United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 14, 2008 Decided May 22, 2009
No. 06-5267
UNITED STATES OF AMERICA, UNITED STATES DEPARTMENT
OF JUSTICE, ET AL.,
APPELLEES
v.
PHILIP MORRIS USA INC., FORMERLY KNOWN AS PHILIP
MORRIS INCORPORATED, ET AL.,
APPELLEES
BRITISH AMERICAN TOBACCO (INVESTMENTS) LTD.,
DIRECTLY AND AS SUCCESSOR TO BRITISH-AMERICAN
TOBACCO COMPANY, LTD.,
APPELLANT
THE COUNCIL FOR TOBACCO RESEARCH-USA, INC., ET AL.,
APPELLEES
Consolidated with 06-5268, et al.
Appeals from the United States District Court
for the District of Columbia
(No. 99cv02496)
2
Michael A. Carvin and Miguel A. Estrada argued the causes
for appellants. With them on the briefs were David S. Eggert,
Guy Miller Struve, Charles S. Duggan, David M. Bernick,
Robert F. McDermott, Jr., Peter J. Biersteker, Michael S. Fried,
John K. Crisham, Michael B. Minton, Bruce D. Ryder, Bruce G.
Sheffler, Alan E. Untereiner, Joseph Kresse, and Deborah
Israel. Murray R. Garnick, Timothy M. Broas, James A. Goold,
Gene E. Voigts, Clausen Ely Jr., Leonard A. Feiwus, James W.
Newbold, Edward C. Schmidt, Arnon D. Siegel, Keith A. Teel,
Theodore V. Wells, Jr., and Dan K. Webb entered appearances.
Alan E. Untereiner and Bruce G. Sheffler were on the briefs
for appellant British American Tobacco (Investments) Limited.
David S. Eggert, Guy Miller Struve, and Charles S. Duggan
were on the briefs for appellant Altria Group, Inc.
Daniel J. Popeo, Paul D. Kamenar, Andrew G. McBride,
and Thomas R. McCarthy were on the brief for amici curiae
National Association of Manufacturers and the Washington
Legal Foundation urging reversal.
Scott A. Sinder was on the brief for amicus curiae National
Association of Convenience Stores in support of appellants.
Robin S. Conrad, Amar D. Sarwal, Theodore B. Olson, and
Matthew D. McGill were on the brief for amicus curiae
Chamber of Commerce of the United States of America in
support of appellants urging reversal.
Mark B. Stern, Attorney, U.S. Department of Justice, argued
the cause for appellees. With him on the brief were Michael F.
Hertz, Deputy Assistant Attorney General, Jonathan F. Cohn,
Deputy Assistant Attorney General, and Alisa B. Klein, Mark R.
Freeman, Sarang Vijay Damle, Melissa N. Patterson, and
3
Christopher J. Walker, Attorneys.
Howard M. Crystal argued the cause for intervenors
Tobacco-Free Kids Action Fund, et al. With him on the briefs
were Katherine A. Meyer and G. Robert Blakey.
Michael D. Hausfeld and Victoria S. Nugent were on the
brief for amici curiae American College of Occupational and
Environmental Medicine, et al. in support of appellee urging
affirmance.
William C. Lieblich, Talis J. Colberg, Attorney General,
Attorney General’s Office of the State of Alaska, Terry
Goddard, Attorney General, Attorney General’s Office of the
State of Arizona, Dustin McDaniel, Attorney General, Attorney
General, Attorney General’s Office of the State of Arkansas,
Edmund G. Brown, Jr., Attorney General, Attorney General,
Attorney General’s Office of the State of California, Richard
Blumenthal, Attorney General, Attorney General’s Office of the
State of Connecticut, Joseph R. “Beau” Biden III, Attorney
General, Attorney General’s Office of the State of Delaware,
Bill McCollum, Attorney General, Attorney General’s Office of
the State of Florida, Mark J. Bennett, Attorney General,
Attorney General’s Office of the State of Hawaii, Lawrence
Wasden, Attorney General, Attorney General’s Office of the
State of Idaho, Lisa Madigan, Attorney General, Attorney
General’s Office of the State of Illinois, Paul Morrison,
Attorney General, Attorney General’s Office of the State of
Kansas, Greg Stumbo, Attorney General, Attorney General’s
Office of the State of Kentucky, Charles Foti, Jr., Attorney
General, Attorney General’s Office of the State of Louisiana, G.
Steven Rowe, Attorney General, Attorney General’s Office of
the State of Maine, Douglas F. Gansler, Attorney General,
Attorney General’s Office of the State of Maryland, Martha
Coakley, Attorney General, Attorney General’s Office of the
4
Commonwealth of Massachusetts, Michael A. Cox, Attorney
General, Attorney General’s Office of the State of Michigan,
Lori Swanson, Attorney General, Attorney General’s Office of
the State of Minnesota, Jim Hood, Attorney General, Attorney
General’s Office of the State of Mississippi, Jeremiah W. (Jay)
Nixon, Attorney General, Attorney General’s Office of the State
of Missouri, Mike McGrath, Attorney General, Attorney
General’s Office of the State of Montana, Catherine Cortez
Masto, Attorney General, Attorney General’s Office of the State
of Nevada, Kelly A. Ayotte, Attorney General, Attorney
General’s Office of the State of New Hampshire, Anne Milgram,
Attorney General, Attorney General’s Office of the State of New
Jersey, Gary King, Attorney General, Attorney General’s Office
of the State of New Mexico, Andrew M. Cuomo, Attorney
General, Attorney General’s Office of the State of New York,
Marc Dann, Attorney General, Attorney General’s Office of the
State of Ohio, W. A. Drew Edmondson, Attorney General,
Attorney General’s Office of the State of Oklahoma, Hardy
Myers, Attorney General, Attorney General’s Office of the State
of Oregon, and Tom Corbett, Attorney General, Attorney
General’s Office of the Commonwealth of Pennsylvania, Patrick
C. Lynch, Attorney General, Attorney General’s Office of the
State of Rhode Island, Robert E. Cooper, Jr., Attorney General,
Attorney General’s Office of the State of Tennessee, William H.
Sorrell, Attorney General, Attorney General’s Office of the
State of Vermont, Robert M. McKenna, Attorney General,
Attorney General’s Office of the State of Washington, Darrell
V. McGraw, Attorney General, Attorney General’s Office of the
State of West Virginia, Bruce A. Salzburg, Attorney General,
Attorney General’s Office of the State of Wyoming, and Vincent
F. Frazer, Attorney General, Attorney General’s Office of the
Territory of the United States Virgin Islands, were on the brief
for amici curiae States in support of appellee.
5
Allison M. Zieve and Brian Wolfman were on the brief for
amici curiae Public Citizen, Inc., et al. in support of appellee
urging affirmance.
Christopher N. Banthin and Stephen M. Kohn were on the
brief for amici curiae American Medical Association and Others
in support of appellee.
David C. Vladeck was on the brief for amicus curiae
Tobacco Control Legal Consortium in support of appellee
urging affirmance.
Harvey Kurzweil and Alexander M. Kayne were on the brief
of amicus curiae the Citizens’ Commission to Protect the Truth
in support of appellee and supporting partial reversal.
Kerry S. Lane, appearing pro se, was on the brief as amicus
curiae.
Before: SENTELLE, Chief Judge, TATEL and BROWN, Circuit
Judges.
Opinion for the Court filed PER CURIAM.
PER CURIAM: Defendants in this action, cigarette
manufacturers and trade organizations, appeal from the district
court’s judgment finding them liable for conducting the affairs
of their joint enterprise through a pattern of mail and wire fraud
in a scheme to deceive American consumers. They also appeal
from the district court’s remedial order, which imposes
numerous negative and affirmative duties on Defendants. The
government and intervenors cross-appeal from the district
court’s denial of additional requested remedies. After
considering all of the parties’ arguments, we affirm in large part
the finding of liability, remanding only for dismissal of the trade
6
organizations. We also largely affirm the remedial order,
including the denial of additional remedies, but vacate the order
with regard to four discrete issues, remanding for further
proceedings as directed in this opinion.
I. Background
The United States initiated this civil action under the
Racketeer Influenced and Corrupt Organizations Act (“RICO”),
18 U.S.C. §§ 1961–1968, in 1999. The government alleged that
nine cigarette manufacturers and two tobacco-related trade
organizations violated section 1962(c) and (d) of the Act. Those
subsections make it unlawful for “any person employed by or
associated with any enterprise engaged in, or the activities of
which affect, interstate or foreign commerce, to conduct or
participate, directly or indirectly, in the conduct of such
enterprise’s affairs through a pattern of racketeering activity” or
to conspire to do so. 18 U.S.C. § 1962(c), (d). The eleven
Defendants were Philip Morris, Inc., now Philip Morris USA,
Inc. (“Philip Morris”); R.J. Reynolds Tobacco Company, now
Reynolds American (“Reynolds”); Brown & Williamson
Tobacco Company, now part of Reynolds (“Brown &
Williamson”); Lorillard Tobacco Company (“Lorillard”); The
Liggett Group, Inc. (“Liggett”); American Tobacco Company,
which merged with Brown & Williamson and is now part of
Reynolds (“American”); Philip Morris Companies, now Altria
(“Altria”); British American Tobacco (Investments) Ltd.
(“BATCo”); B.A.T. Industries p.l.c., now part of BATCo (“BAT
Industries”); The Council for Tobacco Research–USA, Inc.
(“CTR”); and The Tobacco Institute, Inc. (“TI”). The last two
entities are trade organizations the cigarette manufacturers
created; they do not manufacture or sell tobacco products. The
district court dismissed BAT Industries from the case for lack of
personal jurisdiction.
7
The government alleged that Defendants violated and
continued to violate RICO by joining together in a decades-long
conspiracy to deceive the American public about the health
effects and addictiveness of smoking cigarettes. Specifically,
the government alleged that Defendants fraudulently denied that
smoking causes cancer and emphysema, that secondhand smoke
causes lung cancer and endangers children’s respiratory and
auditory systems, that nicotine is an addictive drug and
Defendants manipulated it to sustain addiction, that light and
low tar cigarettes are not less harmful than full flavor cigarettes,
and that Defendants intentionally marketed to youth. United
States v. Philip Morris USA, Inc., 449 F. Supp. 2d 1, 27 (D.D.C.
2006). In addition, the government alleged that Defendants
concealed evidence and destroyed documents to hide the
dangers of smoking and protect themselves in litigation. Id.
The government identified 148 racketeering acts of mail and
wire fraud Defendants allegedly committed in furtherance of
their scheme. Although the district court did not allow the
government to prove 650 additional racketeering acts due to
their late disclosure, the court did permit the government to
introduce evidence supporting those acts to prove other RICO
elements, such as the continuity and pattern of racketeering
activity, the RICO enterprise and conspiracy, and Defendants’
participation in the enterprise.
After years of pretrial proceedings and discovery, the case
went to trial in September 2004. The bench trial lasted nine
months and included live testimony from 84 witnesses, written
testimony from 162 witnesses, and almost 14,000 exhibits in
evidence. The government presented evidence that the
presidents of Philip Morris, Reynolds, Brown & Williamson,
Lorillard, and American assembled together in 1953 to strategize
a response to growing public concern about the health risks of
smoking and jointly retained a public relations firm to assist in
the endeavor. Id. at 37. From the beginning they agreed that no
8
cigarette manufacturer would “seek a competitive advantage by
inferring to its public that its product is less risky than others”;
they would make no “claims that special filters or toasting, or
expert selection of tobacco, or extra length in the butt, or
anything else, makes a given brand less likely to cause you-
know-what.” Id. (quoting public relations firm’s Planning
Committee Memorandum). Acting on this agreement, the
cigarette manufacturers jointly issued “A Frank Statement to
Cigarette Smokers,” published as a full-page advertisement in
newspapers across the country on January 4, 1954. Id. at 39.
“The Frank Statement set forth the industry’s ‘open question’
position that it would maintain for more than forty years—that
cigarette smoking was not a proven cause of lung cancer; that
cigarettes were not injurious to health; and that more research on
smoking and health issues was needed.” Id. All of the
Defendant manufacturers eventually joined this collective effort.
The government presented evidence from the 1950s and
continuing through the following decades demonstrating that the
Defendant manufacturers were aware—increasingly so as they
conducted more research—that smoking causes disease,
including lung cancer. Evidence at trial revealed that at the
same time Defendants were disseminating advertisements,
publications, and public statements denying any adverse health
effects of smoking and promoting their “open question” strategy
of sowing doubt, they internally acknowledged as fact that
smoking causes disease and other health hazards. Id. at 146,
164, 168–69. Although the manufacturers conducted their own
research and public relations regarding health and other issues,
they also relied in part on a series of jointly-created entities.
Among these entities were Defendants TI and CTR (formerly
the Tobacco Industry Research Committee). The Defendant
manufacturers created TI and CTR, composed their membership,
staffed their boards of directors with executives from the
manufacturers, and maintained frequent communication between
9
high-level manufacturer and joint-entity officials. Id. at 43–44,
63. Evidence at trial showed that TI and CTR conducted the
manufacturers’ joint public relations through false and
misleading press releases and publications, trained
representatives from the manufacturers regarding their
coordinated industry message, conducted some cigarette testing
for the manufacturers, and funded “special projects” to produce
favorable research results and witnesses specifically for use in
litigation and for support of industry public statements. Id. at
66, 82, 86, 87, 91.
In addition to the health hazards of smoking, the
government presented evidence that Defendants intimately
understood the addictiveness of nicotine and manipulated
nicotine delivery in cigarettes to create and sustain addiction.
Evidence showed that Defendants undertook extensive research
into the physiological impact of nicotine, how it operates within
the human body, and how the physical and chemical design
parameters of cigarettes influence the delivery of nicotine to
smokers. Id. at 208, 308–09. As a result of this research, they
recognized and internally acknowledged that smoking and
nicotine are addictive and they engineered their products around
creating and sustaining this addiction. Evidence at trial
suggested that despite this internal knowledge, for decades
Defendants publicly denied and distorted the truth about the
addictive nature of their products, suppressed research revealing
the addictiveness of nicotine, and denied their efforts to control
nicotine levels and delivery. Id. at 209, 309.
The government also presented evidence tending to show
that Defendants marketed and promoted their low tar brands to
smokers—who were concerned about the health hazards of
smoking or considering quitting—as less harmful than full
flavor cigarettes despite either lacking evidence to substantiate
their claims or knowing them to be false. Id. at 430. Internal
10
industry documents introduced at trial revealed that by the late
1960s and early 1970s, Defendants were aware that lower tar
cigarettes are unlikely to provide health benefits because they do
not actually deliver the low levels of tar and nicotine advertised.
Id. at 430–31. Defendants researched and understood the
phenomenon whereby smokers of low tar cigarettes, to satisfy
their addiction, modify their smoking behavior to compensate
for the reduced nicotine yields by “taking more frequent puffs,
inhaling smoke more deeply, holding smoke in their lungs
longer, covering cigarette ventilation holes with fingers or lips,
and/or smoking more cigarettes.” Id. at 431. As a result of this
nicotine-driven behavior, smokers of low tar cigarettes boost
their intake of tar, so that lower tar cigarettes do not result in
lower tar intake and therefore do not yield the touted health
benefits or serve as a step toward quitting smoking. Id.
Evidence at trial suggested that Defendants understood this
concept—for some time, better than the public health
community or government regulators—while they promoted
lower tar cigarettes as “health reassurance” brands.
Regarding secondhand smoke, the government presented
evidence suggesting that Defendants became aware that
secondhand smoke poses a health risk to nonsmokers but made
misleading public statements and advertisements about
secondhand smoke in an attempt to cause the public to doubt the
evidence of its harmfulness. Id. at 692. At trial, internal
industry documents revealed that Defendants believed the public
perception of secondhand smoke could determine the industry’s
survival and that secondhand smoke research by the cigarette
manufacturers was a sensitive issue due to the absence of
“objective science” supporting their position and the risk that
their own research would lead to unfavorable results. Id. at 733.
As a result, the manufacturers jointly created the Center for
Indoor Air Research (“CIAR”) to coordinate and fund their
secondhand smoke research with the appearance of
11
independence. Id. at 119, 735. The evidence also showed that
they “created, controlled, used, or participated in” a vast array
of foreign or international entities to conduct their sensitive
secondhand smoke research, generate “marketable science” to
use for public relations purposes, and coordinate their shared
objectives and message. Id. at 119–20, 759.
In addition to these topics, the government also presented
evidence to the district court regarding Defendants’ targeted
marketing to youth under twenty-one years of age and their
denials of such marketing, id. at 561, 672, as well as evidence
concerning Defendants’ employees and attorneys destroying
documents relevant to their public and litigation positions and
suppressing or concealing scientific research, id. at 801, 832.
During the trial, this court rendered a decision on
Defendants’ interlocutory appeal from the denial of summary
judgment on the government’s claim for a disgorgement remedy
under RICO section 1964(a). We reversed the district court and
held that disgorgement is not an available remedy in civil RICO
cases. United States v. Philip Morris USA, Inc. (“Disgorgement
Opinion”), 396 F.3d 1190 (D.C. Cir. 2005). In response, the
district court granted the government leave to reformulate its
proposed remedies. After the liability phase of the trial, the
district court held a fourteen-day remedies trial. At the close of
the remedies phase, several organizations moved to intervene in
the litigation to assert their interests in the proposed remedies.
The district court granted the American Cancer Society, the
American Heart Association, the American Lung Association,
Americans for Nonsmokers’ Rights, the National African
American Tobacco Prevention Network, and the Tobacco-Free
Kids Action Fund leave to intervene solely on the subject of
remedies.
12
The district court entered final judgment against Defendants
on August 17, 2006, finding that they maintained an illegal
racketeering enterprise and each Defendant participated in the
conduct, management, and operation of the enterprise in
violation of section 1962(c), and that they explicitly and
implicitly agreed to do so, in violation of section 1962(d).
Philip Morris, 449 F. Supp. 2d at 851, 901. The court found that
Defendants engaged in a scheme to defraud smokers and
potential smokers by (1) falsely denying the adverse health
effects of smoking, id. at 854; (2) falsely denying that nicotine
and smoking are addictive, id. at 856; (3) falsely denying that
they manipulated cigarette design and composition so as to
assure nicotine delivery levels that create and sustain addiction,
id. at 858; (4) falsely representing that light and low tar
cigarettes deliver less nicotine and tar and therefore present
fewer health risks than full flavor cigarettes, id. at 859;
(5) falsely denying that they market to youth, id. at 861;
(6) falsely denying that secondhand smoke causes disease, id. at
864; and (7) suppressing documents, information, and research
to prevent the public from learning the truth about these subjects
and to avoid or limit liability in litigation, id. at 866. The court
concluded that the government failed to prove that Defendants
deliberately chose not to utilize or market feasible designs or
product features that could produce less hazardous cigarettes.
Id. at 384.
Before granting injunctive relief against Defendants the
district court assessed whether they presented a “reasonable
likelihood of further violation(s) in the future.” Id. at 909
(quoting SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1168 (D.C.
Cir. 1978)). The court concluded that Philip Morris, Reynolds,
Brown & Williamson, Lorillard, American, Altria, and BATCo
were reasonably likely to commit future RICO violations unless
enjoined because they continued to make false and misleading
statements at the time of trial, their businesses presented
13
continuing opportunities to commit RICO violations, and their
corporate leadership continued to consist of veteran employees
with longstanding ties to the companies. Id. at 910–13.
Defendants argued that no injunction was necessary because
their Master Settlement Agreement with forty-six states and the
District of Columbia and their individual settlements with four
states already sufficiently restrained them. The district court
rejected this argument, concluding that the Master Settlement
Agreement did not obviate the need for injunctive relief because
Defendants had not fully complied with the agreement, parts of
the agreement began expiring in 2006, the states could not
vigorously enforce all aspects of the agreement, and BATCo and
Altria were not subject to the settlement agreement. Id. at 913–
15.
The district court found that three Defendants—CTR, TI,
and Liggett—did not present a reasonable likelihood of future
RICO violations, therefore the court did not order injunctive
remedies against them. CTR and TI, the court found, now exist
solely for the limited purpose of winding up their activities and
each retains only one adviser to support its litigation defense and
handle any remaining administrative matters. Id. at 915–18.
The court found that Liggett withdrew from the RICO
conspiracy by admitting that smoking causes cancer and is
addictive, by voluntarily restricting its advertising and including
disclosures on its packages, and by cooperating with the United
States and state attorneys general in their claims against other
tobacco companies. Id. at 906–07, 918–19. The district court
concluded that Liggett was not reasonably likely to commit
future RICO violations based on this withdrawal, its continued
independence from the other Defendants, and its limited
opportunity for future violations by virtue of its discount
cigarette market and lack of traditional consumer advertising.
Id. at 918–19.
14
Pursuant to section 1964, the district court imposed
injunctive remedies against the other seven manufacturer
Defendants. Specifically, the court ordered Defendants (1) to
refrain from any acts of racketeering relating to the
manufacturing, marketing, promotion, health consequences, or
sale of cigarettes in the United States; (2) not to participate in
the management or control of CTR, TI, or CIAR, and not to
reconstitute the form or function of those entities; (3) to refrain
from making any material false, misleading, or deceptive
representation concerning cigarettes that is disseminated to the
United States public; (4) to cease using any express or implied
health message or health descriptor for any cigarette brand, such
as light or low tar; (5) to make corrective disclosures about
addiction, the adverse health effects of smoking and secondhand
smoke, their manipulation of cigarette design and composition,
and light and low tar cigarettes; (6) to create document
depositories providing the government and the public access to
all industry documents disclosed in litigation; and (7) to provide
their disaggregated marketing data to the government according
to the schedule on which they provide it to the Federal Trade
Commission. Id. at 938–45. The court also limited the sale and
transfer of Defendants’ brands, product formulas, and businesses
to entities that either are subject to the injunctive order or will
sell the brand, use the formula, or conduct the business
exclusively outside the United States. Id. at 945.
The district court denied the remainder of the government’s
requested injunctive relief, including its proposed national
smoking cessation program, public education and counter-
marketing campaign, and youth smoking reduction plan. Id. at
933–34, 936–37. The court also denied the government’s
requests that it appoint a monitor to investigate and restructure
the Defendant companies, id. at 935, and that it order
Defendants to make public all “health and safety risk
information” about their products in their own files, id. at 929.
15
All Defendants except Liggett appealed, raising numerous
challenges to the finding of liability and the remedies imposed.
The government and the intervenors filed a cross-appeal
regarding the remedies that the district court denied. On
Defendants’ motion we stayed the remedial injunction pending
appeal.
We review the district court’s conclusions of law de novo.
SEC v. Wash. Inv. Network, 475 F.3d 392, 399 (D.C. Cir. 2007).
To the extent it is not based on legal error, we review the district
court’s decision to issue an injunction for abuse of discretion.
Id. We may not set aside the district court’s findings of fact
unless they are clearly erroneous, giving due regard to the
court’s opportunity to judge the witnesses’ credibility. Id.
(citing FED. R. CIV. P. 52(a)(6)). This standard applies even
when the district court adopts a party’s proposed findings
verbatim. Anderson v. City of Bessemer City, 470 U.S. 564, 572
(1985).
To establish RICO liability, the government had to prove
the necessary elements of RICO itself—including the existence
of an enterprise and a pattern of racketeering activity, 18 U.S.C.
§ 1962(c)—as well as the elements of the underlying conduct
constituting the racketeering acts, here, numerous instances of
mail and wire fraud under 18 U.S.C. §§ 1341 and 1343.
Defendants challenge the district court’s findings regarding both
RICO and the underlying fraud, as well as the remedies the court
imposed. We address Defendants’ challenges to RICO liability
in Part II, their general challenges to fraud liability in Part III,
their challenges to specific aspects of the fraudulent scheme and
the liability of specific Defendants in Part IV, their challenges
to the finding that they are likely to commit future violations and
therefore should be enjoined in Part V, and their challenges to
particular remedies the court imposed in Part VI.
16
II. Challenges to RICO Liability
A. RICO Enterprise
RICO makes it unlawful for “any person . . . associated with
any enterprise . . . to conduct or participate, directly or
indirectly, in the conduct of such enterprise’s affairs through a
pattern of racketeering activity.” 18 U.S.C. § 1962(c). Thus, in
a section 1962(c) suit, the defendants are the “persons” who
conduct the “enterprise’s” affairs through racketeering activity.
Because RICO defines “person” as including “any individual or
entity capable of holding a legal or beneficial interest in
property,” id. § 1961(3), corporations as well as individuals can
be liable if they conduct an enterprise’s affairs through a pattern
of racketeering activity. In language central to the issue before
us, section 1961(4) states:
“enterprise” includes any individual, partnership,
corporation, association, or other legal entity, and any union
or group of individuals associated in fact although not a
legal entity.
Id. § 1961(4). The enterprise as such generally faces no section
1962(c) RICO liability; indeed it may be the innocent vehicle
through which unlawful activity is carried out, see Cedric
Kushner Promotions, Ltd. v. King, 533 U.S. 158, 164 (2001)
(“RICO both protects a legitimate ‘enterprise’ from those who
would use unlawful acts to victimize it, and also protects the
public from those who would unlawfully use an ‘enterprise’
(whether legitimate or illegitimate) as a ‘vehicle’ through which
‘unlawful . . . activity is committed.’” (quoting United States v.
Turkette, 452 U.S. 576, 591 (1981), and Nat’l Org. for Women,
Inc. v. Scheidler, 510 U.S. 249, 259 (1994))). When the
enterprise is an association-in-fact, members of the association
may be both part of the “enterprise” and liable as “persons”
17
under RICO if they conduct the enterprise’s affairs through
racketeering activity. See, e.g., United States v. Richardson, 167
F.3d 621, 626 (D.C. Cir. 1999) (upholding conviction of
defendant member of association-in-fact enterprise).
Here, defining the RICO enterprise as “a group of business
entities and individuals associated-in-fact, including Defendants
to this action, their agents and employees, and other
organizations and individuals,” the district court held that the
Defendant cigarette manufacturers and trade organizations had
violated section 1962(c) by participating in the conduct of the
enterprise’s affairs through multiple acts of mail and wire fraud.
Philip Morris, 449 F. Supp. 2d at 851, 867. Defendants
challenge the district court’s acceptance of a RICO enterprise
made up of individuals and corporations, arguing that the statute
provides an exclusive list of possible enterprises that covers
groups of individuals associated in fact, not mixed groups of
individuals and corporations associated in fact.
In United States v. Perholtz, 842 F.2d 343 (D.C. Cir. 1988),
however, we squarely rejected this precise argument. There, we
held that a group of seven individuals and eleven corporations
and partnerships associated in fact may constitute a RICO
“enterprise.” Id. at 351 n.12, 353. We explained: “[RICO]
defines ‘enterprise’ as including the various entities specified;
the list of entities is not meant to be exhaustive.” Id. at 353. As
such, a group of individuals, corporations, and partnerships
associated in fact can qualify as a RICO “enterprise,” even
though section 1961(4) nowhere expressly mentions this type of
association.
In so holding, we joined several other circuits that had
reached the same conclusion. Perholtz, 842 F.2d at 353 (citing
the Second, Third, Seventh, and Eleventh Circuits, as well as
Fifth Circuit Unit B). Indeed, both prior to and since Perholtz,
18
every circuit to consider the question has likewise held that
corporations may be part of an association-in-fact enterprise.
See United States v. London, 66 F.3d 1227, 1243–44 (1st Cir.
1995) (holding that corporations can be part of an association-
in-fact enterprise because section 1961(4)’s list is not
exhaustive); United States v. Huber, 603 F.2d 387, 394 (2d Cir.
1979) (same); United States v. Aimone, 715 F.2d 822, 828 (3d
Cir. 1983) (same); United States v. Thevis, 665 F.2d 616,
625–26 (5th Cir. Unit B 1982) (same), superseded on other
grounds by FED. R. EVID. 804(b)(6) (1997); United States v.
Masters, 924 F.2d 1362, 1366 (7th Cir. 1991) (same); Atlas Pile
Driving Co. v. DiCon Fin. Co., 886 F.2d 986, 995 n.7 (8th Cir.
1989) (same); see also Dana Corp. v. Blue Cross & Blue Shield
Mut. of N. Ohio, 900 F.2d 882, 887 (6th Cir. 1990) (reaching
same outcome and citing Huber, 603 F.2d at 393–94); United
States v. Navarro-Ordas, 770 F.2d 959, 969 n.19 (11th Cir.
1985) (same); United States v. Feldman, 853 F.2d 648, 655–56
(9th Cir. 1988) (reaching same outcome based on different
statutory analysis); United States v. Najjar, 300 F.3d 466, 484
(4th Cir. 2002) (upholding without discussion RICO convictions
involving an association-in-fact enterprise that included
corporations). The judges of these circuits are equally
unanimous, for not one has dissented from the proposition that
an association-in-fact enterprise may include corporations.
Defendants argue that Perholtz has no applicability where,
as here, the defendants are corporations. Because the Perholtz
defendants were individual members of the enterprise, not its
corporate members, Defendants here claim that Perholtz applies
only when individuals, not corporations, are the RICO
defendants. As Defendants see it, Perholtz merely ensures that
individuals are unable to escape liability simply by including
corporations in their enterprise; Perholtz, they argue, does not
mean that the associated-in-fact corporations can themselves
incur RICO liability.
19
But nothing in Perholtz is so limited. Quoting the Supreme
Court’s statement in United States v. Turkette that “[t]here is no
restriction upon the associations embraced by the definition [of
enterprise],” 452 U.S. at 580, Perholtz sets forth its holding in
broad terms: “We therefore follow those courts that have held
that individuals, corporations, and other entities may constitute
an association-in-fact,” 842 F.2d at 353. Nowhere does Perholtz
suggest that the rule varies depending on the identity of the
defendants. Indeed, two of the cases Perholtz relies on involved
corporate defendants. Id. (citing Thevis, 665 F.2d at 625–26
(upholding RICO convictions for one individual and one
corporate defendant), and Bunker Ramo Corp. v. United Bus.
Forms, Inc., 713 F.2d 1272, 1285 (7th Cir. 1983) (upholding
RICO charges against one individual and one corporation)).
Many other decisions have similarly upheld RICO allegations
involving corporate defendants who were also members of the
association-in-fact enterprise. See, e.g., City of N.Y. v. Smokes-
Spirits.com, Inc., 541 F.3d 425, 450–51 (2d Cir. 2008); Odom v.
Microsoft Corp., 486 F.3d 541, 553 (9th Cir. 2007); Najjar, 300
F.3d at 484; United States v. Goldin Indus., Inc., 219 F.3d 1271,
1274 (11th Cir. 2000); Dana Corp., 900 F.2d at 887; Shearin v.
E.F. Hutton Group, Inc., 885 F.2d 1162, 1165–66 (3d Cir.
1989), overruled on other grounds by Beck v. Prupis, 529 U.S.
414, 506 (2000); Atlas Pile Driving, 886 F.2d at 995; Ocean
Energy II, Inc. v. Alexander & Alexander Inc., 868 F.2d 740,
748–49 (5th Cir. 1989).
Moreover, Defendants’ proposed limitation on Perholtz is
contrary to the statute’s language. As “persons” under section
1961(3), corporations may be RICO defendants regardless of the
kind of enterprise charged. See 18 U.S.C. § 1962(c) (“It shall be
unlawful for any person . . . associated with any enterprise . . .
to conduct or participate, directly or indirectly, in the conduct of
such enterprise’s affairs through a pattern of racketeering
activity.” (emphases added)). Defendants cite not a single case
20
lending even a shred of support to the idea that the meaning of
“enterprise” can fluctuate depending on whom the government
or the plaintiff chooses to name as the defendant. Perholtz’s
interpretation of section 1961(4) thus applies regardless of
whether the RICO defendants are individual “persons” or
corporate “persons.” To hold otherwise would require us to
rewrite section 1962(c).
In a further attempt to evade Perholtz, Defendants argue
that even if Perholtz was correct when decided, it has been
eroded by the Supreme Court’s 2001 decision in Cedric Kushner
Promotions, Ltd. v King, 533 U.S. 158 (2001). Defendants’
argument begins with the premise that at the time we decided
Perholtz, RICO presented a potential loophole: because the
RICO defendant must be distinct from the RICO enterprise,
Yellow Bus Lines, Inc. v. Drivers, Chauffeurs & Helpers Local
Union 639, 839 F.2d 782, 790 (D.C. Cir. 1988) (“[O]ne entity
may not serve as the enterprise and the person associated with
it . . . .”), vacated on other grounds, 492 U.S. 914 (1989), a sole
shareholder who used his alter-ego corporation for racketeering
might evade RICO liability because he wouldn’t be sufficiently
distinct from the alter-ego corporation “enterprise.” Defendants
rely on Perholtz’s suggestion that a definition of “enterprise”
that excluded associations-in-fact of corporations would lead to
“the bizarre result that only criminals who failed to form
corporate shells to aid their illicit schemes could be reached by
RICO.” 842 F.2d at 353. According to Defendants, we were
motivated in Perholtz by the underlying concern “that a criminal
defendant conducting the affairs of an ‘enterprise’ that was his
own closely held corporation, would be so closely tied to the
enterprise that he would escape RICO liability.” Defs. Br. 37.
Given that the Supreme Court has subsequently eliminated this
concern—holding in Cedric Kushner that an individual sole
shareholder is sufficiently distinct from his alter-ego corporation
to sustain RICO liability, 533 U.S. at 160—Defendants assert
21
that Perholtz no longer represents binding authority.
We do not read Perholtz as motivated by the concerns
addressed in Cedric Kushner. In contrast to Cedric Kushner, the
enterprise in Perholtz involved multiple individuals and
numerous corporations, with no indication that the corporations
were either all closely held by the individual defendants or in
any other way insufficiently distinct. 842 F.2d at 351 n.12.
Indeed, at least some of the Perholtz corporate enterprise
members were not closely held. For example, enterprise
member International Business Services, Inc. (IBS) existed in its
own right prior to the scheme and was related to the defendants
through employment relationships that would not have defeated
RICO’s distinctness requirement: Perholtz himself was a
consultant to IBS, and the other RICO defendant, Franklin
Jackson, was an IBS project manager. Id. at 348. Similarly,
enterprise member Remote Computer Services Corporation,
although formed expressly for the purpose of the scheme, was
jointly held in equal shares by three individuals—Perholtz and
two other individual members of the enterprise, id. at 350—and
thus would have been sufficiently distinct from each of those
non-sole shareholders. The enterprise also included two
separate real estate companies both of which apparently existed
independently of the scheme and were not otherwise affiliated
with the individuals. Id. at 351 n.12. At least one individual
enterprise member, John Gentile, worked for the Postal Service
and apparently had no formal stake in the corporate enterprise
members. Id. at 346, 351 n.12. In Perholtz, we held that all
these corporations—not just those closely held or created solely
for the scheme—could be part of an association-in-fact
enterprise. Indeed, only after so holding did we turn to
Perholtz’s entirely separate argument that he, as an individual,
was insufficiently distinct from the enterprise. Far from basing
our holding on this argument, we simply noted that we had “no
occasion to consider the separateness requirement” because
22
Perholtz associated not with himself but with others. Id. at 353.
Given the structure of the Perholtz enterprise and the
court’s acknowledgement that distinctness was not at issue, we
think Perholtz reflected a different concern, namely that a group
of sophisticated racketeers who would otherwise constitute an
association-in-fact might evade RICO’s grasp by virtue of their
ability to operate through corporations and establish complex
networks of companies, kickbacks, and contracts to achieve their
elicit ends. Indeed, immediately following its reference to
“corporate shells,” Perholtz emphasized Congress’s desire that
RICO serve “as a weapon against the sophisticated racketeer as
well as (and perhaps more than) the artless.” Id. Perholtz itself
presented just such a situation: the defendants worked through
their own companies and multiple outside corporations in an
intricate web of shared commissions to game the bidding
process for government contracts. The success of the scheme
required the participation of companies to serve as contractors
and subcontractors. “This relationship of individuals and
corporations is precisely what section 1962(c) was designed to
attack.” Id. at 354.
Moreover, in asserting their Cedric Kushner argument,
Defendants fail to explain how Perholtz’s interpretation would
even solve the hypothetical problem they posit. According to
Defendants, in order to preserve RICO liability for a sole
shareholder who would be insufficiently distinct from his alter-
ego corporation, the Perholtz court held that an “individual and
his shell corporation could together . . . constitute an
association-in-fact enterprise.” Defs. Reply Br. 16. In
Defendants’ view, the sole shareholder would then be liable
under RICO for conducting the affairs of this association-in-fact
enterprise. Yet if an individual is insufficiently distinct from his
alter-ego corporation, we seriously doubt he would suddenly be
sufficiently distinct from an enterprise consisting of his alter-ego
23
corporation and himself. If Perholtz had been concerned with
distinctness, its purported “solution” would make little sense.
Further seeking to justify their reliance on Cedric Kushner,
Defendants say that the government cites only one post–Cedric
Kushner case—United States v. Najjar, 300 F.3d 466 (4th Cir.
2002)—that upheld an association-in-fact enterprise of
corporations. The relevance of this is hard to grasp, as other
post–Cedric Kushner cases not cited by the government accept
association-in-fact enterprises comprised of corporations. See
Smokes-Spirits.com, 541 F.3d at 450–51 (holding that the
plaintiff adequately pleaded an association-in-fact enterprise
consisting of two corporations); Odom, 486 F.3d at 553 (holding
that plaintiffs had sufficiently alleged an association-in-fact
enterprise of two corporations); United States v. Cianci, 378
F.3d 71, 83 (1st Cir. 2004) (“It is uncontroversial that corporate
entities, including municipal and county ones, can be included
within association-in-fact RICO enterprises.”); Living Designs,
Inc. v. E.I. DuPont de Nemours & Co., 431 F.3d 353, 361 (9th
Cir. 2005) (“[T]here is no question that DuPont [corporation]
and the law firms together can constitute an ‘associated in fact’
RICO enterprise.”). And as we noted above, no circuit has ever
held the opposite.
Cedric Kushner thus undermines neither the unanimous
judicial view that association-in-fact enterprises may include
corporations nor Perholtz’s binding effect on this case.
Defendants’ argument that we should read section 1961(4) as an
exhaustive list of possible RICO enterprises is therefore
unavailing. Not only is it foreclosed by Perholtz, it is
unpersuasive on its own terms. As Perholtz and many other
circuits explain, the use of the word “includes” indicates that
RICO’s list of “enterprises” is non-exhaustive. Indeed, section
1961 makes the non-exhaustive nature of “includes” clear by
alternating between the words “means” and “includes” to
24
introduce the section’s various definitions. Specifically, five of
section 1961’s ten subsections introduce definitions with the
word “means.” For example, section 1961(1) defines
“racketeering activity,” explaining that the term “means” any of
a list of specific state and federal crimes. Section 1961(2)
likewise introduces a definitional list with the term “means”:
“‘State’ means any State of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, any territory or
possession of the United States, any political subdivision, or any
department, agency, or instrumentality thereof.” 18 U.S.C.
§ 1961(2); see also id. § 1961(6), (7), (8) (introducing
definitions of “unlawful debt,” “racketeering investigator,” and
“racketeering investigation” with the term “means”). Section
1961(4), by contrast, says “‘enterprise’ includes any individual,
partnership, corporation, association, or other legal entity, and
any union or group of individuals associated in fact although not
a legal entity.” Id. § 1961(4) (emphasis added). By switching
between “means” and “includes” in the same definitional
provision, Congress signaled its intent to distinguish between
exhaustive and non-exhaustive lists. See Helvering v. Morgan’s,
Inc., 293 U.S. 121, 126 n.1 (1934) (describing a statute that
introduced three definitions with the word “includes” and seven
definitions with the word “means” and noting that “[t]he natural
distinction would be that where ‘means’ is employed, the term
and its definition are to be interchangeable equivalents, and that
the verb ‘includes’ imports a general class, some of whose
particular instances are those specified in the definition”).
That Congress provided an exhaustive list of legal entity
enterprises by adding the phrase “or other legal entity” hardly
converts the list of non-legal entity enterprises into an
exhaustive list. Had Congress wanted to limit non-legal entity
associations to those expressly listed, the most obvious way to
do so would have been the way Congress wrote the five clearly
exhaustive definitions in the same section: it could have said
25
“‘enterprise’ means any individual, partnership, corporation,
association, or other legal entity, or any union or group of
individuals associated in fact although not a legal entity.” But
Congress chose to say “‘enterprise’ includes” the listed entities.
Defendants think that the phrase “or other legal entity” would
have been unnecessary if the list were otherwise non-exhaustive.
Not so. Adding “or other legal entity” serves to ensure that all
legal entities are covered while retaining the possibility that
some additional non-legal entities beyond those listed are also
covered.
Nor does the use of the phrase “including, but not limited
to” to indicate a non-exhaustive list in a different section of
RICO, section 1964(a), demonstrate that the sole word
“includes” in section 1961(4) must introduce an exhaustive list.
Section 1964, which establishes civil remedies for RICO
violations, lacks section 1961’s juxtaposition of the non-
exhaustive term “includes” with the exhaustive term “means”;
adding “but not limited to” helps to emphasize the non-
exhaustive nature of section 1964(a)’s list of remedies. Section
1961 needed no such clarification because it employed the
contrasting terms “means” and “includes” to distinguish
exhaustive from non-exhaustive definitions.
Contrary to Defendants’ argument, nothing about this
interpretation renders the definition of “enterprise” devoid of
meaning. Although encompassing non-enumerated enterprises,
section 1961(4)’s list defines “enterprise,” in part, by listing the
kinds of entities Congress had in mind. Indeed, the Supreme
Court has acknowledged this meaning by requiring enterprises
to exhibit common purpose, organization, and continuity.
Turkette, 452 U.S. at 583; see also Richardson, 167 F.3d at 625.
In sum, as Perholtz clearly holds, because RICO’s “list of
entities is not meant to be exhaustive,” “individuals,
26
corporations, and other entities may constitute an association-in-
fact.” 842 F.2d at 353. This binding precedent—confirmed by
the statute’s language, buttressed by the unanimity among our
sister circuits, and undiminished by Defendants’ efforts to
escape it—requires that we affirm the district court’s holding
that the government properly alleged a RICO enterprise of
individuals, cigarette manufacturers, and trade organizations.
We also reject Defendants’ additional challenges to the
district court’s findings regarding the existence of a RICO
enterprise and their participation in its affairs. The district court
found—permissibly in our view—that the enterprise had the
common purpose of obtaining cigarette proceeds by defrauding
existing and potential smokers, Philip Morris, 449 F. Supp. 2d
at 869; possessed the requisite structure both through informal
association and through the formation of several formal
organizations, id. at 870–71; functioned as a continuous unit
despite personnel changes, id. at 871–72; and constituted a
separate entity distinct from each Defendant, id. at 875.
Defendants give us neither any basis for concluding that the
district court’s factual findings were clearly erroneous nor any
reason to think them legally insufficient. The district court also
found—again permissibly—that despite competing in some
aspects of their business, Defendants jointly committed fraud
and so participated in the conduct of not just their own affairs
but the enterprise’s as well, id. at 875–78, and also that they
conspired to do so, id. at 903–05. Accordingly, we affirm the
district court’s findings that an enterprise existed and that
Defendants participated in the conduct of its affairs and
conspired to do so.
B. Identifying Racketeering Acts
Defendants complain that the district court failed to identify
the racketeering acts that support the finding of liability. While
27
it is true the district court’s opinion provided no single, discrete
list of specific racketeering acts, the comprehensive findings—
detailing over one-hundred racketeering acts—are sufficient to
warrant affirmance. Defendants raise numerous challenges to
the correctness of the district court’s findings that they
committed racketeering acts, which we take up in Parts III and
IV. In this section, however, we are concerned only with the
existence of these findings, not their validity.
By statutory definition, any violation of the mail or wire
fraud statutes can qualify as “racketeering activity.” 18 U.S.C.
§ 1961(1). To prove a violation of the mail and wire fraud
statutes, the government must show (1) a scheme or artifice to
defraud and (2) a mailing or wire transmission in furtherance
thereof. Id. §§ 1341, 1343. “Where one scheme involves
several mailings, the law is settled that each mailing constitutes
a violation of the statute.” Hanrahan v. United States, 348 F.3d
363, 366 (D.C. Cir. 1965). Where, as here, the mail and wire
fraud statutes serve as the predicate offenses for a RICO
violation, each racketeering act must be a mailing or wire
transmission made in furtherance of a “scheme or artifice to
defraud.” 18 U.S.C. §§ 1341, 1343. Thus, in order to identify
the racketeering acts, the district court must first have found a
scheme to defraud, then concluded the alleged mailings or wire
transmissions were in furtherance of such scheme. See Philip
Morris, 449 F. Supp. 2d at 852–54.
Although Defendants question whether the district court
clearly found a scheme to defraud, the finding on this question
is explicit: “The Government has proven that the Enterprise
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. The district court explains, in great
detail, the seven components of the scheme to defraud. Id. at
28
852–67.
The court also held that “each of the alleged mailings and
wire transmissions was in furtherance of the overarching scheme
to defraud.” Id. at 881. Thus it follows that any mailing or wire
transmission found to have been made was found to have been
a mail or wire fraud offense and therefore a racketeering act.
Seventy-nine of the alleged acts were established by
Defendants’ own stipulations and admissions. Id. at 882
(enumerating 79 racketeering acts). Altogether, the court
enumerated 108 racketeering acts in the opinion, as well as six
others which it excluded on First Amendment grounds. See id.
at 882, 884, 885 n.62, 887. This total does not include the many
other findings which may be tied to other racketeering acts, but
for which the district court did not provide a specific list. See,
e.g., id. at 883 (“[I]t is clear beyond any question that
Defendants caused the mailings and wire transmissions
underlying the 30 Racketeering Acts involving the news media’s
dissemination of Defendants’ press releases and advertisements
to their subscribers.”).
The RICO statute requires “a pattern of racketeering
activity” on the part of each defendant. 18 U.S.C. § 1962(c).
“[A]t least two acts of racketeering activity” are necessary to
form a pattern. H.J., Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 237
(1989) (quoting 18 U.S.C. § 1961(5)). The district court found
the requisite pattern committed by each Defendant, Philip
Morris, 449 F. Supp. 2d at 889–91, and this finding is not
erroneous. A brief sampling of the 108 enumerated racketeering
acts makes the point: Philip Morris, Reynolds, Brown &
Williamson, Lorillard, American, and TI committed racketeering
acts 24, 132, and 133 by mailing press releases containing false
statements about the addictiveness and health consequences of
smoking. Id. at 194, 282–83. Philip Morris, Reynolds, Brown
29
& Williamson, Lorillard, American, Liggett, and CTR
committed racketeering acts 66, 73, and 88 by mailing letters
regarding funding of CTR’s “special projects” to create data
supporting their fraudulent claims. Id. at 101, 882, 972, 976.
BATCo and Brown & Williamson committed racketeering acts
30, 50, 51, 53, and 63 through their mailings to each other
concerning the enterprise’s position on the health effects and
addictiveness of smoking as well as smoker compensation and
nicotine. Id. at 253–54, 301, 882, 965, 969. Altria committed
racketeering acts 71, 72, 74, and 75 in its efforts to coordinate
Defendants’ public positions and fund CTR research projects to
support their fraudulent claims. Id. at 295, 813, 884, 974. As
these examples demonstrate, the district court found each
Defendant engaged in a “pattern of racketeering activity,” and
that finding is not erroneous. See infra Parts III, IV.
The 108 enumerated acts give us ample basis to review the
district court’s finding. Although the district court may have
concluded other racketeering acts were proven as well, we need
look no further. Defendants correctly argue we must ensure the
remedy imposed is tailored to “the violation found,” United
States v. Microsoft, 253 F.3d 34, 105 (D.C. Cir. 2001); the
voluminous findings detailing the contours of the scheme to
defraud are more than sufficient to allow this review, see, e.g.,
Philip Morris, 449 F. Supp. 2d at 852–67. Given that a mailing
or wire transmission need not itself be fraudulent, the remedy
needs to be tailored to the scheme to defraud, not the specific
use of the mail or wires.
For similar reasons, we need not resolve Defendants’
challenges to the racketeering acts involving denials of
marketing to youth. As the district court imposed no remedies
specifically relating to youth marketing, our assessment whether
the remedies are tailored to the violation found is unaffected by
the associated racketeering acts. The remaining racketeering
30
acts are fully sufficient to support the district court’s finding of
a pattern of racketeering activity as to each Defendant. Because
these challenges have no impact on the outcome of this appeal,
we decline to address them. The district court set forth findings
sufficient to allow our review of its verdict of liability and
imposition of sanction.
III. General Challenges to Fraud Liability
A. Specific Intent
The predicate acts of racketeering in this case were all acts
of mail or wire fraud, which require specific intent to defraud.
Post v. United States, 407 F.2d 319, 329 (D.C. Cir. 1968).
Defendants challenge the district court’s conclusion that they
acted with specific intent, arguing that the district court applied
an impermissible “collective intent” standard and that the
government did not present any evidence to support a finding of
specific intent under the correct formulation.
Corporations may be held liable for specific intent offenses
based on the “knowledge and intent” of their employees. N.Y.
Cent. & Hudson River R.R. Co. v. United States, 212 U.S. 481,
495 (1909); see United States v. A & P Trucking Co., 358 U.S.
121, 125 (1958). Because a corporation only acts and wills by
virtue of its employees, the proscribed corporate intent depends
on the wrongful intent of specific employees. See Saba v.
Compagnie Nationale Air France, 78 F.3d 664, 670 (D.C. Cir.
1996). Thus, to determine whether a corporation made a false
or misleading statement with specific intent to defraud, we look
to the state of mind of the individual corporate officers and
employees who made, ordered, or approved the statement.
Southland Sec. Corp. v. INSpire Ins. Solutions Inc., 365 F.3d
353, 366 (5th Cir. 2004).
31
A person’s state of mind is rarely susceptible of proof by
direct evidence, so specific intent to defraud may be, and most
often is, inferred from the totality of the circumstances,
including indirect and circumstantial evidence. United States v.
Alston, 609 F.2d 531, 538 (D.C. Cir. 1979); United States v.
Reid, 533 F.2d 1255, 1264 (D.C. Cir. 1976). We refer to this
inference when, in the common law fraud context, we say that
the factfinder “is permitted to impute knowledge of the falsity of
the statements to the accused, not as a matter of law but as a
consequence of inferences reasonably drawn from the facts
shown.” United States v. Avant, 275 F.2d 650, 653 (D.C. Cir.
1960).
Here, the district court concluded that the chief executive
officers and other highly placed officials in the Defendant
corporations made or approved statements they knew to be false
or misleading, evincing their specific intent to defraud
consumers. In some instances, the court found by direct
evidence that representatives of the Defendant companies
“willfully stat[ed] something which they knew to be untrue.”
Philip Morris, 449 F. Supp. 2d at 895. For example, the court
found that, in a televised interview in 1971, Philip Morris
President Joseph Cullman III denied that cigarettes posed a
health hazard to pregnant women or their infants,
“contradict[ing] the information Helmut Wakeham, Philip
Morris’s Vice President for Corporate Research and
Development, had given him two years earlier.” Id. at 193–94.
In the main, however, the district court relied on indirect and
circumstantial evidence indicating that the senior corporate
officials knew that their public statements, and those that they
approved for their corporations, were false or misleading.
In the majority of instances, the authors of the fraudulent
statements alleged as Racketeering Acts were executives,
including high level scientists—CEOs, Vice Presidents,
32
Heads of Research & Development, not entry level
employees—at each of the Defendant companies who
would reasonably be expected to have knowledge of the
company’s internal research, public positions, and long
term strategies.
Id. at 897. The court reasoned:
[I]t is absurd to believe that the highly-ranked
representatives and agents of these corporations and entities
had no knowledge that their public statements were false
and fraudulent. The Findings of Fact are replete with
examples of C.E.O.s, Vice-Presidents, and Directors of
Research and Development, as well as the Defendants’
lawyers, making statements which were inconsistent with
the internal knowledge and practice of the corporation
itself.
Id. at 853. The district court did not commit legal error by
imputing to Defendants’ executives knowledge of the falsity of
their statements based on inferences reasonably drawn from the
facts shown, and sufficient evidence supported these inferences.
The government presented decades of evidence that
scientists within the Defendant corporations and outside
scientists hired by the corporations and their joint entities were
continually conducting research and reviewing the research of
other scientists regarding cigarettes and health, addiction,
nicotine and tar manipulation, and secondhand smoke. The
evidence at trial demonstrated that the results of this
research—essential to the core of Defendants’ operations,
including strategic planning, product development, and
advertising—were well known, acknowledged, and accepted
throughout the corporations. These results established that
cigarette smoking causes disease, that nicotine is addictive, that
33
light cigarettes do not present lower health risks than regular
cigarettes due to smoker compensation, and that secondhand
smoke is hazardous to health. Dr. William Farone, a scientist
who worked at Philip Morris for eighteen years and whom the
district court found to be “impressive and credible as both a fact
and expert witness,” id. at 186, testified about the understanding
within Philip Morris on the question of whether cigarette
smoking is a cause of lung cancer and other diseases:
There was widespread acceptance that smoking caused
disease. I never talked with a scientist at Philip Morris who
said that smoking doesn’t cause disease. [This was based
on the] compelling epidemiology such as that recounted in
the Surgeon’s [sic] General’s reports, and our knowledge
about the chemicals that were created by cigarettes and
what was delivered to the smoker, hundreds of times per
day on average.
Id. at 187 (quoting Farone testimony). When asked whether, in
his discussions with Philip Morris executives, any of them
challenged the validity of the scientific evidence that smoking
causes disease, Farone answered,
No. Their comments generally focused on how the
company could or should respond, not to whether the
scientific evidence was valid. Remember, a main reason
why they hired me in 1976 was to help develop a less
hazardous cigarette. It seemed to me at the time I was
hired, and certainly was the case during my entire time
there, that hiring me for that job was itself implicit
recognition that the cigarettes that were out there being sold
were causing disease.
Id. (quoting Farone testimony).
34
The Defendant corporations documented the results of the
studies regarding disease, nicotine addiction, and smoker
compensation in numerous memoranda and reports; the evidence
at trial, including internal corporate documents, demonstrated
that the executives crafted their corporate priorities and
strategies in response to these findings. See, e.g., id. at 165, 180,
218, 219, 232, 240, 258–59, 270, 336, 720. Defendants’ own
documents also support the inference that Defendants’
executives were aware that their public relations strategy of
creating the impression of an “open question” about the link
between smoking and disease did not square with their own
knowledge about the established link between the two. For
example, William Kloepfer, Vice President of Public Relations
for the Tobacco Institute, wrote to Earle Clements, President of
the Tobacco Institute, admitting that “[o]ur basic position in the
cigarette controversy is subject to the charge, and may be
subject to a finding, that we are making false or misleading
statements to promote the sale of cigarettes.” Id. at 855. Other
documents demonstrate that Defendants’ top officials were
directly informed of negative research results. For example, in
1977 Philip Morris Assistant General Counsel Alexander
Holtzman sent a “warning” to the company’s President, Joseph
Cullman, informing him that a research project jointly sponsored
by a group of the Defendant companies had concluded that
exposure to cigarette smoke causes emphysema. Id. at 183.
The government presented similar evidence regarding the
other aspects of Defendants’ scheme, such as addiction and
nicotine. A few examples cannot adequately present the
volumes of evidence underlying the district court’s findings of
fact, but the following provide a fair sample: A 1991 Reynolds
Research and Development report acknowledged that “[w]e are
basically in the nicotine business.” Id. at 237. Dr. Farone
testified that during his time at Philip Morris there was
“widespread acceptance internally throughout the
35
company—among executives, scientists, and marketing people”
that nicotine was primarily responsible for addiction to smoking.
Id. at 858. Indeed, the district court found that “internal
documents and testimony from former company employees
affirmed that within their corporate walls, Defendants openly
recognized the addictiveness of cigarettes.” Id. Regarding light
cigarettes, internal research reports and memoranda at the
Defendant companies revealed that they understood the
phenomena of smoker compensation and studied how to
manipulate it in order to make their light brands appealing to
addicted smokers while continuing to be able to advertise the
brands as low tar. For example, a 1978 BATCo memorandum
about that company’s internal research acknowledged that “a
majority of habitual smokers compensate for changed delivery”
and explained that if smokers “choose [a] lower delivery brand
. . . than their usual brand” they “will in fact increase the
amounts of tar and gas phase that they take in, in order to take
in the same amount of nicotine.” Id. at 861. Dr. Farone testified
that Defendants’ superior knowledge of compensation
(compared to that of scientists outside the industry, including the
government) was closely held within Philip Morris and the
tobacco industry and there was an “effort on the part of [his] co-
workers at Philip Morris, including [his] supervisors, to restrict
any public acknowledgment on the part of Philip Morris of the
phenomena of compensation.” Id.
As these examples and hundreds more findings in the
district court’s opinion demonstrate, the court had before it
sufficient evidence from which to conclude that Defendants’
executives, who directed the activities of the Defendant
corporations and their joint entities, knew about the negative
health consequences of smoking, the addictiveness and
manipulation of nicotine, the harmfulness of secondhand smoke,
and the concept of smoker compensation, which makes light
cigarettes no less harmful than regular cigarettes and possibly
36
more. The government presented evidence indicating that
specific high-ranking corporate officials were directly informed
about these matters, as well as evidence of pervasive knowledge
and acceptance of these propositions throughout the Defendant
organizations. The overwhelming indirect and circumstantial
evidence was sufficient to allow the district court to reasonably
infer that the high level executives, including “CEOs, Vice
Presidents, [and] Heads of Research & Development” for
Defendants knew about their respective companies’ “internal
research, public positions, and long term strategies,” id. at 897,
that is, the “internal knowledge and practice” of the company,
id. at 853. These executives then made, caused to be made, and
approved public statements contrary to this knowledge. See,
e.g., id. at 190 (Philip Morris Vice President and General
Counsel declaring “[n]obody has yet been able to find any
ingredient as found in tobacco or smoke that causes human
disease”); id. at 166, 201 (28 years after Reynolds scientists
declared the presence of carcinogenic compounds in cigarettes
was “now well established,” a Reynolds press release and
newspaper advertisement declared the connection between
smoking and disease “an open controversy”); id. at 772 (TI
published booklet declaring that secondhand smoke had not
been shown to be a health hazard to nonsmokers); id. at 796
(Lorillard general counsel testified at trial that the company’s
public position has always been and continues to be that
secondhand smoke is not a proven health hazard); id. at 273
(President and CEO of Philip Morris quoted in TIME magazine
from deposition testimony claiming that cigarettes are not
addictive unless a similar attachment to Gummi Bears is an
addiction); id. at 285 (TI’s Vice President for Public Affairs on
television programs flatly denying that nicotine is addictive,
stating the attachment is like being a “news junkie” or
“chocoholic”).
37
Specific intent to defraud may be inferred where, as here,
there is a pattern of corporate research revealing a particular
proposition, for example, that smoking is addictive; an ensuing
pattern of memoranda within the corporation acknowledging
that smoking is addictive, even though the memoranda may or
may not have gone directly to the executive who makes the
contrary statement; and the corporate CEO or other official of
high corporate status then makes a public statement stating that
smoking is not addictive, contrary to the knowledge within the
corporation. Based on this sort of evidence and the inferences
reasonably drawn from it, a factfinder could permissibly infer
that the speaker harbored specific intent to defraud at the time he
or she made the false or misleading statement. Moreover, such
pervasive knowledge throughout the organizations demonstrates
that Defendants’ executives at least acted with reckless disregard
for the truth or falsity of their statements. As the district court
correctly held, such reckless disregard suffices to demonstrate
the requisite intent. Id. at 897. The law then imputes this
specific intent to the corporation.
Defendants argue that, even if the previous discussion
presents a correct statement of the law, it is not the standard that
the district court applied here. Rather, Defendants assert that the
district court relied on an impermissible “collective intent”
theory to find specific intent based on public statements
contradicting the “collective knowledge” of the Defendant
corporations without finding that any employee harbored
specific intent to defraud. Like Defendants and other courts, we
are dubious of the legal soundness of the “collective intent”
theory. Saba, 78 F.3d at 670 n.6 (“corporate knowledge of
certain facts [can be] accumulated from the knowledge of
various individuals, but the proscribed intent (willfulness)
depend[s] on the wrongful intent of specific employees”); see,
e.g., Southland Sec. Corp., 365 F.3d at 366; Nordstrom, Inc. v.
Chubb & Son, Inc., 54 F.3d 1424, 1435 (9th Cir. 1995); United
38
States v. Bank of New Eng., N.A., 821 F.2d 844, 855 (1st Cir.
1987); Woodmont, Inc. v. Daniels, 274 F.2d 132, 137 (10th Cir.
1960); First Equity Corp. v. Standard & Poor’s Corp., 690 F.
Supp. 256, 260 (S.D.N.Y. 1988). We need not pass on the
merits of such a standard here, however, because the district
court relied on a permissible view of specific intent. Although
at times the court articulated a “collective intent” standard, see
Philip Morris, 449 F. Supp. 2d at 895–97, it also based its
holding on a proper view of specific intent, see id. at 853, 897,
and we are satisfied that the court’s conclusions based on the
proper standard are sufficient to uphold its judgment.
B. Materiality
In their next general challenge to fraud liability, Defendants
argue that their false and misleading statements about the health
effects of smoking cannot, as a legal matter, be fraudulent
because their statements were not material. This argument is
based on a flawed understanding of the materiality requirement.
In order for a false or misleading statement to qualify as
mail or wire fraud, it “must concern a material or important fact
or matter.” United States v. Winstead, 74 F.3d 1313, 1320 (D.C.
Cir. 1996). This materiality requirement is met if the matter at
issue is “of importance to a reasonable person in making a
decision about a particular matter or transaction.” Id.
Materiality does not require proof that any specific person (or
number of people) purchased cigarettes as a result of the false
statements. Nor does it require Defendants’ false statements to
be the cause, reason, or sufficient condition of any person’s
decision to purchase cigarettes. Moreover, no subjective
evidence regarding any particular person is required; the test is
only whether a reasonable person would consider the matter to
be of importance regarding the transaction.
39
The false statements identified by the district court would
be important to a reasonable person purchasing cigarettes. For
example, statements about the adverse health effects of smoking,
see Philip Morris, 449 F. Supp. 2d at 146–208, would be a
matter of importance to a reasonable person deciding to
purchase cigarettes. The fact that Defendants continually denied
any link between smoking and cancer, see, e.g., id. at 204,
suggests they themselves considered the matter material. So,
too, regarding Defendants’ false statements on other topics,
including statements concerning: whether smoking is addictive,
id. at 208–308, whether Defendants manipulated their cigarettes
to control nicotine delivery, id. at 308–84, whether “light”
cigarettes were less harmful than other cigarettes, id. 430–561,
whether secondhand smoke is hazardous to non-smokers, id. at
692–801, and whether Defendants concealed scientific research
and destroyed documents, id. at 801–39.
Each of these topics is an important consideration for a
reasonable person because each concerns direct and significant
consequences of smoking. When deciding whether to smoke
cigarettes, tobacco consumers must resolve initial reservations
(or lingering qualms) about the potential for cancer, the risk of
addiction, or the hazardous effects of secondhand smoke for
friends, family, and others who may be exposed. Defendants’
prevarications about each of these issues suggests full awareness
of this obvious fact; reasonable purchasers of cigarettes would
consider these statements important.
Defendants further argue that, because the scientific
community had reached a consensus regarding the severely
adverse health consequences of smoking, their statements to the
contrary would not be believed. See Defs. Br. 98 (arguing that
“the public was aware of smoking’s adverse health
consequences and thus any inconsistent assertion by defendants
could not be material to a reasonable person”). The question,
40
however, is not whether a reasonable person would have
believed Defendants’ false statements, but only whether a
reasonable person would have considered the issue “of
importance,” and the issues considered by the district court
clearly met the materiality threshold.
C. First Amendment
In their final general challenge to fraud liability, Defendants
claim at least a portion of their statements qualify as protected
activity under the First Amendment. Of course, it is well settled
that the First Amendment does not protect fraud. See McIntyre
v. Ohio Elections Comm’n, 514 U.S. 334, 357 (1995) (stating
that the government “may, and does, punish fraud directly”).
Recognizing this fact, Defendants argue their statements were
not fraudulent, but those arguments are discussed and rejected
elsewhere in this opinion. See supra Part III.A–B; infra Part IV.
Defendants next claim protection under the Noerr-
Pennington doctrine—a doctrine, rooted in the Petition Clause
of the First Amendment, that protects “an attempt to persuade
the legislature or the executive to take particular action with
respect to a law . . . .” E. R.R. Presidents Conference v. Noerr
Motor Freight, Inc., 365 U.S. 127, 136 (1961). The protection
does not “cover activity that was not genuinely intended to
influence government action.” Allied Tube & Conduit Corp. v.
Indian Head, 486 U.S. 492, 508 n.10 (1998).
Defendants’ attempt to invoke Noerr-Pennington as
protection fails because the doctrine does not protect
deliberately false or misleading statements. “[N]either the
Noerr-Pennington doctrine nor the First Amendment more
generally protects petitions predicated on fraud or deliberate
misrepresentation.” Edmondson & Gallagher v. Alban Towers
Tenants Ass’n, 48 F.3d 1260, 1267 (D.C. Cir. 1995) (describing
41
the holding in Whelan v. Abell, 48 F.3d 1247 (D.C. Cir. 1995));
see also McDonald v. Smith, 472 U.S. 479, 485 (1985) (finding
the Petition Clause does not have “special First Amendment
status” and that petitions are not entitled to “greater
constitutional protection” than “other First Amendment
expressions”); Whelan, 48 F.3d at 1255 (“However broad the
First Amendment right to petition may be, it cannot be stretched
to cover petitions based on known falsehoods.”). The district
court’s valid findings of fraud in this case take Defendants’
statements out of the Noerr-Pennington context because they
were clearly and deliberately false. The district court provided
countless examples of deliberately false statements by
Defendants: “Cigarette smoking causes disease, suffering, and
death. Despite internal recognition of this fact, Defendants have
publicly denied, distorted, and minimized the hazards of
smoking for decades,” Philip Morris, 449 F. Supp. 2d at 146;
“Defendants have researched and recognized, decades before the
scientific community did, that nicotine is an addictive drug . . .
. Notwithstanding the understanding and acceptance of each
Defendant that smoking and nicotine are addictive, Defendants
have publicly denied and distorted the truth as to the addictive
nature of their products for several decades,” id. at 208–09;
“Defendants have designed their cigarettes to precisely control
nicotine delivery levels and provide doses of nicotine sufficient
to create and sustain addiction. At the same time, Defendants
have concealed much of their nicotine-related research, and have
continuously and vigorously denied their efforts to control
nicotine levels and delivery,” id. at 309; “Defendants have
known for decades that filtered and low tar cigarettes do not
offer a meaningful reduction of risk, and that their marketing
which emphasized reductions in tar and nicotine was false and
misleading,” id. at 860; “Despite their internal acknowledgment
of the hazards of secondhand smoke, Defendants have
fraudulently denied that [secondhand smoke] causes disease,” id.
at 864.
42
Were these statements false, but not deliberately so,
Defendants would have a better argument. But Defendants
knew of their falsity at the time and made the statements with
the intent to deceive. Thus, we are not dealing with accidental
falsehoods, or sincere attempts to persuade; Defendants’ liability
rests on deceits perpetrated with knowledge of their falsity.
Where statements are deliberately false or misleading, Noerr-
Pennington does not apply. See Alban Towers, 48 F.3d at 1267.
Indeed, if Defendants’ statements had not been made with
fraudulent intent, there would be no basis for RICO liability in
the first place.
The district court found six alleged acts protected by Noerr-
Pennington and based its holding on the remaining racketeering
activity. Philip Morris, 449 F. Supp. 2d at 887. All six
excluded acts were instances of testimony to Congress and,
given the wealth of unprotected racketeering acts, we need not
reach the question whether the district court correctly excluded
these acts. The remaining acts were intended to defraud
consumers, so Noerr-Pennington protection does not apply.
IV. Specific Challenges to Fraud Liability
A. “Light” Cigarettes
The first specific fraud finding Defendants challenge relates
to their marketing of “light” cigarettes. The district court found:
“As their internal documents reveal, Defendants engaged in
massive, sustained, and highly sophisticated marketing and
promotional campaigns to portray their light brands as less
harmful than regular cigarettes.” Philip Morris, 449 F. Supp. 2d
at 860. The court concluded “Defendants have known for
decades that filtered and low tar cigarettes do not offer a
meaningful reduction of risk, and that their marketing which
emphasized reductions in tar and nicotine was false and
43
misleading.” Id.
Defendants contend they should be immune from liability
because the Federal Trade Commission (“FTC”) has blessed
their use of labels such as “light” and “low tar.” This argument
is entirely foreclosed by the Supreme Court’s recent decision in
Altria v. Good, 129 S. Ct. 538 (2008), concluding the FTC has
never condoned the use of “light” or “low tar” descriptors. Id.
at 550. Defendants point to a 1966 industry guidance letter from
the FTC stating that “a factual statement of the tar and nicotine
content (expressed in milligrams) of the mainstream smoke from
a cigarette,” as measured by the Cambridge Filter Method, was
permissible under the FTC Act. Id. at 549. The “Commission
made clear, however, that the guidance applied only to factual
assertions of tar and nicotine yields and did not invite any
‘collateral representations . . . made, expressly or by implication,
as to reduction or elimination of health hazards.’” Id.
Despite Defendants’ argument to the contrary, “the FTC has
in fact never required that cigarette manufacturers disclose tar
and nicotine yields, nor has it condoned representations of those
yields through the use of ‘light’ or ‘low tar’ descriptors.” Id. at
550. Although the FTC never prevented Defendants from using
misleading descriptors, “agency nonenforcement of a federal
statute is not the same as a policy of approval.” Id. As the
Supreme Court held, “neither the handful of industry guidances
and consent orders on which petitioners rely nor the FTC’s
inaction with regard to ‘light’ descriptors even arguably justifies
the pre-emption” argument advanced by Defendants. Id. at 551.
For the same reasons, these actions fail to constitute FTC
authorization of the descriptors that could defeat a finding of
specific intent to defraud.
It is also worth noting that the district court in this case did
not find liability solely based on the use of descriptors such as
44
“light” and “low tar.” The court found Defendants orchestrated
“highly sophisticated marketing and promotional campaigns to
portray their light brands as less harmful than regular
cigarettes.” Philip Morris, 449 F. Supp. 2d at 860. In addition
to the misleading use of descriptors, the district court found
“[Defendants’] public statements are blatantly false” in relation
to the marketing of “light” cigarettes. Id. at 861. The district
court went on to find that “[a]s part of the Enterprise’s scheme
to defraud smokers, Defendants withheld and suppressed their
extensive knowledge and understanding of nicotine-driven
smoker compensation.” Id. These findings reveal that
fraudulent activity surrounding “light” cigarettes was not merely
limited to the use of misleading descriptors. In addition to the
fact that the descriptors were not authorized by the FTC, the
district court relied on other fraudulent activity by Defendants.
Independent of their FTC-authorization argument,
Defendants also insist terms such as “light cigarettes” are not
misleading to the public. They analogize “light” cigarettes to
sodas which are “low caffeine” and cookies which are “low fat.”
According to Defendants, the public knows that drinking many
“low caffeine” sodas can result in higher levels of caffeine
consumption, and eating many “low fat” cookies can result in
higher levels of fat consumption. Defendants thus analogize to
“light” cigarettes, maintaining that it is obvious that smoking
many “light” cigarettes can result in higher levels of nicotine
and tar consumption. But the analogy to “light cigarettes” is
inapt. Unlike drinking sodas and eating cookies, the factors
behind compensation in “light” cigarettes are largely
subconscious: “the smoker will subconsciously adjust his puff
volume and frequency, and smoking frequency, so as to obtain
and maintain his per hour and per day requirement for nicotine.”
Philip Morris, 449 F. Supp. 2d at 467 (citing internal tobacco
company documents). Not only is smoker compensation
subconscious, but factors such as puff volume and frequency are
45
not even tied to the number of “light” cigarettes smoked. The
analogy to sodas and cookies fails; the subconscious nature of
smoker compensation enabled Defendants to mislead the public
about the health effects of “light” cigarettes.
Finally, Defendants argue their descriptors were simply
verbal representations of numerical ratings authorized by the
FTC, and thus were literally true. Even leaving aside the fact
that literally true statements may nevertheless constitute fraud,
this claim founders on the district court’s finding that “there are
lights of certain brands with higher tar levels than regulars of
other brands from the same company, and there are also lights
and regulars of the same brands that have the same FTC tar
rating.” Id. at 861. This finding, which Defendants do not
attempt to show is clearly erroneous, reveals the descriptors
were not simply representations of numerical ratings and thus
were not “literally true.”
B. Secondhand Smoke
We turn next to Defendants’ claim that the district court
erred in finding that they fraudulently denied the adverse health
effects of secondhand smoke. Federal Rule of Civil Procedure
52 obliges us to uphold the district court’s findings of fact unless
they are “clearly erroneous.” FED. R. CIV. P. 52(a)(6). Under
this highly deferential standard, we may disturb the district
court’s findings only if we are “left with the definite and firm
conviction that a mistake has been committed.” E.g., Boca
Investerings P’ship v. United States, 314 F.3d 625, 630 (D.C.
Cir. 2003) (quotation marks omitted). This is so even if we
“would have decided the case differently,” as “[w]here there are
two permissible views of the evidence, the factfinder’s choice
between them cannot be clearly erroneous.” Anderson, 470 U.S.
at 574.
46
Defendants contend that their statements disputing the
health hazards of secondhand smoke were merely good-faith
expressions of opinion. But the district court found to the
contrary—that Defendants’ representations were fraudulent and
not in good faith. Philip Morris, 449 F. Supp. 2d at 853,
864–65. Under Rule 52, then, the question for us is whether this
finding was clearly erroneous.
The district court criticized Defendants’ statements
regarding secondhand smoke as contrary to the scientific
consensus. Defendants object, emphasizing that the district
court found no scientific consensus emerged until the issuance
of the Surgeon General’s 1986 report determining secondhand
smoke to be hazardous. Moreover, they point to evidence of
selected post-1986 scientific opinions casting doubt on the
dangers of secondhand smoke, arguing that even then they
possessed some basis for disputing the consensus.
Defendants’ objections are beside the point. The district
court based its finding of fraudulent intent not just on the
existence of a consensus but also on evidence of Defendants’
own knowledge. Philip Morris, 449 F. Supp. 2d at 864–65.
Specifically, the district court found that dating back to the
1970s, Defendants’ own research and analysis revealed the
hazards of secondhand smoke. For example, the district court
found that in 1980 a Philip Morris scientist reviewed a paper
concluding that secondhand smoke caused “significant damage
to airway function” in exposed nonsmokers, and found “little to
criticize,” deeming the paper “an excellent piece of work which
could be very damaging” to the industry. Id. at 709 (quotation
marks omitted). In 1982, a Philip Morris–sponsored research
facility concluded that the “side stream” smoke composing the
bulk of secondhand smoke is “more irritating and/or toxic” than
the “main stream” smoke inhaled by smokers. Id. at 710
(quotation marks omitted). And several TI advertisements and
47
press releases claimed that an independent 1981 study showing
“a significant correlation between lung cancer and secondhand
smoke” suffered from a statistical flaw, id. at 715, yet the district
court found that industry consultants told TI, Reynolds, and
Brown & Williamson that TI knew at the time not only that the
statistical error did not exist, but also that the study was in fact
correct. Id. at 717–18.
In addition to these and other findings providing relatively
direct evidence that Defendants were aware of the health risks
of secondhand smoke, the district court found that Defendants
concealed their role in making statements regarding secondhand
smoke. While it may be true that purveyors of consumer
products, without fraudulent intent, frequently engage in
concealed support of positive research in their industries, the
concealment of identity by Defendants over so long a period on
a subject of such intense controversy is at the very least
consistent with knowledge of the falsity of their statements.
Although Defendants insist they had no knowledge of the
misleading character of their public statements, they nowhere
challenge the accuracy of these or any of the district court’s
other findings suggestive of their knowledge. Instead, they
argue that such findings reveal only facts that were known to the
public and that had not, at the time, given rise to a scientific
consensus. Again Defendants miss the point. The question is
not whether other individuals knew that Defendants’ claims
were false or misleading; the question is whether Defendants
did. Regardless of whether a scientific consensus existed at any
point, Defendants may be liable for fraud if they made
statements knowing they were false or misleading. Based on
voluminous evidence, including that summarized above, the
district court circumstantially inferred that Defendants did in
fact possess such fraudulent intent. Given these unchallenged
findings, we have no basis for saying that the district court
48
clearly erred in drawing that conclusion.
C. Addiction
Defendants also claim that the district court clearly erred in
finding their representations disputing the addictiveness of
cigarettes to be intentionally misleading. We analyze the district
court’s factual finding as to the misleading character of
Defendants’ commercial statements for clear error. E.g., FTC
v. Brown & Williamson Tobacco Corp., 778 F.2d 35, 41–42 &
n.3 (D.C. Cir. 1985). We find none.
Defendants claim that their statements regarding addiction
were not intentionally misleading because the term “addiction”
is ambiguous. Pointing to the district court’s findings that the
meaning of the term “addiction” in the scientific community
changed over time, Defendants insist that their statements
merely clung to the earlier, narrower, definitions of the term, and
claim that the district court erroneously converted a semantic
dispute into a fraud case. But the district court did not find only
that Defendants insisted on retaining an earlier definition of
addiction. It found that they did so as part of a concerted effort
to misrepresent the difficulty of quitting smoking. Philip
Morris, 449 F. Supp. 2d at 208–09, 308, 857–59. Defendants
fail to demonstrate that this finding was clearly erroneous.
To begin with, Defendants never challenge the district
court’s findings documenting the impact of nicotine on the body
and, more importantly, Defendants’ understanding of its effects.
Id. at 209–11, 216–71. As early as 1963, Brown &
Williamson’s general counsel wrote a confidential memorandum
stating: “We are, then, in the business of selling nicotine, an
addictive drug effective in the release of stress mechanisms.”
Id. at 259 (quotation marks omitted). Further, the district court
found that Defendants were aware that cigarette dependence was
49
stronger than mere habit formation. In 1974, a Philip Morris
scientist told the company’s president that it was “simply not an
adequate explanation to say that smoking is a habit, or that it is
social behavior.” Id. at 223 (quotation marks omitted). In 1981,
a Philip Morris executive wrote in an article: “Cigarettes are not
just habit forming—the body builds up a requirement for them.”
Id. at 228 (quotation marks omitted). Although several industry
attorneys expressed dismay at the publication of the article, none
disagreed with it. Id. In 1985, Philip Morris’s top management
was informed that research showed that “the majority of
smokers wished they did not smoke.” Id. at 229 (quotation
marks omitted). These and numerous other findings—all
unchallenged—support the district court’s conclusion that
Defendants were aware that nicotine creates a chemical
dependency far stronger than a mere habit.
The district court found that despite their knowledge
Defendants made numerous statements trivializing and outright
denying the dependence cigarettes cause. For example, in 1982
TI issued a press release summarizing testimony that smoking
caused an “attachment” comparable to that produced by “tennis,
jogging, candy, rock music, Coca-cola, members of the opposite
sex and hamburgers.” Id. at 281 (quotation marks omitted). In
1997, Philip Morris’s CEO testified, “If [cigarettes] are
behaviorally addictive or habit forming, they are much more like
. . . Gummi Bears, and I eat Gummi Bears, and I don’t like it
when I don’t eat my Gummi Bears, but I’m certainly not
addicted to them.” Id. at 273 (quotation marks omitted). In a
1994 television interview, a TI official claimed that there was
“no chemical addiction” to nicotine and stated, “[S]ometimes we
use the word ‘addiction’ in very broad terms. We talk about
being, you know, news junkies. We talk about being
chocoholics.” Id. at 285 (quotation marks omitted). A 1988 TI
press release declared that “it has been impossible to establish
that the feelings persons have upon giving up smoking are
50
anything but that which would be expected when one is
frustrated by giving up any desired habit.” Id. at 283 (quotation
marks omitted, emphases added). Most directly, the district
court found that Defendants had their representatives testify that
nicotine “did not cause addiction or dependence,” id. at 281
(emphasis added), rendering any supposed ambiguities in the
word “addiction” beside the point.
The district court concluded that these and other findings
reflected a campaign of statements intended to mislead the
public into believing that giving up smoking is not markedly
more difficult than giving up everyday habits. Although not
every statement Defendants made was literally false, even
partially true statements can be actionable fraud if intentionally
misleading as to facts. See, e.g., Emery v. Am. Gen. Fin., Inc.,
71 F.3d 1343, 1348 (7th Cir. 1995) (“A half truth, or what is
usually the same thing a misleading omission, is actionable as
fraud, including mail fraud if the mails are used to further it, if
it is intended to induce a false belief and resulting action to the
advantage of the misleader and the disadvantage of the
misled.”). The district court concluded that Defendants’
statements regarding addiction were misleading in this way, and
given the above unchallenged factual findings we are not “left
with the definite and firm conviction that a mistake has been
committed.” Boca Investerings, 314 F.3d at 630.
D. Altria
In addition to the challenges to fraud liability raised by all
Defendants, two Defendants—Altria and BATCo—make a
number of arguments specific to them. We begin with
Defendant Altria, the holding company owner of Defendant
Philip Morris, which raises several challenges to the district
court’s finding of liability.
51
As an initial matter, Altria claims that the district court
erred in finding that it used the mails in five of the nine
predicate acts it allegedly committed directly. The district court
specifically found, based on Defendants’ routine mailing
practices, that at least two of those five predicate acts were
committed through use of the mails. See Philip Morris, 449 F.
Supp. 2d at 884 (Racketeering Acts 69, 80). We need not decide
whether this circumstantial inference amounted to clear error, as
the other four predicate acts the district court found Altria
committed are themselves sufficient to constitute a pattern of
racketeering activity. See id. (Racketeering Acts 71–72, 74–75).
Altria’s central argument is that mailings sent by lawyers
could not possibly be mailings in furtherance of a scheme or
artifice to defraud, citing several out-of-circuit cases largely
standing for the proposition that ordinary litigation mailings
containing false matter typically do not themselves constitute a
scheme or artifice to defraud. See United States v. Pendergraft,
297 F.3d 1198, 1209 (11th Cir. 2002); Nolan v. Galaxy
Scientific Corp., 269 F. Supp. 2d 635, 643 (E.D. Pa. 2003);
Morin v. Trupin, 711 F. Supp. 97, 105–06 (S.D.N.Y. 1989);
Paul S. Mullin & Assocs., Inc. v. Bassett, 632 F. Supp. 532, 540
(D. Del. 1986); Spiegel v. Cont’l Ill. Nat’l Bank, 609 F. Supp.
1083, 1088–90 (N.D. Ill. 1985). Whatever the merit of that
proposition, it has nothing to do with the question before us.
Altria makes a very different claim—that mailings sent in
furtherance of a separately-proven scheme to defraud somehow
fall outside the mail fraud statute’s coverage because they are
drafted and physically sent by lawyers who themselves have no
fraudulent intent. This claim is without merit. Nothing in the
mail fraud statute requires a mailing to be fraudulent at all, as
long as the mailing is in furtherance of a fraudulent scheme. See
18 U.S.C. § 1341 (specifying that the mailing can be “any matter
or thing whatever to be sent or delivered” as long as it is in
furtherance of “any scheme or artifice to defraud”). Moreover,
52
the statute looks to the intent of the individual who caused the
mailing, not the individual who drafted or physically mailed it.
See United States v. Diggs, 613 F.2d 988, 998 (D.C. Cir. 1979)
(“[A] defendant ‘causes’ the use of the mails where he does an
act with knowledge that the use of the mails will follow in the
ordinary course of business, or where such use can reasonably
be foreseen, even though not actually intended.” (quotation
marks omitted)). Given that the district court permissibly
inferred the corporate Defendants’ intent from the intent of
numerous high-level executives, Philip Morris, 449 F. Supp. 2d
at 897, and given that it found that Defendants “caused” the
mailings in order to further the scheme to defraud, id. at 881, the
fact that attorneys participated in the actual drafting and mailing
provides no immunity. Thus, we conclude that the district court
properly found Altria liable for its direct participation in the
conduct of the affairs of the enterprise, leaving it unnecessary
for us to consider Altria’s objections to the findings that it
participated through its control of Philip Morris.
Finally, Altria claims that the district court clearly erred in
finding that the company joined a RICO conspiracy. We
disagree. The district court’s findings of fact regarding Altria’s
actions in furtherance of the goals of the enterprise, both directly
and through Philip Morris, see id. at 907–08, as well as the
voluminous findings of concerted action and explicit agreement
by Defendants, amply support the circumstantial inference that
Altria conspired with the other Defendants to violate RICO.
See, e.g., United States v. Mellen, 393 F.3d 175, 191 (D.C. Cir.
2004) (“[A] conspiracy can be inferred from a combination of
close relationships or knowing presence and other supporting
circumstantial evidence.” (quotation marks omitted)).
E. BATCo
Defendant BATCo claims that the district court erred in
53
imposing liability on the basis of its conduct outside the United
States. Noting that the district court found that its “activities and
statements took place outside of the United States,” Philip
Morris, 449 F. Supp. 2d at 873, BATCo claims that it enjoys
immunity from RICO liability because the statute has no
extraterritorial reach. We need not decide today whether RICO
has true extraterritorial reach—that is, whether it could reach
foreign conduct with no impact on the United States—because
the district court found BATCo liable on the theory that its
conduct had substantial domestic effects. Id. Because conduct
with substantial domestic effects implicates a state’s legitimate
interest in protecting its citizens within its borders, Congress’s
regulation of foreign conduct meeting this “effects” test is “not
an extraterritorial assertion of jurisdiction.” Laker Airways Ltd.
v. Sabena, Belgian World Airlines, 731 F.2d 909, 923 (D.C. Cir.
1984). Thus, when a statute is applied to conduct meeting the
effects test, the presumption against extraterritoriality does not
apply. See Envtl. Def. Fund, Inc. v. Massey, 986 F.2d 528, 531
(D.C. Cir. 1993) (noting that “the presumption [against
extraterritoriality] is generally not applied where the failure to
extend the scope of the statute to a foreign setting will result in
adverse effects within the United States,” citing Laker Airways).
BATCo argues that the effects test is inapplicable because
the United States had no obligation to prove that Defendants’
conduct had any effects whatsoever. Although BATCo
attributes this to the fact that 18 U.S.C. § 1964(a) does not
require the government to prove that it has been injured, we
think it better explained by the fact that the mail and wire fraud
statutes punish “the scheme, not its success.” Pasquantino v.
United States, 544 U.S. 349, 371 (2005). That said, BATCo’s
point has nothing to do with the case at hand. Here the district
court found that BATCo’s conduct “had substantial direct
effects on the United States.” Philip Morris, 449 F. Supp. 2d at
873. The fact that some other defendant might commit some
54
other offense without effects in the United States hardly renders
BATCo immune from liability for the domestic effects it did
cause. Someone who fires a rifle from Canada into the United
States and wounds his victim can plainly be convicted of
attempted murder. See Laker Airways, 731 F.2d at 922
(“[W]hen a malefactor in State A shoots a victim across the
border in State B, State B can proscribe the harmful conduct.”).
This is so even though in general the government may prove
attempted murder without establishing that the attempt had any
effect whatsoever. Similarly, the fact that effects are not
elements of mail and wire fraud offenses or associated RICO
violations provides no immunity to those, like BATCo, whose
fraud and racketeering has substantial and direct domestic
effects.
Thus, we need decide only whether the district court erred
in applying the effects test—which asks whether conduct has a
substantial, direct, and foreseeable effect within the United
States, see Consol. Gold Fields PLC v. Minorco, S.A., 871 F.2d
252, 261–62 (2d Cir. 1989) (describing substantial effect as
direct and foreseeable)—to the facts of this case. We see no
error. The district court found that as part of the overall scheme
to defraud, BATCo conducted sensitive nicotine research for
Brown & Williamson abroad and secretly shared the results with
Brown & Williamson in the United States. Philip Morris, 449
F. Supp. 2d at 298–304. It further found that BATCo, in concert
with other Defendants, founded, funded, and actively
participated in various international organizations, which
Defendants themselves saw as instrumental to their efforts to
perpetuate what the district court found to be their fraudulent
scheme in the United States. See id. at 119–23. In one example,
TI admitted that “the back-wash from events and attacks
affecting the industry in smaller countries comes back
powerfully to the USA,” id. at 140 (quotation marks omitted),
and praised INFOTAB, an international organization of which
55
BATCo was a founding member, id. at 132, for “help[ing] the
industry to unite in trying to combat the attacks,” id. at 140
(quotation marks omitted). Notwithstanding BATCo’s demands
for a nearly unattainable level of specificity, these unchallenged
findings, together with the findings of the tremendous domestic
effects of the fraud scheme generally, see, e.g., id. at 209,
307–08, make clear that the district court committed no error in
finding that BATCo’s participation had substantial, direct, and
foreseeable effects in the United States. Cf. Laker Airways, 731
F.2d at 925–26 (finding allegations that the anticompetitive
elimination of a foreign airline increased domestic air fares
adequate to support antitrust action without demanding further
specificity).
V. Challenges to Likelihood of Future Violations
Having found Defendants’ challenges to liability
unavailing, we move on to the district court’s determination that
they are likely to commit future RICO violations if not enjoined.
All Defendants challenge this finding on a number of common
bases, and four Defendants—Altria, BWH, CTR, and TI—also
bring separate challenges to the court’s findings regarding them.
We address each in turn.
A. Likelihood of Future Violations
Section 1964(a) grants district courts jurisdiction “to
prevent and restrain” RICO violations. 18 U.S.C. § 1964(a).
Hence, before a district court may order remedies under RICO
it must find the defendant exhibits a reasonable likelihood of
committing future violations of the Act. Disgorgement Opinion,
396 F.3d at 1198.
Here, the district court found a reasonable likelihood that
Defendants would commit future RICO violations. Philip
56
Morris, 449 F. Supp. 2d at 908–15. Defendants attack this
finding, asserting: (1) the district court applied an erroneous
legal standard, (2) the Master Settlement Agreement (“MSA”)
makes future violations unlikely, and (3) Defendants’ business
practices and public positions alone preclude future violations.
We conclude the district court applied the correct legal standard
and its factual conclusions were not clearly erroneous.
In the mid-1990s, the attorneys general of several states
brought suit against the major tobacco companies for the
reimbursement of state costs associated with smoking. Five
Defendants, Philip Morris, Reynolds, Brown & Williamson,
Lorillard, and Liggett entered into a settlement agreement, the
MSA, with forty-six states and the District of Columbia. The
MSA prohibited, inter alia, youth marketing, any material
misrepresentations regarding the health consequences of tobacco
use, agreements between manufacturers to limit either
competition or the distribution of information about the health
effects associated with smoking, and other specific marketing
techniques (e.g., cartoon characters and billboards). The MSA
specifically required the dissolution of CTR, TI, and CIAR. The
National Association of Attorneys General and the individual
states’ attorneys general enforce the MSA, which requires
informal dispute resolution before any enforcement action
commences whenever possible.
To obtain equitable remedies, the government must
demonstrate a “reasonable likelihood of further violation[s] in
the future.” Savoy Indus., Inc., 587 F.2d at 1168 (quotation
marks omitted). Considered under the totality of the
circumstances, three factors determine whether a reasonable
likelihood exists: “whether a defendant’s violation was isolated
or part of a pattern, whether the violation was flagrant and
deliberate or merely technical in nature, and whether the
defendant’s business will present opportunities to violate the law
57
in the future.” SEC v. First City Fin. Corp., 890 F.2d 1215,
1228 (D.C. Cir. 1989). The district court applied this
standard—a standard both sides agree is appropriate. Philip
Morris, 449 F. Supp. 2d at 909; Defs. Br. 39–40; Gov. Br. 182.
Defendants quibble with two aspects of the district court’s
application. First, Defendants assert the district court could not
rely on “inferences drawn from past conduct alone” because the
MSA “already proscribes future violations” and “imposes a legal
barrier to the repetition of such conduct in the future.” Defs. Br.
40. This is an odd argument, suggesting a tort settlement
automatically limits the remedial options in a RICO suit.
Notably, the first two factors of the First City test focus entirely
on inferences arising from past conduct. 890 F.2d at 1228.
And, as the district court correctly found, “[t]he likelihood of
future wrongful acts is frequently established by inferences
drawn from past conduct.” United States v. Philip Morris USA,
316 F. Supp. 2d 6, 10 n.3 (D.D.C. 2004) (quotation marks
omitted); see also SEC v. Bilzerian, 29 F.3d 689, 695 (D.C. Cir.
1994) (inferring a likelihood of future violations based on the
nature of past conduct); SEC v. Gruenberg, 989 F.2d 977, 978
(8th Cir. 1993); First City, 890 F.2d at 1228–29. Defendants
attempt to bolster their position by claiming the MSA precludes
the need for injunctions by fully addressing their prior
misconduct. As discussed infra, future violations remain likely
notwithstanding the MSA. Therefore, Defendants’ argument
fails.
Also, Defendants deftly mischaracterize the district court’s
opinion. Based on a single footnote in the opinion’s section
discussing the MSA’s failure to alter Defendants’ conduct and
concluding remedies in this case were appropriate, Philip
Morris, 449 F. Supp. 2d at 913 n.82, Defendants accuse the trial
court of impermissibly “shift[ing] the burden to defendants to
prove that RICO violations will not occur in the future . . . under
58
the ‘absolutely clear’ test.” Defs. Br. 42. Contrary to
Defendants’ fears, the district court obviously did not intend to
announce a new standard or alter the reigning standard via
footnote. The First City standard was carefully articulated at the
start of the discussion addressing future violations and
conscientiously applied. Philip Morris, 449 F. Supp. 2d at
908–09, 911–13. The footnote, regarding voluntary termination
of illegal conduct, appears much later in the opinion where the
court sought to emphasize the suspension of disbelief necessary
to agree with Defendants, noting the court must assume
“Defendants have complied with and will continue to comply
with the terms of the MSA, and that the MSA has adequate
enforcement mechanisms” in order to conclude “the MSA
obviates the need for injunctive relief.” Id. at 913 (quotation
marks omitted). This is a far cry from altering the legal
standard. Indeed, the district court found, under the correct
standard, that Defendants continued to commit violations even
after 1999, well after the execution of the MSA. Id. at 910–11.
Since the district court applied the standard enunciated in
Savoy and First City and gave appropriate weight to the
inferences drawn from Defendants’ past conduct, we uphold the
district court’s decision to order remedies.
The district court concluded the MSA “alone [could not]
remove the reasonable likelihood of Defendants’ future RICO
violations.” Id. Defendants contend the MSA effectively
prevents prospective RICO violations because it prohibits them
from participating in an “enterprise” or committing any
“predicate acts.” The district court, however, found Defendants
began to evade and at times even violate the MSA’s prohibitions
almost immediately after signing the agreement and,
consequently, concluded the MSA did not limit the court’s
ability to order “[a]ppropriate [r]emedies.” Id. The court’s
factual findings are not clearly erroneous.
59
Defendants assert the MSA prevents their participation in
a RICO enterprise because the organizations that allowed for
joint activity no longer exist, and neither the government nor the
district court identified any “joint activity” between Defendants
after 1998, the start of the MSA. Defendants’ post-agreement
activities belie these statements. For example, though the MSA
required Defendants to dissolve CIAR, only two days after
signing the MSA Lorillard’s general counsel wrote Philip
Morris, Reynolds, and Brown & Williamson asking to “discuss
the status of the plan to reinstate CIAR.” Id. at 798 (quotation
marks omitted). Shortly thereafter, Covington & Burling LLP
informed the CIAR contractors “[t]he members of CIAR have
decided to create a new organization to continue the work . . . .
The members of CIAR that will be members of the new
organization intend to continue to fund the research.” Gov. Ex.
75,412, at 2. Subsequently, in 2000, Philip Morris initiated a
new research program that had the same offices, phone numbers,
and board as CIAR and many of the same employees,
management, researchers, peer reviewers, and grantees. Philip
Morris, 449 F. Supp. 2d at 798–99.
CIAR is not the lone example of Defendants’ organizations
poised to circumvent the MSA’s prohibitions against joint
activities or participation in an enterprise. The district court
found, with the exception of CTR and TI, “all of the other
organizations either still exist or can be readily re-activated.”
Id. at 871. For example, even at the time of trial Defendants
continued to participate in the Center for Cooperation in
Scientific Research Relative to Tobacco (“CORESTA”), “a non-
profit making association with objectives to enhance the
scientific cooperation for research on tobacco” perceived as
“unique and very valuable” because it enjoys the perception of
“being objective, technical and independent.” Gov. Ex. 21,788,
at 1.
60
Defendants presume the MSA’s prohibition against joint
activity is effective. The record, however, demonstrates the
tobacco companies retain both the ability and the desire to
continue joint activities. Accordingly, the district court did not
commit clear error when it determined the MSA could not
effectively prevent Defendants’ participation in an enterprise.
Defendants next assert the MSA’s “scores of injunctions
and related prohibitions” prevent “repetition of the core
wrongdoing.” Defs. Br. 48. The district court determined the
MSA does not prevent Defendants’ commission of future
racketeering acts because: (1) Defendants have not fully
complied with the MSA, (2) the States could not be relied upon
“to vigorously enforce the MSA,” see Br. For Amici Curiae
States 7–11, (3) some provisions of the MSA have and will
expire, and (4) BATCo and Altria are not subject to the
agreement. Philip Morris, 449 F. Supp. 2d at 913–15.
As evidence of the MSA’s failures and pitfalls, the district
court noted that despite the MSA Defendants still fraudulently
denied the dangers of secondhand smoke, marketed “low tar”
cigarettes as a healthier alternative to quitting, and falsely denied
manipulating nicotine delivery and marketing to youth. Id. at
910. Defendants offer no rebuttal to these factual findings, but
instead argue “failure to comply with all the details or the
‘spirit’ of the MSA does not even begin to approach a RICO
violation.” Defs. Br. 50. Obviously. But as the district court
rightly recognized, Defendants cannot hide behind the MSA to
avoid the imposition of RICO remedies when they do not
comply with the agreement. Philip Morris, 449 F. Supp. 2d at
913. Therefore, the district court did not commit clear error
when it determined the MSA does not adequately prevent or
restrain Defendants’ future racketeering activities and did not
abuse its discretion by ordering equitable relief.
61
Defendants claim they have “admitted for years” that
“smoking causes lung cancer” and other serious diseases,
“smoking is addictive,” and “low tar cigarettes may not be
safer.” Defs. Br. 53–54, 56. They insist their positions on these
issues “preclude future RICO violations.” Id. at 53. The district
court acknowledged Defendants’ varying degrees of lip service
to these facts, but disagreed that these admissions translated into
a guarantee against later violations.
According to the district court, “Defendants’ essential
position on the relationship of smoking and health remains
virtually unchanged” from the fraudulent positions it first took
in the 1950s. Philip Morris, 449 F. Supp. 2d at 204; see also id.
at 204–08 (citing corporate statements and statements from
Defendants’ executives). The district court condemned
Defendants for failing to embrace the Surgeon General’s
definition of addiction, to admit nicotine specifically creates and
sustains addiction, or to “acknowledge[] . . . the reason quitting
smoking is so difficult, and not simply a function of individual
will power, is because of its addictive nature.” Id. at 286; see
also id. at 284–88. Finally, examples in the record of
Defendants’ marketing campaigns and internal documents amply
support the district court’s conclusion that Defendants “continue
to make[] false and misleading statements regarding low tar
cigarettes in order to reassure smokers and dissuade them from
quitting.” Id. at 507–08. While we may not have reached all the
same conclusions as the district court, under the highly
deferential clearly erroneous standard the district court’s factual
findings have sufficient evidentiary support; its decision to order
equitable relief was not an abuse of discretion.
B. Altria
Altria urges, based on its status as a holding company, no
factual basis exists for finding it would violate RICO in the
62
future. According to the district court, though, despite Altria’s
holding company status it “effectively and actively controls the
activities of all of its subsidiaries, including Defendant Philip
Morris.” Philip Morris, 449 F. Supp. 2d at 203–04 n.12. The
record establishes that Altria management oversees subsidiary
policies and operations, id. at 907–08, and Altria does not
dispute its control over Philip Morris. Moreover, Altria itself
“participated directly” in the RICO enterprise and conspiracy.
Id. at 907. With direct culpability and this level of plenary
power over its subsidiaries, Altria clearly remains capable of
future RICO violations. Therefore, we uphold the district
court’s issuance of remedies against Altria.
C. BWH
BWH makes an argument similar to that of Altria. In 2004,
Brown & Williamson merged all domestic tobacco operations
with Reynolds and was reconstituted into Brown & Williamson
Holdings (“BWH”). The district court made no factual findings
specific to BWH. Rather, the district court focused throughout
its opinion on Brown & Williamson. Philip Morris, 449 F.
Supp. 2d at 31 n.4 (describing Brown & Williamson as “now
part of Reynolds American”). The entire rest of the opinion
refers to “Brown & Williamson” without any mention of the
reconstituted holding company.
Based on BWH’s status as a “passive holding company,”
BWH argues the district court erred in finding it is likely to
commit future RICO violations. As discussed in relation to
Altria, a company’s status as a holding company by itself does
not preclude RICO liability. Where a holding company, such as
Altria, participates directly in the original violations and retains
control over subsidiary tobacco operations, it remains capable of
repeating its misconduct.
63
BWH could not have participated in this RICO enterprise as
it did not then exist. Nonetheless, if it exercises plenary control
over the tobacco operations of its subsidiaries, then, like Altria,
it could commit later violations. Because the district court failed
to make any findings about the extent of BWH’s control over
tobacco operations, we cannot know the company’s current
capabilities. Therefore, we cannot determine whether a
reasonable likelihood exists that BWH will commit future RICO
violations. Accordingly, we remand this issue for further fact
finding and clarification.
D. Mootness as to CTR and TI
CTR and TI argue that the district court’s findings relating
to the likelihood they will commit future violations render the
case against them moot. We agree. The MSA demanded the
dissolution of both organizations. At the time of trial, CTR and
TI only existed to wind up their respective affairs. The district
court found “no reasonable likelihood of future violations” on
the part of TI or CTR and consequently ordered no remedies
against them. Philip Morris, 449 F. Supp. 2d at 915. The court
actually encouraged the government to reconsider proceeding
against these entities as they “seem to have no actual ability to
continue alleged past RICO violations.” Id. at 916 (quotation
marks omitted).
“Federal courts lack jurisdiction to decide moot cases
because their constitutional authority extends only to actual
cases or controversies.” Larsen v. U.S. Navy, 525 F.3d 1, 4
(D.C. Cir. 2008) (quotation marks omitted). A case is moot
when “the challenged conduct ceases such that there is no
reasonable expectation that the wrong will be repeated” in
circumstances where “it becomes impossible for the court to
grant any effectual relief whatever to the prevailing party.” City
of Erie v. Pap’s A.M., 529 U.S. 277, 287 (2000) (quotation
64
marks omitted). For both CTR and TI these requirements have
been met. The government nowhere disputes Defendants’ claim
that CTR and TI no longer exist. They cannot possibly commit
future RICO violations. Accordingly, we vacate the judgment
as to CTR and TI and remand with directions to dismiss.
VI. Challenges to Remedies
Finally, as to those Defendants the district court properly
found likely to commit future RICO violations, we address their
challenges to particular remedies the district court imposed. We
also address the cross-appeal seeking additional remedies the
district court denied.
A. Subsidiaries
First, Defendants object to the inclusion of their subsidiaries
among the persons bound by the remedial order. Rule 65 of the
Federal Rules of Civil Procedure indicates that an injunction
binds only the parties; their “officers, agents, servants,
employees, and attorneys”; and “other persons who are in active
concert or participation with” the aforementioned persons. FED.
R. CIV. P. 65(d)(2). The rule derives from the common law
doctrine that an injunction “not only binds the parties defendant
but also those identified with them in interest, in ‘privity’ with
them, represented by them or subject to their control”—any
person or entity through whom the defendants might carry out
enjoined activity and so nullify the order. Regal Knitwear Co.
v. NLRB, 324 U.S. 9, 14 (1945). A subsidiary corporation is in
privity with its parent “in respect to the common corporate
business” to the extent it is “so identified in interest with [the
parent] that [it] represents precisely the same legal right in
respect to the subject matter involved” in the injunction.
Jefferson Sch. of Soc. Sci. v. Subversive Activities Control Bd.,
331 F.2d 76, 83 (D.C. Cir. 1963).
65
The term “subsidiaries” in the remedial order cannot expand
the scope of the injunction beyond that defined by Rule 65(d);
however, subsidiaries of Defendants may be personally bound
by the order to the extent that they are agents of or in privity
with Defendants in the common corporate business of
manufacturing, designing, marketing, or selling cigarettes. (Like
any person with actual notice of the injunction, subsidiaries that
act in concert with Defendants to violate the order would also be
subject to contempt.) The record on appeal does not reveal facts
sufficient for us to evaluate over which subsidiaries, if any,
Defendants exercise sufficient control or with which they so
identify in interest regarding cigarettes that they would
legitimately fall within the purview of the injunction order. We
therefore vacate the order to the extent that it binds all
Defendants’ subsidiaries and remand to the district court for
proceedings to determine whether inclusion of Defendants’
subsidiaries, and which subsidiaries, satisfies Rule 65(d).
B. General Injunctions
The district court permanently enjoined Defendants “from
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,” and from
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. Such material statements include, but are not
limited to, any matter that: (a) involves health, safety, or
other areas with which a reasonable consumer or potential
consumer of cigarettes would be concerned; (b) a
66
reasonable consumer or potential consumer would attach
importance to in determining whether to purchase or smoke
cigarettes; or (c) the Defendant, Covered Person or Entity
making the representation knows or has reason to know that
its recipient regards or is likely to regard as important in
determining whether to purchase cigarettes or to smoke
cigarettes, even if a reasonable person would not so regard
it.
Philip Morris, 449 F. Supp. 2d at 938. Defendants assert that,
“in the face of more than 1,600 pages of findings,” these
injunctions do not sufficiently specify the acts restrained, in
violation of Rule 65(d), due process, and the First Amendment.
Defs. Br. 137.
Rule 65(d) requires every order granting an injunction to
“state its terms specifically [and] describe in reasonable
detail—and not by referring to the complaint or other
document—the act or acts restrained or required.” FED. R. CIV.
P. 65(d)(1)(B)–(C). “The Rule was designed to prevent
uncertainty and confusion on the part of those faced with
injunctive orders.” Schmidt v. Lessard, 414 U.S. 473, 476
(1974). Because an injunction “prohibits conduct under threat
of judicial punishment, basic fairness requires that those
enjoined receive explicit notice of precisely what conduct is
outlawed.” Id. Under this standard, we have held injunctions to
be too vague when they enjoin all violations of a statute in the
abstract without any further specification, or when they include,
as a necessary descriptor of the forbidden conduct, an undefined
term that the circumstances of the case do not clarify. See Wash.
Inv. Network, 475 F.3d at 407 (order enjoined all future
violations of the applicable statutes, without clarifying the acts
restrained); Gulf Oil Corp. v. Brock, 778 F.2d 834, 843 (D.C.
Cir. 1985) (order enjoined “substantially similar” conduct
without further specification in a case that provided no examples
67
of what is “similar”); Common Cause v. NRC, 674 F.2d 921,
926–27 (D.C. Cir. 1982) (order enjoined conduct “similar in
nature” without further specification in a case that provided no
examples of what is “similar”); SEC v. Savoy Indus., Inc., 665
F.2d 1310, 1318–19 (D.C. Cir. 1981) (defendant enjoined not
“to engage in any act, practice or course of business which
operates or would operate as a fraud or deceit upon any
person”); see also Schmidt, 414 U.S. at 476 (enjoined “the
present Wisconsin scheme”). Even if it tracks statutory
language, a general injunction is not too vague if it relates the
enjoined violations to the context of the case. See Savoy Indus.,
Inc., 665 F.2d at 1316–17 (tracking language of the statute in
context of defendant’s relationship with issuers of securities).
Indeed, we must always apply the fair notice requirement “in the
light of the circumstances surrounding (the injunction’s) entry:
the relief sought by the moving party, the evidence produced at
the hearing on the injunction, and the mischief that the
injunction seeks to prevent.” Common Cause, 674 F.2d at 927
(quotation marks omitted).
The two injunctions at issue here sufficiently specify the
activities enjoined as to provide Defendants with fair notice of
the prohibited conduct. The district court did not abstractly
enjoin Defendants from violating RICO or making false
statements, but instead specified the matters about which
Defendants are to avoid making false statements or committing
racketeering acts: the manufacturing, marketing, promotion,
health consequences, and sale of cigarettes, along with related
issues that Defendants have reason to know are of concern to
cigarette consumers. This is not a generalized injunction to
obey the law, especially when read in the context of the district
court’s legal conclusions and 4,088 findings of fact about fraud
in the manufacture, promotion, and sale of cigarettes. These
injunctions may be broad, but breadth is warranted “to prevent
further violations where[, as here,] a proclivity for unlawful
68
conduct has been shown.” Savoy Indus. Inc., 665 F.2d at 1317
(quoting McComb v. Jacksonville Paper Co., 336 U.S. 187, 192
(1949) (holding that the “record of continuing and persistent
violations of the [statute] would indicate that that kind of a
[general] decree was wholly warranted in this case”)).
Defendants complain that the volume of findings in this case
actually make understanding the injunctions more difficult and
chill speech because some of the district court’s findings present
“express prohibitions” whereas others, like the use of white filter
paper for cigarettes, “simply reflect the district court’s
disapproval” of aspects of Defendants’ business practices
without finding the conduct fraudulent. Defs. Br. 137. This
objection answers itself, as the plain terms of the injunctions
prohibit only conduct that would constitute a racketeering act or
a “material false, misleading, or deceptive statement or
representation,” not all activities the court mentioned in its
findings.
C. Extraterritorial Effect
Paragraph four of the injunction prohibits the use of “any
express or implied health message or health descriptor for any
cigarette brand.” Philip Morris, 449 F. Supp. 2d at 938. The
government concedes that this prohibition “should not be read
to govern overseas activities with no domestic effect.” Gov. Br.
215–16. But because paragraph four contains no such limiting
language, see Philip Morris, 449 F. Supp. 2d at 938, we vacate
that provision and remand for the district court to reformulate it
so as to exempt foreign activities that have no substantial, direct,
and foreseeable domestic effects. See supra Part IV.E.
D. Corrective Statements
As part of the remedial order, the district court ordered
Defendants to disseminate “corrective statements” concerning
69
the topics about which they had previously misled consumers.
The court will determine the precise content of the statements at
a future date after receiving proposals from the parties, but
ordered that they must address five topics: (1) the adverse
health effects of smoking; (2) the addictiveness of smoking and
nicotine; (3) the lack of any significant health benefit from
smoking light cigarettes; (4) the manufacturers’ manipulation of
cigarette design and composition to ensure optimum nicotine
delivery; and (5) the adverse health effects of exposure to
secondhand smoke. Philip Morris, 449 F. Supp. 2d at 938–39.
The remedial order sets out schedules for the manufacturer
Defendants to follow in disseminating the corrective statements
in cigarette package onserts, retail point-of-sale displays,
newspapers, television, and their company websites. Id. at
939–41. Defendants object to the corrective statements as a
whole on the grounds that they did not receive adequate notice
of and opportunity to respond to the government’s proposed
remedy and that the remedy extends beyond the court’s
jurisdiction under RICO. Regarding the specific means of
disseminating the statements, Defendants argue that cigarette
package onserts violate the Labeling Act, that the point-of-sale
displays are duplicative and impose severe burdens on retailers,
and that requiring Defendants to make corrective statements in
various media apart from existing advertising violates the First
Amendment.
Notice
Defendants argue that because the government did not
disclose its final corrective statements proposal until its post-
trial proposed remedial order, the district court denied
Defendants due process by ordering a version of that remedy
without providing Defendants adequate notice and an
opportunity to respond. Although Defendants purport to press
this objection in a general fashion “with respect to many other
70
remedies imposed by the district court,” they state it with
sufficient specificity for our consideration only with regard to
corrective statements. Defs. Br. 135. The exact content of the
statements is yet to be determined and so is not before us at this
stage.
The sequence of events surrounding the remedies phase of
the trial did not deprive Defendants of the process they were
due. Defendants received the government’s proposed remedies,
including a general corrective statements proposal, two months
before the remedies phase of the trial began. They participated
in a fourteen-day, fully briefed remedies trial, at which thirteen
witnesses testified and were subject to cross-examination,
including at least one government witness who testified about
corrective statements. Philip Morris, 449 F. Supp. 2d at 923. In
its post-trial proposed remedial order, the government specified
the five categories of corrective statements (which correspond
to the subjects about which the district court found Defendants
committed fraud) and the details of its recommended publication
campaign. Defendants responded to the government’s proposed
order in their own post-trial brief and raised numerous legal
objections to the propriety of the corrective statements remedy,
which the district court considered and resolved in its final
opinion and order. See id. at 921–23. Defendants have not
demonstrated any prejudice from this sequence of events. In
their offer of proof to the district court they asserted only that if
they had known more “specifics” of the government’s proposed
remedy before the hearing, they would have retained, and might
have offered testimony from, one or more experts addressing the
proposal. See Defs. Offer of Proof at 9–10. Even on appeal,
Defendants suggest no testimony they would have offered, no
lines of cross-examination inquiry they would have pursued, and
no factual dispute they would have addressed.
71
This case bears no resemblance to United States v.
Microsoft Corp., 253 F.3d 34 (2001), as Defendants attempt to
suggest. In Microsoft, the district court ordered the break-up
and restructuring of Microsoft into two companies without
holding any evidentiary hearing to resolve the numerous
disputed fact questions surrounding the remedy. Id. at 101–02.
Microsoft submitted two offers of proof identifying serious
unresolved issues of fact and included 53 pages of submissions
specifying the evidence it would introduce to challenge the
government’s representations. Id. at 103. Microsoft gives us no
reason to believe Defendants in this case—who enjoyed pre-trial
notice and a lengthy remedies trial, and have shown no
prejudice—suffered a denial of due process.
Section 1964
A district court that finds a defendant civilly liable for
violating RICO has jurisdiction “to prevent and restrain
violations of [RICO] by issuing appropriate orders . . . .” 18
U.S.C. § 1964(a). Congress limited relief under section 1964(a)
to forward-looking remedies aimed at preventing and restraining
future RICO violations. Disgorgement Opinion, 396 F.3d at
1198, 1200. Earlier in this litigation, we held that the statute
does not authorize disgorgement because it is “both aimed at and
measured by past conduct”: “[i]t is measured by the amount of
prior unlawful gains and is awarded without respect to whether
the defendant will act unlawfully in the future.” Id. at 1198.
Defendants argue that corrective statements are similarly
“focused on remedying the effects of past conduct,” id., because
they seek to correct Defendants’ campaign of deceptive
marketing.
The government urges that the corrective statements are a
forward-looking remedy authorized under section 1964(a)
because future advertising that “may not contain any statements
72
which are themselves false or deceptive” nevertheless inevitably
builds upon Defendants’ previous false statements and, if
uncorrected, “continues the deception, albeit implicitly rather
than explicitly,” rendering those advertisements “part of the
continuing deception of the public.” Warner-Lambert Co. v.
FTC, 562 F.2d 749, 769 (D.C. Cir. 1977); see Novartis Corp. v.
FTC, 223 F.3d 783, 787 (D.C. Cir. 2000). We do not doubt that
consumers may “continue to make purchasing decisions based
on the false belief” created by a manufacturer’s false advertising
even when that advertising ceases, Novartis Corp., 223 F.3d at
787 (quoting Warner-Lambert Co., 562 F.2d at 762), but it is
less clear whether, and in what circumstances, continuing
consumer confusion created by uncorrected but truthful
advertising would amount to a knowing fraud. Section 1964(a)
authorizes only remedies that prevent and restrain future RICO
violations, not all future effects of past RICO violations,
Disgorgement Opinion, 396 F.3d at 1198, or all future unseemly
business practices.
We need not consider this question, however, because as the
district court observed and the intervenors here argue, requiring
Defendants to issue corrective statements will “prevent and
restrain them from making fraudulent public statements on
smoking and health matters in the future.” Philip Morris, 449
F. Supp. 2d at 926. Defendants will be impaired in making false
and misleading assurances about, for instance, smoking-related
diseases or the addictiveness of nicotine—as the district court
found they continue to do, id. at 925–26—if they must at the
same time communicate the opposite, truthful message about
these matters to consumers. Requiring 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.
73
Package onserts
One of the vehicles for the corrective statements is a
cigarette package onsert, which the district court ordered
Defendants to “affix to cigarette packaging, either on the outside
of or within the outer cellophane wrapping around the package
. . . in the same manner as certain Defendants, such as Philip
Morris and Brown & Williamson, have utilized package onserts
in the past.” Philip Morris, 449 F. Supp. 2d at 939. Defendants
object that the onserts violate the Federal Cigarette Labeling and
Advertising Act (“Labeling Act”), which provides that “[n]o
statement relating to smoking and health, other than the
statement required by section 1333 of this title, shall be required
on any cigarette package.” 15 U.S.C. § 1334(a).
The Labeling Act defines a “package” as “a pack, box,
carton, or container of any kind in which cigarettes are offered
for sale, sold, or otherwise distributed to consumers.” Id.
§ 1332(4). A package onsert is “[a] communication affixed to
but separate from an individual cigarette pack and/or carton
purchased at retail by consumers, such as a miniature brochure
included beneath the outer cellophane wrapping or glued to the
outside of the cigarette packaging.” Philip Morris, 449 F. Supp.
2d at 948; see Schwab v. Philip Morris USA, Inc., 449 F. Supp.
2d 992, 1084–85 (E.D.N.Y. 2006) (defining onserts as
“pamphlets attached to the outside of cartons or packs of
cigarettes”), rev’d on other grounds by McLaughlin v. Am.
Tobacco Co., 522 F.3d 215 (2d Cir. 2008); United States v. Star
Scientific, Inc., 205 F. Supp. 2d 482, 484 (D. Md. 2002)
(defining onsert as “a type of external package label”).
These definitions show that the corrective statements in an
onsert are not “statement[s] . . . on [a] package,” 15 U.S.C.
§ 1334(a), but rather statements in a brochure attached to or
74
included with a package, and thus are not prohibited by the plain
language of the Labeling Act. See Philip Morris, 449 F. Supp.
2d at 928 n.89. Congress could have used more expansive
language to reach statements in onserts had it chosen to do so,
but it chose only to preempt the requiring of alternative
statements about smoking and health “on any cigarette
package.” Moreover, the district court and the parties appear to
have recognized the distinction between packages and onserts
throughout the trial. See id. at 206 (“Philip Morris has never
told its customers on its cigarette packaging or in onserts that it
agrees that smoking causes cancer and other diseases in
smokers.”), 288 (“Philip Morris replaced the pre-existing
package labels with onserts.”), 424 (“[Brown &Williamson]
began a new test market . . . using its redesigned packaging and
onsert. . . . Star Scientific . . . added an informational ‘onsert’
attached to the package.”); Trial Tr., Jan. 10, 2005 (Philip
Morris senior vice president distinguishing between cigarette
pack and onsert). We therefore conclude that the onsert remedy
does not violate the Labeling Act.
Point-of-sale displays
The district court ordered each Defendant with a retail
merchandising program—whereby retailers agree to use the
manufacturer’s in-store advertising—to design countertop and
header displays containing the corrective statements and
“require retailers who participate in such program” to display
them for two years. Philip Morris, 449 F. Supp. 2d at 939–40.
The freestanding countertop displays must be at least thirty
inches high and eighteen inches wide, and retailers must place
them on their counters “within the line-of-sight of any customer
who is standing in line for the register.” Id. at 946. The header
displays must be of at least equivalent size to Defendants’ other
brand advertising headers and placed “in an equivalent position
with any other brand advertising header” at the top of the
75
cigarette display case. Id. at 939–40, 947. Under the injunctive
order, each Defendant must “suspend from its Retail
Merchandising Program for a period of one year any retailer that
fails to comply with this provision.” Id. at 940.
Retailers affected by this order—none of whom were
involved in the litigation in any way—did not receive notice of
this remedy or an opportunity to present evidence or arguments
to the district court regarding the impact the injunction would
have on their businesses. Nor does it appear that the district
court independently considered the impact of this program on
affected retailers. In their appellate brief as amicus curiae and
in affidavits filed with Defendants’ motion for a stay of final
judgment pending appeal, the National Association of
Convenience Stores represents that this injunction will cost
retailers substantial revenue. The convenience stores indicate
that countertop space is the most important space within a
convenience store, and the loss of one square foot of countertop
space can cost the industry $82 million in sales per year. Yet if
the retailers choose not to carry the countertop displays,
Defendants must suspend them from their retail merchandising
program for one year, which one retailer asserted would cost ten
to fifteen percent of his convenience stores’ annual profits. See
Hartman Aff. at 2.
Section 1964(a) explicitly cautions that in crafting an
injunctive remedy the court must “mak[e] due provision for the
rights of innocent persons.” 18 U.S.C. § 1964(a). We believe
that the district court exceeded its authority by failing to
consider the rights of retailers and crafting an injunction that
works a potentially serious detriment to innocent persons not
parties to or otherwise heard in the district court proceedings.
Even though not explicitly bound by the terms of an injunction
on pain of contempt, third parties may be so adversely affected
by an injunction as to render it improper. See, e.g., Cook Inc. v.
76
Boston Scientific Corp., 333 F.3d 737, 744 (7th Cir. 2003).
We therefore vacate the order regarding point-of-sale
displays and remand for the district court to evaluate and
“mak[e] due provision for the rights of innocent persons,” either
by abandoning this part of the remedial order or by crafting a
new version reflecting the rights of third parties. 18 U.S.C.
§ 1964(a). Of course, any such remedy the district court
imposes on remand can only affect contracts entered after the
injunctive order issues. See Nat’l Wildlife Fed’n v. Burford, 835
F.2d 305, 315 (D.C. Cir. 1987) (explaining an injunction’s
validity due to the fact that it “does not affect the contractual
rights of third parties”). In addition, we agree with Defendants
that the injunction appears to order each Defendant separately to
require the same retail store to display substantively identical,
but separate, signs. The government concedes that, despite the
language of the order, the district court could not have intended
to require the burden of multiple duplicative displays at each
retail store. We therefore direct the district court, if it concludes
that some form of a point-of-sale display injunction is still
appropriate after considering the rights of third parties and
existing contracts, to clarify that its order does not require
duplicative displays.
First Amendment
The district court also ordered each Defendant to publish
the corrective statements on its corporate website, as a one-time
full-page advertisement in thirty-five major newspapers, and as
at least ten advertisements on a major television network over
the course of one year. Philip Morris, 449 F. Supp. 2d at
939–41. The court chose these media in order to “structure a
remedy which uses the same vehicles which Defendants have
themselves historically used to promulgate false smoking and
health messages.” Id. at 928. The court concluded compelled
77
corrective advertising is permissible under the commercial
speech doctrine. Id. at 926–28.
The First Amendment protects against government
infringement on “the right to speak freely and the right to refrain
from speaking at all.” Wooley v. Maynard, 430 U.S. 705, 714
(1977). This holds true whether applied to individuals, see W.
Va. State Bd. of Educ. v. Barnette, 319 U.S. 624, 642 (1943), or
to companies, see Pac. Gas & Elec. Co. v. Pub. Utils. Com., 475
U.S. 1, 16 (1986) (“For corporations as for individuals, the
choice to speak includes within it the choice of what not to
say.”). In limited circumstances, however, courts have upheld
the government’s ability to dictate the content of mandatory
speech. This largely occurs in the commercial context.
Under the commercial speech doctrine, the government’s
“power to regulate commercial transactions justifies its
concomitant power to regulate commercial speech that is ‘linked
inextricably’ to those transactions.” 44 Liquormart v. Rhode
Island, 517 U.S. 484, 499 (1996). Thus, the government may
require commercial speech to “appear in such a form, or include
such additional information, warnings, and disclaimers, as are
necessary to prevent its being deceptive.” Va. Bd. of Pharmacy
v. Va. Citizens Consumer Council, Inc., 425 U.S. 748, 762
(1976). Because commercial speech receives a lower level of
protection under the First Amendment, burdens imposed on it
receive a lower level of scrutiny from the courts. Zauderer v.
Office of Disciplinary Counsel of Supreme Court, 471 U.S. 626,
637 (1985); Cent. Hudson Gas & Elec. Corp. v. Pub. Serv.
Comm’n, 447 U.S. 557, 562–64 (1980). Although the standard
for assessing burdens on commercial speech has varied, Bd. of
Trs. v. Fox, 492 U.S. 469, 476–78 (1989) (describing the diverse
levels of scrutiny applied in various cases, including Central
Hudson, 447 U.S. at 566, In re R. M. J., 455 U.S. 191, 203
(1982), and Zauderer, 471 U.S. at 644), the Supreme Court’s
78
bottom line is clear: the government must affirmatively
demonstrate its means are “narrowly tailored” to achieve a
substantial government goal, id. at 480.
Defendants object that the “freestanding” corrective
statements violate the First Amendment because they are not
connected to existing advertising and, therefore, cannot be
considered commercial speech. That being the case, Defendants
contend the less rigorous commercial speech standard does not
apply. Alternatively, Defendants argue that, even if these
statements are commercial speech, the corrective statements do
not directly and materially advance a substantial government
interest. See Cent. Hudson, 447 U.S. at 566. Defendants’
arguments misunderstand the commercial speech doctrine and
misstate the commercial speech standard.
Defendants’ first argument, that the stand-alone corrective
statements do not fall within the commercial speech doctrine
because they are not attached to advertisements, is a red herring.
The context of the corrective statements does not dictate the
level of scrutiny; rather, the level of scrutiny depends on the
nature of the speech that the corrective statements burden. Riley
v. Nat’l Fed’n of Blind, 487 U.S. 781, 796 (1988) (“Our
lodestars in deciding what level of scrutiny to apply to a
compelled statement must be the nature of the speech taken as
a whole and the effect of the compelled statement thereon.”).
Here, the district court clearly imposed these statements as a
burden on Defendants’ current and future commercial speech.
Philip Morris, 449 F. Supp. 2d at 926–28 (justifying ordering
the freestanding corrective statements under the commercial
speech doctrine).
Commercial speech is defined as “expression related solely
to the economic interests of the speaker and its audience” or
“speech proposing a commercial transaction.” Cent. Hudson,
79
447 U.S. at 561–62. In addition to information related to
proposing a particular transaction, such as price, it can include
material representations about the efficacy, safety, and quality
of the advertiser’s product, and other information asserted for
the purpose of persuading the public to purchase the product.
See, e.g., Zauderer, 471 U.S. at 637 & n.7, 639–40 (information
and legal advice about a defective product and the possibility of
suing were commercial); Bolger v. Youngs Drug Prods. Corp.,
463 U.S. 60, 66–68 (1983) (informational brochures discussing
“important public issues such as venereal disease and family
planning” distributed by contraceptives manufacturer were
commercial); Brown & Williamson Tobacco Corp., 778 F.2d at
38, 43 (claims that cigarettes contained one milligram of tar and
were “99% tar free” were commercial); Nat’l Comm’n on Egg
Nutrition v. FTC, 570 F.2d 157, 159, 163 (7th Cir. 1977)
(holding egg trade association’s advertisements about the
relationship between eggs and heart disease were commercial
speech). Defendants’ various claims—denying the adverse
effects of cigarettes and nicotine in relation to health and
addiction—constitute commercial speech. Defendants
disseminate their fraudulent representations about the safety of
their products, both in formats that do and those that do not
explicitly propose a particular commercial transaction, in
attempts to persuade the public to purchase cigarettes.
The fact that some—but certainly not all—of these
advertisements involve Defendants as a group joined in
advertising their common product, discuss cigarettes generically
without specific brand names, or link cigarettes to an issue of
public debate, does not change the commercial nature of the
speech. Bolger, 463 U.S. at 66 n.13, 67–68; Nat’l Comm’n on
Egg Nutrition, 570 F.2d at 163. Moreover, the reality that these
corrective statements may tangentially burden noncommercial
speech does not render the statements unconstitutional. A
burden on commercial speech, whether it be suppression or
80
mandatory disclosure, only triggers a higher level of scrutiny if
the commercial speech is “inextricably intertwined” with fully
protected speech. Riley, 487 U.S. at 796 (“[S]peech [does not]
retain[] its commercial character when it is inextricably
intertwined with otherwise fully protected speech.”). Here,
Defendants’ past participation in the public controversy
surrounding smoking and health may have been inextricably
intertwined with their marketing efforts, but the intentionally
fraudulent character of the noncommercial public statements
undermines any claim for more exacting scrutiny. See McIntyre,
514 U.S. at 357. Moreover, because the injunctive order cannot
retroactively burden Defendants’ past communications, to
determine the constitutionality of the corrective statements we
must look to the future and evaluate whether the district court’s
order targeting commercial speech cuts too broad a swath.
The issue of corrective advertising’s possible peripheral
impact on protected speech does not affect the character of the
burdened speech, but rather bears on whether the remedy is
sufficiently narrowly tailored to achieve a substantial
government interest—in this case, preventing Defendants from
committing future RICO violations. We have no reason to think
it is not. The district court found that, for over fifty years,
Defendants violated RICO by making false and fraudulent
statements to consumers about their products. Philip Morris,
449 F. Supp. 2d at 26–27. The court also found Defendants
reasonably likely to commit similar violations in the future, id.
at 908–15, and concluded the corrective statements were
necessary to counteract these anticipated violations, see id. at
927 (“The injunctive relief sought here is narrowly tailored to
prevent Defendants from continuing to disseminate fraudulent
public statements and marketing messages by requiring them to
issue truthful communications.”). Thus, contrary to Defendants’
argument, the publication of corrective statements addressing
Defendants’ false assertions is adequately tailored to preventing
81
Defendants from deceiving consumers.
The district court has not yet determined the content of the
corrective statements. Id. at 928. As the validity of its order
relies on the commercial nature of the speech it burdens, the
court must ensure the corrective disclosures are carefully
phrased so they do not impermissibly chill protected speech.
Zauderer, 471 U.S. at 651. Consequently, the court must
confine the statements to “purely factual and uncontroversial
information,” id., geared towards thwarting prospective efforts
by Defendants to either directly mislead consumers or capitalize
on their prior deceptions by continuing to advertise in a manner
that builds on consumers’ existing misperceptions. Warner-
Lambert Co., 562 F.2d at 769 (concluding, due to Listerine’s
fifty year history of false advertisements, “advertising which
fails to rebut the prior claims . . . [would] inevitably build[] upon
those claims; continued advertising continues the deception,
albeit implicitly rather than explicitly”). Assuming the
corrective advertising once drafted meets these requirements, it
is a permissible restraint on Defendants’ commercial speech.
E. Intervention
Tobacco-Free Kids Action Fund and five other public health
organizations intervened in both the trial and appeal in order to
advocate additional remedies against Defendants. Defendants
assert that the intervenors are not properly before the court
because they do not have standing and do not have the ability to
pursue remedies for RICO violations under the statute. Not
surprisingly, the intervenors disagree. Before we address the
merits of the intervenors’ cross-appeal we must resolve the
propriety of their intervention.
Section 1964(b) authorizes the Attorney General to
“institute proceedings under” section 1964(a) for equitable
82
remedies. 18 U.S.C. § 1964(b). Private parties, on the other
hand, may seek relief under section 1964(c), which allows suits
for damages. The statutory scheme does not directly provide
private parties with a cause of action for equitable remedies. Id.
§ 1964(c). According to Defendants, the inability to bring an
action under section 1964(a) precludes private intervention in a
RICO suit instituted by the government under subsection (a) and
permitting private intervenors would contravene congressional
intent. Id. § 1964 (a), (c).
Defendants are wrong. Under Federal Rule of Civil
Procedure 24(a)(2), “the question is not whether the applicable
law assigns the prospective intervenor a cause of action[, but]
[r]ather . . . whether the individual may intervene in an already
pending cause of action.” Jones v. Prince George’s County, 348
F.3d 1014, 1018 (D.C. Cir. 2003). Therefore, intervention of
right only requires “an ‘interest’ in the litigation—not a ‘cause
of action’ or ‘permission to sue.’” Id. (citing FED. R. CIV. P.
24(a)(2)). Section 1964(b) reserves for the government the
ability to “institute” a cause of action for equitable remedies, but
does not bar a private person with a sufficient interest under
Rule 24(a)(2) from intervening. Likewise, section 1964(c)
designates that private parties may bring a cause of action to
pursue damages for RICO violations, but does not prevent them
from intervening in a governmental action seeking to “prevent
and restrain” future violations. Even where Congress has
explicitly excluded private persons from a particular statutory
cause of action they may, if not demonstrably contrary to
congressional intent, still intervene if (1) they satisfy standing
and Rule 24(a) requirements and (2) their intervention is
“limited to the claims of illegality presented by the
[government].” Trbovich v. United Mine Workers of Am., 404
U.S. 528, 537 (1972) (finding a statute forbidding a particular
party from bringing a cause of action may only be read to
prohibit intervention by that party if intervention would frustrate
83
Congress’s reasons for barring that party from initiating the
litigation in the first place). Outside the text of the statute,
which is at best silent on this subject, Defendants offer no
evidence Congress intended to prevent private organizations
from intervening in section 1964(a) actions. Moreover, the
intervenors assert no novel “claims of illegality,” but merely
seek to expand the remedies sought by the government.
Two considerations are left: whether the intervenors satisfy
standing and Rule 24(a) requirements. In this circuit, because
an intervenor “participates on equal footing with the original
parties to a suit,” a prospective intervenor must satisfy Article
III standing requirements. Bldg. & Constr. Trades Dep’t v.
Reich, 40 F.3d 1275, 1282 (D.C. Cir. 1994); see also Fund for
Animals, Inc. v. Norton, 322 F.3d 728, 732–33 (D.C. Cir. 2003).
In Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992), the
Supreme Court enunciated a three-part test for standing: (1)
injury-in-fact, (2) causation, and (3) redressability. Id. at
560–61; Transp. Workers Union of Am. v. Transp. Sec. Admin.,
492 F.3d 471, 474 (D.C. Cir. 2007). On appeal, Defendants
claim the intervenors fail on the first two prongs: injury and
causation. According to Defendants, the intervenors’ alleged
injuries are “purely conjectural” and no causal connection exists
between their injuries and possible ongoing or future RICO
violations.
We conclude the intervenors present sufficient injuries
directly caused by Defendants’ RICO violations. The
membership organizations aver, under the umbrella of
associational standing, see UAW v. Brock, 477 U.S. 274, 281–82
(1986), their members suffered injury because Defendants
exposed their children to predatory and misleading
advertisements intended to entice the children to smoke. “[A]
person who received ‘a misrepresentation made unlawful under
[statute] has suffered injury in precisely the form the statute was
84
intended to guard against.’” Public Citizen v. FTC, 869 F.2d
1541, 1548 (D.C. Cir. 1989) (quoting Havens Realty Corp. v.
Coleman, 455 U.S. 363, 373 (1982)). As we have discussed at
length, through their deceptive marketing, Defendants
committed various racketeering acts in order to defraud
consumers, including acts that violated mail and wire fraud
statutes. Intervenor membership organizations, therefore,
suffered an injury-in-fact at the hands of Defendants every time
Defendants intended to deceive a member or a member’s child.
As only one intervenor must have standing for us to consider
their additional proposed remedy, we need not decide the
standing issue as to the remaining intervening public health
organizations. McConnell v. FEC, 540 U.S. 93, 233 (2003).
Intervenors fulfill the Rule 24(a) requirements if they:
(1) submitted a timely application to intervene, (2) “have an
interest relating to the property or transaction which is the
subject of the action,” (3) are “so situated that the disposition of
the action may, as a practical matter, impair or impede [their]
ability to protect that interest,” and (4) have an interest that the
existing parties would not adequately represent. Bldg. & Constr.
Trades Dep’t, 40 F.3d at 1282. The intervenors easily satisfy
the first two prongs. Defendants do not contest the timeliness of
the intervenors’ application. And, by demonstrating Article III
standing, the intervenors adduce a sufficient interest. Fund for
Animals, 322 F.3d at 735. The latter prongs are also met. We
agree with the district court that the intervenors needed to
intercede to protect their interests as the government
“substantially altered the scope of the remedies it [sought]” and
“no longer share[d] the views of Intervenors as to how extensive
the appropriate remedies should be.” United States v. Philip
Morris USA Inc., No. 99-2496, 2005 U.S. Dist. LEXIS 16196,
at *24–*25 (D.D.C. 2005). Accordingly, we conclude
intervention was proper.
85
F. Cross-Appeal
The government and the intervenors bring a cross-appeal
challenging the district court’s denial of additional remedies
they sought against Defendants. Specifically, they appeal from
the district court’s refusal of their proposed counter-marketing
campaign, national smoking cessation program, youth smoking
reduction plan, and monitoring scheme. They also appeal from
the denial of their request for disgorgement, which we affirm as
the law of the case. See Disgorgement Opinion, 396 F.3d 1190.
We review de novo the district court’s legal conclusion that
the government’s proposed counter-marketing, smoking
cessation, and youth smoking reduction remedies were beyond
its authority to order. Under section 1964(a), the district court
may craft only forward-looking remedies aimed at preventing
and restraining future RICO violations. Id. at 1198. Remedies
“focused on remedying the effects of past conduct” or “awarded
without respect to whether the defendant will act unlawfully in
the future” are beyond the court’s statutory jurisdiction. Id.
As the government suggests, the proposed counter-
marketing and smoker cessation programs are closely related:
they share the goal of reducing the number of smokers in
America. The former would “requir[e] Defendants to fund a
long-term, extensive, culturally-competent public education and
counter-marketing campaign . . . aimed at diluting both the
impact of Defendants’ fraudulent statements and at undermining
the efficacy of Defendants’ marketing efforts towards youth.”
Philip Morris, 449 F. Supp. 2d at 936. The district court
concluded that the counter-marketing campaign would “serve to
reduce the number of youth smokers, reduce the number of
addicted adult smokers in the future, and thereby potentially
reduce the economic incentives for Defendants to continue their
fraud.” Id. Similarly, the smoker cessation program would
86
require Defendants to fund a media campaign “to encourage
smokers to seek assistance to quit smoking,” a “national tobacco
quitline network” to provide access to counseling and
medication for quitting smoking, and research to improve
“tobacco dependence interventions and physician and clinician
training and education.” Id. at 933. The government and
intervenors offer two rationales for these programs.
First, they argue that each future sale of cigarettes to a
smoker who became addicted in the past due to Defendants’
fraud is a continuing effect of the past fraud, due to the nature of
addiction. The government and intervenors urge that, even if the
court cannot order recovery of past profits gained by past
deception, it can deny Defendants the continuing future profits
flowing from their past misconduct; that is, the court may
remedy the continuing effects of past illegal conduct because
such a remedy is forward-looking and not measured by past
conduct. This argument overlooks the explicit instruction of
section 1964(a) that district courts may only order remedies “to
prevent and restrain violations of [RICO].” 18 U.S.C. § 1964(a).
Future cigarette sales, even to addicted smokers, are not by
themselves RICO violations. The proposed remedies attempt to
prevent and restrain future effects of past RICO violations, not
future RICO violations, therefore they are outside the district
court’s authority under section 1964(a).
Even those courts that would allow some version of
disgorgement under section 1964(a) recognize that the statute is
limited to preventing future violations and does not extend to
future effects flowing from past violations. See, e.g., Richard v.
Hoechst Celanese Chem. Group, Inc., 355 F.3d 345, 355 (5th
Cir. 2003) (“Section 1964(a) establishes that equitable remedies
are available only to prevent ongoing and future conduct.”);
United States v. Carson, 52 F.3d 1173, 1182 (2d Cir. 1995)
(“[T]he jurisdictional powers in § 1964(a) serve the goal of
87
foreclosing future violations, and do not afford broader
redress.”). Nor do the government’s examples from antitrust
lend support to their argument. See, e.g., Ford Motor Co. v.
United States, 405 U.S. 562, 573 (1972) (“The relief in an
antitrust case must be effective to redress the violations and to
restore competition.” (quotation marks omitted)); United States
v. E.I. du Pont de Nemours & Co., 353 U.S. 586, 607 (1957)
(ordering the district court to determine “the equitable relief
necessary and appropriate . . . to eliminate the effects of the
acquisition offensive to the statute”). The condition of
monopolization is itself a violation of the Sherman Act, 15
U.S.C. §§ 2, 3, therefore district courts may order remedies to
cure the monopolizing effects of the forbidden anticompetitive
combination or acquisition so as to prevent the continuing
violation, id. § 4. The same is not true of RICO or the fraud
statutes, under which any future violation would have to result
from ongoing acts, not ongoing conditions.
The intervenors suggest that remedies aimed at helping
addicted smokers quit would “divest” Defendants of the “fruits
of [their] ill-gotten gains,” which are addicted smokers and the
money they continue to pay for Defendants’ cigarettes.
Turkette, 452 U.S. at 585 (describing the civil RICO remedies
as a whole, including treble damages). This rhetoric simply
disguises the same argument about continuing effects of past
violations. The very authorities upon which the intervenors rely
establish only the statute’s authorization to “order any person to
divest himself of any interest . . . in any enterprise,” 18 U.S.C.
§ 1964(a), by separating the RICO defendant from the RICO
enterprise in order to prevent future violations. See, e.g., United
States v. Local 560 of Int’l Bhd. of Teamsters, 780 F.2d 267, 295
(3d Cir. 1985) (removal of a union’s corrupt executive board
was an act of divestiture).
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Second, the intervenors argue that the proposed counter-
marketing and smoking cessation campaigns would eliminate
Defendants’ incentive to market their products fraudulently by
shrinking Defendants’ customer base. It may be, as one expert
testified, that “remov[ing] from the marketplace a population of
consumers and potential consumers of defendants’ products,
namely children” and addicted smokers (the targets of the
counter-marketing and smoking cessation campaigns), would
eliminate rather than heighten Defendants’ incentive to market
to these groups. Bazerman Written Direct Examination at 65.
But marketing to these groups is not in itself a RICO violation.
Certainly, if Defendants have no incentive to advertise their
products then they have no incentive to do so with fraudulent
statements, but we reject general deterrence remedies aimed so
wide of the statutorily-ordained mark. Disgorgement Opinion,
396 F.3d at 1200 (rejecting disgorgement even though it “may
act to ‘prevent and restrain’ future violations by general
deterrence insofar as it makes RICO violations unprofitable”).
Under the intervenors’ theory, any remedy that reduces
Defendants’ potential customer base in any manner would
prevent and restrain RICO violations because Defendants would
have less incentive to market their products and therefore
potentially market with fraudulent statements. As the Second
Circuit observed, this argument goes too far: a remedy “may not
be justified simply on the ground that whatever hurts a civil
RICO violator necessarily serves to ‘prevent and restrain’ future
RICO violations. If this were adequate justification, the phrase
‘prevent and restrain’ would read ‘prevent, restrain and
discourage,’ and would allow any remedy that inflicts pain.”
Carson, 52 F.3d at 1182. Such a remedy reaches beyond the
bounds of section 1964(a), which authorizes the district court to
order injunctions to prevent and restrain fraudulent statements
about smoking and health and addiction, not to prevent
Defendants from marketing and selling their products at all.
89
We note that in its brief the government offhandedly
mentions an alternative narrower smoking cessation program
that would be “calculated to address the number of smokers who
would become addicted after the judgment, as a result of future
fraud,” and suggests this program would be a viable option even
if we affirm the district court’s denial of the original program.
Gov. Br. 225. The district court did not address this alternative,
and the government does not further describe it or direct us to
where we may find it in the record, so we do not consider it.
Only the intervenors appeal from the district court’s denial
of the government’s proposed “youth smoking reduction targets”
plan. Under that proposal, the court would require Defendants
to reduce youth smoking by six percent each year for seven
years, and if Defendants fail to meet an annual target, the court
would assess them a $3,000 fine for each youth above the target
who continues to smoke, a figure representing the “lifetime
proceeds a Defendant could expect to earn from making its
brands appealing” to youth. Philip Morris, 449 F. Supp. 2d at
933–34. The district court denied this injunction because it was
not tailored to prevent and restrain future RICO violations for at
least two reasons. First, the RICO violation the court found with
relation to youth marketing was not Defendants’ “continuing
efforts to market to youth but rather their false denials of those
efforts.” Id. at 932 n. 91. The youth smoking reduction
proposal was not aimed at preventing Defendants from denying
their youth marketing efforts but rather at restraining Defendants
from marketing and selling to youth. Second, the court agreed
with expert testimony that the youth smoking reduction plan was
an “outcome-based” remedy that “tie[s] financial assessments to
the outcome of youth smoking . . . rates[, which] may increase
or decrease due to input factors beyond Defendants’ control.”
Id. at 934. An injunction that would hold Defendants
responsible for outcomes they could not control regardless of
modifications in their behavior would not serve to prevent or
90
restrain Defendants from committing future RICO violations.
The intervenors’ argument in favor of the youth smoking
reduction proposal is based on the incorrect assumption that the
underlying RICO violation to be prevented and restrained is
Defendants’ youth marketing, rather than their false denials of
their efforts to market to youth. As noted above, we need not
decide whether such denials amounted to RICO violations.
Even if they did, the district court correctly concluded that an
injunction aimed solely at reducing youth smoking rates does
not address the section 1964 goal of preventing and restraining
the underlying RICO violation. The intervenors’ argument is
unavailing.
Finally, the district court denied the government’s proposed
monitoring scheme pursuant to Cobell v. Norton, 334 F.3d 1128
(D.C. Cir. 2003), because the scheme would “require delegation
of substantial judicial powers to non-judicial personnel in
violation of Article III of the Constitution.” Philip Morris, 449
F. Supp. 2d at 935. In Cobell, we held that the district court
lacked authority to appoint a monitor charged with “wide-
ranging extrajudicial duties” to fill “an investigative, quasi-
inquisitorial, quasi-prosecutorial role that is unknown to our
adversarial legal system.” Cobell, 334 F.3d at 1142. Although
we acknowledged that a monitor may report on a defendant’s
“compliance with the district court’s decree and . . . help
implement that decree,” we held that the court could not invest
the monitor with authority to direct a defendant “to take or to
refrain from taking any specific action to achieve compliance”
with the court’s order or to adjudicate violations of the order as
“a roving federal district court.” Id. at 1143 (citations omitted).
Our decision did not turn, as intervenors suggest, on the lack of
a complex decree for the monitor to enforce. See id.
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The government does not challenge the district court’s legal
conclusion that the government’s proposed monitor possessed
impermissibly broad powers. Rather, the government argues
that the district court should have sua sponte created a modified
version of the government’s monitoring scheme that would not
violate the principles of Cobell. In support, the government
merely demonstrates that courts possess authority to appoint
monitors (a proposition the district court did not dispute), and
argues that a monitor is necessary in this case because of the
complexity of the injunction and the intransigence of
Defendants. These assertions do not demonstrate that the
district court abused its discretion by deciding not to create its
own monitoring scheme to replace the government’s
inappropriate proposal.
We therefore affirm the district court’s denial of the
government’s proposed counter-marketing campaign, smoking
cessation program, youth smoking reduction plan, and
monitoring scheme.
* * *
For the foregoing reasons, we affirm the district court’s
judgment of liability in its entirety except as to CTR and TI, with
regard to which we vacate the judgment and remand with
directions to dismiss them from the suit. We also largely affirm
the remedial order, including the denial of additional remedies
sought on cross-appeal, and remand to the district court
regarding only four discrete issues. First, because we have no
factual findings specific to BWH, we cannot determine whether
it is reasonably likely to commit future violations; therefore, we
remand that issue for further fact finding and clarification.
Second, to the extent that it binds all Defendants’ subsidiaries,
we vacate the remedial order and remand to the district court for
proceedings to determine whether inclusion of the subsidiaries,
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and which ones, satisfies Rule 65(d). Third, we vacate the
prohibition on the use of health messages or descriptors and
remand for the district court to reformulate that injunction so as
to exempt foreign activities that have no substantial, direct, and
foreseeable domestic effects. Finally, we also vacate the
remedial order as it regards point-of-sale displays and remand for
the district court to make due provision for the rights of innocent
third parties and clarify that the order, if reinstated in any form,
does not require duplicative displays.