Defendants Engaged in a Scheme to Defraud Smokers and Potential Smokers

Defendants Engaged in a Scheme to Defraud Smokers and Potential Smokers

¶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. Defendants participated in the Enterprise's overarching scheme to defraud smokers and potential smokers in order to maximize their profits by preserving and enhancing the market for cigarettes, to avoid costly liability judgments, to derail attempts to make smoking socially unacceptable, and to sustain the cigarette industry.

¶In order to carry out this scheme, Defendants made the following false and fraudulent statements in a number of areas, including: (1) deceiving consumers into starting and continuing to buy and smoke cigarettes by misrepresenting and concealing the adverse health effects caused by smoking and exposure to environmental cigarette smoke, by maintaining that there was an "open question" as to whether smoking cigarettes causes disease and other adverse effects, despite the fact that Defendants knew otherwise, and by ensuring that their research, development, and marketing of cigarettes remained consistent with these core public positions (see Findings of Fact V(A)); (2) deceiving consumers into becoming or staying addicted to cigarettes by maintaining that neither smoking nor nicotine is addictive, despite the fact that Defendants knew these positions were false (see Findings of Fact V(B)); (3) deceiving consumers into becoming or staying addicted to cigarettes by manipulating the design of cigarettes and the delivery of nicotine to smokers, while at the same time denying that they engaged in such efforts (see Findings of Fact V(C)); (4) deceiving consumers, particularly parents and young people, by denying that they marketed to youth, while engaging in such marketing and advertising with the intent of addicting young people and enticing them to become lifelong smokers (see Findings of Fact V(F)); and (5) deceiving consumers through deceptive marketing and cigarette design modifications to exploit smokers' desire for less hazardous and "low tar" cigarettes which Defendants knew to be no safer than full-flavor cigarettes (see Findings of Fact V(G)).

¶The individual components must be viewed not independently but in context of the entire scheme to defraud.10 It is sufficient to prove by the totality of the circumstances that the defendant devised a scheme intended to defraud which included one or more of the individual component schemes alleged. See, e.g., Philip Morris, 304 F. Supp. 2d at 66-67; United States v. Godwin, 272 F.3d 659, 666-67 (4th Cir. 2001); United States v. O'Connell, 172 F.3d 921, 1998 WL 720696 (D.C. Cir. 1998) (table); United States v. Lemire, 720 F.2d 1327,1337 n. 12 (D.C. Cir. 1983); accord United States v. Clausen, 792 F.2d 102, 105 (8th Cir. 1986); United States v. Stull, 743 F.2d 439, 442 & n.2 (6th Cir. 1984) (collecting cases similarly holding); United States v. Halbert, 640 F.2d 1000, 1007 (9th Cir. 1981); United States v. Jordan, 626 F.2d 928, 931 (D.C. Cir. 1980); United States v. Amrep Corp., 560 F.2d 539, 546-47 (2d Cir. 1977).

¶The mail and wire fraud violations underlying the RICO violations cover any "scheme...to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises."¹⁸¹⁸ Defendants assert that the statements of their C.E.O.s before the Waxman Subcommittee in 1994 constitutes petitioning activity protected from any imposition of liability under the Noerr-Pennington doctrine. See, Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961) and United Mine Workers v. Pennington, 381 U.S. 657 (1965). This legal issue is addressed fully in the Conclusions of Law. The facts, as recounted herein, speak for themselves. -637-Show full note U.S.C. §§ 1342, 1343. Defendants claim that their public statements do not constitute Racketeering Acts and were not in furtherance of a scheme to defraud because they were simply statements of opinion held in good faith. de Mango v. United States, 636

¶The Government presented this case as one overarching scheme based upon seven pillars. The Court is not bound by the Government's conceptual analysis and did not find it the most useful approach.

¶F.2d 714, 720 n.9 (D.C. Cir. 1980) ("[A] statement of opinion cannot constitute fraud"). This argument is unpersuasive.

¶First, in light of the overwhelming evidence of what the Enterprise as a whole and individual Defendants knew, it 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. To call such statements "opinions," strains credulity.

¶Second, while federal courts have demonstrated a willingness to find vague statements or "rosy affirmations" by a company spokesman insufficient to hold a company liable for fraud, see In re Ford Motor Co. Secs. Litig., 381 F.3d 563, 571 (6th Cir. 2004) (quoting Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1217 (1st Cir. 1996)) (finding that vague statements by corporate mangers and spokespersons are not actionable for securities fraud because no reasonable investor would have relied on them), that approach is not appropriate for statements whose falsity can be proved "through the orthodox evidentiary process," Va. Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1090, 1091-93 (1991). Indeed, where objective data is available to disprove a statement or demonstrate that it is misleading at the time it was made, a public statement of opinion by a company spokesperson can constitute actionable fraud. See City of Monroe Employees Retirement System v. Bridgestone Corp., 387 F.3d 468, 487-492 (6th Cir. 2004) (holding that even if a statement alluding to objective data was classified as opinion, it was specific enough to form the basis of an actionable securities claim).

¶In the context of securities fraud litigation, courts have found that a "statement of belief contains at least three implicit factual assertions: (1) that the statement is genuinely believed; (2) that there is [a] reasonable basis for that belief; and (3) that the speaker is not aware of any undisclosed facts tending to seriously undermine the accuracy of the statement. A projection or statement of belief may be actionable to the extent that one of these implied factual assertions is inaccurate." In re Apple Computer Sec. Litigation, 886 F.2d 1109, 1113 (9th Cir. 1989). Accordingly, even where a speaker may not be aware of undisclosed facts and issues an opinion in supposed good faith, the statement will provide grounds for fraud where it can be proved that there is no reasonable basis for the speaker's belief. Were this not the case, companies would be able to shield themselves from liability by keeping their spokespersons in the dark about facts that are inconsistent with their public statements.

¶The analogy to securities fraud, though imperfect, is useful in this case. In securities fraud, a court tests the materiality of opinions issued by company spokespersons by determining whether a reasonable investor would have relied on the statement. Va. Bankshares, Inc. v. Sandberg, 501 U.S. at 1093-1094. In the case at bar, the materiality of public statements can be determined by assessing the public's reliance on those statements for their health and safety. When a spokesperson of a large, sophisticated corporation makes statements of what Defendants now characterize as "opinion," but which can be proved false by information that was available and known to the corporation at the time, and the public relies on those statements, the company cannot be permitted to escape liability merely because it declined to inform that individual spokesperson that his or her statement was misleading. As courts have recognized in the securities fraud context, failure to disclose or correct a misleading statement, even a statement which may be characterized as an opinion, is of particular concern where the public does not have other information with which they can evaluate the reliability of the opinion that was stated. See Helwig v. Vencor, Inc., 251 F.3d 540, 559-561 (6th Cir. 2001).

¶The totality of the evidence proves Defendants' wide reaching and pervasive scheme to defraud consumers and potential consumers of cigarettes. As established at trial and explained below, Defendants coordinated their public relations, research, cigarette design and marketing efforts in order to advance their overarching scheme to defraud by: (1) denying the adverse health effects of active smoking; (2) denying the addictiveness of nicotine and cigarette smoking; (3) denying their manipulation of the nicotine content of cigarettes; (4) misrepresenting the health risks attached to light and low tar cigarettes; (5) denying their marketing to youth; (6) denying the adverse health effects of secondhand smoke; and (7) suppressing, concealing, and destroying information and documents related to the adverse health effects of smoking. The Court will address each area, seriatim.