign racketeering activities under RICO.
The Government next argues that even if RICO does not have
extraterritorial reach, BATCo’s RICO liability may be premised on
its domestic conduct. U.S. Mot. 8-19. The Government points to
communications between BATCo and United States companies and
organizations, visits made to the United States by BATCo scientists
and officials, and BATCo’s involvement with an experimental farm in
North Carolina. Id. at 15-16.
The problem with the Government’s argument is that BATCo’s
domestic conduct was not the basis for its RICO liability in this
case. At trial the Government never argued that BATCo’s domestic
activity provided an adequate basis for RICO liability.
Accordingly, this Court found,
While it is true that many of BATCo's
activities and statements took place outside
of the United States, they nevertheless had
substantial direct effects on the United
States. First, many of BATCo's statements and
policies at issue in this case concerned U.S.
subsidiary/affiliate Brown & Williamson and
10
potential litigation in the United States.
Second, and most importantly, BATCo's
activities and statements furthered the
Enterprise's overall scheme to defraud, which
had a tremendous impact on the United States,
as demonstrated in the Findings of Fact.
Philip Morris, 449 F. Supp. 2d at 873. Moreover, the Court of
Appeals affirmed on the same rationale, namely “that BATCo’s
participation had substantial, direct, and foreseeable effects in
the United States.” Philip Morris, 566 F.3d at 1131.
Further, isolated domestic conduct does not permit RICO to
apply to what is essentially foreign activity. As the Supreme Court
stated, “it is a rare case of prohibited extraterritorial
application that lacks all contact with the territory of the United
States” and “the presumption against extraterritorial application
would be a craven watchdog indeed if it retreated to its kennel
whenever some domestic activity is involved in the case.” Morrison,
130 S. Ct. at 2884; see also Norex, 631 F.3d at 33 (“slim contacts
with the United States . . . are insufficient to support
extraterritorial application of the RICO statute”); Cedeno, 733 F.
Supp. 2d at 473 (rejecting the argument that alleging predicate
acts of money laundering involving transfers in and out of the
United States overcomes the prohibition against extraterritorial
application).
In conclusion, the Supreme Court, in crystal clear language,
rejected the “effects” test for extraterritorial application.
Morrison, 130 S. Ct. at 2881. In rejecting that test, the Supreme
11
Court invalidated the sole basis for BATCo’s liability.7 Philip
Morris, 449 F. Supp. 2d at 873; Philip Morris, 566 F.3d at 1131.
Therefore, applying the Court’s Final Order #1015 against BATCo
“prospectively is no longer equitable.” Fed. R. Civ. P. (60)(b)(5).
B. Application of Rule 60(b)(5)
Our Court of Appeals has made clear that “an order of judgment
may be modified under [the relevant] portion of Rule 60(b)(5) only
to the extent that it has ‘prospective application.’” Twelve John
Does, 841 F.2d at 1138. The “standard we apply in determining
whether an order or judgment has prospective application within the
meaning of Rule 60(b)(5) is whether it is ‘executory’ and involves
‘the supervision of changing conduct or conditions.’” Id. at 1139.
There is no question that the injunctive relief contained in
Order #1015 is “executory” and/or involves “the supervision of
changing conduct or conditions.” Id. at 1139. However, Order #1015
also requires Defendants to “pay the appropriate costs of the
prevailing party, which is the Government.” Order #1015, at ¶ 21.
Our Court of Appeals has ruled that money damages do not have
“prospective application.” Twelve John Does, 841 F.2d at 1138.
Although the requirement to pay costs does not constitute “money
damages,” neither does it involve “the supervision of changing
7
The Government has raised a number of arguments as to why
Morrison does not control. Parties can be assured that the Court
considered them in detail, but firmly believes that Morrison
dictates the outcome in this case.
12
conduct or conditions.” Id. at 1139. There is therefore no basis in
Rule 60(b)(5) to modify ¶ 21 of Order #1015. Accordingly, BATCo is
no longer subject to the provisions of Order #1015 with the
exception of ¶ 21. BATCo must contribute to the payment of the
Government’s costs.
IV. CONCLUSION
For the reasons set forth above, Plaintiff’s Motion to Compel
is granted in part8 and denied in part and Defendant BATCo’s Motion
for Reconsideration is granted in part and denied in part.9
An Order will issue with this opinion.
/s/
March 28, 2011 Gladys Kessler
United States District Judge
Copies to: counsel of record via ECF
8
The Court is referring to the requirement that BATCo
contribute to payment of the Government’s costs.
9
See supra note 8.
13