Reports that Matter

United States v. Philip Morris USA Inc.: Amended Final Opinion

Each Defendant Is Associated with the Enterprise

Section 108 of 129

Each Defendant Is Associated with the Enterprise

To prove a defendant's association with an association-in-fact enterprise, it is not necessary to prove that the defendant had a formal position in the enterprise, participated in all the activities of the enterprise, "had full knowledge of all the details of" its activities, or even knew about the participation of all the other members in the enterprise. Rather, it is sufficient that the defendant "know the general nature of the enterprise and know that the enterprise extends beyond his individual role." United States v. Rastelli, 870 F.2d 822, 828 (2d Cir. 1989) (collecting cases); see also United States v. Marino, 277 F.3d 11,33 The Court is not making a finding that all paid industry consultants lied or gave testimony that they knew to be false. -1320- (1st Cir. 2002) ("Association may be by means of an informal or loose relationship. To associate has its plain meaning. . . . 'Associated' means to be joined, often in a loose relationship, as a partner, fellow worker, colleague, friend, companion or ally. Thus, although a person's role in the enterprise may be very minor, a person will still be associated with the enterprise if he knowingly joins with a group of individuals associated in fact who constitute the enterprise."); United States v. Zichetello, 208 F.3d 72, 99 (2d Cir. 2000); United States v. Tocco, 200 F.3d 401, 425 (6th Cir. 2000); United States v. Console,13 Defendant Altria, which was originally incorporated in 1985 as Philip Morris Companies Inc., effectively and actively controls the activities of all of its subsidiaries, including Defendant Philip Morris USA Inc., Philip Morris Companies, and Philip Morris International, Inc. ("PM International"). Overall policies on all major aspects of Altria operating companies' operations are set by Altria management, and senior Altria executives, employees, and agents participate in and/or control decisions about how the operating companies implement those policies, through both formal and informal reporting relationships. Berlind PD, United States v. Philip Morris, 5/23/02, 8:4-10:13; 2071412978-3143 (US 23061*). -323- F.3d 641, 653 (3d Cir. 1993); United States v. Martino, 648 F.2d 367, 394 (5th Cir. 1981).

Moreover, "[a] defendant is considered to have 'associated with' a RICO enterprise if he engages in the predicate act violations with other members of the enterprise, even if he is not an actual 'insider' of the enterprise," Blue Cross & Blue Shield of N.J., Inc. v, Philip Morris, Inc.,113 F. Supp. 2d 345, 366 (E.D.N.Y. 2000), or otherwise commits racketeering acts in the conduct of the enterprise's affairs. See, e.g., United States v. Watchmaker, 761 F.2d 1459, 1476 (11th Cir. 1985); United States v. Swiderski, 593 F.2d 1246, 1248-49 (D.C. Cir. 1978). In addition, a defendant

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"associates with" an enterprise when he conducts business with or through the enterprise, or otherwise has an effect on its activities, including its unlawful activities. United States v. Mokol, 957 F.2d 1410, 1417 (7th Cir. 1992).

The extensive Findings of Fact establish that not only did each Defendant know the general nature and purpose of the Enterprise, and that it extended beyond any one Defendant's individual role, but each Defendant also knew that all the other Defendants were participating in the Enterprise to achieve their shared objective. Defendants formed numerous entities -- both formal and informal -- to achieve their shared objective, as summarized above and set forth in great detail in the Findings of Fact. For example, decades after they had internally recognized that smoking caused disease, all Defendants publicly maintained that the link between smoking and disease remained an "open question." See Findings of Fact Section V(A)(5)(c).

Defendants Liggett and Altria were also associated with the Enterprise. Liggett shared and supported the common objectives of TIRC/CTR with the other Defendants. See generally Findings of Fact Section III. Defendant Altria also shared and supported the common objective of CTR. Altria employees not only knew about the activities of CTR, but were involved in them as well, attending CTR Board of Director meetings and CTR Annual Member meetings and participating in the approval and funding decisions related to CTR Special Projects. Pollice WD, 6:1-12:12; Pollice TT, 10/04/04, 1526:22-1527:14, 1528:19-1529:1. See Findings of Fact Section III(C). Similarly, Defendant BATCo shared and supported the common objectives of TIRC/CTR. Communications and contact between high level smoking and health research scientists at BATCo and scientists affiliated with TIRC/CTR were frequent and direct. TIRC/CTR employees also traveled to England to attend meetings with BATCo employees and other members of international tobacco organizations. BATCo was a critical participant in worldwide efforts to deny or distort the health risks of ETS exposure, though organizations such as IEMC, INFOTAB, CORESTA, the Verband der Cigaretteindustrie (VdC) (the German trade association of cigarette manufacturers including German and Austrian manufacturers as well as Philip Morris, R.J. Reynolds, and BATCo), and others, and its participation included coordination with CIAR. See Findings of Fact Section III(I).

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Throughout the life of the Enterprise, Defendants have coordinated their fraudulent activities through other formal entities, such as TI, CTR, CIAR, and ICOSI as well. See Findings of Fact Section III (C, D, H, I). In addition, Defendants' use of informal organizations such as the Ad Hoc Committee (which was comprised of tobacco industry lawyers and advised Defendants on matters affecting the tobacco industry), the Research Liaison Committee (which was also comprised of lawyers who reviewed, directed and coordinated joint research activity by Defendants), the ETS Advisory Committee (which dealt with issues related to environmental tobacco smoke and led to the formation of CIAR), and the Industry Technical Committee (which was comprised of the scientific directors of the cigarette company Defendants and assisted TIRC/CTR on technical issues related to cigarette design and other matters), allowed the Enterprise to direct the conduct of its members by providing mechanisms for quickly responding to areas of common concern and develop coordinated strategies for responding to them. See Findings of Fact Sections III(F) and V(G)(a).

The documentary and testimonial evidence of direct communications among Defendants -- phone calls, meetings, and correspondence at the highest levels of their respective corporate, scientific, and legal hierarchies -- is overwhelming. This evidence establishes that each Defendant knew that (and in innumerable instances, knew how) other Defendants were acting to further the common purpose of the Enterprise. See generally Findings of Fact. Moreover, all Defendants maintained their association with all the formal and informal activities comprising the Enterprise through periodic meetings, scientific symposia, correspondence and conversations regarding, inter alia, research projects, public statements, and advertising. Again, all these efforts were designed to advance the primary objective of the Enterprise: to maximize profits by acting in concert to preserve and enhance the market for cigarettes, to avoid legal liability that could result in large damage awards and increase public recognition of the harmful effects of smoking and its addictiveness, and to deflect efforts to make smoking socially unacceptable. In addition, as discussed in Section VII(G)(3)(a), infra, all of the Defendants committed racketeering acts in furtherance of the shared objectives of the Enterprise.

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Thus, each Defendant has been proven to be associated with the Enterprise and its ongoing activities.

  1. Each Defendant is Distinct from the Enterprise This Court has already held: Regardless of how the enterprise is defined (if at all), the Government has proven the distinctness element in this case. This Court has already held that an "association-in-fact" enterprise can be a group of corporations. See Philip Morris, 116 F. Supp. 2d at 152-53. Moreover, there is no dispute that each individual Defendant is a separate legal entity. Thus, if this Court should find an enterprise comprised of at least two of the Defendants, the individual Defendants will be distinct from the enterprise itself.

United States v. Philip Morris USA, 327 F. Supp. 2d 13,18 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- (D.D.C. 2004).

F. Each Defendant Participated in the Conduct of the Enterprise Section 1962(c) requires proof that each defendant "conduct[ed] or participate[d], directly

or indirectly, in the conduct of [the] enterprise's affairs." Addressing this element, the Supreme

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Court held that a defendant is not liable for a substantive RICO violation under 18 U.S.C. § 1962(c) unless the defendant "participate[s] in the operation or management of the enterprise itself." Reves v. Ernst & Young, 507 U.S. 170, 185 (1993). The Court explained:

Once we understand the word "conduct" to require some degree of direction and the word "participate" to require some part in that direction, the meaning of § 1962(c) comes into focus. In order to "participate, directly or indirectly, in the conduct of such enterprise's affairs," one must have some part in directing those affairs.

Id. at 179. A defendant may satisfy this test even if he did not have significant control over the enterprise's affairs. As the Court pointed out in Reves, "RICO liability is not limited to those with primary responsibility for the enterprise's affairs" and it specifically "disagree[d] with the suggestion of the Court of Appeals for the District of Columbia Circuit that § 1962(c) requires 'significant control over or within an enterprise.'" Id. at 179 & n.4 (quoting Yellow Bus Lines, Inc. v. Drivers,

Chauffeurs & Helpers Local Union 639, 913 F.2d 948, 954 (D.C. Cir. 1990) (en banc) (emphasis in

Reves)).

The Supreme Court recognized that:

We agree that liability under § 1962(c) is not limited to upper management, but we disagree that the "operation or management" test is inconsistent with this proposition. An enterprise is "operated" not just by upper management but also by lower rung participants in the enterprise who are under the direction of upper management. An enterprise also might be "operated" or "managed" by others "associated with" the enterprise who exert control over it as, for example, by bribery.

Id. at 184.

Following Reves, the federal courts of appeals have made it clear that a defendant need not be among the enterprise's "control group" in order to be held liable for a substantive RICO violation;

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rather, a defendant need only intentionally perform acts that are related to, and further, its operation or management. As the First Circuit explained: "The terms 'conduct' and 'participate' in the conduct of the affairs of the enterprise include the intentional and deliberate performance of acts, functions, or duties which are related to the operation or management of the enterprise." United States v. Weiner,3 As the Court has noted for the record on numerous occasions, Dr. Kessler is not related in any way. -8- F.3d 17,24 The Research Policy Group ("RPG") was comprised of the scientists from each of the BAT Group cigarette companies. The RPG set strategic priorities for BAT Group research and development. -726- (1st Cir. 1993) (quoting Reves). Numerous courts have held that Reves is satisfied by evidence that lower-rung members of an enterprise implemented decisions directed by those higher up the ladder in the enterprise or committed racketeering acts which furthered the basic goals of the enterprise at the direction of other members of the enterprise. See, e.g., United States v. Parise, 159 F.3d 790, 796 (3d Cir. 1998); United States v. Shifman, 124 F.3d 31, 35-36 (1st Cir. 1997); United States v. Starrett, 55 F.3d 1525, 1548 (11th Cir. 1995).

In this case, high-level employees of each Defendant not only participated in the operation and management of the Enterprise, but also each Defendant, acting through these employees, played a significant role in making and implementing decisions in furtherance of the Enterprise's activities and purposes. See generally Findings of Fact.

For example, the member companies, as well as the Tobacco Institute and Altria, participated in the Committee of Counsel to further the Enterprise's objective. The Committee of Counsel made key decisions regarding the Enterprise's activities in many areas including, but not limited to, joint research, litigation defense and public relations. See Findings of Fact Section III(D)(4)(a). In a presentation to the Committee of Counsel in the early 1980s, Ernest Pepples, B&W General Counsel, reported that "[t]he products liability environment is growing more hostile with dramatic speed. . . . A mistake -- any concession -- by a defendant will be costly." Complaining of certain health claims in a Philip Morris advertisement that suggested that certain cigarettes were unsafe, Pepples noted that:

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The frightening mathematics of smoking and health products liability actions is that a verdict against one company will soon result in verdicts against the others. Consequently, the primary function of this Committee of Counsel has been to circle the wagons, to coordinate not only the defense of active cases, but also to coordinate the advice which the General Counsels give to ongoing operations of their companies pertaining to products liability risks.

(no bates) (US 20874).

In addition, each Defendant had some part in directing the affairs of the Enterprise by coordinating and causing the public dissemination of false, misleading or deceptive statements denying the link between smoking cigarettes and adverse health effects, denying the addictiveness of smoking, and by committing related racketeering acts, all in furtherance of the primary, shared objective of the Enterprise. See Findings of Fact V(A, B).

Defendant Altria (f/k/a Philip Morris Companies) argues that, as a parent company to Philip Morris, it did not participate in the affairs of the Enterprise. The Court concludes, however, that Altria did participate in the Enterprise both directly, by joining many of the Enterprise's organizations and by supporting its objective, and indirectly, by controlling the policies and public positions of Philip Morris, the only subsidiary of Altria which manufactures cigarettes. Altria participated directly in the operation and management of the Enterprise through, for example, the Scientific Research Review Committee ("SRRC"), which had responsibility for overseeing "all scientific studies, related to tobacco, smoke and/or smoking, conducted or funded by Philip Morris Companies or any of its subsidiaries around the world" with authority to review and approve all funding of scientific studies related to those topics. SRRC was represented on the following entities which conducted jointly-funded research with other tobacco companies: CIAR; VDC; Association Suisse des Fabricants de Cigarettes; Centre de Cooperation pour Les Rechereches Scientifiques Relatives au Tabac – CORESTA (France); Tobacco Manufacturing Association (TMA), formerly Tobacco Advisory Council (TAC) and Tobacco Research Council (TRC) (UK); and Australian Cigarette Association. Reif PD, U.S. v. Philip Morris, 7/30/03, 49:1- 49:12. After the MSA- mandated dissolution of CTR and CIAR, the SRRC continued to approve research projects funded by Philip Morris through its "External Research Program" which was created in 2000 to take over the function of funding third-party research and eventually took the place of the SRRC. Id. at 194:15-195:13.

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Altria also conducted and participated in the conduct of the Enterprise by controlling the positions of Defendant Philip Morris USA. Although Philip Morris has its own communications department, Altria controls its communications on sensitive issues such as litigation against Philip Morris, Philip Morris's opposition to federal excise taxes on cigarettes, and Philip Morris's support for FDA regulation of tobacco products -- even when those issues affect Philip Morris alone among Altria's many subsidiary companies. John Hoel PD, U.S. v. Philip Morris, 5/30/03, 60:12-63:7, 67:3-22, 166:17-167:14; see also (no bates) (US 44422) (1999 memo from Philip Morris Companies to Philip Morris outlining the company's position and strategy on a proposed federal excise tax increase for cigarettes); US 45675 (2001 memo outlining Philip Morris' position on FDA regulation of cigarettes). As another example, Altria, through its subsidiaries, controls the use of the Marlboro trademark both in the United States and abroad. Myers TT, 5/19/05, 21719:8-21720:13. Altria also established Worldwide Scientific Affairs ("WSA"), an internal working group which coordinates scientific research and science policy, including smoking and health issues, across all of the Altria companies. WSA was organized in regions covering various operating company subsidiaries, including Philip Morris, Philip Morris International, and their subsidiaries, in various parts of the world; scientific policy of Altria subsidiaries was coordinated across these regions in which subsidiaries did business. Reif PD, U.S.. v. Philip Morris, 3/30/04, 316:17-318:7; (no bates) (US 89153); (no bates) (US 89155). Altria also established a department of Worldwide Regulatory Affairs (WRA), to coordinate and ensure consistency in regulatory policy statements and responses across all of the Altria companies. See, e.g., Keane TT, 1/19/05, 10484:19-10489:3; (no bates) (US 41574); Reif PD, U.S. v. Philip Morris, 3/30/04, 344:14-345:11.22

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In addition, the volume and frequency of correspondence between and among Defendants, and the consistent participation of their representatives in regular meetings, demonstrates the degree to which all Defendants directed and coordinated activities in furtherance of the affairs of the Enterprise. See generally Findings of Fact Sections III and V(G). Similarly, most Defendants endeavored to conceal or suppress information and documents and/or to destroy records which may have been detrimental to the interests of the members of the Enterprise, including information which could be discoverable in tobacco and health-related liability cases against Defendants, and provide evidence of the link between smoking cigarettes and adverse health consequences and addictiveness. See Findings of Fact Section V(H).

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Accordingly, the evidence establishes that each Defendant participated, directly and indirectly, in the conduct of the Enterprise. Reves, at 179.

Each Defendant Carried Out Its Participation in the Conduct of the Enterprise

by Engaging in a Pattern of Racketeering Activity