In 1999, the United States filed a lawsuit against the major cigarette manufacturers and related trade organizations alleging that defendants fraudulently misled American consumers for decades about the risks and dangers of cigarette smoking and exposure to secondhand smoke in violation of the Racketeer Influenced Corrupt Organizations Act (RICO). In 2006, the court found that defendants violated civil provisions of RICO and that there was a reasonable likelihood that defendants would continue to violate RICO in the future. On appeal, the district court’s findings were upheld, in part, vacated, in part, and remanded, in part, to the district court. After the U.S. Supreme Court declined to hear appeals from both sides in the case in June 2010, the district court began to implement the 2006 final order.
The appellate court affirmed defendants' liability under RICO, finding that defendants conspired to perpetrate wire and mail fraud, intending to defraud consumers by knowingly disseminating false information about the addictiveness of smoking and the health effects of so-called "light" and "low tar" cigarettes and secondhand smoke. The court further affirmed the trial court's rejection of defendants' arguments that rights to free expression and to petition the government shielded them from liability, finding that First Amendment protections do not adhere to deliberately false or misleading statements and that the commercial speech doctrine does not prohibit the court from requiring defendants to disseminate truthful information as a remedy for the defendants' previous fraudulent statements. The court affirmed liability as to all defendants (except the Council for Tobacco Research and the Tobacco Institute, which were disbanded under the final order) and affirmed much of the 2006 final order, but vacated the final order with regard to four discrete issues, remanding for further proceedings.
United States, et al. v. Philip Morris USA, Inc., et al., 566 F.3d 1095, United States Court of Appeals for the District of Columbia Circuit (2009).
United States
May 22, 2009
U.S. Court of Appeals for the District of Columbia Circuit
Government, through its agencies and officials including prosecutors, may seek to enforce its health laws. For example, the government may revoke the license of a retailer that sells tobacco products to minors. These cases may also directly involve the tobacco industry, for example, a government might impound and destroy improperly labeled cigarette packs.
Measures to regulate the marketing on tobacco packages. This includes both bans on false, misleading, deceptive packaging, as well as required health warnings on packaging.
(See FCTC Art. 11)
Measures restricting tobacco sales to or by minors, as well as other retail restrictions relating to point-of-sale, candy and toys resembling tobacco products, vending machines, or free distribution.
(See FCTC Art. 16)
A violation of the right to expression, free speech or similar right to express oneself without limitation or censorship. The industry may claim that a regulation infringes on their right to communicate with customers and the public. Similarly, they may claim that mandated warnings infringe on their freedom to communicate as they desire.
A violation of the right to procedural fairness. For example, a party may claim that a government agency did not consult with public or stakeholders when issuing regulations.
Any violation of a law designed to ensure fair trade, competition, or the free flow of truthful information in the marketplace. For example, a government may require businesses to disclose detailed information about products—particularly in areas where safety or public health is an issue.
The court might consider procedural matters without touching the merits of the case. These might include: improper joinder, when third parties, such as Health NGOs or government officials, seek to become parties to the suit; lack of standing, where a plaintiff fails to meet the minimum requirements to bring suit; lack of personal jurisdiction, where the court does not have jurisdiction to rule over the defendant; or lack of subject matter jurisdiction, where the court does not have jurisdiction over the issue at suit.
A discussion on whether current scientific evidence is sufficient to justify the regulatory measures.
Type of Tobacco Product
None
Limitations regarding the use of quotes The quotes provided here reflect statements from a specific decision. Accordingly, the International Legal Consortium (ILC) cannot guarantee that an appellate court has not reversed a lower court decision which may influence the applicability or influence of a given quote. All quotes have been selected based on the subjective evaluations undertaken by the ILC meaning that quotes provided here may not accurately or comprehensively represent a given court’s opinion or conclusion, as such quotes may have originally appeared alongside other negative opinions or accompanying facts. Further, some quotes are derived from unofficial English translations, which may alter their original meaning. We emphasize the need to review the original decision and related decisions before authoritatively relying on quotes. Using quotes provided here should not be construed as legal advice and is not intended to be a substitute for legal counsel on any subject matter in any jurisdiction. Please see the full limitations at https://www.tobaccocontrollaws.org/about.
"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."
"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 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."
"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 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."
"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 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."
"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."
"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."
"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 light cigarettes do not present lower health risks than regular cigarettes due to smoker compensation, and that secondhand smoke is hazardous to health. "
"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."
"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. 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."
"In sum, as Perholtz clearly holds, because RICO’s “list of entities is not meant to be exhaustive,” “individuals, 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."
Limitations regarding the use of quotes The quotes provided here reflect statements from a specific decision. Accordingly, the International Legal Consortium (ILC) cannot guarantee that an appellate court has not reversed a lower court decision which may influence the applicability or influence of a given quote. All quotes have been selected based on the subjective evaluations undertaken by the ILC meaning that quotes provided here may not accurately or comprehensively represent a given court’s opinion or conclusion, as such quotes may have originally appeared alongside other negative opinions or accompanying facts. Further, some quotes are derived from unofficial English translations, which may alter their original meaning. We emphasize the need to review the original decision and related decisions before authoritatively relying on quotes. Using quotes provided here should not be construed as legal advice and is not intended to be a substitute for legal counsel on any subject matter in any jurisdiction. Please see the full limitations at https://www.tobaccocontrollaws.org/about.
In 1999, the United States filed a lawsuit against the major cigarette manufacturers and related trade organizations alleging that defendants fraudulently misled American consumers for decades about the risks and dangers of cigarette smoking and exposure to secondhand smoke in violation of the Racketeer Influenced Corrupt Organizations Act (RICO). In 2006, the court found that defendants violated civil provisions of RICO and that there was a reasonable likelihood that defendants would continue to violate RICO in the future. On appeal, the district court’s findings were upheld, in part, vacated, in part, and remanded, in part, to the district court. After the U.S. Supreme Court declined to hear appeals from both sides in the case in June 2010, the district court began to implement the 2006 final order.
The appellate court affirmed defendants' liability under RICO, finding that defendants conspired to perpetrate wire and mail fraud, intending to defraud consumers by knowingly disseminating false information about the addictiveness of smoking and the health effects of so-called "light" and "low tar" cigarettes and secondhand smoke. The court further affirmed the trial court's rejection of defendants' arguments that rights to free expression and to petition the government shielded them from liability, finding that First Amendment protections do not adhere to deliberately false or misleading statements and that the commercial speech doctrine does not prohibit the court from requiring defendants to disseminate truthful information as a remedy for the defendants' previous fraudulent statements. The court affirmed liability as to all defendants (except the Council for Tobacco Research and the Tobacco Institute, which were disbanded under the final order) and affirmed much of the 2006 final order, but vacated the final order with regard to four discrete issues, remanding for further proceedings.