United States v. Philip Morris USA, et al.

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.

Defendants filed an interlocutory appeal in response to the court’s denial of defendants’ motion for partial summary judgment dismissing the government’s disgorgement claim. The appellate court reversed the district court’s decision and granted partial summary judgment to the defendants.

United States v. Philip Morris USA Inc., et al., 396 F.3d 1190 (D.C. Cir. 2005).

  • United States
  • Feb 4, 2005
  • U.S. Court of Appeals for the District of Columbia Circuit

Parties

Plaintiff United States of America

Defendant

  • Others
  • Pfizer Inc.
  • Pharmacia Corporation
  • Philip Morris USA Inc., f/k/a Philip Morris Incorporated

Legislation Cited

Related Documents

Type of Litigation

Tobacco Control Topics

Substantive Issues

Type of Tobacco Product

None

"Philip Morris cannot prevail on this issue at summary judgment because the government need not show that nobody under 21 would have smoked but for the RICO violations. As we held in First City Financial, 890 F.2d at 1229, “disgorgement need only be a reasonable approximation of profits causally connected to the violation.” In First City Financial, we found that the district court appropriately ordered disgorgement of all profits on a stock sale where the defendants failed to make a material disclosure, purchased stock whose value would likely have already risen had the disclosure been made, and then sold the stock for a killing after the undisclosed news broke. See id. at 1229-32. Although the government never proved that all increases in the stock’s value stemmed from the violation, we rejected the defendants’ argument that because the increase in price may have depended on other factors, disgorgement of all profits was “simplistic, quite unrealistic, and so de facto punitive.” See id. at 1231. Noting that “[r]ules for calculating disgorgement must recognize that separating legal from illegal profits exactly may at times be a near-impossible task,” we held that “the government’s showing of appellants’ actual profits on the tainted transactions at least presumptively satisfied” its “burden of persuasion that its disgorgement figure reasonably approximates the amount of unjust enrichment.” Id. at 1231-32. Although recognizing that this might result in “actual profits becoming the typical disgorgement measure,” we observed that “the risk of uncertainty should fall on the wrongdoer whose illegal conduct created that uncertainty.” Id. at 1232; see also SEC v. Banner Fund Int’l, 211 F.3d 602, 617 (D.C. Cir. 2000)."
"To sum up, Porter and Mitchell rather than Meghrig control this case, and no “necessary and inescapable inference” limits the district court’s jurisdiction in equity. If the district court concludes that the government has shown that the tobacco companies have committed RICO violations by advertising to youth despite assertions to the contrary and by falsely disputing smoking’s addictive, unhealthy effects, then it may order whatever equitable relief it deems appropriate. Of course, the court must work within the bounds of equitable doctrines, recognizing defenses like laches and unclean hands, paying due regard for the rights of the innocent, and generally exercising its discretion. With these principles in mind, the district court can “do complete rather than truncated justice,” Porter, 328 U.S. at 398."