United States District Court for the District of Columbia
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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA __________________________________________ ) UNITED STATES OF AMERICA, ) ) Plaintiff, ) and ) ) TOBACCO-FREE KIDS ACTION FUND, ) Civil No. 99-CV-02496 (GK) AMERICAN CANCER SOCIETY, AMERICAN ) HEART ASSOCIATION, AMERICAN LUNG ) Next court appearance: ASSOCIATION, AMERICANS FOR ) (none scheduled) NONSMOKERS’ RIGHTS, and NATIONAL ) AFRICAN AMERICAN TOBACCO ) PREVENTION NETWORK ) ) Intervenors, ) ) v. ) ) PHILIP MORRIS USA INC., ) f/k/a PHILIP MORRIS INC., et al., ) ) Defendants. ) __________________________________________) POST-TRIAL BRIEF OF THE UNITED STATES OF AMERICA1 1 Pursuant to Order #992, this Post-Trial Brief also opposes Defendants’ Motion for Judgment on Partial Findings Pursuant to Fed. R. Civ. P. 52(c). TABLE OF CONTENTS TABLE OF CONTENTS ........................................................ i TABLE OF AUTHORITIES ................................................... viii I. INTRODUCTION .......................................................1 II. THE UNITED STATES HAS PROVEN RICO AND RICO CONSPIRACY LIABILITY ON THE PART OF ALL DEFENDANTS ........2 A. The United States Has Proven Each Element to Establish RICO Liability, Including Predicate Acts Involving Mail or Wire Fraud Offenses ............3 1. Defendants Established an Association-In-Fact Enterprise ............5 a. The legal principles regarding an association-in-fact Enterprise are well-settled ........................................5 b. Defendants formed an Enterprise ..........................7 1) Members of the Enterprise had a common purpose ......7 2) The Enterprise has utilized both formal and informal organization ....................................9 3) The Enterprise has functioned as a continuous unit .....11 2. The Enterprise Engaged in and Its Activities Affected Interstate and Foreign Commerce ..........................................13 3. Each Defendant Was Distinct From and Associated With the Enterprise .................................................15 a. Each Defendant is distinct from the Enterprise ..............15 4. Each Defendant Participated in the Affairs of the Enterprise .........21 5. Defendants Knowingly Devised a Scheme to Defraud by Means of Material False or Fraudulent Representations, Pretenses and Promises ..................................................27 a. Defendants executed a scheme to defraud with devastating impact on the health of the American people ...............30 1) The adverse health effects of cigarette smoking .......31 i 2) The myth of independent research ..................43 3) Addiction .....................................46 4) Nicotine manipulation ...........................55 5) Light and low tar cigarettes .......................60 6) Youth marketing ...............................71 7) Suppression of information .......................83 b. The false, deceptive and misleading statements were material . 91 c. The fraudulent scheme was carried out intentionally .........94 1) Corporate acts, knowledge, and scienter .............96 a) Defendants are liable for the acts of their officers, employees, and agents ..............96 b) Defendants possess the collective knowledge of their employees and agents .................97 c) Unlawful intent may be established by the collective knowledge and intent of their employees and agents ......................98 2) Employees and agents of every defendant possessed specific intent to defraud ........................104 a) Philip Morris ...........................107 b) R.J. Reynolds ...........................111 c) Brown & Williamson .....................112 d. The false statements made in furtherance of the scheme to defraud are not entitled to First Amendment protection ......127 6. Each Defendant Committed At Least Two Acts of Racketeering in Furtherance of the Scheme to Defraud..........................131 a. Defendants caused the alleged mailing and wire transmissions for the purpose of executing the scheme to defraud .........131 ii b. Defendants are liable for the mailings and wire transmissions underlying the racketeering acts committed by CTR and TI ...133 c. A defendant is liable for aiding and abetting the commission of racketeering acts ..................................137 d. Mail and wire fraud offenses do not require affirmative misrepresentations of fact .............................138 7. The Racketeering Acts Constitute a Pattern of Racketeering Activity ..................................................140 a. The racketeering acts are related ........................140 b. The requisite continuity has been established ..............142 B. Evidence Further Establishes That Defendants Conspired to Violate RICO . 144 1. Elements of a RICO Conspiracy Offense .......................144 2. Each Defendant is Liable for the RICO Conspiracy Charge Under Each of Two Alternative Methods of Establishing the Requisite Conspiratorial Agreement ...................................145 a. There are two alternative methods of establishing a conspiratorial agreement to violate RICO .................145 b. Each Defendant is liable for the RICO conspiracy charge under both of the independently sufficient methods of proof .......148 c. The prohibition against intracorporate conspiracies under the antitrust laws does not apply to this case ..................149 3. A Defendant May Be Liable for a RICO Conspiracy Offense Even if the Defendant Did Not Participate In the Operation or Management of the Enterprise ...........................................151 III. THE COURT MUST IMPOSE COMPREHENSIVE EQUITABLE REMEDIES TO PREVENT AND RESTRAIN FUTURE FRAUDULENT CONDUCT ............151 A. Evidence Establishes a Reasonable Likelihood of Future RICO Violations by Defendants .....................................................151 1. Defendants’ Past Conduct Alone Establishes a Reasonable Likelihood of Future Violations ........................................151 iii 2. Defendants Continuing Conduct Demonstrates a Reasonable Likelihood of Future Wrongdoing .............................156 a. Defendants have continued to engage in misconduct since the filing of the Complaint in this action .....................156 b. The MSA has not materially altered Defendants’ conduct ....161 1) Defendants are not complying with the spirit, and frequently violate the letter, of the MSA ............162 2) The Court is unable to rely upon the hope of full enforcement of the MSA ........................163 3) The MSA does not compel all of the relief that is required .....................................166 4) The MSA does not reach all Defendants ............167 B. The Court Should Impose Comprehensive Equitable Relief to Prevent and Restrain Future Unlawful Conduct on the Part of Defendants .............167 1. Legal Standards Governing Remedies ..........................167 2. Remedies Should be Comprehensive ...........................170 a. Defendants are likely to evade, contravene, and subvert basic prohibitions if only traditional injunctive relief is imposed ....172 b. Fraud pervades the structure of Defendants’ corporate environment ........................................175 c. The court can and should consider the public interest in fashioning its remedies order ...........................177 C. Court-Appointed Monitors Should Be Utilized to Implement and Enforce the Court’s Remedial Order ........................................180 1. Based on the Equitable Principles of 18 U.S.C. § 1964(a) and Governing Law, the Court Has Broad Authority to Appoint Officers and Agents As Part of a Comprehensive Remedial Structure ........180 a. The use of court officers and agents is a traditional feature of remedial structures in civil RICO cases brought by the United States .......................................180 b. Court-appointed monitors are used in many contexts to iv enforce complex remedial decrees .......................184 2. Court-Appointed Officers Are Necessary in This Case To Provide Efficient and Effective Enforcement of the Required Comprehensive Remedial Structure .........................................187 a. The comprehensive and complex nature of the remedies in this case both justify and necessitate the appointment of an IO and an IHO to assist in the implementation, monitoring, and enforcement of this Court’s Final Judgment ...............187 b. The high likelihood of Defendants’ non-compliance necessitates appointment of an IO and IHO ................190 3. Defendants’ Arguments Opposing the Appointment of an IO and IHO Are Meritless .........................................192 a. The use of court-appointed officers to implement remedial orders and monitor private corporations is not prohibited under the governing law ...............................192 b. The use of court-appointed officers in remedial schemes does not contravene the District Courts’ powers under Article III or the law of the D.C. Circuit ...........................193 c. There is no procedural irregularity in the submission of the United States’ Proposed Final Judgment and Order .........197 D. Specific Remedial Measures .......................................199 1. Funding for Smoking Cessation ...............................201 a. For decades, Defendants have sought to keep smokers from quitting through fraudulent marketing and cigarette design ...201 b. The Court should require Defendants to fund a smoking cessation program to prevent and restrain Defendants’ fraudulent activity ...................................202 1) The funding