United States v. Philip Morris USA Inc.: Amended Final Opinion · 2006
Each Defendant Participated in the Conduct of the Enterprise
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
1573¶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;
1574¶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 F.3d 17, 24 (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:
1575The 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.
1576¶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
1577¶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).
¶Altria argues that there is no legal justification for piercing its corporate veil. However, Defendant's argument misses the point. The United States does not seek to pierce Altria's corporate veil or to hold Altria liable under some form of agency theory. Rather, the Court holds that Altria is liable for its own violations of RICO and its participation in the Enterprise, in part due to its control of Philip Morris policies, research, and public statements and, in part, due to its own individual actions. Altria is itself party to the scheme to defraud consumers by denying the health effects of smoking, the addictiveness of nicotine, the manipulation of nicotine delivery from cigarettes, the hazards of secondhand smoke, and marketing to youth.
1578¶Accordingly, the evidence establishes that each Defendant participated, directly and indirectly, in the conduct of the Enterprise. Reves, at 179.