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8 SUPERIOR COURT OF THE STATE OF CALIFORNIA

9 FOR THE COUNTY OF SAN DIEGO 10 Coordination Proceedings JCCP 4042 Special Title (Rule 1550(b)) 11 STATEMENT OF DECISION In re TOBACCO CASES II 12 Judge: Hon. Ronald S. Prager This document relates to: Dept.: 71 13 Willard R. Brown, et al. v. The American 14 Tobacco Co., Inc., et al. 15 (San Diego Superior Court 16 Case No. 711400) 17 18 I. PROCEDURAL HISTORY 19 The original complaint in this action was filed on June 10, 1997 in San Diego Superior 20 Court, Case No. 711400 under the caption Willard R. Brown, et al. v. American Tobacco Co., et al. 21 This action has been coordinated with a number of actions under the caption In re Tobacco Cases 22 II, JCCP No. 4042. 23 In 2001, Plaintiffs filed a Seventh Amended Complaint, which alleged numerous causes of 24 action, including unfair competition under the Unfair Competition Law (UCL) (Bus. & Prof. Code, 25 §17200 et seq.) and the False Advertising Law (FAL) (id., §17500 et seq.). A violation of the FAL 26 is necessarily a violation of the UCL. (Brockey v. Moore (2003) 107 Cal.App.4th 27 violation of the false advertising law is a violation of the U 28 provisions of the UCL and FAL are interpreted in the same fashion and allow for the same type of -1- STATEMENT OF DECISION 1 relief. (In re Vioxx Class Cases (2010) 180 Cal.App.4th 116, 131, fn. 15 (Vioxx), citing Bank of the 2 West v. Super. Ct. (1992) 2 Cal.4th 1254, 1272-1273 (Bank of the West).) Further references to the 3 UCL refer both to the UCL and the FAL. 4 In April 2001, over objections, this Court 5 certified a class for the UCL claims. The class, as t 6 time they were residents of California, smoked in California one or more cigarettes between June 7 8 activities in Cal 9 In September 2002, the parties entered into a stipulation that narrowed the issues Plaintiffs 10 I 11 the Court on September 13, 2002. 12 In the course of summary judgment proceedings in 2004, Plaintiffs grouped their remaining 13 UCL claims into six issues. (In re Tobacco Cases II (Super. Ct., San Diego County, 2004, JCCP 14 No. 4042) 2004 WL 2445337, at p. *1.) 15 Issue 1(a) (targeting advertising toward youth); 16 Issues 1(b) and 5 (false denials of youth targeting and false statements of compliance 17 with the Cigarette Advertising Code); 18 19 Issue 3 (false statements concerning additives); 20 Issue 4 (false statements regarding alleged nicotine manipulation and additives); and 21 Issue 6 (false statements concerning the health hazards and addictiveness of 22 smoking). 23 24 Federal Cigarette Labeling and Advertising Act, 15 U.S.C. section 1334(b) (FCLAA). (In re 25 Tobacco Cases II, supra, 2004 WL 2445337.) This C youth 26 advertising claim (Issue 1(a)) was additives theory (Issue 3) failed to 27 state a claim, was preempted, and violated the First Amendment. (Ibid.)

28 /// -2- STATEMENT OF DECISION 1 Issues 1(b), 4, 5, and 6 survived summary judgment at that time. These issues related to: 2 alleged false denials of youth targeting and false statements of compliance with the Cigarette 3 Advertising Code (Issues 1(b) & 5), alleged false statements regarding nicotine manipulation and 4 additives (Issue 4), and alleged false statements about the health hazards and addictiveness of 5 smoking (Issue 6). 6 In November 2004, California voters enacted Proposition 64, which amended the standing 7 8 , §17204.) 9 This Court subsequently decertified the class on the ground that whether class members could 10 satisfy the standing requirements of Proposition 64 required individual inquiries. (In re Tobacco II 11 Cases (2009) 46 Cal.4th 298, 310-311 (Tobacco II).) 12 13 did not apply to absent class members in a UCL class action. (Tobacco II, supra, 46 Cal.4th at p. 14 324.) At the time the California Supreme Court considered the case, the Lights claim (Issue 2) was 15 not California 16 Supreme Court in Tobacco II). 17 On remand from the California Supreme Court, this Court reinst 18 objections, the Lights claim in response to the United States 19 in Altria Group, Inc. v. Good (2008) 555 U.S. 70. 20 On September 10, 2010, Plaintiffs filed a Tenth Amended Complaint on behalf of two 21 named plaintiffs: Janel Alvarez (Alvarez) and Damien Bierly (Bierly). On February 24, 2011, the 22 Court ruled that Alvarez and Bierly did not meet the standing adequacy and typicality requirements 23 to represent the class. 24 On July 1, 2011, Plaintiffs filed their now-operative Eleventh Amended Complaint, naming 25 five new class representatives. In that complaint, Plaintiffs abandoned their claims relating to youth 26 targeting (Issues 1(b) and 5). 27 On May 24, 2012, n that the class 28 representatives do not meet the standing, adequacy and typicality requirements to represent the -3- STATEMENT OF DECISION 1 class and issued an order dismissing the action. At the time the motion was filed, one of the five 2 named plaintiffs, Phillip Toole, had withdrawn from the case. Thus, the ruling only dealt with the 3 other named Plaintiffs: Renee Bernardo, Julie Crandall, Trina Watton, and Tim Carlin. This Court 4 ruled that the remaining named class representatives in the Eleventh Amended Complaint lacked 5 standing to represent the class on the remaining non-Lights claims, i.e., alleged false statements 6 regarding nicotine manipulation and additives (Issue 4) and alleged false statements about the 7 health hazards and addictiveness of smoking (Issue 6). The Court also decertified the class as to 8 both Issues 4 and 6. 9 On that same date, this Court found that only one of the named class representatives, Trina 10 Watton, had standing to represent the class with respect to the Lights claim (Issue 2). This Court 11 12 On September 26, 2012, this Court, at Plaintiffs request, dismissed with prejudice all 13 remaining Defendants except for PM USA. 14 In light of these developments in the case, on March 26, 2013, this Court amended the class 15 definition to reflect the dismissal of all Defendants except PM USA. 16 On June 11, 2013, the Court redefined the class objective as: All people who, at the time 17 they were residents of California, smoked in California between January 1, 1998, and April 23, 18 2001, one or more Marlboro Lights cigarettes manufactured by Philip Morris USA Inc., and who 19 were exposed to defendant 20 Transcript 5/14/13 at pp. 2222-2223 (RT); June 11, 2013, Order Amending Class Definition.) 21 II. 22 The holdings of the California Supreme Court constitute the law of the case and bind this 23 Court. Despite hesitancy of some appellate courts to extend the holdings of Tobacco II to other 24 cases based on different facts, unquestionably holdings of Tobacco II govern this trial. 25 Accordingly, this Statement of Decision sets forth the holdings and will apply them to the facts of 26 this case. 27 /// 28 /// -4- STATEMENT OF DECISION 1 A. Standing 2 Under Proposition 64, the standing requirements are applicable only to the class 3 representative. (Tobacco II, supra, 46 Cal.4th at pp. 314-324.) Only the class representative must 4 demonstrate actual reliance on the allegedly deceptive or misleading statements. (Ibid.) Here, class 5 representative, Trina Watton, was misled by the descriptors in packages of Marlboro Lights stating 6 ed to believe that Marlboro Lights were less 7 harmful than full-flavored cigarettes such as Marlboro Reds. 8 B. Elements of UCL false advertising claim 9 In a fraud case, 10 falsity, and reasonable reliance of a plaintiff, but these requirements do not apply in a false 11 advertising/UCL case. Relief under the UCL is available without individualized proof of deception, 12 reliance or injury. (Tobacco II, supra, 46 Cal.4th at p. 320, citing Bank of the West, supra, 2 13 Cal.4th at p. 1267; Com. of Ch Foods Corp. (1983) 35 Cal.3d 197, 14 211.) The overriding purpose of the UCL statute is to protect the general public against unlawful 15 business practices; therefore, in UCL 16 Tobacco II, supra, 46 Cal.4th at p. 312.) While the plaintiff must show that 17 the misrepresentation was an immediate cause of the injury, the plaintiff need not demonstrate that 18 it was the only cause or even the predominant or decisive factor influencing his conduct. (Id. at p. 19 326.) 20 C. Restitution to the class 21 Proposition 64 did nothing to limit the availability of class actions under the UCL or to alter 22 the standing requirements of absent class members under the UCL. (Tobacco II, supra, 46 Cal.4th 23 at p. 319.) Business & Professions Code section 17203 states that restitution restores to any person 24 in interest, i.e., class member, any money which may have been acquired by means of the unfair 25 business practice. This is a patently less stringent standard for class members than the standing 26 requirement for class representatives who must have suffered actual injury in fact as a result of the 27 unfair competition. This satisfies the concern that wrongdoers not retain the benefit of their 28 misconduct. (Id. at p. 320.) -5- STATEMENT OF DECISION 1 D. Justice B 2 In his concurring and dissenting opinion in Tobacco II, Justice Baxter pointed out the direct 3 4 allegedly deceptive advertising claim when buying and smoking cigarettes, plaintiffs may seek 5 injunctive and restitutionary relief on behalf of all California smokers who simply saw or heard 6 such ads or in this case knowingly smoked Marlboro Lights during the period at issue, regardless of 7 whether false claims contained in tho 8 buy or smoke Marlboro Lights cigarettes. (Tobacco II, supra, 41 Cal.4th at p.330 (conc. & dis. 9 opn. of Baxter, J.).) 10 III. PM USA MISREPRESENTED THE HEALTH BENEFITS OF MARLBORO 11 LIGHTS. 12 A. D 13 coupled 14 wording on packs of Marlboro Lights represented to some purchasers of Marlboro Lights cigarettes 15 during the class period that these cigarettes delivered less tar and nicotine to smokers and were, 16 therefore, less harmful than full-flavored cigarettes such as Marlboro Reds. In reality, however, to 17 make up for the reduced tar and nicotine of Marlboro Lights, most smokers compensated by various 18 means such as increasing the number of cigarettes smoked, the frequency of puffing, the degree of 19 inhalation, and smoking more of the rod. As actually smoked, most smokers of Marlboro Lights 20 obtained no significant reduction in the actual amount of tar and nicotine they consumed. 21 B. PM USA knew there was no health benefit. 22 Further, based on information, including its own studies, executives admitted 23 they knew Marlboro Lights were just as harmful as Marlboro Reds and other full-flavored 24 cigarettes but failed to disclose this information to consumers. In fact, after the class period PM 25 USA placed onserts on 55 million packs of Marlboro Lights sold in California which truthfully 26 stated that Marlboro Lights did not reduce the likelihood of disease and did not offer any health 27 benefits. Thus, during the class period PM USA misrepresented that Marlboro Lights were less 28 harmful than Marlboro Reds or other full-flavored cigarettes. -6- STATEMENT OF DECISION 1 IV. SCIENTIFIC STUDIES 2 3 not quit smoking, light cigarettes were safer than full-flavored cigarettes because light cigarettes 4 delivered less tar and nicotine. However, 5 revealed that, as actually smoked, Marlboro Lights provided no significant reduction in the amount 6 of tar and nicotine ingested by most smokers. For example, a PM USA switching study conducted 7 by Barbro Goodman in 1975 revealed that smokers who kept smoking Marlboro Reds got 21.7 mgs. 8 of tar, while those who switched from Marlboro Reds to Marlboro Lights received 22.1 mgs. of tar. 9 Various mutagenicity studies by PM USA beginning in 1977 and continuing to 2001 showed light 10 cigarette smoke caused more harmful mutations in bacteria than regular cigarette smoke. Another 11 study by INBIFO, a laboratory of PM USA, performed in 1982 revealed that light cigarette smoke 12 13 PM USA scientists performed three different animal studies on the propensity of cigarette 14 smoke to produce tumors in animals. In each of these studies, the light cigarette smoke produced 15 more tumors in animals than regular cigarette smoke. 16 In October 2001, the National Cancer Institute published Monograph 13 which reflected the 17 emerging consensus of the public health community that light cigarettes were as harmful as regular 18 cigarettes. Monograph 13 recommended that health care professionals so advise their patients. 19 This was a dramatic change from the advice previously given by health care professionals for many 20 years, i.e., that if a smoker could not quit, the next best thing was to smoke cigarettes with reduced 21 tar and nicotine. 22 At trial, the Court heard convincing testimony from pulmonologist Dr. David Burns, M.D. 23 (Dr. Burns), the Senior Scientific Editor of Monograph 13, who testified that Marlboro Lights were 24 no safer, healthier, or less harmful than regular cigarettes and offered no reduction in disease 25 compared to Marlboro Reds. Dr. Burns has been actively involved with the preparation of every 26 27 cigarettes and continuing in the 1 28 nicotine cigarettes such as Marlboro Lights, there has been a continuing trend to lower tar and -7- STATEMENT OF DECISION 1 nicotine cigarettes. Despite this trend, epidemiological evidence has shown an increased rate of 2 lung cancer among cigarette smokers. During these years, there has also been an increase in 3 adenocarcinoma, a cancer of the deeper, alveolar regions of the lungs. Dr. Burns and other well 4 qualified experts explain this increase is caused by compensation, the tendency of light cigarette 5 smokers to inhale more deeply to achieve the same nicotine levels provided by less deep inhalation 6 of regular cigarettes. (See, e.g., the 1997 Study of Dr. Michael Thun, Exhibit 25494.) At the same 7 time adenocarcinoma rates were increasing among smokers, there was no change in the rate of 8 adenocarcinoma in the population at large of non-smokers. In addition, after Monograph 13 was 9 PS II, a study of one million men and women 10 monitored for over six (6) years found that smokers of regular, lights and ultra-lights all had the 11 same lung cancer risk when adjusted for cigarettes per day. 12 V. COMPENSATION IS ESSENTIALLY COMPLETE 13 According to Dr. Burns and many other experts, when smokers switch from Marlboro Reds 14 to Marlboro Lights, compensation is essentially complete. The level of tar and nicotine for a 15 Marlboro Lights cigarette, 11 mgs. of tar and .8 mgs. of nicotine, is not that different from a 16 Marlboro Reds cigarette which has 15 mgs. of tar and 1.1 mgs. of nicotine when smoked by the 17 FTC machine. Even though the level of tar and nicotine in Marlboro Lights is lower than Marlboro 18 Reds, when a real person, not a smoking machine, switches from Marlboro Reds to Marlboro 19 Lights, it is very easy to compensate simply by taking one or two extra puffs of each cigarette. 20 Compensation may also occur when the smoker takes larger puff volumes, takes more frequent 21 puffs, smokes down the rod closer to the filter, and/or covers the vent holes in Marlboro Lights with 22 either his lips or his fingers. 23 Internal memos written to high level employees of PM USA 24 scientists and executives knew the mechanics of compensation and 25 that compensation was essentially complete so that smokers maintain essentially the same dosage of 26 nicotine regardless of whether they smoke a light or a regular cigarette. 27 /// 28 /// -8- STATEMENT OF DECISION 1 VI. LIKELY TO DECEIVE 2 At the highest levels of PM USA ators such as James Morgan, 3 CEO, and Ellen Merlo, Vice President, knew that Marlboro Lights were no healthier than Marlboro 4 Reds. PM USA s internal documents revealed that high level executives knew that smokers 5 perceived that light cigarettes such as Marlboro Lights were less harmful than full-flavored 6 cigarettes such as Marlboro Reds. These beliefs were confirmed by smoker perception studies 7 funded by PM USA which showed that smokers believed light cigarettes were less harmful. Yet 8 before and during this class period, PM USA continued to sell light cigarettes without correcting 9 this deception and persistently failed to disclose that Marlboro Lights actually provided smokers 10 with the same amount of tar and nicotine as regular cigarettes because of the way Marlboro Lights 11 were actually smoked. Later as evidenced by millions of onserts and tear strips integrated into 12 packs of Marlboro Lights as well as website messages published after the class period, PM USA 13 admitted to what it knew during the class period: light cigarettes offered no health benefits over 14 regular cigarettes. 15 16 denied. 17 VII. RESTITUTION 18 The Court may not issue any restitution award unsupported by substantial evidence. 19 (Colgan v. Leatherman Tool Group, Inc. (2006) 135 Cal.App.4th 698, 700 (Colgan).) Restitution 20 measurable amounts which are wrongfully 21 taken by means of unfai Day v. AT&T Corp. (1998) 63 Cal.App.4th 325, 339 22 23 Korea Supply v. Lockheed Martin Corp. (2003) 29 24 Cal.4th 1134, 1148.) 25 Plaintiffs relied exclusively on a survey employing conjoint analysis in an attempt to 26 quantify restitution in this case. Dr. Joel H. Steckel (Dr. Steckel), P 27 administered an online conjoint survey to 652 respondents requiring them to choose between three 28 hypothetical cigarette products in 16 choice sets. The three hypothetical cigarette products in each -9- STATEMENT OF DECISION 1 choice set contained four product attributes: (1) pack type; (2) health risks; (3) taste; and (4) price. 2 Dr. Steckel used off-the-shelf Sawtooth software to generate 10,000 draws, or estimated choices, 3 Using the computer output from these simulated choices Dr. 4 Steckel compared the utility that survey respondents purportedly placed on the health risks of 5 Marlboro Lights to Marlboro Reds to their utility for various price levels. 6 For example, if survey respondents received the same utility from the health risks of 7 Marlboro Lights relative to Marlboro Reds from a 50 percent discount of the price of Marlboro 8 Lights, Dr. Steckel would conclude these respondents would be willing to pay 50 percent of the 9 price of Marlboro Lights to obtain the lesser health risks of Marlboro Lights to Marlboro Reds. Dr. 10 Steckel calculated a statistical average of all respondents of these utilities to conclude that 40.8 11 percent of the money class members spent on light cigarettes was based on the reduced health risks 12 of light cigarettes. Plaintiffs , then multiplied the 13 amount received by Philip Morris for sales of light cigarettes, $1.333 billion, by 40.8 percent to 14 arrive at a restitution value of $543.6 million. 15 For a wide variety of reasons, the conjoint analysis failed to satisfy P 16 providing a reliable measure of restitution. First, P from several 17 fundamental flaws: It does not measure restitution as defined by California law; conjoint analysis is 18 not accepted by the relevant expert community to assign monetary value to a particular product 19 attribute; and the survey methodology was flawed in many ways. Second, this flawed model 20 produced nonsensical results. And third, real world indicators convincingly show that P 21 model does not reflect reality. Based on the totality of the evidence, P 22 provide any reasonable basis to support an award of any amount of restitution and the totality of the 23 evidence suggests the amount of actual restitution is zero. 24 A. Plaintiffs did not measure restitution as defined by California law. 25 Restitution entitles the plaintiff to recover the difference between the price of the product 26 and the value of the produce received. (See Vioxx, supra, 180 Cal.App.4th at p. 131.) Stated in 27 other words, to prove a claim for restitution, a 28 Cortez v. Purolator Air -10- STATEMENT OF DECISION 1 Filter (2000) 23 Cal.4th 163, 174 (Cortez).) Restitution does not allow Plaintiffs 2 i.e., the difference between the value promised and the actual value 3 received. (See Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1240.) In other words, 4 5 restitution reimburses customers only for the difference between value paid and the actual value 6 received. Simply receiving less than the expected value of a product does not entitle a consumer to 7 restitution if the actual value of the product still exceeds the market price paid for it. 8 In this case, P based on the 9 . 10 RT 5/15/13 at pp. 2252- 11 2253, 2590.) By focusing only on the cons 12 model ignored the market value of the entire product without the misrepresented attribute. This 13 does not measure restitution, which is based on the market value paid minus the value of the 14 product rece 15 received discounted for any misrepresented health benefit. To be entitled to restitution, however, 16 plaintiffs must present evidence of the market value of the product without the allegedly fraudulent 17 representation. (Bagdasarian v. Gragnon (1948) 31Cal.2d 744, 753; See also Colgan, supra, 135 18 Cal.App.4th at p. 700.) 19 Tellingly, the only other time the conjoint model was used to place a monetary value on a 20 single product attribute was by plaintiffs in another light cigarette case in Missouri. But in 21 22 methodology before applying it to this case. Dr. Steckel admitted that he did not calculate value 23 paid less value received, i.e., he did not calculate restitution as defined by California law. (RT 24 5/15/13 at pp. 2551-2552) Dr. Steckel also conceded that his model could not be used to determine 25 the value of Marlboro Lights without the alleged misrepresentation, i.e., he did not measure what he 26 should have measured in a restitution case value received which should be compared to amount 27 paid. Thus, even assuming that the conjoint method correctly measured what it purported to, it 28 measured the wrong thing by attempting to value one attribute, health benefits. According to -11- STATEMENT OF DECISION 1 California law, however, he should have measured the value of the product with all of its attributes, 2 subtracted the value of misrepresentations of health benefits and compared that amount to the price 3 paid. 4 B. Conjoint analysis is not generally accepted in the relevant community of experts for 5 determining a monetary value of a particular attribute of a product. 6 Conjoint analysis was not intended to be used for the purpose employed by Plaintiffs in this 7 case. Although conjoint surveys have been utilized to determine or rank consumer preferences for 8 certain product attributes, conjoint analysis has not been accepted in the relevant scientific 9 community as a means of assigning a monetary value to any particular attribute. Even the creator 10 of the Sawtooth software cautioned that it could not be used to convert its measured utilities to 11 dollar equivalents. 12 Additionally, the interpersonal comparison of utilities Dr. Steckel used is unsupported by 13 14 15 y for price to generate a composite willingness to pay value. Based on 16 these calculations, Dr. Steckel reached the conclusion that a composite representative class member 17 paid 40.8 percent of the price of Marlboro Lights to obtain their perceived reduced health risk. 18 19 fundamental economic principle that each utility is unique to a particular respondent and that it is 20 improper to mix utilities of one person with that of another. 21 supported by any accepted statistical or economic 22 class member is meaningless for purposes of assigning value to a particular attribute across the 23 class. Because Dr. is not generally accepted by experts in the field, his 24 survey results are inadmissible. 25 Significantly, Dr. Pindyck, one of P 26 estimate should be corrected by eliminating improper interpersonal comparisons. Correction of this 27 single error reduced the WTP from 40.8 percent to 22.8 percent and the amount of requested 28 restitution from $543.6 million to $304 million. Any survey methodology producing such a wide -12- STATEMENT OF DECISION 1 range of results is not worthy of general acceptance in the scientific community. Further, the Court 2 notes that this single dramatic correction reveals but one of the many methodological flaws in the 3 P among many others enumerated below. 4 C. The survey methodology was flawed. 5 For a survey of relatively few respondents to accurately reflect a much larger population, the 6 respondents must comprise a statistically based random sample. To the extent that the small sample 7 group does not reflect the whole population, the results cannot be properly projected to any larger 8 group. 9 In this case, 70 percent 10 - . The respondents had 11 previously volunteered to take surveys and were not chosen randomly. Only the remaining two 12 panels, comprising less than one-third of the survey population, were selected on a random basis. 13 All respondents who completed the survey received a monetary reward. 14 percent non-probability based 15 respondents with the 30 percent of randomly chosen respondents. But P J. 16 Michael Dennis (Dr. Dennis), who established a proposed methodology for blending probability 17 and non-probability samples, admitted that his procedure for blending was not followed here. 18 The evidence also revealed that many of the survey respondents were not class members. 19 Sometimes survey respondents lie to qualify for internet based surveys. In this case, statistical 20 analysis established a high likelihood that non-class members were falsely stating they were the 21 household member selected to complete the survey when in fact, some other household member 22 was selected. Even P 23 members completed the survey. The failure to use proper sampling techniques is but another 24 reason to doubt the validity of the results obtained because the results of a non-randomly selected 25 survey cannot be reliably projected to the class as a whole. 26 Further, P 27 such determinations should be based on real world market behavior. Hypothetical responses not 28 -13- STATEMENT OF DECISION 1 2 significantly inflated when real money is not used, and after the fact adjustments cannot be used to 3 make the data more reliable. 4 In addition, the cigarettes described in the internet survey were fictional and included only 5 four attributes: price, taste, perceived health risk, and pack type. Extensive absent class member 6 testimony established that many class members placed a higher importance on some of the excluded 7 attributes than the included attributes. Some of these excluded attributes were brand image, 8 popularity among peer group, availability, package appearance, presence of menthol, and length of 9 cigarette. Additionally, some class members testified that they did not consider certain of the 10 included attributes such as health risks at all when purchasing Marlboro Lights. Accordingly, the 11 survey does not measure the importance of alleged reduced health risk in relation to the product as a 12 whole. This also suggests that the survey improperly inflates the importance of the four listed 13 attributes, including health risks. 14 The 15 16 lung discomfort when inhaling. 17 18 heart disease, or emphysema. This problem exemplifies why literature on conjoint analysis 19 recommends avoiding the measurement of subjective attributes. In addition, the survey was flawed 20 in the sense that it forced the respondents who believed that all cigarettes were unsafe to assume, 21 contrary to their personal belief, that some cigarettes had attributes making them safer than others. 22 The survey instructed respondents that Marlboro Lights had a different health risk than Marlboro 23 Reds. Thus, the survey did not measure whether survey respondents actually believed Marlboro 24 Lights had a lower health risk than Marlboro Reds. 25 During trial, the Court noted that the survey instructions to the respondents were difficult to 26 , Dr. Pindyck, 27 Sometimes respondents gave different 28 responses to the same question. It appeared to the Court very likely that some respondents -14- STATEMENT OF DECISION 1 completed the anonymous, internet based survey as rapidly as possible to receive the monetary 2 reward for completion of the survey without carefully considering each response. Consistent with 3 this observation, expert witness, Dr. Dennis, testified that complex survey designs often 4 icing the choice sets at random to simply 5 complete the survey. These conclusions are supported by the extensive evidence of inconsistent 6 and sometimes nonsensical responses detailed below. 7 D. 8 More than 28 percent 9 10 addition, more than 81 percent a 11 lower price. The accuracy of these responses is contradicted by basic economic theory and 12 common sense which tell us that consumers will always elect to choose the lower price for two 13 identical items. Just these two nonsensical results cause the Court to question the validity of the 14 entire survey. 15 Dr. Steckel tried to correct the nonsensical results by imposing constraints, i.e., by entering 16 a zero for the nonsensical responses. In effect, by imposing these constraints, Dr. Steckel was 17 substituting his own judgment for that of survey respondents. Substituting zeroes reduced the 18 denominator of the willingness to pay calculation, significantly increasing the overall WTP. On the 19 other hand, Dr. William E. Wecker (Dr. Wecker) corrected for the nonsensical results by 20 21 the constraints to substitute his own judgment for that of respondents, but simply eliminates 22 nonsensical responses making the final results more reliable. After making this correction, the 23 overall WTP went from 40.8 percent to 3.1 percent not statistically different than zero. Just as in 24 correcting for the interpersonal comparisons, fixing this single error in P 25 significantly altered the conjoint survey results. The dramatic effect of this single correction leads 26 the Court to conclude the P entire survey is unreliable. 27 /// 28 /// -15- STATEMENT OF DECISION 1 E. 2 When the conjoint analysis was put to the actual test, it failed abysmally. PM USA asked 3 twenty-four (24) absent class members, who stated under oath in deposition that they believed light 4 and regular cigarettes had the same health risks, to complete P 5 then completed the conjoint survey. Tabulations of their survey results indicated that these 6 particular absent class members would pay 40 percent of the price of Marlboro Lights to obtain the 7 reduced health risk, in stark contrast to their previous testimony that Marlboro Lights provided no 8 reduced health risk. In one instance, a deponent testified that he did not think Marlboro Lights were 9 safer than Marlboro Reds in any way. Yet, according to the survey, he had a WTP of 97 percent of 10 the pack price to obtain the health benefits of Marlboro Lights. This exercise involving deponents 11 provided convincing proof that the conjoint survey did not accurately measure what Plaintiffs 12 claimed it measured. 13 F. 14 Beginning with Monograph 13 in 2001, smokers received more and more information from 15 various sources that light cigarettes offered no health benefits compared to regular cigarettes. 16 Various widely publicized news reports and television public service announcements made these 17 disclosures to the public. Between 2002 and 2008, PM USA placed 55 million detailed onserts on 18 packs of Marlboro Lights sold in California stating that Marlboro Lights were no safer than 19 Marlboro Reds. Between 2009 and 2010, PM USA put tear tapes on all packages of Marlboro 20 21 PM USA 22 Lights, which are now called Marlboro Golds. 23 During the time this information was widely disseminated, Marlboro Lights sold for the 24 same price as Marlboro Reds. The market share sales of Marlboro Lights and Marlboro Reds 25 remained substantially the same, with Marlboro Lights actually gaining market share since 2007. 26 This actual market data convincingly debunks P percent of the 27 money smokers spent on Marlboro Lights was attributable to the supposed reduced health risks of 28 Marlboro Lights. If P percent calculation was correct, to maintain relative sales of -16- STATEMENT OF DECISION 1 Marlboro Lights to Marlboro Reds, PM USA would have had to significantly reduce the price of 2 Marlboro Lights to compensate for the flood of information that smoking Marlboro Lights does not 3 reduce health risks. Absent a significant price reduction, economists would expect a substantial 4 drop in sales of Marlboro Lights relative to Marlboro Reds. Yet in the real world, the Marlboro 5 slightly increased. 6 Finally, P 7 conjoint survey. 8 G. Real market data suggests that the actual re claim is zero. 9 The Court heard extensive trial testimony from class members consistent with these 10 11 the ongoing revelations that light cigarettes were no safer than regular cigarettes. The 12 overwhelming majority of smokers who learned that Marlboro Lights provided no health benefits 13 nevertheless stated they received fair value for the light cigarettes they smoked and continued to 14 purchase lights. For example, class representative Trina Watton continued to smoke Marlboro 15 Lights for six years even after she learned that Marlboro Lights were no less harmful than full- 16 flavored cigarettes. This is not surprising since any consumer who decides to purchase a product 17 necessarily subjectively values the product equal to or more than the purchase price; otherwise, the 18 consumer would not purchase the product. This excess subjective value is called consumer surplus. 19 Apparently, most smokers who learned that Marlboro Lights were no healthier than Marlboro Reds 20 believed Marlboro Lights, without any health advantage, still provided reasonable value for the 21 price they paid. The testimony of class members presented at trial reinforces the market data and 22 strongly suggests to this Court that restitution, even if properly calculated, would be insignificant in 23 this case. 24 Notably, when P 25 similar case, he concluded that there were no economic damages. In that case, the snack food 26 Pirate s Booty misrepresented on its label that it contained fewer calories and less fat than 27 comparable snack foods. The mislabeling was then corrected, but nevertheless the sales and price 28 data as compared to competitive snack foods which did not make these false claims remained -17- STATEMENT OF DECISION 1 constant. Based on the absence of change in sales volume and price after removal of the 2 misrepresentations from the label, Dr. Steckel testified that the plaintiffs in that case suffered no 3 4 PM 5 contention in this case that the value paid for Marlboro Lights was equivalent to the value 6 received even after labeling was changed to remove any misrepresentation. 7 H. Plaintiffs failed to provide any reliable measure of restitution. 8 9 survey. But the survey does not attempt to measure restitution as defined by California law and in 10 any event is fatally flawed, as amply demonstrated by nonsensical results and contradictory real 11 world data. Further, based on the totality of the evidence including real world market data and the 12 extensive absent class member testimony, this Court concludes that the restitution value is zero. 13 Thus, this Court exercises its discretion to award no restitution. (See Cortez, supra, 23 Cal.4th at p. 14 180; Nelson v. Pearson Ford (2010) 18 Cal.App.4th 983, 1015; See also Day v. AT&T Corp. (1995) 15 63 Cal.App.4th 325, 339; Colgan, supra,135 Cal.App.4th 663 at p. 700.) 16 VII. INJUNCTIVE RELIEF 17 Injunctive relief is the primary form of remedy available under the UCL to protect 18 consumers from unfair business practices. (Kwikset v. Super. Ct. (2011) 51 Cal.4th 310, 337.) 19 20 restitution or injunctive relief when an unfair business practi Feitelberg v. 21 Credit Suisse First Boston, LLC (2005) 134 Cal.App.4th 22 available when there is no threat that the misconduct to be enjoined is likely to be repeated in the 23 (Vioxx, supra, 180 Cal.App.4th at p. 130.) 24 Plaintiffs failed to present any specific evidence entitling them to injunctive relief. To the 25 contrary, the evidence established that the descriptors on which the Plaintiffs base their case have 26 been removed and, because of changes in the law, these descriptors can never be used again. Since 27 there is little likelihood that the conduct giving rise to this case will reoccur, the claim for injunctive 28 relief is moot. In addition, PM USA and the public health community widely disseminated the -18- STATEMENT OF DECISION 1 information that lights are not healthier than regular cigarettes. Further convincing evidence was 2 presented indicating less than 10 percent of current smokers believe that light cigarettes are less 3 harmful. In addition, any mandatory labeling changes or disclosures on labels that could be the 4 subject of injunctive relief are preempted by the Federal Cigarette Labeling and Advertising Act 5 (FCLAA). Finally, the plaintiffs waived any right to further injunctive relief or corrective 6 advertising in the Master Settlement Agreement in Tobacco I, JCCP No. 4041 (Tobacco I). 7 At trial, Plaintiffs presented no specific evidence concerning injunctive relief. Nevertheless, 8 in closing argument Plaintiffs displayed a video of class representative Trina Watton speaking 9 about the hazards of light cigarettes as an example of a public service announcement which 10 arguably could be mandated by this court. This video was not part of the evidence in this case. 11 A. It is unlikely that the misrepresentations will recur. 12 13 PM USA no longer uses these 14 descriptors. PM USA 15 2010, PM USA 16 now known as Marlboro Golds. 17 18 Federal statute and a Federal Court injunction. 21 USC section 387k prohibits any tobacco product 19 20 subd. (2)(A)(ii).) In a case brought by the United States Department of Justice, the Federal Court 21 22 and any other words which reasonably could be expected to result in a consumer believing that 23 smoking the cigarette brand using that descriptor may result in a lower risk of disease or be less 24 (U.S. v. Philip Morris USA, Inc. 25 (D.D.C. 2006) 449 F.Supp.2d 1, 938.) 26 B. The requested injunctive relief would be redundant. 27 The information that Plaintiffs apparently want to communicate has already been widely 28 disseminated. The public health community published the information that light cigarettes are not -19- STATEMENT OF DECISION 1 healthier than full-flavored cigarettes through Monograph 13, scientific reports, and public service 2 announcements. PM USA has widely circulated the same information through 55 million onserts 3 and millions of tear tapes on packs of Marlboro Lights sold in California. There is no need to grant 4 a mandatory injunction requiring PM USA to repeat this message in the future. Since there is no 5 apparent likelihood that the descriptors at issue will be used again, the case for injunctive relief is 6 moot. (Vioxx, supra, 180 Cal.App.4th at p. 130.) 7 Plaintiffs argue that injunctive relief is necessary to prevent PM USA from continuing to 8 benefit from past misrepresentations. But PM USA presented credible evidence that less than 10 9 percent of current smokers believe light cigarettes are any safer than regular cigarettes. 10 Considering the plethora of information already published to light smokers, any further Court- 11 ordered warnings would be ineffective. 12 C. Tobacco advertising and packaging is preempted. 13 Even if this Court determined additional warnings placed on packs of cigarettes or in 14 advertisements were necessary, any Court order to this effect is preempted by the FCLAA. 15 (Cipollone v. Liggett Group, Inc., (1992) 505 U.S. 504, 519- 16 based on smoking and health shall be imposed under State law with respect to the advertising or 17 promotion of any cigarettes the packages of which are labeled in conformity with the provisions of 18 19 D. Injunctive relief is waived per the MSA. 20 In addition, Plaintiffs waived any right to further injunctive relief or corrective advertising 21 in the MSA (Tobacco I, supra.) In that case, plaintiffs alleged that the light cigarette descriptor 22 misled smokers into believing that light cigarettes were less harmful than full-flavored cigarettes. 23 (See Exhibit 14691 [People v. Philip Morris, No. 97AS03031] (Sacramento Super. Ct., 1997) First 24 Amended Complaint at paragraph 82(F); id., at ¶ 82(4).) The MSA approved by this Court fully 25 resolved and released any similar claims made on behalf of the general public seeking injunctive 26 27 28 -20- STATEMENT OF DECISION 1 cigarettes. The released parties included persons acting as private attorneys general, such as the 2 plaintiff in this case, reg 3 Thus, any claim for corrective advertising based on the challenged descriptors or packaging in use 4 at the time of the MSA fall within the broad release claim. 5 Since the MSA, PM USA has paid the State of California $5.8 billion and will continue 6 payments in perpetuity. California has spent some of this money on smoking cessation and 7 awareness programs. The State of California is free to direct settlement 8 money towards education regarding light cigarettes should State authorities deem such advertising 9 necessary. 10 For all the reasons stated, injunctive is denied. 11 relief is denied as untimely and unsupported by any evidence supporting prospective relief. 12 Since Plaintiffs have failed to establish entitlement to either restitution or injunctive relief, 13 judgment is granted for the Defendant PM USA. Defendant PM USA is to prepare a judgment in 14 conformity with this Statement of Decision. 15 16 Dated: ______RONALD S. PRAGER 17 Judge of the Superior Court 18 19 20 21 22 23 24 25 26 27 28 -21- STATEMENT OF DECISION