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DOJ Appeal: FINAL BRIEF FOR THE PLAINTIFF-INTERVENORS TOBACCO-FREE KIDS ACTION FUND, et al. March 12, 2012 

SUMMARY OF ARGUMENT

Defendants’ latest efforts to avoid the findings and remedies in this case must fail.

1. The Tobacco Control Act does not render this lawsuit moot.

Defendants present no facts demonstrating that they have ceased their unlawful practices, which continue. To the contrary, the new statute expressly provides that it does not “affect” this case in any way, and it covers different conduct than what was at issue here. Moreover, because Defendants are challenging key provisions of the statute, and other provisions have not even gone into effect, there is no basis upon which Defendants can legitimately contend that the mere enactment of the statute ended their decades-long campaign of fraud and deceit against the American public. Defendants also fail to explain why this particular statute will fundamentally constrain their misconduct despite their failure to comply with prior purported constraints such as the MSA.

2. The primary jurisdiction doctrine also has no application here. This case has already been decided, and, in any event, the FDA has no role in monitoring Defendants’ compliance with RICO.

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DOJ Appeal: APPELLANTS’ OPENING BRIEF FINAL VERSION March 12, 2012 

SUMMARY OF ARGUMENT

The FDA Act extinguished the district court’s jurisdiction to issue, and continue to enforce, forward-looking injunctive relief against Defendants—which is the only relief that the Government can even potentially recover under Section 1964(a) of RICO. Accordingly, this Court should reverse the district court’s order and remand with instructions to vacate the court’s injunctions and underlying factual findings and dismiss the case as moot.

I. Under Article III, a district court has jurisdiction to issue injunctive relief only where, in the absence of such relief, there is a “realistic threat” that the challenged activity will recur in the “reasonably near future.” City of Los Angeles v. Lyons, 461 U.S. 95, 107 n.7, 108 (1983). Moreover, even where the requirements of Article III are met, a district court’s jurisdiction to issue injunctive relief under RICO is further limited by Section 1964(a) to “forward-looking remedies” that “prevent and restrain” RICO violations that are reasonably likely to occur in the future. United States v. Philip Morris USA Inc., 396 F.3d 1190, 1198 (D.C. Cir.), cert. denied, 126 S. Ct. 478 (2005).

The FDA Act eliminated the district court’s jurisdiction under both Article III and Section 1964(a) of RICO. The Act grants the FDA far-reaching authority to regulate Defendants’ design, manufacturing, and marketing of cigarettes, and provides the FDA with substantial funding and powerful enforcement tools to ensure compliance with its requirements. In light of this comprehensive federal regulatory program governing virtually every aspect of Defendants’ business, there is no realistic threat or reasonable likelihood that Defendants will engage in the future in any of the joint racketeering conduct that the district court’s injunctions are designed to prevent.

At a minimum, the district court should have vacated or modified several specific portions of its injunctions. These include the district court’s prohibition on the use of “light” and “low tar” descriptors, as well as the requirement that Defendants make corrective statements about the health effects and addictiveness of smoking, which, this Court has held, must be “confine[d]” to statements “geared towards thwarting prospective efforts by Defendants to . . . mislead consumers.” United States v. Philip Morris USA Inc., 566 F.3d 1095, 1145 (D.C. Cir. 2009) (per curiam), cert. denied, 130 S. Ct. 3501 (2010) (emphasis added). There is no reasonable likelihood that Defendants will engage in the future in the activity targeted by these injunctions—the dissemination of false information about the health risks of smoking—because the FDA Act prohibits the use of “light” and “low tar” descriptors, imposes stringent civil and criminal penalties for the false labeling and advertising of cigarettes (including false statements about the health effects and addictiveness of smoking), and affords the FDA extensive authority to monitor Defendants’ marketing practices.

II. Even if the district court did retain jurisdiction to issue injunctive relief in this case, it should have vacated its injunctions in deference to the primary jurisdiction of the FDA over matters of smoking and health. The Act designates the FDA “the primary Federal regulatory authority with respect to the manufacture, marketing, and distribution of tobacco products.” § 3(1). In discharging this statutory mandate, the FDA will be able to invoke its substantial scientific expertise and institutional experience regarding public-health issues. The district court, in contrast, lacks any such expertise or experience, and the overlapping set of federal regulatory requirements imposed by its injunctions will inevitably interfere with the FDA’s regulatory authority and create conflicting sets of legal obligations. The primary jurisdiction doctrine is intended to avoid precisely this type of regulatory uncertainty and disuniformity.

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Botvin LifeSkills Training Program Earns Top U.S. Justice Department Rating  

The Botvin LifeSkills Training (LST) program was recently selected by the U.S. Justice Department as a top evidence-based prevention program and selected for inclusion on the Justice Department's CrimeSolutions website. The website (CrimeSolutions.gov) is an initiative of the Justice Department's Office of Justice Programs.

The new website is designed to promote the use of evidence-based approaches. LST was given the highest rating among the list of evidence-based programs selected for the new website because of its proven effectiveness in preventing substance abuse and violence, because of the extensive evidence supporting its effectiveness, and because there are numerous studies demonstrating its effectiveness.

LST is an established, effective, and widely used school-based approach to prevent substance abuse and violence. Now, with its selection for inclusion on the Crime Solutions website, it will help justice practitioners become aware of this powerful prevention program. . . .

About Botvin LifeSkills Training Botvin LifeSkills Training (LST) is a highly effective evidence-based substance abuse and violence prevention program with more than 30 years of peer-reviewed research behind it. Studies testing its effectiveness have found that LST can reduce the prevalence of tobacco, alcohol, and illicit drug use by as much as 80 percent.

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Q & A Session – Class Action Lawsuit Pending Against Department of Justice?  

Q:

Is there a class action lawsuit pending against the Department of Justice for exposure to second-hand smoke? Second-hand smoke is dangerous, and I have been exposed to it for many years. The Department has moved the smoking which was nearest to me, but it is still too close, and non-smokers must inhale tobacco smoke. However, if I complain, I am harassed. What should I do?

A:

Using internet research tools, I have searched for, but found no evidence of, such a class action lawsuit pending against the Department of Justice.

The executive branch, in 41 CFR § 102-74.315 et seq., established a smoke-free environment for Federal facilities by prohibiting the smoking of tobacco products in all interior space owned, rented, or leased by the executive branch of the Federal Government.

However, some smoking is allowed. Outdoors, smoking is prohibited in courtyards and within twenty-five (25) feet of doorways and vents, but people may smoke in other outdoors areas.

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Tobacco store owner gets 6 years for hiding $60M 

The owner of a chain of south suburban tobacco shops was sentenced to more than six years in prison for hiding and failing to report more than $60 million in cash receipts from his business.

Abbas Ghaddar, 43, was also ordered to pay more than $5.45 million in back taxes for the scheme that helped fund his lavish lifestyle in Lebanon, where he built a luxurious home, purchased a farm worth hundreds of thousands of dollars and became the successful owner of a soccer club, the U.S. attorney’s office said.

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SUBURBAN TOBACCO STORE OWNER SENTENCED TO MORE THAN SIX YEARS IN PRISON FOR $5.45 MILLION STATE AND FEDERAL TAX FRAUD 

The owner of a chain of south suburban tobacco shops was sentenced to more than six years in federal prison and ordered to pay more than $5.45 million in state and federal taxes he owed over nine years during which he hid and failed to report more than $60 million in cash receipts from his stores. The defendant, Abbas Ghaddar, pleaded guilty in June to cheating the State of Illinois and the United States of tax revenue by deliberately hiding and failing to report cash receipts from his tobacco business, Tobacco House, Inc. Instead, Ghaddar used the money, in part, to fund a lavish lifestyle in Lebanon, where he spent considerable time and built a luxurious home, purchased a farm worth hundreds of thousands of dollars, and became a successful owner of a soccer club.

Ghaddar, 43, formerly of Frankfort, was sentenced to 76 months in prison yesterday by U.S. District Judge Samuel Der-Yeghiayan in Federal Court in Chicago.

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DOJ Weighs in on Tobacco Warehouse Feud 

Big news on the Tobacco Warehouse front: Yesterday a press release was issued saying the Department of Justice has, for the time being, "ordered the City of New York to treat the Tobacco Warehouse as if it were again fully protected federal land." This counts as a victory, therefore, for community groups opposing the city's decision to hand the site over to arts group St. Ann's Warehouse.

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• Tobacco Company Penalties May Signal U.S. Crackdown on Industry Practices Overseas 

A flurry of federal enforcement action targeting payoffs by subsidiaries of two U.S. tobacco companies may signal a broader regulatory assault against the industry's business practices abroad, according to experts on the Foreign Corrupt Practices Act. . . .

"The tobacco industry is going to have to take a look at itself and the way it's been doing business," said Dick Cassin, a lawyer with 30 years worth of FCPA experience, and author of The FCPA Blog. "A lot of the law-on-the-ground practices are just going to have to stop."

This is the first time the federal government has taken action against tobacco companies for payoffs overseas, according to the FCPA Digest, which tracks actions under the act.

FCPA experts say these actions could be a broad warning to the tobacco industry that the enforcement agencies are paying close attention. It is not uncommon for the SEC and DOJ to conduct "industry sweeps," in which they use actions and fines as a show of force to industries, according to Mike Koehler, another veteran FCPA lawyer who teaches business law at Butler University in Indianapolis. The pharmaceutical industry, for example, is currently under this kind of FCPA scrutiny, according to an announcement by acting deputy Attorney General Gary G. Grindler.

The recent action on tobacco "starts to put the FCPA on the radar screen of tobacco companies and others in that industry," Koehler said.

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Alliance One International Resolves FCPA Matter with DOJ and the SEC  

Alliance One International, Inc. (NYSE: AOI) today announced that the Company has reached settlements with the Securities and Exchange Commission ("SEC") and the Department of Justice ("DOJ"), concluding investigations of the Company relating to alleged violations of the Foreign Corrupt Practices Act ("FCPA") that occurred prior to the merger that formed the Company in May, 2005. Although, the settlements with both the SEC and the DOJ remain contingent on court approval, the agreed settlement amounts, as previously disclosed, were fully accrued in the Company's fiscal year 2010.

Pursuant to the settlement negotiated with DOJ, two of the Company's foreign subsidiaries, Alliance One Tobacco Osh, LLC and Alliance One International AG (successors to DIMON International (Kyrgyzstan) and DIMON International AG, respectively), agreed to plead guilty to FCPA violations committed by DIMON International (Kyrgyzstan) and DIMON International AG prior to the merger creating AOI, and to pay fines totaling $9.45 million. On August 6, 2010 Alliance One Tobacco Osh, LLC and Alliance One International AG entered the agreed guilty pleas in the U.S. District Court for the Western District of Virginia in Danville, Virginia. A sentencing hearing is scheduled for October 21, 2010. Noting among other things the Company's self-disclosure and cooperation, DOJ has indicated, subject to the Company's compliance with the settlement, it does not intend to separately charge the Company with any criminal violations arising out of the pre-merger conduct of DIMON International (Kyrgyzstan) and DIMON International AG.

The settlement negotiated with the SEC includes the Company's agreement to disgorge profits in the amount of $10 million and to abide by an injunction against further FCPA violations. . . .

R. E. Harrison, the Company's Chairman and Chief Executive Officer, stated:

Our Company is committed to the highest standards of conduct in all transactions in all jurisdictions where we do business throughout the world. In these cases, although occurring prior to our merger in May, 2005, the conduct by those predecessor companies did not meet our standards and we believe it to be in the best interest of the Company, our shareholders and our other stakeholders to put these issues behind us by means of these negotiated agreements.

As indicated in our agreement with the DOJ, we have cooperated fully throughout the course of this investigation and believe that since our merger we have demonstrated our complete commitment to conducting our business in accordance with the highest standards of legal and ethical conduct.

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• Alliance One International Inc. and Universal Corporation Resolve Related FCPA Matters Involving Bribes Paid to Foreign Government Officials Companies Agree to Pay $13.85 Million . . .  

Two foreign subsidiaries of Alliance One International Inc., a global tobacco leaf merchant headquartered in Morrisville, N.C., pleaded guilty today to violating various provisions of the Foreign Corrupt Practices Act (FCPA). In a related matter, the Department of Justice filed FCPA charges today against Universal Leaf Tabacos Ltda. (Universal Brazil), a subsidiary of Universal Corporation, which is a Virginia corporation. The resolutions were announced by Assistant Attorney General Lanny A. Breuer of the Criminal Division and U.S. Attorney Neil H. MacBride for the Eastern District of Virginia.

Alliance One International AG (AOIAG), a Swiss corporation, pleaded guilty in U.S. District Court for the Western District of Virginia in Danville, Va., to a three-count criminal information charging it with conspiring to violate the FCPA, violations of the anti-bribery provisions of the FCPA and violations of the books and records provisions of the FCPA. The charges relate to bribes paid to Thai government officials to secure contracts with the Thailand Tobacco Monopoly, a Thai government agency, for the sale of tobacco leaf. Alliance One Tobacco Osh LLC (AOI-Kyrgyzstan), a Kyrgyzstan corporation, also pleaded guilty today to a separate three-count criminal information charging the corporation with conspiracy to violate the FCPA, violations of the anti-bribery provisions of the FCPA and violations of the books and records provisions of the FCPA relating to bribes paid to Kyrgyzstan government officials in connection with its purchase of Kyrgyz tobacco. . . .

According to court documents, from 2000 to 2004, Dimon, Standard and Universal Brazil sold Brazilian-grown tobacco to the Thailand Tobacco Monopoly. Each of the three companies retained sales agents in Thailand, and collaborated through those agents to apportion tobacco sales to the Thailand Tobacco Monopoly among themselves, coordinate their sales prices, and pay kickbacks to officials of the Thailand Tobacco Monopoly . . .

In related matters, Alliance One today settled a civil complaint filed by the U.S. Securities and Exchange Commission (SEC), charging Alliance One with violating the FCPA's anti-bribery, internal controls, and books and records provisions in connection with the misconduct described in court documents. Alliance One will disgorge approximately $10 million in profits to the SEC. Also today, Universal Corporation settled a civil complaint filed by the SEC, charging Universal Leaf with violating the FCPA's anti-bribery, internal controls, and books and records provisions in connection with the misconduct described in the court documents. Universal Leaf will disgorge approximately $4.5 million in profits to resolve the civil matter. . . .

The Department of Justice and the SEC worked together to reach these global settlements.

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• Tobacco Control Must Be Elevated As A Public Health Priority 

An Essay published this week in the open access journal PLoS Medicine calls for the President Obama to "make a strong public commitment" to tobacco control by mobilizing US Government departments and agencies to achieve a coherent policy after eight years of neglect.

In their paper, Thomas Novotny and Joshua Yang, researchers in tobacco control and public health from San Diego State University and University of California San Francisco respectively, emphasize the huge potential for the US Government to reduce tobacco mortality and morbidity if action is co-ordinated across agencies. Presently tobacco use is the leading preventable cause of death in the United States - responsible for at least 443,000 deaths between 2002 and 2004 - and exacerbates health disparities in the country, with African Americans, Native Americans, people in poverty and those with lower educational attainment suffering from a higher burden of the diseases and disabilities that result from smoking.

Critically the authors argue that simple tobacco control measures - such as creating smoke-free environments, and engaging a mass media public education campaign - can come at little cost to the government. Programs that do require investment, such as providing comprehensive smoking cessation services and expanding regulation over tobacco products, marketing and promotion, could eventually yield economic return. Smoking is currently a huge fiscal burden, resulting in the loss of $96.8 billion in productivity losses and over $75 billion in annual US medical expenditures.

The paper outlines the agencies that can play an important part in a revitalized approach and stress three key tobacco control issues that should be prioritized to frame a national policy coherence plan. Firstly, the ratification of the first ever global health treaty, the World Health Organisation (WHO) Framework Convention on Tobacco Control (FCTC) - which was not sent to the Senate by President George W. Bush - could act as a framework for national policy. The bill to grant the US Food and Drug Administration (FDA) regulatory authority over tobacco products, recently passed by the US House of Representatives, should contain the strongest possible language without concessions to the tobacco industry. And thirdly, the authors point towards settling the case that the Department of Justice brought against the tobacco industry, currently in appeal, which orders the industry to cease false and deceptive activities.

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Harvard Dean, Chosen as Solicitor General, Goes Before Senators 

When Harvard Law School hosted a huge dinner a few years ago for the conservative Federalist Society, the school's dean, Elena Kagan, received such long and enthusiastic applause that she felt compelled to hold up her arms in mock protest.

"You are not my people," she said to laughter -- and more applause.

Kagan will try to retain the reputation as the liberal whom conservatives could like when the Senate Judiciary Committee today considers her nomination to become the nation's solicitor general, the "10th justice" who represents the government before the Supreme Court and the nation's appeals courts. . . .

She clerked at the Supreme Court for Justice Thurgood Marshall, whom she described after his death as "the most important -- and probably the greatest -- lawyer of the 20th century." Except for a two-year stint in the Washington offices of Williams & Connolly, she has spent her career in government and academia, and has a prominent gap in her deep résumé: She has never argued a case at the Supreme Court or in any appeals court.

Instead, she taught law at the University of Chicago, where she was part of a group that tried to interest a part-time constitutional law lecturer named Barack Obama in committing to a full-time life in academia. She joined the Clinton administration, first as an associate counsel and then as a domestic policy adviser. "Wonderwonk" was the title of the article the New Republic wrote about her role when the administration worked with Sen. John McCain (R-Ariz.) to try to give the government more regulatory power over tobacco.

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Hearing Set for Deputy Attorney General 

The Senate Judiciary Committee has scheduled a hearing Feb. 5 on the nomination of David W. Odgen to serve as the Justice Department's second in command.

Ogden, a partner at the WilmerHale law firm in Washington, had previously led the department's civil division and managed the office of then-Attorney General Janet Reno as her chief of staff. During his time at the Justice Department during the Clinton era, Ogden famously advanced the government's landmark lawsuit against big tobacco companies. . . .

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• $175 Million for Sick Smokers Held Up by Tax Liability Issue 

About 45,000 sick smokers have been approved for payments from a $580 million fund that sprouted from an overturned tobacco negligence verdict, but questions about federal tax liability and Medicare liens still have not been answered.

About $405 million has been distributed in individual checks of $9,000, but supplemental checks have been held up while lawyers figure out what to do with the claims asserted by the federal government, said court-appointed fund administrator Miles McGrane of McGrane Nosich & Ganz in Coral Gables, Fla.

"We're sort of on hold. We're trying to get some definitive word from them," said McGrane, who believes the checks shouldn't be taxable.

The Daily Business Review obtained confidential memos in October about talks between the Justice Department and attorneys for claimants on the tax and Medicare issues.

Confusion over the status of the fund was mentioned last week in a status report by McGrane to Miami-Dade Circuit Judge David Miller.

"In all fairness to the DOJ, I don't think they've ever come across an animal like the Engle Trust Fund," McGrane said

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• Obama’s Choice for Solicitor General Has Left a Breach in a Long Paper Trail  

The New Republic called Elena Kagan a “wonderwonk” for her work on tobacco legislation in the Clinton administration. She was, the magazine said, “a nerd who can talk tough.”

Justice Thurgood Marshall, for whom she served as a law clerk, called her, Ms. Kagan once wrote, “to my face and I imagine also behind my back, ‘Shorty.’ ”

And if she is confirmed by the Senate, Chief Justice John G. Roberts Jr. will welcome Elena Kagan to the Supreme Court lectern as “General Kagan,” the first female solicitor general.

The solicitor general, who is the only federal official required by statute to be “learned in the law” and is sometimes referred to informally as “the 10th justice,” supervises appellate litigation involving the federal government and presents the government’s views to the Supreme Court.

Ms. Kagan, 48, is dean of Harvard Law School. She has a powerful and varied résumé and has produced a substantial paper trail. But she has provided few clues about where she stands on the great legal issues of the day, notably the Bush administration’s broad assertions of unilateral executive power in areas like detention, surveillance, interrogation and rendition.

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