United States v. Philip Morris USA Inc.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 14, 2008 Decided May 22, 2009

No. 06-5267

UNITED STATES OF AMERICA, UNITED STATES DEPARTMENT

OF JUSTICE, ET AL.,

APPELLEES

v.

PHILIP MORRIS USA INC., FORMERLY KNOWN AS PHILIP

MORRIS INCORPORATED, ET AL.,

APPELLEES

BRITISH AMERICAN TOBACCO (INVESTMENTS) LTD.,

DIRECTLY AND AS SUCCESSOR TO BRITISH-AMERICAN

TOBACCO COMPANY, LTD.,

APPELLANT

THE COUNCIL FOR TOBACCO RESEARCH-USA, INC., ET AL.,

APPELLEES

Consolidated with 06-5268, et al.

Appeals from the United States District Court

for the District of Columbia

(No. 99cv02496)

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Michael A. Carvin and Miguel A. Estrada argued the causes

for appellants. With them on the briefs were David S. Eggert,

Guy Miller Struve, Charles S. Duggan, David M. Bernick,

Robert F. McDermott, Jr., Peter J. Biersteker, Michael S. Fried,

John K. Crisham, Michael B. Minton, Bruce D. Ryder, Bruce G.

Sheffler, Alan E. Untereiner, Joseph Kresse, and Deborah

Israel. Murray R. Garnick, Timothy M. Broas, James A. Goold,

Gene E. Voigts, Clausen Ely Jr., Leonard A. Feiwus, James W.

Newbold, Edward C. Schmidt, Arnon D. Siegel, Keith A. Teel,

Theodore V. Wells, Jr., and Dan K. Webb entered appearances.

Alan E. Untereiner and Bruce G. Sheffler were on the briefs

for appellant British American Tobacco (Investments) Limited.

David S. Eggert, Guy Miller Struve, and Charles S. Duggan

were on the briefs for appellant Altria Group, Inc.

Daniel J. Popeo, Paul D. Kamenar, Andrew G. McBride,

and Thomas R. McCarthy were on the brief for amici curiae

National Association of Manufacturers and the Washington

Legal Foundation urging reversal.

Scott A. Sinder was on the brief for amicus curiae National

Association of Convenience Stores in support of appellants.

Robin S. Conrad, Amar D. Sarwal, Theodore B. Olson, and

Matthew D. McGill were on the brief for amicus curiae

Chamber of Commerce of the United States of America in

support of appellants urging reversal.

Mark B. Stern, Attorney, U.S. Department of Justice, argued

the cause for appellees. With him on the brief were Michael F.

Hertz, Deputy Assistant Attorney General, Jonathan F. Cohn,

Deputy Assistant Attorney General, and Alisa B. Klein, Mark R.

Freeman, Sarang Vijay Damle, Melissa N. Patterson, and

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Christopher J. Walker, Attorneys.

Howard M. Crystal argued the cause for intervenors

Tobacco-Free Kids Action Fund, et al. With him on the briefs

were Katherine A. Meyer and G. Robert Blakey.

Michael D. Hausfeld and Victoria S. Nugent were on the

brief for amici curiae American College of Occupational and

Environmental Medicine, et al. in support of appellee urging

affirmance.

William C. Lieblich, Talis J. Colberg, Attorney General,

Attorney General’s Office of the State of Alaska, Terry

Goddard, Attorney General, Attorney General’s Office of the

State of Arizona, Dustin McDaniel, Attorney General, Attorney

General, Attorney General’s Office of the State of Arkansas,

Edmund G. Brown, Jr., Attorney General, Attorney General,

Attorney General’s Office of the State of California, Richard

Blumenthal, Attorney General, Attorney General’s Office of the

State of Connecticut, Joseph R. “Beau” Biden III, Attorney

General, Attorney General’s Office of the State of Delaware,

Bill McCollum, Attorney General, Attorney General’s Office of

the State of Florida, Mark J. Bennett, Attorney General,

Attorney General’s Office of the State of Hawaii, Lawrence

Wasden, Attorney General, Attorney General’s Office of the

State of Idaho, Lisa Madigan, Attorney General, Attorney

General’s Office of the State of Illinois, Paul Morrison,

Attorney General, Attorney General’s Office of the State of

Kansas, Greg Stumbo, Attorney General, Attorney General’s

Office of the State of Kentucky, Charles Foti, Jr., Attorney

General, Attorney General’s Office of the State of Louisiana, G.

Steven Rowe, Attorney General, Attorney General’s Office of

the State of Maine, Douglas F. Gansler, Attorney General,

Attorney General’s Office of the State of Maryland, Martha

Coakley, Attorney General, Attorney General’s Office of the

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Commonwealth of Massachusetts, Michael A. Cox, Attorney

General, Attorney General’s Office of the State of Michigan,

Lori Swanson, Attorney General, Attorney General’s Office of

the State of Minnesota, Jim Hood, Attorney General, Attorney

General’s Office of the State of Mississippi, Jeremiah W. (Jay)

Nixon, Attorney General, Attorney General’s Office of the State

of Missouri, Mike McGrath, Attorney General, Attorney

General’s Office of the State of Montana, Catherine Cortez

Masto, Attorney General, Attorney General’s Office of the State

of Nevada, Kelly A. Ayotte, Attorney General, Attorney

General’s Office of the State of New Hampshire, Anne Milgram,

Attorney General, Attorney General’s Office of the State of New

Jersey, Gary King, Attorney General, Attorney General’s Office

of the State of New Mexico, Andrew M. Cuomo, Attorney

General, Attorney General’s Office of the State of New York,

Marc Dann, Attorney General, Attorney General’s Office of the

State of Ohio, W. A. Drew Edmondson, Attorney General,

Attorney General’s Office of the State of Oklahoma, Hardy

Myers, Attorney General, Attorney General’s Office of the State

of Oregon, and Tom Corbett, Attorney General, Attorney

General’s Office of the Commonwealth of Pennsylvania, Patrick

C. Lynch, Attorney General, Attorney General’s Office of the

State of Rhode Island, Robert E. Cooper, Jr., Attorney General,

Attorney General’s Office of the State of Tennessee, William H.

Sorrell, Attorney General, Attorney General’s Office of the

State of Vermont, Robert M. McKenna, Attorney General,

Attorney General’s Office of the State of Washington, Darrell

V. McGraw, Attorney General, Attorney General’s Office of the

State of West Virginia, Bruce A. Salzburg, Attorney General,

Attorney General’s Office of the State of Wyoming, and Vincent

F. Frazer, Attorney General, Attorney General’s Office of the

Territory of the United States Virgin Islands, were on the brief

for amici curiae States in support of appellee.

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Allison M. Zieve and Brian Wolfman were on the brief for

amici curiae Public Citizen, Inc., et al. in support of appellee

urging affirmance.

Christopher N. Banthin and Stephen M. Kohn were on the

brief for amici curiae American Medical Association and Others

in support of appellee.

David C. Vladeck was on the brief for amicus curiae

Tobacco Control Legal Consortium in support of appellee

urging affirmance.

Harvey Kurzweil and Alexander M. Kayne were on the brief

of amicus curiae the Citizens’ Commission to Protect the Truth

in support of appellee and supporting partial reversal.

Kerry S. Lane, appearing pro se, was on the brief as amicus

curiae.

Before: SENTELLE, Chief Judge, TATEL and BROWN, Circuit

Judges.

Opinion for the Court filed PER CURIAM.

PER CURIAM: Defendants in this action, cigarette

manufacturers and trade organizations, appeal from the district

court’s judgment finding them liable for conducting the affairs

of their joint enterprise through a pattern of mail and wire fraud

in a scheme to deceive American consumers. They also appeal

from the district court’s remedial order, which imposes

numerous negative and affirmative duties on Defendants. The

government and intervenors cross-appeal from the district

court’s denial of additional requested remedies. After

considering all of the parties’ arguments, we affirm in large part

the finding of liability, remanding only for dismissal of the trade

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organizations. We also largely affirm the remedial order,

including the denial of additional remedies, but vacate the order

with regard to four discrete issues, remanding for further

proceedings as directed in this opinion.

I. Background

The United States initiated this civil action under the

Racketeer Influenced and Corrupt Organizations Act (“RICO”),

18 U.S.C. §§ 1961–1968, in 1999. The government alleged that

nine cigarette manufacturers and two tobacco-related trade

organizations violated section 1962(c) and (d) of the Act. Those

subsections make it unlawful for “any person employed by or

associated with any enterprise engaged in, or the activities of

which affect, interstate or foreign commerce, to conduct or

participate, directly or indirectly, in the conduct of such

enterprise’s affairs through a pattern of racketeering activity” or

to conspire to do so. 18 U.S.C. § 1962(c), (d). The eleven

Defendants were Philip Morris, Inc., now Philip Morris USA,

Inc. (“Philip Morris”); R.J. Reynolds Tobacco Company, now

Reynolds American (“Reynolds”); Brown & Williamson

Tobacco Company, now part of Reynolds (“Brown &

Williamson”); Lorillard Tobacco Company (“Lorillard”); The

Liggett Group, Inc. (“Liggett”); American Tobacco Company,

which merged with Brown & Williamson and is now part of

Reynolds (“American”); Philip Morris Companies, now Altria

(“Altria”); British American Tobacco (Investments) Ltd.

(“BATCo”); B.A.T. Industries p.l.c., now part of BATCo (“BAT

Industries”); The Council for Tobacco Research–USA, Inc.

(“CTR”); and The Tobacco Institute, Inc. (“TI”). The last two

entities are trade organizations the cigarette manufacturers

created; they do not manufacture or sell tobacco products. The

district court dismissed BAT Industries from the case for lack of

personal jurisdiction.

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The government alleged that Defendants violated and

continued to violate RICO by joining together in a decades-long

conspiracy to deceive the American public about the health

effects and addictiveness of smoking cigarettes. Specifically,

the government alleged that Defendants fraudulently denied that

smoking causes cancer and emphysema, that secondhand smoke

causes lung cancer and endangers children’s respiratory and

auditory systems, that nicotine is an addictive drug and

Defendants manipulated it to sustain addiction, that light and

low tar cigarettes are not less harmful than full flavor cigarettes,

and that Defendants intentionally marketed to youth. United

States v. Philip Morris USA, Inc., 449 F. Supp. 2d 1, 27 (D.D.C.

2006). In addition, the government alleged that Defendants

concealed evidence and destroyed documents to hide the

dangers of smoking and protect themselves in litigation. Id.

The government identified 148 racketeering acts of mail and

wire fraud Defendants allegedly committed in furtherance of

their scheme. Although the district court did not allow the

government to prove 650 additional racketeering acts due to

their late disclosure, the court did permit the government to

introduce evidence supporting those acts to prove other RICO

elements, such as the continuity and pattern of racketeering

activity, the RICO enterprise and conspiracy, and Defendants’

participation in the enterprise.

After years of pretrial proceedings and discovery, the case

went to trial in September 2004. The bench trial lasted nine

months and included live testimony from 84 witnesses, written

testimony from 162 witnesses, and almost 14,000 exhibits in

evidence. The government presented evidence that the

presidents of Philip Morris, Reynolds, Brown & Williamson,

Lorillard, and American assembled together in 1953 to strategize

a response to growing public concern about the health risks of

smoking and jointly retained a public relations firm to assist in

the endeavor. Id. at 37. From the beginning they agreed that no

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cigarette manufacturer would “seek a competitive advantage by

inferring to its public that its product is less risky than others”;

they would make no “claims that special filters or toasting, or

expert selection of tobacco, or extra length in the butt, or

anything else, makes a given brand less likely to cause you-

know-what.” Id. (quoting public relations firm’s Planning

Committee Memorandum). Acting on this agreement, the

cigarette manufacturers jointly issued “A Frank Statement to

Cigarette Smokers,” published as a full-page advertisement in

newspapers across the country on January 4, 1954. Id. at 39.

“The Frank Statement set forth the industry’s ‘open question’

position that it would maintain for more than forty years—that

cigarette smoking was not a proven cause of lung cancer; that

cigarettes were not injurious to health; and that more research on

smoking and health issues was needed.” Id. All of the

Defendant manufacturers eventually joined this collective effort.

The government presented evidence from the 1950s and

continuing through the following decades demonstrating that the

Defendant manufacturers were aware—increasingly so as they

conducted more research—that smoking causes disease,

including lung cancer. Evidence at trial revealed that at the

same time Defendants were disseminating advertisements,

publications, and public statements denying any adverse health

effects of smoking and promoting their “open question” strategy

of sowing doubt, they internally acknowledged as fact that

smoking causes disease and other health hazards. Id. at 146,

164, 168–69. Although the manufacturers conducted their own

research and public relations regarding health and other issues,

they also relied in part on a series of jointly-created entities.

Among these entities were Defendants TI and CTR (formerly

the Tobacco Industry Research Committee). The Defendant

manufacturers created TI and CTR, composed their membership,

staffed their boards of directors with executives from the

manufacturers, and maintained frequent communication between

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high-level manufacturer and joint-entity officials. Id. at 43–44,

63. Evidence at trial showed that TI and CTR conducted the

manufacturers’ joint public relations through false and

misleading press releases and publications, trained

representatives from the manufacturers regarding their

coordinated industry message, conducted some cigarette testing

for the manufacturers, and funded “special projects” to produce

favorable research results and witnesses specifically for use in

litigation and for support of industry public statements. Id. at

66, 82, 86, 87, 91.

In addition to the health hazards of smoking, the

government presented evidence that Defendants intimately

understood the addictiveness of nicotine and manipulated

nicotine delivery in cigarettes to create and sustain addiction.

Evidence showed that Defendants undertook extensive research

into the physiological impact of nicotine, how it operates within

the human body, and how the physical and chemical design

parameters of cigarettes influence the delivery of nicotine to

smokers. Id. at 208, 308–09. As a result of this research, they

recognized and internally acknowledged that smoking and

nicotine are addictive and they engineered their products around

creating and sustaining this addiction. Evidence at trial

suggested that despite this internal knowledge, for decades

Defendants publicly denied and distorted the truth about the

addictive nature of their products, suppressed research revealing

the addictiveness of nicotine, and denied their efforts to control

nicotine levels and delivery. Id. at 209, 309.

The government also presented evidence tending to show

that Defendants marketed and promoted their low tar brands to

smokers—who were concerned about the health hazards of

smoking or considering quitting—as less harmful than full

flavor cigarettes despite either lacking evidence to substantiate

their claims or knowing them to be false. Id. at 430. Internal

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industry documents introduced at trial revealed that by the late

1960s and early 1970s, Defendants were aware that lower tar

cigarettes are unlikely to provide health benefits because they do

not actually deliver the low levels of tar and nicotine advertised.

Id. at 430–31. Defendants researched and understood the

phenomenon whereby smokers of low tar cigarettes, to satisfy

their addiction, modify their smoking behavior to compensate

for the reduced nicotine yields by “taking more frequent puffs,

inhaling smoke more deeply, holding smoke in their lungs

longer, covering cigarette ventilation holes with fingers or lips,

and/or smoking more cigarettes.” Id. at 431. As a result of this

nicotine-driven behavior, smokers of low tar cigarettes boost

their intake of tar, so that lower tar cigarettes do not result in

lower tar intake and therefore do not yield the touted health

benefits or serve as a step toward quitting smoking. Id.

Evidence at trial suggested that Defendants understood this

concept—for some time, better than the public health

community or government regulators—while they promoted

lower tar cigarettes as “health reassurance” brands.

Regarding secondhand smoke, the government presented

evidence suggesting that Defendants became aware that

secondhand smoke poses a health risk to nonsmokers but made

misleading public statements and advertisements about

secondhand smoke in an attempt to cause the public to doubt the

evidence of its harmfulness. Id. at 692. At trial, internal

industry documents revealed that Defendants believed the public

perception of secondhand smoke could determine the industry’s

survival and that secondhand smoke research by the cigarette

manufacturers was a sensitive issue due to the absence of

“objective science” supporting their position and the risk that

their own research would lead to unfavorable results. Id. at 733.

As a result, the manufacturers jointly created the Center for

Indoor Air Research (“CIAR”) to coordinate and fund their

secondhand smoke research with the appearance of

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independence. Id. at 119, 735. The evidence also showed that

they “created, controlled, used, or participated in” a vast array

of foreign or international entities to conduct their sensitive

secondhand smoke research, generate “marketable science” to

use for public relations purposes, and coordinate their shared

objectives and message. Id. at 119–20, 759.

In addition to these topics, the government also presented

evidence to the district court regarding Defendants’ targeted

marketing to youth under twenty-one years of age and their

denials of such marketing, id. at 561, 672, as well as evidence

concerning Defendants’ employees and attorneys destroying

documents relevant to their public and litigation positions and

suppressing or concealing scientific research, id. at 801, 832.

During the trial, this court rendered a decision on

Defendants’ interlocutory appeal from the denial of summary

judgment on the government’s claim for a disgorgement remedy

under RICO section 1964(a). We reversed the district court and

held that disgorgement is not an available remedy in civil RICO

cases. United States v. Philip Morris USA, Inc. (“Disgorgement

Opinion”), 396 F.3d 1190 (D.C. Cir. 2005). In response, the

district court granted the government leave to reformulate its

proposed remedies. After the liability phase of the trial, the

district court held a fourteen-day remedies trial. At the close of

the remedies phase, several organizations moved to intervene in

the litigation to assert their interests in the proposed remedies.

The district court granted the American Cancer Society, the

American Heart Association, the American Lung Association,

Americans for Nonsmokers’ Rights, the National African

American Tobacco Prevention Network, and the Tobacco-Free

Kids Action Fund leave to intervene solely on the subject of

remedies.

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The district court entered final judgment against Defendants

on August 17, 2006, finding that they maintained an illegal

racketeering enterprise and each Defendant participated in the

conduct, management, and operation of the enterprise in

violation of section 1962(c), and that they explicitly and

implicitly agreed to do so, in violation of section 1962(d).

Philip Morris, 449 F. Supp. 2d at 851, 901. The court found that

Defendants engaged in a scheme to defraud smokers and

potential smokers by (1) falsely denying the adverse health

effects of smoking, id. at 854; (2) falsely denying that nicotine

and smoking are addictive, id. at 856; (3) falsely denying that

they manipulated cigarette design and composition so as to

assure nicotine delivery levels that create and sustain addiction,

id. at 858; (4) falsely representing that light and low tar

cigarettes deliver less nicotine and tar and therefore present

fewer health risks than full flavor cigarettes, id. at 859;

(5) falsely denying that they market to youth, id. at 861;

(6) falsely denying that secondhand smoke causes disease, id. at

864; and (7) suppressing documents, information, and research

to prevent the public from learning the truth about these subjects

and to avoid or limit liability in litigation, id. at 866. The court

concluded that the government failed to prove that Defendants

deliberately chose not to utilize or market feasible designs or

product features that could produce less hazardous cigarettes.

Id. at 384.

Before granting injunctive relief against Defendants the

district court assessed whether they presented a “reasonable

likelihood of further violation(s) in the future.” Id. at 909

(quoting SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1168 (D.C.

Cir. 1978)). The court concluded that Philip Morris, Reynolds,

Brown & Williamson, Lorillard, American, Altria, and BATCo

were reasonably likely to commit future RICO violations unless

enjoined because they continued to make false and misleading

statements at the time of trial, their businesses presented

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continuing opportunities to commit RICO violations, and their

corporate leadership continued to consist of veteran employees

with longstanding ties to the companies. Id. at 910–13.

Defendants argued that no injunction was necessary because

their Master Settlement Agreement with forty-six states and the

District of Columbia and their individual settlements with four

states already sufficiently restrained them. The district court

rejected this argument, concluding that the Master Settlement

Agreement did not obviate the need for injunctive relief because

Defendants had not fully complied with the agreement, parts of

the agreement began expiring in 2006, the states could not

vigorously enforce all aspects of the agreement, and BATCo and

Altria were not subject to the settlement agreement. Id. at 913–

15.

The district court found that three Defendants—CTR, TI,

and Liggett—did not present a reasonable likelihood of future

RICO violations, therefore the court did not order injunctive

remedies against them. CTR and TI, the court found, now exist

solely for the limited purpose of winding up their activities and

each retains only one adviser to support its litigation defense and

handle any remaining administrative matters. Id. at 915–18.

The court found that Liggett withdrew from the RICO

conspiracy by admitting that smoking causes cancer and is

addictive, by voluntarily restricting its advertising and including

disclosures on its packages, and by cooperating with the United

States and state attorneys general in their claims against other

tobacco companies. Id. at 906–07, 918–19. The district court

concluded that Liggett was not reasonably likely to commit

future RICO violations based on this withdrawal, its continued

independence from the other Defendants, and its limited

opportunity for future violations by virtue of its discount

cigarette market and lack of traditional consumer advertising.

Id. at 918–19.

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Pursuant to section 1964, the district court imposed

injunctive remedies against the other seven manufacturer

Defendants. Specifically, the court ordered Defendants (1) to

refrain from any acts of racketeering relating to the

manufacturing, marketing, promotion, health consequences, or

sale of cigarettes in the United States; (2) not to participate in

the management or control of CTR, TI, or CIAR, and not to

reconstitute the form or function of those entities; (3) to refrain

from making any material false, misleading, or deceptive

representation concerning cigarettes that is disseminated to the

United States public; (4) to cease using any express or implied

health message or health descriptor for any cigarette brand, such

as light or low tar; (5) to make corrective disclosures about

addiction, the adverse health effects of smoking and secondhand

smoke, their manipulation of cigarette design and composition,

and light and low tar cigarettes; (6) to create document

depositories providing the government and the public access to

all industry documents disclosed in litigation; and (7) to provide

their disaggregated marketing data to the government according

to the schedule on which they provide it to the Federal Trade

Commission. Id. at 938–45. The court also limited the sale and

transfer of Defendants’ brands, product formulas, and businesses

to entities that either are subject to the injunctive order or will

sell the brand, use the formula, or conduct the business

exclusively outside the United States. Id. at 945.

The district court denied the remainder of the government’s

requested injunctive relief, including its proposed national

smoking cessation program, public education and counter-

marketing campaign, and youth smoking reduction plan. Id. at

933–34, 936–37. The court also denied the government’s

requests that it appoint a monitor to investigate and restructure

the Defendant companies, id. at 935, and that it order

Defendants to make public all “health and safety risk

information” about their products in their own files, id. at 929.

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All Defendants except Liggett appealed, raising numerous

challenges to the finding of liability and the remedies imposed.

The government and the intervenors filed a cross-appeal

regarding the remedies that the district court denied. On

Defendants’ motion we stayed the remedial injunction pending

appeal.

We review the district court’s conclusions of law de novo.

SEC v. Wash. Inv. Network, 475 F.3d 392, 399 (D.C. Cir. 2007).

To the extent it is not based on legal error, we review the district

court’s decision to issue an injunction for abuse of discretion.

Id. We may not set aside the district court’s findings of fact

unless they are clearly erroneous, giving due regard to the

court’s opportunity to judge the witnesses’ credibility. Id.

(citing FED. R. CIV. P. 52(a)(6)). This standard applies even

when the district court adopts a party’s proposed findings

verbatim. Anderson v. City of Bessemer City, 470 U.S. 564, 572

(1985).

To establish RICO liability, the government had to prove

the necessary elements of RICO itself—including the existence

of an enterprise and a pattern of racketeering activity, 18 U.S.C.

§ 1962(c)—as well as the elements of the underlying conduct

constituting the racketeering acts, here, numerous instances of

mail and wire fraud under 18 U.S.C. §§ 1341 and 1343.

Defendants challenge the district court’s findings regarding both

RICO and the underlying fraud, as well as the remedies the court

imposed. We address Defendants’ challenges to RICO liability

in Part II, their general challenges to fraud liability in Part III,

their challenges to specific aspects of the fraudulent scheme and

the liability of specific Defendants in Part IV, their challenges

to the finding that they are likely to commit future violations and

therefore should be enjoined in Part V, and their challenges to

particular remedies the court imposed in Part VI.

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II. Challenges to RICO Liability

A. RICO Enterprise

RICO makes it unlawful for “any person . . . associated with

any enterprise . . . to conduct or participate, directly or

indirectly, in the conduct of such enterprise’s affairs through a

pattern of racketeering activity.” 18 U.S.C. § 1962(c). Thus, in

a section 1962(c) suit, the defendants are the “persons” who

conduct the “enterprise’s” affairs through racketeering activity.

Because RICO defines “person” as including “any individual or

entity capable of holding a legal or beneficial interest in

property,” id. § 1961(3), corporations as well as individuals can

be liable if they conduct an enterprise’s affairs through a pattern

of racketeering activity. In language central to the issue before

us, section 1961(4) states:

“enterprise” includes any individual, partnership,

corporation, association, or other legal entity, and any union

or group of individuals associated in fact although not a

legal entity.

Id. § 1961(4). The enterprise as such generally faces no section

1962(c) RICO liability; indeed it may be the innocent vehicle

through which unlawful activity is carried out, see Cedric

Kushner Promotions, Ltd. v. King, 533 U.S. 158, 164 (2001)

(“RICO both protects a legitimate ‘enterprise’ from those who

would use unlawful acts to victimize it, and also protects the

public from those who would unlawfully use an ‘enterprise’

(whether legitimate or illegitimate) as a ‘vehicle’ through which

‘unlawful . . . activity is committed.’” (quoting United States v.

Turkette, 452 U.S. 576, 591 (1981), and Nat’l Org. for Women,

Inc. v. Scheidler, 510 U.S. 249, 259 (1994))). When the

enterprise is an association-in-fact, members of the association

may be both part of the “enterprise” and liable as “persons”

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under RICO if they conduct the enterprise’s affairs through

racketeering activity. See, e.g., United States v. Richardson, 167

F.3d 621, 626 (D.C. Cir. 1999) (upholding conviction of

defendant member of association-in-fact enterprise).

Here, defining the RICO enterprise as “a group of business

entities and individuals associated-in-fact, including Defendants

to this action, their agents and employees, and other

organizations and individuals,” the district court held that the

Defendant cigarette manufacturers and trade organizations had

violated section 1962(c) by participating in the conduct of the

enterprise’s affairs through multiple acts of mail and wire fraud.

Philip Morris, 449 F. Supp. 2d at 851, 867. Defendants

challenge the district court’s acceptance of a RICO enterprise

made up of individuals and corporations, arguing that the statute

provides an exclusive list of possible enterprises that covers

groups of individuals associated in fact, not mixed groups of

individuals and corporations associated in fact.

In United States v. Perholtz, 842 F.2d 343 (D.C. Cir. 1988),

however, we squarely rejected this precise argument. There, we

held that a group of seven individuals and eleven corporations

and partnerships associated in fact may constitute a RICO

“enterprise.” Id. at 351 n.12, 353. We explained: “[RICO]

defines ‘enterprise’ as including the various entities specified;

the list of entities is not meant to be exhaustive.” Id. at 353. As

such, a group of individuals, corporations, and partnerships

associated in fact can qualify as a RICO “enterprise,” even

though section 1961(4) nowhere expressly mentions this type of

association.

In so holding, we joined several other circuits that had

reached the same conclusion. Perholtz, 842 F.2d at 353 (citing

the Second, Third, Seventh, and Eleventh Circuits, as well as

Fifth Circuit Unit B). Indeed, both prior to and since Perholtz,

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every circuit to consider the question has likewise held that

corporations may be part of an association-in-fact enterprise.

See United States v. London, 66 F.3d 1227, 1243–44 (1st Cir.

1995) (holding that corporations can be part of an association-

in-fact enterprise because section 1961(4)’s list is not

exhaustive); United States v. Huber, 603 F.2d 387, 394 (2d Cir.

1979) (same); United States v. Aimone, 715 F.2d 822, 828 (3d

Cir. 1983) (same); United States v. Thevis, 665 F.2d 616,

625–26 (5th Cir. Unit B 1982) (same), superseded on other

grounds by FED. R. EVID. 804(b)(6) (1997); United States v.

Masters, 924 F.2d 1362, 1366 (7th Cir. 1991) (same); Atlas Pile

Driving Co. v. DiCon Fin. Co., 886 F.2d 986, 995 n.7 (8th Cir.

1989) (same); see also Dana Corp. v. Blue Cross & Blue Shield

Mut. of N. Ohio, 900 F.2d 882, 887 (6th Cir. 1990) (reaching

same outcome and citing Huber, 603 F.2d at 393–94); United

States v. Navarro-Ordas, 770 F.2d 959, 969 n.19 (11th Cir.

1985) (same); United States v. Feldman, 853 F.2d 648, 655–56

(9th Cir. 1988) (reaching same outcome based on different

statutory analysis); United States v. Najjar, 300 F.3d 466, 484

(4th Cir. 2002) (upholding without discussion RICO convictions

involving an association-in-fact enterprise that included

corporations). The judges of these circuits are equally

unanimous, for not one has dissented from the proposition that

an association-in-fact enterprise may include corporations.

Defendants argue that Perholtz has no applicability where,

as here, the defendants are corporations. Because the Perholtz

defendants were individual members of the enterprise, not its

corporate members, Defendants here claim that Perholtz applies

only when individuals, not corporations, are the RICO

defendants. As Defendants see it, Perholtz merely ensures that

individuals are unable to escape liability simply by including

corporations in their enterprise; Perholtz, they argue, does not

mean that the associated-in-fact corporations can themselves

incur RICO liability.

19

But nothing in Perholtz is so limited. Quoting the Supreme

Court’s statement in United States v. Turkette that “[t]here is no

restriction upon the associations embraced by the definition [of

enterprise],” 452 U.S. at 580, Perholtz sets forth its holding in

broad terms: “We therefore follow those courts that have held

that individuals, corporations, and other entities may constitute

an association-in-fact,” 842 F.2d at 353. Nowhere does Perholtz

suggest that the rule varies depending on the identity of the

defendants. Indeed, two of the cases Perholtz relies on involved

corporate defendants. Id. (citing Thevis, 665 F.2d at 625–26

(upholding RICO convictions for one individual and one

corporate defendant), and Bunker Ramo Corp. v. United Bus.

Forms, Inc., 713 F.2d 1272, 1285 (7th Cir. 1983) (upholding

RICO charges against one individual and one corporation)).

Many other decisions have similarly upheld RICO allegations

involving corporate defendants who were also members of the

association-in-fact enterprise. See, e.g., City of N.Y. v. Smokes-

Spirits.com, Inc., 541 F.3d 425, 450–51 (2d Cir. 2008); Odom v.

Microsoft Corp., 486 F.3d 541, 553 (9th Cir. 2007); Najjar, 300

F.3d at 484; United States v. Goldin Indus., Inc., 219 F.3d 1271,

1274 (11th Cir. 2000); Dana Corp., 900 F.2d at 887; Shearin v.

E.F. Hutton Group, Inc., 885 F.2d 1162, 1165–66 (3d Cir.

1989), overruled on other grounds by Beck v. Prupis, 529 U.S.

414, 506 (2000); Atlas Pile Driving, 886 F.2d at 995; Ocean

Energy II, Inc. v. Alexander & Alexander Inc., 868 F.2d 740,

748–49 (5th Cir. 1989).

Moreover, Defendants’ proposed limitation on Perholtz is

contrary to the statute’s language. As “persons” under section

1961(3), corporations may be RICO defendants regardless of the

kind of enterprise charged. See 18 U.S.C. § 1962(c) (“It shall be

unlawful for any person . . . associated with any enterprise . . .

to conduct or participate, directly or indirectly, in the conduct of

such enterprise’s affairs through a pattern of racketeering

activity.” (emphases added)). Defendants cite not a single case

20

lending even a shred of support to the idea that the meaning of

“enterprise” can fluctuate depending on whom the government

or the plaintiff chooses to name as the defendant. Perholtz’s

interpretation of section 1961(4) thus applies regardless of

whether the RICO defendants are individual “persons” or

corporate “persons.” To hold otherwise would require us to

rewrite section 1962(c).

In a further attempt to evade Perholtz, Defendants argue

that even if Perholtz was correct when decided, it has been

eroded by the Supreme Court’s 2001 decision in Cedric Kushner

Promotions, Ltd. v King, 533 U.S. 158 (2001). Defendants’

argument begins with the premise that at the time we decided

Perholtz, RICO presented a potential loophole: because the

RICO defendant must be distinct from the RICO enterprise,

Yellow Bus Lines, Inc. v. Drivers, Chauffeurs & Helpers Local

Union 639, 839 F.2d 782, 790 (D.C. Cir. 1988) (“[O]ne entity

may not serve as the enterprise and the person associated with

it . . . .”), vacated on other grounds, 492 U.S. 914 (1989), a sole

shareholder who used his alter-ego corporation for racketeering

might evade RICO liability because he wouldn’t be sufficiently

distinct from the alter-ego corporation “enterprise.” Defendants

rely on Perholtz’s suggestion that a definition of “enterprise”

that excluded associations-in-fact of corporations would lead to

“the bizarre result that only criminals who failed to form

corporate shells to aid their illicit schemes could be reached by

RICO.” 842 F.2d at 353. According to Defendants, we were

motivated in Perholtz by the underlying concern “that a criminal

defendant conducting the affairs of an ‘enterprise’ that was his

own closely held corporation, would be so closely tied to the

enterprise that he would escape RICO liability.” Defs. Br. 37.

Given that the Supreme Court has subsequently eliminated this

concern—holding in Cedric Kushner that an individual sole

shareholder is sufficiently distinct from his alter-ego corporation

to sustain RICO liability, 533 U.S. at 160—Defendants assert

21

that Perholtz no longer represents binding authority.

We do not read Perholtz as motivated by the concerns

addressed in Cedric Kushner. In contrast to Cedric Kushner, the

enterprise in Perholtz involved multiple individuals and

numerous corporations, with no indication that the corporations

were either all closely held by the individual defendants or in

any other way insufficiently distinct. 842 F.2d at 351 n.12.

Indeed, at least some of the Perholtz corporate enterprise

members were not closely held. For example, enterprise

member International Business Services, Inc. (IBS) existed in its

own right prior to the scheme and was related to the defendants

through employment relationships that would not have defeated

RICO’s distinctness requirement: Perholtz himself was a

consultant to IBS, and the other RICO defendant, Franklin

Jackson, was an IBS project manager. Id. at 348. Similarly,

enterprise member Remote Computer Services Corporation,

although formed expressly for the purpose of the scheme, was

jointly held in equal shares by three individuals—Perholtz and

two other individual members of the enterprise, id. at 350—and

thus would have been sufficiently distinct from each of those

non-sole shareholders. The enterprise also included two

separate real estate companies both of which apparently existed

independently of the scheme and were not otherwise affiliated

with the individuals. Id. at 351 n.12. At least one individual

enterprise member, John Gentile, worked for the Postal Service

and apparently had no formal stake in the corporate enterprise

members. Id. at 346, 351 n.12. In Perholtz, we held that all

these corporations—not just those closely held or created solely

for the scheme—could be part of an association-in-fact

enterprise. Indeed, only after so holding did we turn to

Perholtz’s entirely separate argument that he, as an individual,

was insufficiently distinct from the enterprise. Far from basing

our holding on this argument, we simply noted that we had “no

occasion to consider the separateness requirement” because

22

Perholtz associated not with himself but with others. Id. at 353.

Given the structure of the Perholtz enterprise and the

court’s acknowledgement that distinctness was not at issue, we

think Perholtz reflected a different concern, namely that a group

of sophisticated racketeers who would otherwise constitute an

association-in-fact might evade RICO’s grasp by virtue of their

ability to operate through corporations and establish complex

networks of companies, kickbacks, and contracts to achieve their

elicit ends. Indeed, immediately following its reference to

“corporate shells,” Perholtz emphasized Congress’s desire that

RICO serve “as a weapon against the sophisticated racketeer as

well as (and perhaps more than) the artless.” Id. Perholtz itself

presented just such a situation: the defendants worked through

their own companies and multiple outside corporations in an

intricate web of shared commissions to game the bidding

process for government contracts. The success of the scheme

required the participation of companies to serve as contractors

and subcontractors. “This relationship of individuals and

corporations is precisely what section 1962(c) was designed to

attack.” Id. at 354.

Moreover, in asserting their Cedric Kushner argument,

Defendants fail to explain how Perholtz’s interpretation would

even solve the hypothetical problem they posit. According to

Defendants, in order to preserve RICO liability for a sole

shareholder who would be insufficiently distinct from his alter-

ego corporation, the Perholtz court held that an “individual and

his shell corporation could together . . . constitute an

association-in-fact enterprise.” Defs. Reply Br. 16. In

Defendants’ view, the sole shareholder would then be liable

under RICO for conducting the affairs of this association-in-fact

enterprise. Yet if an individual is insufficiently distinct from his

alter-ego corporation, we seriously doubt he would suddenly be

sufficiently distinct from an enterprise consisting of his alter-ego

23

corporation and himself. If Perholtz had been concerned with

distinctness, its purported “solution” would make little sense.

Further seeking to justify their reliance on Cedric Kushner,

Defendants say that the government cites only one post–Cedric

Kushner case—United States v. Najjar, 300 F.3d 466 (4th Cir.

2002)—that upheld an association-in-fact enterprise of

corporations. The relevance of this is hard to grasp, as other

post–Cedric Kushner cases not cited by the government accept

association-in-fact enterprises comprised of corporations. See

Smokes-Spirits.com, 541 F.3d at 450–51 (holding that the

plaintiff adequately pleaded an association-in-fact enterprise

consisting of two corporations); Odom, 486 F.3d at 553 (holding

that plaintiffs had sufficiently alleged an association-in-fact

enterprise of two corporations); United States v. Cianci, 378

F.3d 71, 83 (1st Cir. 2004) (“It is uncontroversial that corporate

entities, including municipal and county ones, can be included

within association-in-fact RICO enterprises.”); Living Designs,

Inc. v. E.I. DuPont de Nemours & Co., 431 F.3d 353, 361 (9th

Cir. 2005) (“[T]here is no question that DuPont [corporation]

and the law firms together can constitute an ‘associated in fact’

RICO enterprise.”). And as we noted above, no circuit has ever

held the opposite.

Cedric Kushner thus undermines neither the unanimous

judicial view that association-in-fact enterprises may include

corporations nor Perholtz’s binding effect on this case.

Defendants’ argument that we should read section 1961(4) as an

exhaustive list of possible RICO enterprises is therefore

unavailing. Not only is it foreclosed by Perholtz, it is

unpersuasive on its own terms. As Perholtz and many other

circuits explain, the use of the word “includes” indicates that

RICO’s list of “enterprises” is non-exhaustive. Indeed, section

1961 makes the non-exhaustive nature of “includes” clear by

alternating between the words “means” and “includes” to

24

introduce the section’s various definitions. Specifically, five of

section 1961’s ten subsections introduce definitions with the

word “means.” For example, section 1961(1) defines

“racketeering activity,” explaining that the term “means” any of

a list of specific state and federal crimes. Section 1961(2)

likewise introduces a definitional list with the term “means”:

“‘State’ means any State of the United States, the District of

Columbia, the Commonwealth of Puerto Rico, any territory or

possession of the United States, any political subdivision, or any

department, agency, or instrumentality thereof.” 18 U.S.C.

§ 1961(2); see also id. § 1961(6), (7), (8) (introducing

definitions of “unlawful debt,” “racketeering investigator,” and

“racketeering investigation” with the term “means”). Section

1961(4), by contrast, says “‘enterprise’ includes any individual,

partnership, corporation, association, or other legal entity, and

any union or group of individuals associated in fact although not

a legal entity.” Id. § 1961(4) (emphasis added). By switching

between “means” and “includes” in the same definitional

provision, Congress signaled its intent to distinguish between

exhaustive and non-exhaustive lists. See Helvering v. Morgan’s,

Inc., 293 U.S. 121, 126 n.1 (1934) (describing a statute that

introduced three definitions with the word “includes” and seven

definitions with the word “means” and noting that “[t]he natural

distinction would be that where ‘means’ is employed, the term

and its definition are to be interchangeable equivalents, and that

the verb ‘includes’ imports a general class, some of whose

particular instances are those specified in the definition”).

That Congress provided an exhaustive list of legal entity

enterprises by adding the phrase “or other legal entity” hardly

converts the list of non-legal entity enterprises into an

exhaustive list. Had Congress wanted to limit non-legal entity

associations to those expressly listed, the most obvious way to

do so would have been the way Congress wrote the five clearly

exhaustive definitions in the same section: it could have said

25

“‘enterprise’ means any individual, partnership, corporation,

association, or other legal entity, or any union or group of

individuals associated in fact although not a legal entity.” But

Congress chose to say “‘enterprise’ includes” the listed entities.

Defendants think that the phrase “or other legal entity” would

have been unnecessary if the list were otherwise non-exhaustive.

Not so. Adding “or other legal entity” serves to ensure that all

legal entities are covered while retaining the possibility that

some additional non-legal entities beyond those listed are also

covered.

Nor does the use of the phrase “including, but not limited

to” to indicate a non-exhaustive list in a different section of

RICO, section 1964(a), demonstrate that the sole word

“includes” in section 1961(4) must introduce an exhaustive list.

Section 1964, which establishes civil remedies for RICO

violations, lacks section 1961’s juxtaposition of the non-

exhaustive term “includes” with the exhaustive term “means”;

adding “but not limited to” helps to emphasize the non-

exhaustive nature of section 1964(a)’s list of remedies. Section

1961 needed no such clarification because it employed the

contrasting terms “means” and “includes” to distinguish

exhaustive from non-exhaustive definitions.

Contrary to Defendants’ argument, nothing about this

interpretation renders the definition of “enterprise” devoid of

meaning. Although encompassing non-enumerated enterprises,

section 1961(4)’s list defines “enterprise,” in part, by listing the

kinds of entities Congress had in mind. Indeed, the Supreme

Court has acknowledged this meaning by requiring enterprises

to exhibit common purpose, organization, and continuity.

Turkette, 452 U.S. at 583; see also Richardson, 167 F.3d at 625.

In sum, as Perholtz clearly holds, because RICO’s “list of

entities is not meant to be exhaustive,” “individuals,

26

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.

B. Identifying Racketeering Acts

Defendants complain that the district court failed to identify

the racketeering acts that support the finding of liability. While

27

it is true the district court’s opinion provided no single, discrete

list of specific racketeering acts, the comprehensive findings—

detailing over one-hundred racketeering acts—are sufficient to

warrant affirmance. Defendants raise numerous challenges to

the correctness of the district court’s findings that they

committed racketeering acts, which we take up in Parts III and

IV. In this section, however, we are concerned only with the

existence of these findings, not their validity.

By statutory definition, any violation of the mail or wire

fraud statutes can qualify as “racketeering activity.” 18 U.S.C.

§ 1961(1). To prove a violation of the mail and wire fraud

statutes, the government must show (1) a scheme or artifice to

defraud and (2) a mailing or wire transmission in furtherance

thereof. Id. §§ 1341, 1343. “Where one scheme involves

several mailings, the law is settled that each mailing constitutes

a violation of the statute.” Hanrahan v. United States, 348 F.3d

363, 366 (D.C. Cir. 1965). Where, as here, the mail and wire

fraud statutes serve as the predicate offenses for a RICO

violation, each racketeering act must be a mailing or wire

transmission made in furtherance of a “scheme or artifice to

defraud.” 18 U.S.C. §§ 1341, 1343. Thus, in order to identify

the racketeering acts, the district court must first have found a

scheme to defraud, then concluded the alleged mailings or wire

transmissions were in furtherance of such scheme. See Philip

Morris, 449 F. Supp. 2d at 852–54.

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. at

28

852–67.

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.

Seventy-nine of the alleged acts were established by

Defendants’ own stipulations and admissions. Id. at 882

(enumerating 79 racketeering acts). Altogether, the court

enumerated 108 racketeering acts in the opinion, as well as six

others which it excluded on First Amendment grounds. See id.

at 882, 884, 885 n.62, 887. This total does not include the many

other findings which may be tied to other racketeering acts, but

for which the district court did not provide a specific list. See,

e.g., id. at 883 (“[I]t is clear beyond any question that

Defendants caused the mailings and wire transmissions

underlying the 30 Racketeering Acts involving the news media’s

dissemination of Defendants’ press releases and advertisements

to their subscribers.”).

The RICO statute requires “a pattern of racketeering

activity” on the part of each defendant. 18 U.S.C. § 1962(c).

“[A]t least two acts of racketeering activity” are necessary to

form a pattern. H.J., Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 237

(1989) (quoting 18 U.S.C. § 1961(5)). The district court found

the requisite pattern committed by each Defendant, Philip

Morris, 449 F. Supp. 2d at 889–91, and this finding is not

erroneous. A brief sampling of the 108 enumerated racketeering

acts makes the point: Philip Morris, Reynolds, Brown &

Williamson, Lorillard, American, and TI committed racketeering

acts 24, 132, and 133 by mailing press releases containing false

statements about the addictiveness and health consequences of

smoking. Id. at 194, 282–83. Philip Morris, Reynolds, Brown

29

& Williamson, Lorillard, American, Liggett, and CTR

committed racketeering acts 66, 73, and 88 by mailing letters

regarding funding of CTR’s “special projects” to create data

supporting their fraudulent claims. Id. at 101, 882, 972, 976.

BATCo and Brown & Williamson committed racketeering acts

30, 50, 51, 53, and 63 through their mailings to each other

concerning the enterprise’s position on the health effects and

addictiveness of smoking as well as smoker compensation and

nicotine. Id. at 253–54, 301, 882, 965, 969. Altria committed

racketeering acts 71, 72, 74, and 75 in its efforts to coordinate

Defendants’ public positions and fund CTR research projects to

support their fraudulent claims. Id. at 295, 813, 884, 974. As

these examples demonstrate, the district court found each

Defendant engaged in a “pattern of racketeering activity,” and

that finding is not erroneous. See infra Parts III, IV.

The 108 enumerated acts give us ample basis to review the

district court’s finding. Although the district court may have

concluded other racketeering acts were proven as well, we need

look no further. Defendants correctly argue we must ensure the

remedy imposed is tailored to “the violation found,” United

States v. Microsoft, 253 F.3d 34, 105 (D.C. Cir. 2001); the

voluminous findings detailing the contours of the scheme to

defraud are more than sufficient to allow this review, see, e.g.,

Philip Morris, 449 F. Supp. 2d at 852–67. Given that a mailing

or wire transmission need not itself be fraudulent, the remedy

needs to be tailored to the scheme to defraud, not the specific

use of the mail or wires.

For similar reasons, we need not resolve Defendants’

challenges to the racketeering acts involving denials of

marketing to youth. As the district court imposed no remedies

specifically relating to youth marketing, our assessment whether

the remedies are tailored to the violation found is unaffected by

the associated racketeering acts. The remaining racketeering

30

acts are fully sufficient to support the district court’s finding of

a pattern of racketeering activity as to each Defendant. Because

these challenges have no impact on the outcome of this appeal,

we decline to address them. The district court set forth findings

sufficient to allow our review of its verdict of liability and

imposition of sanction.

III. General Challenges to Fraud Liability

A. Specific Intent

The predicate acts of racketeering in this case were all acts

of mail or wire fraud, which require specific intent to defraud.

Post v. United States, 407 F.2d 319, 329 (D.C. Cir. 1968).

Defendants challenge the district court’s conclusion that they

acted with specific intent, arguing that the district court applied

an impermissible “collective intent” standard and that the

government did not present any evidence to support a finding of

specific intent under the correct formulation.

Corporations may be held liable for specific intent offenses

based on the “knowledge and intent” of their employees. N.Y.

Cent. & Hudson River R.R. Co. v. United States, 212 U.S. 481,

495 (1909); see United States v. A & P Trucking Co., 358 U.S.

121, 125 (1958). Because a corporation only acts and wills by

virtue of its employees, the proscribed corporate intent depends

on the wrongful intent of specific employees. See Saba v.

Compagnie Nationale Air France, 78 F.3d 664, 670 (D.C. Cir.

1996). Thus, to determine whether a corporation made a false

or misleading statement with specific intent to defraud, we look

to the state of mind of the individual corporate officers and

employees who made, ordered, or approved the statement.

Southland Sec. Corp. v. INSpire Ins. Solutions Inc., 365 F.3d

353, 366 (5th Cir. 2004).

31

A person’s state of mind is rarely susceptible of proof by

direct evidence, so specific intent to defraud may be, and most

often is, inferred from the totality of the circumstances,

including indirect and circumstantial evidence. United States v.

Alston, 609 F.2d 531, 538 (D.C. Cir. 1979); United States v.

Reid, 533 F.2d 1255, 1264 (D.C. Cir. 1976). We refer to this

inference when, in the common law fraud context, we say that

the factfinder “is permitted to impute knowledge of the falsity of

the statements to the accused, not as a matter of law but as a

consequence of inferences reasonably drawn from the facts

shown.” United States v. Avant, 275 F.2d 650, 653 (D.C. Cir.

1960).

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.

In the majority of instances, the authors of the fraudulent

statements alleged as Racketeering Acts were executives,

including high level scientists—CEOs, Vice Presidents,

32

Heads of Research & Development, not entry level

employees—at each of the Defendant companies who

would reasonably be expected to have knowledge of the

company’s internal research, public positions, and long

term strategies.

Id. at 897. The court reasoned:

[I]t is absurd to believe that the highly-ranked

representatives and agents of these corporations and entities

had no knowledge that their public statements were false

and fraudulent. The Findings of Fact are replete with

examples of C.E.O.s, Vice-Presidents, and Directors of

Research and Development, as well as the Defendants’

lawyers, making statements which were inconsistent with

the internal knowledge and practice of the corporation

itself.

Id. at 853. The district court did not commit legal error by

imputing to Defendants’ executives knowledge of the falsity of

their statements based on inferences reasonably drawn from the

facts shown, and sufficient evidence supported these inferences.

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

33

light cigarettes do not present lower health risks than regular

cigarettes due to smoker compensation, and that secondhand

smoke is hazardous to health. Dr. William Farone, a scientist

who worked at Philip Morris for eighteen years and whom the

district court found to be “impressive and credible as both a fact

and expert witness,” id. at 186, testified about the understanding

within Philip Morris on the question of whether cigarette

smoking is a cause of lung cancer and other diseases:

There was widespread acceptance that smoking caused

disease. I never talked with a scientist at Philip Morris who

said that smoking doesn’t cause disease. [This was based

on the] compelling epidemiology such as that recounted in

the Surgeon’s [sic] General’s reports, and our knowledge

about the chemicals that were created by cigarettes and

what was delivered to the smoker, hundreds of times per

day on average.

Id. at 187 (quoting Farone testimony). When asked whether, in

his discussions with Philip Morris executives, any of them

challenged the validity of the scientific evidence that smoking

causes disease, Farone answered,

No. Their comments generally focused on how the

company could or should respond, not to whether the

scientific evidence was valid. Remember, a main reason

why they hired me in 1976 was to help develop a less

hazardous cigarette. It seemed to me at the time I was

hired, and certainly was the case during my entire time

there, that hiring me for that job was itself implicit

recognition that the cigarettes that were out there being sold

were causing disease.

Id. (quoting Farone testimony).

34

The Defendant corporations documented the results of the

studies regarding disease, nicotine addiction, and smoker

compensation in numerous memoranda and reports; the evidence

at trial, including internal corporate documents, demonstrated

that the executives crafted their corporate priorities and

strategies in response to these findings. See, e.g., id. at 165, 180,

218, 219, 232, 240, 258–59, 270, 336, 720. Defendants’ own

documents also support the inference that Defendants’

executives were aware that their public relations strategy of

creating the impression of an “open question” about the link

between smoking and disease did not square with their own

knowledge about the established link between the two. For

example, William Kloepfer, Vice President of Public Relations

for the Tobacco Institute, wrote to Earle Clements, President of

the Tobacco Institute, admitting that “[o]ur basic position in the

cigarette controversy is subject to the charge, and may be

subject to a finding, that we are making false or misleading

statements to promote the sale of cigarettes.” Id. at 855. Other

documents demonstrate that Defendants’ top officials were

directly informed of negative research results. For example, in

1977 Philip Morris Assistant General Counsel Alexander

Holtzman sent a “warning” to the company’s President, Joseph

Cullman, informing him that a research project jointly sponsored

by a group of the Defendant companies had concluded that

exposure to cigarette smoke causes emphysema. Id. at 183.

The government presented similar evidence regarding the

other aspects of Defendants’ scheme, such as addiction and

nicotine. A few examples cannot adequately present the

volumes of evidence underlying the district court’s findings of

fact, but the following provide a fair sample: A 1991 Reynolds

Research and Development report acknowledged that “[w]e are

basically in the nicotine business.” Id. at 237. Dr. Farone

testified that during his time at Philip Morris there was

“widespread acceptance internally throughout the

35

company—among executives, scientists, and marketing people”

that nicotine was primarily responsible for addiction to smoking.

Id. at 858. Indeed, the district court found that “internal

documents and testimony from former company employees

affirmed that within their corporate walls, Defendants openly

recognized the addictiveness of cigarettes.” Id. Regarding light

cigarettes, internal research reports and memoranda at the

Defendant companies revealed that they understood the

phenomena of smoker compensation and studied how to

manipulate it in order to make their light brands appealing to

addicted smokers while continuing to be able to advertise the

brands as low tar. For example, a 1978 BATCo memorandum

about that company’s internal research acknowledged that “a

majority of habitual smokers compensate for changed delivery”

and explained that if smokers “choose [a] lower delivery brand

. . . than their usual brand” they “will in fact increase the

amounts of tar and gas phase that they take in, in order to take

in the same amount of nicotine.” Id. at 861. Dr. Farone testified

that Defendants’ superior knowledge of compensation

(compared to that of scientists outside the industry, including the

government) was closely held within Philip Morris and the

tobacco industry and there was an “effort on the part of [his] co-

workers at Philip Morris, including [his] supervisors, to restrict

any public acknowledgment on the part of Philip Morris of the

phenomena of compensation.” Id.

As these examples and hundreds more findings in the

district court’s opinion demonstrate, the court had before it

sufficient evidence from which to conclude that Defendants’

executives, who directed the activities of the Defendant

corporations and their joint entities, knew about the negative

health consequences of smoking, the addictiveness and

manipulation of nicotine, the harmfulness of secondhand smoke,

and the concept of smoker compensation, which makes light

cigarettes no less harmful than regular cigarettes and possibly

36

more. The government presented evidence indicating that

specific high-ranking corporate officials were directly informed

about these matters, as well as evidence of pervasive knowledge

and acceptance of these propositions throughout the Defendant

organizations. The overwhelming indirect and circumstantial

evidence was sufficient to allow the district court to reasonably

infer that the high level executives, including “CEOs, Vice

Presidents, [and] Heads of Research & Development” for

Defendants knew about their respective companies’ “internal

research, public positions, and long term strategies,” id. at 897,

that is, the “internal knowledge and practice” of the company,

id. at 853. These executives then made, caused to be made, and

approved public statements contrary to this knowledge. See,

e.g., id. at 190 (Philip Morris Vice President and General

Counsel declaring “[n]obody has yet been able to find any

ingredient as found in tobacco or smoke that causes human

disease”); id. at 166, 201 (28 years after Reynolds scientists

declared the presence of carcinogenic compounds in cigarettes

was “now well established,” a Reynolds press release and

newspaper advertisement declared the connection between

smoking and disease “an open controversy”); id. at 772 (TI

published booklet declaring that secondhand smoke had not

been shown to be a health hazard to nonsmokers); id. at 796

(Lorillard general counsel testified at trial that the company’s

public position has always been and continues to be that

secondhand smoke is not a proven health hazard); id. at 273

(President and CEO of Philip Morris quoted in TIME magazine

from deposition testimony claiming that cigarettes are not

addictive unless a similar attachment to Gummi Bears is an

addiction); id. at 285 (TI’s Vice President for Public Affairs on

television programs flatly denying that nicotine is addictive,

stating the attachment is like being a “news junkie” or

“chocoholic”).

37

Specific intent to defraud may be inferred where, as here,

there is a pattern of corporate research revealing a particular

proposition, for example, that smoking is addictive; an ensuing

pattern of memoranda within the corporation acknowledging

that smoking is addictive, even though the memoranda may or

may not have gone directly to the executive who makes the

contrary statement; and the corporate CEO or other official of

high corporate status then makes a public statement stating that

smoking is not addictive, contrary to the knowledge within the

corporation. Based on this sort of evidence and the inferences

reasonably drawn from it, a factfinder could permissibly infer

that the speaker harbored specific intent to defraud at the time he

or she made the false or misleading statement. Moreover, such

pervasive knowledge throughout the organizations demonstrates

that Defendants’ executives at least acted with reckless disregard

for the truth or falsity of their statements. As the district court

correctly held, such reckless disregard suffices to demonstrate

the requisite intent. Id. at 897. The law then imputes this

specific intent to the corporation.

Defendants argue that, even if the previous discussion

presents a correct statement of the law, it is not the standard that

the district court applied here. Rather, Defendants assert that the

district court relied on an impermissible “collective intent”

theory to find specific intent based on public statements

contradicting the “collective knowledge” of the Defendant

corporations without finding that any employee harbored

specific intent to defraud. Like Defendants and other courts, we

are dubious of the legal soundness of the “collective intent”

theory. Saba, 78 F.3d at 670 n.6 (“corporate knowledge of

certain facts [can be] accumulated from the knowledge of

various individuals, but the proscribed intent (willfulness)

depend[s] on the wrongful intent of specific employees”); see,

e.g., Southland Sec. Corp., 365 F.3d at 366; Nordstrom, Inc. v.

Chubb & Son, Inc., 54 F.3d 1424, 1435 (9th Cir. 1995); United

38

States v. Bank of New Eng., N.A., 821 F.2d 844, 855 (1st Cir.

1987); Woodmont, Inc. v. Daniels, 274 F.2d 132, 137 (10th Cir.

1960); First Equity Corp. v. Standard & Poor’s Corp., 690 F.

Supp. 256, 260 (S.D.N.Y. 1988). We need not pass on the

merits of such a standard here, however, because the district

court relied on a permissible view of specific intent. Although

at times the court articulated a “collective intent” standard, see

Philip Morris, 449 F. Supp. 2d at 895–97, it also based its

holding on a proper view of specific intent, see id. at 853, 897,

and we are satisfied that the court’s conclusions based on the

proper standard are sufficient to uphold its judgment.

B. Materiality

In their next general challenge to fraud liability, Defendants

argue that their false and misleading statements about the health

effects of smoking cannot, as a legal matter, be fraudulent

because their statements were not material. This argument is

based on a flawed understanding of the materiality requirement.

In order for a false or misleading statement to qualify as

mail or wire fraud, it “must concern a material or important fact

or matter.” United States v. Winstead, 74 F.3d 1313, 1320 (D.C.

Cir. 1996). This materiality requirement is met if the matter at

issue is “of importance to a reasonable person in making a

decision about a particular matter or transaction.” Id.

Materiality does not require proof that any specific person (or

number of people) purchased cigarettes as a result of the false

statements. Nor does it require Defendants’ false statements to

be the cause, reason, or sufficient condition of any person’s

decision to purchase cigarettes. Moreover, no subjective

evidence regarding any particular person is required; the test is

only whether a reasonable person would consider the matter to

be of importance regarding the transaction.

39

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.

Defendants further argue that, because the scientific

community had reached a consensus regarding the severely

adverse health consequences of smoking, their statements to the

contrary would not be believed. See Defs. Br. 98 (arguing that

“the public was aware of smoking’s adverse health

consequences and thus any inconsistent assertion by defendants

could not be material to a reasonable person”). The question,

40

however, is not whether a reasonable person would have

believed Defendants’ false statements, but only whether a

reasonable person would have considered the issue “of

importance,” and the issues considered by the district court

clearly met the materiality threshold.

C. First Amendment

In their final general challenge to fraud liability, Defendants

claim at least a portion of their statements qualify as protected

activity under the First Amendment. Of course, it is well settled

that the First Amendment does not protect fraud. See McIntyre

v. Ohio Elections Comm’n, 514 U.S. 334, 357 (1995) (stating

that the government “may, and does, punish fraud directly”).

Recognizing this fact, Defendants argue their statements were

not fraudulent, but those arguments are discussed and rejected

elsewhere in this opinion. See supra Part III.A–B; infra Part IV.

Defendants next claim protection under the Noerr-

Pennington doctrine—a doctrine, rooted in the Petition Clause

of the First Amendment, that protects “an attempt to persuade

the legislature or the executive to take particular action with

respect to a law . . . .” E. R.R. Presidents Conference v. Noerr

Motor Freight, Inc., 365 U.S. 127, 136 (1961). The protection

does not “cover activity that was not genuinely intended to

influence government action.” Allied Tube & Conduit Corp. v.

Indian Head, 486 U.S. 492, 508 n.10 (1998).

Defendants’ attempt to invoke Noerr-Pennington as

protection fails because the doctrine does not protect

deliberately false or misleading statements. “[N]either the

Noerr-Pennington doctrine nor the First Amendment more

generally protects petitions predicated on fraud or deliberate

misrepresentation.” Edmondson & Gallagher v. Alban Towers

Tenants Ass’n, 48 F.3d 1260, 1267 (D.C. Cir. 1995) (describing

41

the holding in Whelan v. Abell, 48 F.3d 1247 (D.C. Cir. 1995));

see also McDonald v. Smith, 472 U.S. 479, 485 (1985) (finding

the Petition Clause does not have “special First Amendment

status” and that petitions are not entitled to “greater

constitutional protection” than “other First Amendment

expressions”); Whelan, 48 F.3d at 1255 (“However broad the

First Amendment right to petition may be, it cannot be stretched

to cover petitions based on known falsehoods.”). The district

court’s valid findings of fraud in this case take Defendants’

statements out of the Noerr-Pennington context because they

were clearly and deliberately false. The district court provided

countless examples of deliberately false statements by

Defendants: “Cigarette smoking causes disease, suffering, and

death. Despite internal recognition of this fact, Defendants have

publicly denied, distorted, and minimized the hazards of

smoking for decades,” Philip Morris, 449 F. Supp. 2d at 146;

“Defendants have researched and recognized, decades before the

scientific community did, that nicotine is an addictive drug . . .

. Notwithstanding the understanding and acceptance of each

Defendant that smoking and nicotine are addictive, Defendants

have publicly denied and distorted the truth as to the addictive

nature of their products for several decades,” id. at 208–09;

“Defendants have designed their cigarettes to precisely control

nicotine delivery levels and provide doses of nicotine sufficient

to create and sustain addiction. At the same time, Defendants

have concealed much of their nicotine-related research, and have

continuously and vigorously denied their efforts to control

nicotine levels and delivery,” id. at 309; “Defendants have

known for decades that filtered and low tar cigarettes do not

offer a meaningful reduction of risk, and that their marketing

which emphasized reductions in tar and nicotine was false and

misleading,” id. at 860; “Despite their internal acknowledgment

of the hazards of secondhand smoke, Defendants have

fraudulently denied that [secondhand smoke] causes disease,” id.

at 864.

42

Were these statements false, but not deliberately so,

Defendants would have a better argument. But Defendants

knew of their falsity at the time and made the statements with

the intent to deceive. Thus, we are not dealing with accidental

falsehoods, or sincere attempts to persuade; Defendants’ liability

rests on deceits perpetrated with knowledge of their falsity.

Where statements are deliberately false or misleading, Noerr-

Pennington does not apply. See Alban Towers, 48 F.3d at 1267.

Indeed, if Defendants’ statements had not been made with

fraudulent intent, there would be no basis for RICO liability in

the first place.

The district court found six alleged acts protected by Noerr-

Pennington and based its holding on the remaining racketeering

activity. Philip Morris, 449 F. Supp. 2d at 887. All six

excluded acts were instances of testimony to Congress and,

given the wealth of unprotected racketeering acts, we need not

reach the question whether the district court correctly excluded

these acts. The remaining acts were intended to defraud

consumers, so Noerr-Pennington protection does not apply.

IV. Specific Challenges to Fraud Liability

A. “Light” Cigarettes

The first specific fraud finding Defendants challenge relates

to their marketing of “light” cigarettes. The district court found:

“As their internal documents reveal, Defendants engaged in

massive, sustained, and highly sophisticated marketing and

promotional campaigns to portray their light brands as less

harmful than regular cigarettes.” Philip Morris, 449 F. Supp. 2d

at 860. The court concluded “Defendants have known for

decades that filtered and low tar cigarettes do not offer a

meaningful reduction of risk, and that their marketing which

emphasized reductions in tar and nicotine was false and

43

misleading.” Id.

Defendants contend they should be immune from liability

because the Federal Trade Commission (“FTC”) has blessed

their use of labels such as “light” and “low tar.” This argument

is entirely foreclosed by the Supreme Court’s recent decision in

Altria v. Good, 129 S. Ct. 538 (2008), concluding the FTC has

never condoned the use of “light” or “low tar” descriptors. Id.

at 550. Defendants point to a 1966 industry guidance letter from

the FTC stating that “a factual statement of the tar and nicotine

content (expressed in milligrams) of the mainstream smoke from

a cigarette,” as measured by the Cambridge Filter Method, was

permissible under the FTC Act. Id. at 549. The “Commission

made clear, however, that the guidance applied only to factual

assertions of tar and nicotine yields and did not invite any

‘collateral representations . . . made, expressly or by implication,

as to reduction or elimination of health hazards.’” Id.

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.

It is also worth noting that the district court in this case did

not find liability solely based on the use of descriptors such as

44

“light” and “low tar.” The court found Defendants orchestrated

“highly sophisticated marketing and promotional campaigns to

portray their light brands as less harmful than regular

cigarettes.” Philip Morris, 449 F. Supp. 2d at 860. In addition

to the misleading use of descriptors, the district court found

“[Defendants’] public statements are blatantly false” in relation

to the marketing of “light” cigarettes. Id. at 861. The district

court went on to find that “[a]s part of the Enterprise’s scheme

to defraud smokers, Defendants withheld and suppressed their

extensive knowledge and understanding of nicotine-driven

smoker compensation.” Id. These findings reveal that

fraudulent activity surrounding “light” cigarettes was not merely

limited to the use of misleading descriptors. In addition to the

fact that the descriptors were not authorized by the FTC, the

district court relied on other fraudulent activity by Defendants.

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

45

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.

Finally, Defendants argue their descriptors were simply

verbal representations of numerical ratings authorized by the

FTC, and thus were literally true. Even leaving aside the fact

that literally true statements may nevertheless constitute fraud,

this claim founders on the district court’s finding that “there are

lights of certain brands with higher tar levels than regulars of

other brands from the same company, and there are also lights

and regulars of the same brands that have the same FTC tar

rating.” Id. at 861. This finding, which Defendants do not

attempt to show is clearly erroneous, reveals the descriptors

were not simply representations of numerical ratings and thus

were not “literally true.”

B. Secondhand Smoke

We turn next to Defendants’ claim that the district court

erred in finding that they fraudulently denied the adverse health

effects of secondhand smoke. Federal Rule of Civil Procedure

52 obliges us to uphold the district court’s findings of fact unless

they are “clearly erroneous.” FED. R. CIV. P. 52(a)(6). Under

this highly deferential standard, we may disturb the district

court’s findings only if we are “left with the definite and firm

conviction that a mistake has been committed.” E.g., Boca

Investerings P’ship v. United States, 314 F.3d 625, 630 (D.C.

Cir. 2003) (quotation marks omitted). This is so even if we

“would have decided the case differently,” as “[w]here there are

two permissible views of the evidence, the factfinder’s choice

between them cannot be clearly erroneous.” Anderson, 470 U.S.

at 574.

46

Defendants contend that their statements disputing the

health hazards of secondhand smoke were merely good-faith

expressions of opinion. But the district court found to the

contrary—that Defendants’ representations were fraudulent and

not in good faith. Philip Morris, 449 F. Supp. 2d at 853,

864–65. Under Rule 52, then, the question for us is whether this

finding was clearly erroneous.

The district court criticized Defendants’ statements

regarding secondhand smoke as contrary to the scientific

consensus. Defendants object, emphasizing that the district

court found no scientific consensus emerged until the issuance

of the Surgeon General’s 1986 report determining secondhand

smoke to be hazardous. Moreover, they point to evidence of

selected post-1986 scientific opinions casting doubt on the

dangers of secondhand smoke, arguing that even then they

possessed some basis for disputing the consensus.

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

47

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.

Although Defendants insist they had no knowledge of the

misleading character of their public statements, they nowhere

challenge the accuracy of these or any of the district court’s

other findings suggestive of their knowledge. Instead, they

argue that such findings reveal only facts that were known to the

public and that had not, at the time, given rise to a scientific

consensus. Again Defendants miss the point. The question is

not whether other individuals knew that Defendants’ claims

were false or misleading; the question is whether Defendants

did. Regardless of whether a scientific consensus existed at any

point, Defendants may be liable for fraud if they made

statements knowing they were false or misleading. Based on

voluminous evidence, including that summarized above, the

district court circumstantially inferred that Defendants did in

fact possess such fraudulent intent. Given these unchallenged

findings, we have no basis for saying that the district court

48

clearly erred in drawing that conclusion.

C. Addiction

Defendants also claim that the district court clearly erred in

finding their representations disputing the addictiveness of

cigarettes to be intentionally misleading. We analyze the district

court’s factual finding as to the misleading character of

Defendants’ commercial statements for clear error. E.g., FTC

v. Brown & Williamson Tobacco Corp., 778 F.2d 35, 41–42 &

n.3 (D.C. Cir. 1985). We find none.

Defendants claim that their statements regarding addiction

were not intentionally misleading because the term “addiction”

is ambiguous. Pointing to the district court’s findings that the

meaning of the term “addiction” in the scientific community

changed over time, Defendants insist that their statements

merely clung to the earlier, narrower, definitions of the term, and

claim that the district court erroneously converted a semantic

dispute into a fraud case. But the district court did not find only

that Defendants insisted on retaining an earlier definition of

addiction. It found that they did so as part of a concerted effort

to misrepresent the difficulty of quitting smoking. Philip

Morris, 449 F. Supp. 2d at 208–09, 308, 857–59. Defendants

fail to demonstrate that this finding was clearly erroneous.

To begin with, Defendants never challenge the district

court’s findings documenting the impact of nicotine on the body

and, more importantly, Defendants’ understanding of its effects.

Id. at 209–11, 216–71. As early as 1963, Brown &

Williamson’s general counsel wrote a confidential memorandum

stating: “We are, then, in the business of selling nicotine, an

addictive drug effective in the release of stress mechanisms.”

Id. at 259 (quotation marks omitted). Further, the district court

found that Defendants were aware that cigarette dependence was

49

stronger than mere habit formation. In 1974, a Philip Morris

scientist told the company’s president that it was “simply not an

adequate explanation to say that smoking is a habit, or that it is

social behavior.” Id. at 223 (quotation marks omitted). In 1981,

a Philip Morris executive wrote in an article: “Cigarettes are not

just habit forming—the body builds up a requirement for them.”

Id. at 228 (quotation marks omitted). Although several industry

attorneys expressed dismay at the publication of the article, none

disagreed with it. Id. In 1985, Philip Morris’s top management

was informed that research showed that “the majority of

smokers wished they did not smoke.” Id. at 229 (quotation

marks omitted). These and numerous other findings—all

unchallenged—support the district court’s conclusion that

Defendants were aware that nicotine creates a chemical

dependency far stronger than a mere habit.

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

50

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. See, e.g., Emery v. Am. Gen. Fin., Inc.,

71 F.3d 1343, 1348 (7th Cir. 1995) (“A half truth, or what is

usually the same thing a misleading omission, is actionable as

fraud, including mail fraud if the mails are used to further it, if

it is intended to induce a false belief and resulting action to the

advantage of the misleader and the disadvantage of the

misled.”). The district court concluded that Defendants’

statements regarding addiction were misleading in this way, and

given the above unchallenged factual findings we are not “left

with the definite and firm conviction that a mistake has been

committed.” Boca Investerings, 314 F.3d at 630.

D. Altria

In addition to the challenges to fraud liability raised by all

Defendants, two Defendants—Altria and BATCo—make a

number of arguments specific to them. We begin with

Defendant Altria, the holding company owner of Defendant

Philip Morris, which raises several challenges to the district

court’s finding of liability.

51

As an initial matter, Altria claims that the district court

erred in finding that it used the mails in five of the nine

predicate acts it allegedly committed directly. The district court

specifically found, based on Defendants’ routine mailing

practices, that at least two of those five predicate acts were

committed through use of the mails. See Philip Morris, 449 F.

Supp. 2d at 884 (Racketeering Acts 69, 80). We need not decide

whether this circumstantial inference amounted to clear error, as

the other four predicate acts the district court found Altria

committed are themselves sufficient to constitute a pattern of

racketeering activity. See id. (Racketeering Acts 71–72, 74–75).

Altria’s central argument is that mailings sent by lawyers

could not possibly be mailings in furtherance of a scheme or

artifice to defraud, citing several out-of-circuit cases largely

standing for the proposition that ordinary litigation mailings

containing false matter typically do not themselves constitute a

scheme or artifice to defraud. See United States v. Pendergraft,

297 F.3d 1198, 1209 (11th Cir. 2002); Nolan v. Galaxy

Scientific Corp., 269 F. Supp. 2d 635, 643 (E.D. Pa. 2003);

Morin v. Trupin, 711 F. Supp. 97, 105–06 (S.D.N.Y. 1989);

Paul S. Mullin & Assocs., Inc. v. Bassett, 632 F. Supp. 532, 540

(D. Del. 1986); Spiegel v. Cont’l Ill. Nat’l Bank, 609 F. Supp.

1083, 1088–90 (N.D. Ill. 1985). Whatever the merit of that

proposition, it has nothing to do with the question before us.

Altria makes a very different claim—that mailings sent in

furtherance of a separately-proven scheme to defraud somehow

fall outside the mail fraud statute’s coverage because they are

drafted and physically sent by lawyers who themselves have no

fraudulent intent. This claim is without merit. Nothing in the

mail fraud statute requires a mailing to be fraudulent at all, as

long as the mailing is in furtherance of a fraudulent scheme. See

18 U.S.C. § 1341 (specifying that the mailing can be “any matter

or thing whatever to be sent or delivered” as long as it is in

furtherance of “any scheme or artifice to defraud”). Moreover,

52

the statute looks to the intent of the individual who caused the

mailing, not the individual who drafted or physically mailed it.

See United States v. Diggs, 613 F.2d 988, 998 (D.C. Cir. 1979)

(“[A] defendant ‘causes’ the use of the mails where he does an

act with knowledge that the use of the mails will follow in the

ordinary course of business, or where such use can reasonably

be foreseen, even though not actually intended.” (quotation

marks omitted)). Given that the district court permissibly

inferred the corporate Defendants’ intent from the intent of

numerous high-level executives, Philip Morris, 449 F. Supp. 2d

at 897, and given that it found that Defendants “caused” the

mailings in order to further the scheme to defraud, id. at 881, the

fact that attorneys participated in the actual drafting and mailing

provides no immunity. Thus, we conclude that the district court

properly found Altria liable for its direct participation in the

conduct of the affairs of the enterprise, leaving it unnecessary

for us to consider Altria’s objections to the findings that it

participated through its control of Philip Morris.

Finally, Altria claims that the district court clearly erred in

finding that the company joined a RICO conspiracy. We

disagree. The district court’s findings of fact regarding Altria’s

actions in furtherance of the goals of the enterprise, both directly

and through Philip Morris, see id. at 907–08, as well as the

voluminous findings of concerted action and explicit agreement

by Defendants, amply support the circumstantial inference that

Altria conspired with the other Defendants to violate RICO.

See, e.g., United States v. Mellen, 393 F.3d 175, 191 (D.C. Cir.

2004) (“[A] conspiracy can be inferred from a combination of

close relationships or knowing presence and other supporting

circumstantial evidence.” (quotation marks omitted)).

E. BATCo

Defendant BATCo claims that the district court erred in

53

imposing liability on the basis of its conduct outside the United

States. Noting that the district court found that its “activities and

statements took place outside of the United States,” Philip

Morris, 449 F. Supp. 2d at 873, BATCo claims that it enjoys

immunity from RICO liability because the statute has no

extraterritorial reach. We need not decide today whether RICO

has true extraterritorial reach—that is, whether it could reach

foreign conduct with no impact on the United States—because

the district court found BATCo liable on the theory that its

conduct had substantial domestic effects. Id. Because conduct

with substantial domestic effects implicates a state’s legitimate

interest in protecting its citizens within its borders, Congress’s

regulation of foreign conduct meeting this “effects” test is “not

an extraterritorial assertion of jurisdiction.” Laker Airways Ltd.

v. Sabena, Belgian World Airlines, 731 F.2d 909, 923 (D.C. Cir.

1984). Thus, when a statute is applied to conduct meeting the

effects test, the presumption against extraterritoriality does not

apply. See Envtl. Def. Fund, Inc. v. Massey, 986 F.2d 528, 531

(D.C. Cir. 1993) (noting that “the presumption [against

extraterritoriality] is generally not applied where the failure to

extend the scope of the statute to a foreign setting will result in

adverse effects within the United States,” citing Laker Airways).

BATCo argues that the effects test is inapplicable because

the United States had no obligation to prove that Defendants’

conduct had any effects whatsoever. Although BATCo

attributes this to the fact that 18 U.S.C. § 1964(a) does not

require the government to prove that it has been injured, we

think it better explained by the fact that the mail and wire fraud

statutes punish “the scheme, not its success.” Pasquantino v.

United States, 544 U.S. 349, 371 (2005). That said, BATCo’s

point has nothing to do with the case at hand. Here the district

court found that BATCo’s conduct “had substantial direct

effects on the United States.” Philip Morris, 449 F. Supp. 2d at

873. The fact that some other defendant might commit some

54

other offense without effects in the United States hardly renders

BATCo immune from liability for the domestic effects it did

cause. Someone who fires a rifle from Canada into the United

States and wounds his victim can plainly be convicted of

attempted murder. See Laker Airways, 731 F.2d at 922

(“[W]hen a malefactor in State A shoots a victim across the

border in State B, State B can proscribe the harmful conduct.”).

This is so even though in general the government may prove

attempted murder without establishing that the attempt had any

effect whatsoever. Similarly, the fact that effects are not

elements of mail and wire fraud offenses or associated RICO

violations provides no immunity to those, like BATCo, whose

fraud and racketeering has substantial and direct domestic

effects.

Thus, we need decide only whether the district court erred

in applying the effects test—which asks whether conduct has a

substantial, direct, and foreseeable effect within the United

States, see Consol. Gold Fields PLC v. Minorco, S.A., 871 F.2d

252, 261–62 (2d Cir. 1989) (describing substantial effect as

direct and foreseeable)—to the facts of this case. We see no

error. The district court found that as part of the overall scheme

to defraud, BATCo conducted sensitive nicotine research for

Brown & Williamson abroad and secretly shared the results with

Brown & Williamson in the United States. Philip Morris, 449

F. Supp. 2d at 298–304. It further found that BATCo, in concert

with other Defendants, founded, funded, and actively

participated in various international organizations, which

Defendants themselves saw as instrumental to their efforts to

perpetuate what the district court found to be their fraudulent

scheme in the United States. See id. at 119–23. In one example,

TI admitted that “the back-wash from events and attacks

affecting the industry in smaller countries comes back

powerfully to the USA,” id. at 140 (quotation marks omitted),

and praised INFOTAB, an international organization of which

55

BATCo was a founding member, id. at 132, for “help[ing] the

industry to unite in trying to combat the attacks,” id. at 140

(quotation marks omitted). Notwithstanding BATCo’s demands

for a nearly unattainable level of specificity, these unchallenged

findings, together with the findings of the tremendous domestic

effects of the fraud scheme generally, see, e.g., id. at 209,

307–08, make clear that the district court committed no error in

finding that BATCo’s participation had substantial, direct, and

foreseeable effects in the United States. Cf. Laker Airways, 731

F.2d at 925–26 (finding allegations that the anticompetitive

elimination of a foreign airline increased domestic air fares

adequate to support antitrust action without demanding further

specificity).

V. Challenges to Likelihood of Future Violations

Having found Defendants’ challenges to liability

unavailing, we move on to the district court’s determination that

they are likely to commit future RICO violations if not enjoined.

All Defendants challenge this finding on a number of common

bases, and four Defendants—Altria, BWH, CTR, and TI—also

bring separate challenges to the court’s findings regarding them.

We address each in turn.

A. Likelihood of Future Violations

Section 1964(a) grants district courts jurisdiction “to

prevent and restrain” RICO violations. 18 U.S.C. § 1964(a).

Hence, before a district court may order remedies under RICO

it must find the defendant exhibits a reasonable likelihood of

committing future violations of the Act. Disgorgement Opinion,

396 F.3d at 1198.

Here, the district court found a reasonable likelihood that

Defendants would commit future RICO violations. Philip

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Morris, 449 F. Supp. 2d at 908–15. Defendants attack this

finding, asserting: (1) the district court applied an erroneous

legal standard, (2) the Master Settlement Agreement (“MSA”)

makes future violations unlikely, and (3) Defendants’ business

practices and public positions alone preclude future violations.

We conclude the district court applied the correct legal standard

and its factual conclusions were not clearly erroneous.

In the mid-1990s, the attorneys general of several states

brought suit against the major tobacco companies for the

reimbursement of state costs associated with smoking. Five

Defendants, Philip Morris, Reynolds, Brown & Williamson,

Lorillard, and Liggett entered into a settlement agreement, the

MSA, with forty-six states and the District of Columbia. The

MSA prohibited, inter alia, youth marketing, any material

misrepresentations regarding the health consequences of tobacco

use, agreements between manufacturers to limit either

competition or the distribution of information about the health

effects associated with smoking, and other specific marketing

techniques (e.g., cartoon characters and billboards). The MSA

specifically required the dissolution of CTR, TI, and CIAR. The

National Association of Attorneys General and the individual

states’ attorneys general enforce the MSA, which requires

informal dispute resolution before any enforcement action

commences whenever possible.

To obtain equitable remedies, the government must

demonstrate a “reasonable likelihood of further violation[s] in

the future.” Savoy Indus., Inc., 587 F.2d at 1168 (quotation

marks omitted). Considered under the totality of the

circumstances, three factors determine whether a reasonable

likelihood exists: “whether a defendant’s violation was isolated

or part of a pattern, whether the violation was flagrant and

deliberate or merely technical in nature, and whether the

defendant’s business will present opportunities to violate the law

57

in the future.” SEC v. First City Fin. Corp., 890 F.2d 1215,

1228 (D.C. Cir. 1989). The district court applied this

standard—a standard both sides agree is appropriate. Philip

Morris, 449 F. Supp. 2d at 909; Defs. Br. 39–40; Gov. Br. 182.

Defendants quibble with two aspects of the district court’s

application. First, Defendants assert the district court could not

rely on “inferences drawn from past conduct alone” because the

MSA “already proscribes future violations” and “imposes a legal

barrier to the repetition of such conduct in the future.” Defs. Br.

40. This is an odd argument, suggesting a tort settlement

automatically limits the remedial options in a RICO suit.

Notably, the first two factors of the First City test focus entirely

on inferences arising from past conduct. 890 F.2d at 1228.

And, as the district court correctly found, “[t]he likelihood of

future wrongful acts is frequently established by inferences

drawn from past conduct.” United States v. Philip Morris USA,

316 F. Supp. 2d 6, 10 n.3 (D.D.C. 2004) (quotation marks

omitted); see also SEC v. Bilzerian, 29 F.3d 689, 695 (D.C. Cir.

1994) (inferring a likelihood of future violations based on the

nature of past conduct); SEC v. Gruenberg, 989 F.2d 977, 978

(8th Cir. 1993); First City, 890 F.2d at 1228–29. Defendants

attempt to bolster their position by claiming the MSA precludes

the need for injunctions by fully addressing their prior

misconduct. As discussed infra, future violations remain likely

notwithstanding the MSA. Therefore, Defendants’ argument

fails.

Also, Defendants deftly mischaracterize the district court’s

opinion. Based on a single footnote in the opinion’s section

discussing the MSA’s failure to alter Defendants’ conduct and

concluding remedies in this case were appropriate, Philip

Morris, 449 F. Supp. 2d at 913 n.82, Defendants accuse the trial

court of impermissibly “shift[ing] the burden to defendants to

prove that RICO violations will not occur in the future . . . under

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the ‘absolutely clear’ test.” Defs. Br. 42. Contrary to

Defendants’ fears, the district court obviously did not intend to

announce a new standard or alter the reigning standard via

footnote. The First City standard was carefully articulated at the

start of the discussion addressing future violations and

conscientiously applied. Philip Morris, 449 F. Supp. 2d at

908–09, 911–13. The footnote, regarding voluntary termination

of illegal conduct, appears much later in the opinion where the

court sought to emphasize the suspension of disbelief necessary

to agree with Defendants, noting the court must assume

“Defendants have complied with and will continue to comply

with the terms of the MSA, and that the MSA has adequate

enforcement mechanisms” in order to conclude “the MSA

obviates the need for injunctive relief.” Id. at 913 (quotation

marks omitted). This is a far cry from altering the legal

standard. Indeed, the district court found, under the correct

standard, that Defendants continued to commit violations even

after 1999, well after the execution of the MSA. Id. at 910–11.

Since the district court applied the standard enunciated in

Savoy and First City and gave appropriate weight to the

inferences drawn from Defendants’ past conduct, we uphold the

district court’s decision to order remedies.

The district court concluded the MSA “alone [could not]

remove the reasonable likelihood of Defendants’ future RICO

violations.” Id. Defendants contend the MSA effectively

prevents prospective RICO violations because it prohibits them

from participating in an “enterprise” or committing any

“predicate acts.” The district court, however, found Defendants

began to evade and at times even violate the MSA’s prohibitions

almost immediately after signing the agreement and,

consequently, concluded the MSA did not limit the court’s

ability to order “[a]ppropriate [r]emedies.” Id. The court’s

factual findings are not clearly erroneous.

59

Defendants assert the MSA prevents their participation in

a RICO enterprise because the organizations that allowed for

joint activity no longer exist, and neither the government nor the

district court identified any “joint activity” between Defendants

after 1998, the start of the MSA. Defendants’ post-agreement

activities belie these statements. For example, though the MSA

required Defendants to dissolve CIAR, only two days after

signing the MSA Lorillard’s general counsel wrote Philip

Morris, Reynolds, and Brown & Williamson asking to “discuss

the status of the plan to reinstate CIAR.” Id. at 798 (quotation

marks omitted). Shortly thereafter, Covington & Burling LLP

informed the CIAR contractors “[t]he members of CIAR have

decided to create a new organization to continue the work . . . .

The members of CIAR that will be members of the new

organization intend to continue to fund the research.” Gov. Ex.

75,412, at 2. Subsequently, in 2000, Philip Morris initiated a

new research program that had the same offices, phone numbers,

and board as CIAR and many of the same employees,

management, researchers, peer reviewers, and grantees. Philip

Morris, 449 F. Supp. 2d at 798–99.

CIAR is not the lone example of Defendants’ organizations

poised to circumvent the MSA’s prohibitions against joint

activities or participation in an enterprise. The district court

found, with the exception of CTR and TI, “all of the other

organizations either still exist or can be readily re-activated.”

Id. at 871. For example, even at the time of trial Defendants

continued to participate in the Center for Cooperation in

Scientific Research Relative to Tobacco (“CORESTA”), “a non-

profit making association with objectives to enhance the

scientific cooperation for research on tobacco” perceived as

“unique and very valuable” because it enjoys the perception of

“being objective, technical and independent.” Gov. Ex. 21,788,

at 1.

60

Defendants presume the MSA’s prohibition against joint

activity is effective. The record, however, demonstrates the

tobacco companies retain both the ability and the desire to

continue joint activities. Accordingly, the district court did not

commit clear error when it determined the MSA could not

effectively prevent Defendants’ participation in an enterprise.

Defendants next assert the MSA’s “scores of injunctions

and related prohibitions” prevent “repetition of the core

wrongdoing.” Defs. Br. 48. The district court determined the

MSA does not prevent Defendants’ commission of future

racketeering acts because: (1) Defendants have not fully

complied with the MSA, (2) the States could not be relied upon

“to vigorously enforce the MSA,” see Br. For Amici Curiae

States 7–11, (3) some provisions of the MSA have and will

expire, and (4) BATCo and Altria are not subject to the

agreement. Philip Morris, 449 F. Supp. 2d at 913–15.

As evidence of the MSA’s failures and pitfalls, the district

court noted that despite the MSA Defendants still fraudulently

denied the dangers of secondhand smoke, marketed “low tar”

cigarettes as a healthier alternative to quitting, and falsely denied

manipulating nicotine delivery and marketing to youth. Id. at

910. Defendants offer no rebuttal to these factual findings, but

instead argue “failure to comply with all the details or the

‘spirit’ of the MSA does not even begin to approach a RICO

violation.” Defs. Br. 50. Obviously. But as the district court

rightly recognized, Defendants cannot hide behind the MSA to

avoid the imposition of RICO remedies when they do not

comply with the agreement. Philip Morris, 449 F. Supp. 2d at

913. Therefore, the district court did not commit clear error

when it determined the MSA does not adequately prevent or

restrain Defendants’ future racketeering activities and did not

abuse its discretion by ordering equitable relief.

61

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.

B. Altria

Altria urges, based on its status as a holding company, no

factual basis exists for finding it would violate RICO in the

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future. According to the district court, though, despite Altria’s

holding company status it “effectively and actively controls the

activities of all of its subsidiaries, including Defendant Philip

Morris.” Philip Morris, 449 F. Supp. 2d at 203–04 n.12. The

record establishes that Altria management oversees subsidiary

policies and operations, id. at 907–08, and Altria does not

dispute its control over Philip Morris. Moreover, Altria itself

“participated directly” in the RICO enterprise and conspiracy.

Id. at 907. With direct culpability and this level of plenary

power over its subsidiaries, Altria clearly remains capable of

future RICO violations. Therefore, we uphold the district

court’s issuance of remedies against Altria.

C. BWH

BWH makes an argument similar to that of Altria. In 2004,

Brown & Williamson merged all domestic tobacco operations

with Reynolds and was reconstituted into Brown & Williamson

Holdings (“BWH”). The district court made no factual findings

specific to BWH. Rather, the district court focused throughout

its opinion on Brown & Williamson. Philip Morris, 449 F.

Supp. 2d at 31 n.4 (describing Brown & Williamson as “now

part of Reynolds American”). The entire rest of the opinion

refers to “Brown & Williamson” without any mention of the

reconstituted holding company.

Based on BWH’s status as a “passive holding company,”

BWH argues the district court erred in finding it is likely to

commit future RICO violations. As discussed in relation to

Altria, a company’s status as a holding company by itself does

not preclude RICO liability. Where a holding company, such as

Altria, participates directly in the original violations and retains

control over subsidiary tobacco operations, it remains capable of

repeating its misconduct.

63

BWH could not have participated in this RICO enterprise as

it did not then exist. Nonetheless, if it exercises plenary control

over the tobacco operations of its subsidiaries, then, like Altria,

it could commit later violations. Because the district court failed

to make any findings about the extent of BWH’s control over

tobacco operations, we cannot know the company’s current

capabilities. Therefore, we cannot determine whether a

reasonable likelihood exists that BWH will commit future RICO

violations. Accordingly, we remand this issue for further fact

finding and clarification.

D. Mootness as to CTR and TI

CTR and TI argue that the district court’s findings relating

to the likelihood they will commit future violations render the

case against them moot. We agree. The MSA demanded the

dissolution of both organizations. At the time of trial, CTR and

TI only existed to wind up their respective affairs. The district

court found “no reasonable likelihood of future violations” on

the part of TI or CTR and consequently ordered no remedies

against them. Philip Morris, 449 F. Supp. 2d at 915. The court

actually encouraged the government to reconsider proceeding

against these entities as they “seem to have no actual ability to

continue alleged past RICO violations.” Id. at 916 (quotation

marks omitted).

“Federal courts lack jurisdiction to decide moot cases

because their constitutional authority extends only to actual

cases or controversies.” Larsen v. U.S. Navy, 525 F.3d 1, 4

(D.C. Cir. 2008) (quotation marks omitted). A case is moot

when “the challenged conduct ceases such that there is no

reasonable expectation that the wrong will be repeated” in

circumstances where “it becomes impossible for the court to

grant any effectual relief whatever to the prevailing party.” City

of Erie v. Pap’s A.M., 529 U.S. 277, 287 (2000) (quotation

64

marks omitted). For both CTR and TI these requirements have

been met. The government nowhere disputes Defendants’ claim

that CTR and TI no longer exist. They cannot possibly commit

future RICO violations. Accordingly, we vacate the judgment

as to CTR and TI and remand with directions to dismiss.

VI. Challenges to Remedies

Finally, as to those Defendants the district court properly

found likely to commit future RICO violations, we address their

challenges to particular remedies the district court imposed. We

also address the cross-appeal seeking additional remedies the

district court denied.

A. Subsidiaries

First, Defendants object to the inclusion of their subsidiaries

among the persons bound by the remedial order. Rule 65 of the

Federal Rules of Civil Procedure indicates that an injunction

binds only the parties; their “officers, agents, servants,

employees, and attorneys”; and “other persons who are in active

concert or participation with” the aforementioned persons. FED.

R. CIV. P. 65(d)(2). The rule derives from the common law

doctrine that an injunction “not only binds the parties defendant

but also those identified with them in interest, in ‘privity’ with

them, represented by them or subject to their control”—any

person or entity through whom the defendants might carry out

enjoined activity and so nullify the order. Regal Knitwear Co.

v. NLRB, 324 U.S. 9, 14 (1945). A subsidiary corporation is in

privity with its parent “in respect to the common corporate

business” to the extent it is “so identified in interest with [the

parent] that [it] represents precisely the same legal right in

respect to the subject matter involved” in the injunction.

Jefferson Sch. of Soc. Sci. v. Subversive Activities Control Bd.,

331 F.2d 76, 83 (D.C. Cir. 1963).

65

The term “subsidiaries” in the remedial order cannot expand

the scope of the injunction beyond that defined by Rule 65(d);

however, subsidiaries of Defendants may be personally bound

by the order to the extent that they are agents of or in privity

with Defendants in the common corporate business of

manufacturing, designing, marketing, or selling cigarettes. (Like

any person with actual notice of the injunction, subsidiaries that

act in concert with Defendants to violate the order would also be

subject to contempt.) The record on appeal does not reveal facts

sufficient for us to evaluate over which subsidiaries, if any,

Defendants exercise sufficient control or with which they so

identify in interest regarding cigarettes that they would

legitimately fall within the purview of the injunction order. We

therefore vacate the order to the extent that it binds all

Defendants’ subsidiaries and remand to the district court for

proceedings to determine whether inclusion of Defendants’

subsidiaries, and which subsidiaries, satisfies Rule 65(d).

B. General Injunctions

The district court permanently enjoined Defendants “from

committing any act of racketeering, as defined in 18 U.S.C. §

1961(1), relating in any way to the manufacturing, marketing,

promotion, health consequences or sale of cigarettes in the

United States,” and from

making, or causing to be made in any way, any material

false, misleading, or deceptive statement or representation,

or engaging in any public relations or marketing endeavor

that is disseminated to the United States public and that

misrepresents or suppresses information concerning

cigarettes. Such material statements include, but are not

limited to, any matter that: (a) involves health, safety, or

other areas with which a reasonable consumer or potential

consumer of cigarettes would be concerned; (b) a

66

reasonable consumer or potential consumer would attach

importance to in determining whether to purchase or smoke

cigarettes; or (c) the Defendant, Covered Person or Entity

making the representation knows or has reason to know that

its recipient regards or is likely to regard as important in

determining whether to purchase cigarettes or to smoke

cigarettes, even if a reasonable person would not so regard

it.

Philip Morris, 449 F. Supp. 2d at 938. Defendants assert that,

“in the face of more than 1,600 pages of findings,” these

injunctions do not sufficiently specify the acts restrained, in

violation of Rule 65(d), due process, and the First Amendment.

Defs. Br. 137.

Rule 65(d) requires every order granting an injunction to

“state its terms specifically [and] describe in reasonable

detail—and not by referring to the complaint or other

document—the act or acts restrained or required.” FED. R. CIV.

P. 65(d)(1)(B)–(C). “The Rule was designed to prevent

uncertainty and confusion on the part of those faced with

injunctive orders.” Schmidt v. Lessard, 414 U.S. 473, 476

(1974). Because an injunction “prohibits conduct under threat

of judicial punishment, basic fairness requires that those

enjoined receive explicit notice of precisely what conduct is

outlawed.” Id. Under this standard, we have held injunctions to

be too vague when they enjoin all violations of a statute in the

abstract without any further specification, or when they include,

as a necessary descriptor of the forbidden conduct, an undefined

term that the circumstances of the case do not clarify. See Wash.

Inv. Network, 475 F.3d at 407 (order enjoined all future

violations of the applicable statutes, without clarifying the acts

restrained); Gulf Oil Corp. v. Brock, 778 F.2d 834, 843 (D.C.

Cir. 1985) (order enjoined “substantially similar” conduct

without further specification in a case that provided no examples

67

of what is “similar”); Common Cause v. NRC, 674 F.2d 921,

926–27 (D.C. Cir. 1982) (order enjoined conduct “similar in

nature” without further specification in a case that provided no

examples of what is “similar”); SEC v. Savoy Indus., Inc., 665

F.2d 1310, 1318–19 (D.C. Cir. 1981) (defendant enjoined not

“to engage in any act, practice or course of business which

operates or would operate as a fraud or deceit upon any

person”); see also Schmidt, 414 U.S. at 476 (enjoined “the

present Wisconsin scheme”). Even if it tracks statutory

language, a general injunction is not too vague if it relates the

enjoined violations to the context of the case. See Savoy Indus.,

Inc., 665 F.2d at 1316–17 (tracking language of the statute in

context of defendant’s relationship with issuers of securities).

Indeed, we must always apply the fair notice requirement “in the

light of the circumstances surrounding (the injunction’s) entry:

the relief sought by the moving party, the evidence produced at

the hearing on the injunction, and the mischief that the

injunction seeks to prevent.” Common Cause, 674 F.2d at 927

(quotation marks omitted).

The two injunctions at issue here sufficiently specify the

activities enjoined as to provide Defendants with fair notice of

the prohibited conduct. The district court did not abstractly

enjoin Defendants from violating RICO or making false

statements, but instead specified the matters about which

Defendants are to avoid making false statements or committing

racketeering acts: the manufacturing, marketing, promotion,

health consequences, and sale of cigarettes, along with related

issues that Defendants have reason to know are of concern to

cigarette consumers. This is not a generalized injunction to

obey the law, especially when read in the context of the district

court’s legal conclusions and 4,088 findings of fact about fraud

in the manufacture, promotion, and sale of cigarettes. These

injunctions may be broad, but breadth is warranted “to prevent

further violations where[, as here,] a proclivity for unlawful

68

conduct has been shown.” Savoy Indus. Inc., 665 F.2d at 1317

(quoting McComb v. Jacksonville Paper Co., 336 U.S. 187, 192

(1949) (holding that the “record of continuing and persistent

violations of the [statute] would indicate that that kind of a

[general] decree was wholly warranted in this case”)).

Defendants complain that the volume of findings in this case

actually make understanding the injunctions more difficult and

chill speech because some of the district court’s findings present

“express prohibitions” whereas others, like the use of white filter

paper for cigarettes, “simply reflect the district court’s

disapproval” of aspects of Defendants’ business practices

without finding the conduct fraudulent. Defs. Br. 137. This

objection answers itself, as the plain terms of the injunctions

prohibit only conduct that would constitute a racketeering act or

a “material false, misleading, or deceptive statement or

representation,” not all activities the court mentioned in its

findings.

C. Extraterritorial Effect

Paragraph four of the injunction prohibits the use of “any

express or implied health message or health descriptor for any

cigarette brand.” Philip Morris, 449 F. Supp. 2d at 938. The

government concedes that this prohibition “should not be read

to govern overseas activities with no domestic effect.” Gov. Br.

215–16. But because paragraph four contains no such limiting

language, see Philip Morris, 449 F. Supp. 2d at 938, we vacate

that provision and remand for the district court to reformulate it

so as to exempt foreign activities that have no substantial, direct,

and foreseeable domestic effects. See supra Part IV.E.

D. Corrective Statements

As part of the remedial order, the district court ordered

Defendants to disseminate “corrective statements” concerning

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the topics about which they had previously misled consumers.

The court will determine the precise content of the statements at

a future date after receiving proposals from the parties, but

ordered that they must address five topics: (1) the adverse

health effects of smoking; (2) the addictiveness of smoking and

nicotine; (3) the lack of any significant health benefit from

smoking light cigarettes; (4) the manufacturers’ manipulation of

cigarette design and composition to ensure optimum nicotine

delivery; and (5) the adverse health effects of exposure to

secondhand smoke. Philip Morris, 449 F. Supp. 2d at 938–39.

The remedial order sets out schedules for the manufacturer

Defendants to follow in disseminating the corrective statements

in cigarette package onserts, retail point-of-sale displays,

newspapers, television, and their company websites. Id. at

939–41. Defendants object to the corrective statements as a

whole on the grounds that they did not receive adequate notice

of and opportunity to respond to the government’s proposed

remedy and that the remedy extends beyond the court’s

jurisdiction under RICO. Regarding the specific means of

disseminating the statements, Defendants argue that cigarette

package onserts violate the Labeling Act, that the point-of-sale

displays are duplicative and impose severe burdens on retailers,

and that requiring Defendants to make corrective statements in

various media apart from existing advertising violates the First

Amendment.

Notice

Defendants argue that because the government did not

disclose its final corrective statements proposal until its post-

trial proposed remedial order, the district court denied

Defendants due process by ordering a version of that remedy

without providing Defendants adequate notice and an

opportunity to respond. Although Defendants purport to press

this objection in a general fashion “with respect to many other

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remedies imposed by the district court,” they state it with

sufficient specificity for our consideration only with regard to

corrective statements. Defs. Br. 135. The exact content of the

statements is yet to be determined and so is not before us at this

stage.

The sequence of events surrounding the remedies phase of

the trial did not deprive Defendants of the process they were

due. Defendants received the government’s proposed remedies,

including a general corrective statements proposal, two months

before the remedies phase of the trial began. They participated

in a fourteen-day, fully briefed remedies trial, at which thirteen

witnesses testified and were subject to cross-examination,

including at least one government witness who testified about

corrective statements. Philip Morris, 449 F. Supp. 2d at 923. In

its post-trial proposed remedial order, the government specified

the five categories of corrective statements (which correspond

to the subjects about which the district court found Defendants

committed fraud) and the details of its recommended publication

campaign. Defendants responded to the government’s proposed

order in their own post-trial brief and raised numerous legal

objections to the propriety of the corrective statements remedy,

which the district court considered and resolved in its final

opinion and order. See id. at 921–23. Defendants have not

demonstrated any prejudice from this sequence of events. In

their offer of proof to the district court they asserted only that if

they had known more “specifics” of the government’s proposed

remedy before the hearing, they would have retained, and might

have offered testimony from, one or more experts addressing the

proposal. See Defs. Offer of Proof at 9–10. Even on appeal,

Defendants suggest no testimony they would have offered, no

lines of cross-examination inquiry they would have pursued, and

no factual dispute they would have addressed.

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This case bears no resemblance to United States v.

Microsoft Corp., 253 F.3d 34 (2001), as Defendants attempt to

suggest. In Microsoft, the district court ordered the break-up

and restructuring of Microsoft into two companies without

holding any evidentiary hearing to resolve the numerous

disputed fact questions surrounding the remedy. Id. at 101–02.

Microsoft submitted two offers of proof identifying serious

unresolved issues of fact and included 53 pages of submissions

specifying the evidence it would introduce to challenge the

government’s representations. Id. at 103. Microsoft gives us no

reason to believe Defendants in this case—who enjoyed pre-trial

notice and a lengthy remedies trial, and have shown no

prejudice—suffered a denial of due process.

Section 1964

A district court that finds a defendant civilly liable for

violating RICO has jurisdiction “to prevent and restrain

violations of [RICO] by issuing appropriate orders . . . .” 18

U.S.C. § 1964(a). Congress limited relief under section 1964(a)

to forward-looking remedies aimed at preventing and restraining

future RICO violations. Disgorgement Opinion, 396 F.3d at

1198, 1200. Earlier in this litigation, we held that the statute

does not authorize disgorgement because it is “both aimed at and

measured by past conduct”: “[i]t is measured by the amount of

prior unlawful gains and is awarded without respect to whether

the defendant will act unlawfully in the future.” Id. at 1198.

Defendants argue that corrective statements are similarly

“focused on remedying the effects of past conduct,” id., because

they seek to correct Defendants’ campaign of deceptive

marketing.

The government urges that the corrective statements are a

forward-looking remedy authorized under section 1964(a)

because future advertising that “may not contain any statements

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which are themselves false or deceptive” nevertheless inevitably

builds upon Defendants’ previous false statements and, if

uncorrected, “continues the deception, albeit implicitly rather

than explicitly,” rendering those advertisements “part of the

continuing deception of the public.” Warner-Lambert Co. v.

FTC, 562 F.2d 749, 769 (D.C. Cir. 1977); see Novartis Corp. v.

FTC, 223 F.3d 783, 787 (D.C. Cir. 2000). We do not doubt that

consumers may “continue to make purchasing decisions based

on the false belief” created by a manufacturer’s false advertising

even when that advertising ceases, Novartis Corp., 223 F.3d at

787 (quoting Warner-Lambert Co., 562 F.2d at 762), but it is

less clear whether, and in what circumstances, continuing

consumer confusion created by uncorrected but truthful

advertising would amount to a knowing fraud. Section 1964(a)

authorizes only remedies that prevent and restrain future RICO

violations, not all future effects of past RICO violations,

Disgorgement Opinion, 396 F.3d at 1198, or all future unseemly

business practices.

We need not consider this question, however, because as the

district court observed and the intervenors here argue, requiring

Defendants to issue corrective statements will “prevent and

restrain them from making fraudulent public statements on

smoking and health matters in the future.” Philip Morris, 449

F. Supp. 2d at 926. Defendants will be impaired in making false

and misleading assurances about, for instance, smoking-related

diseases or the addictiveness of nicotine—as the district court

found they continue to do, id. at 925–26—if they must at the

same time communicate the opposite, truthful message about

these matters to consumers. Requiring Defendants to reveal the

previously hidden truth about their products will prevent and

restrain them from disseminating false and misleading

statements, thereby violating RICO, in the future.

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Package onserts

One of the vehicles for the corrective statements is a

cigarette package onsert, which the district court ordered

Defendants to “affix to cigarette packaging, either on the outside

of or within the outer cellophane wrapping around the package

. . . in the same manner as certain Defendants, such as Philip

Morris and Brown & Williamson, have utilized package onserts

in the past.” Philip Morris, 449 F. Supp. 2d at 939. Defendants

object that the onserts violate the Federal Cigarette Labeling and

Advertising Act (“Labeling Act”), which provides that “[n]o

statement relating to smoking and health, other than the

statement required by section 1333 of this title, shall be required

on any cigarette package.” 15 U.S.C. § 1334(a).

The Labeling Act defines a “package” as “a pack, box,

carton, or container of any kind in which cigarettes are offered

for sale, sold, or otherwise distributed to consumers.” Id.

§ 1332(4). A package onsert is “[a] communication affixed to

but separate from an individual cigarette pack and/or carton

purchased at retail by consumers, such as a miniature brochure

included beneath the outer cellophane wrapping or glued to the

outside of the cigarette packaging.” Philip Morris, 449 F. Supp.

2d at 948; see Schwab v. Philip Morris USA, Inc., 449 F. Supp.

2d 992, 1084–85 (E.D.N.Y. 2006) (defining onserts as

“pamphlets attached to the outside of cartons or packs of

cigarettes”), rev’d on other grounds by McLaughlin v. Am.

Tobacco Co., 522 F.3d 215 (2d Cir. 2008); United States v. Star

Scientific, Inc., 205 F. Supp. 2d 482, 484 (D. Md. 2002)

(defining onsert as “a type of external package label”).

These definitions show that the corrective statements in an

onsert are not “statement[s] . . . on [a] package,” 15 U.S.C.

§ 1334(a), but rather statements in a brochure attached to or

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included with a package, and thus are not prohibited by the plain

language of the Labeling Act. See Philip Morris, 449 F. Supp.

2d at 928 n.89. Congress could have used more expansive

language to reach statements in onserts had it chosen to do so,

but it chose only to preempt the requiring of alternative

statements about smoking and health “on any cigarette

package.” Moreover, the district court and the parties appear to

have recognized the distinction between packages and onserts

throughout the trial. See id. at 206 (“Philip Morris has never

told its customers on its cigarette packaging or in onserts that it

agrees that smoking causes cancer and other diseases in

smokers.”), 288 (“Philip Morris replaced the pre-existing

package labels with onserts.”), 424 (“[Brown &Williamson]

began a new test market . . . using its redesigned packaging and

onsert. . . . Star Scientific . . . added an informational ‘onsert’

attached to the package.”); Trial Tr., Jan. 10, 2005 (Philip

Morris senior vice president distinguishing between cigarette

pack and onsert). We therefore conclude that the onsert remedy

does not violate the Labeling Act.

Point-of-sale displays

The district court ordered each Defendant with a retail

merchandising program—whereby retailers agree to use the

manufacturer’s in-store advertising—to design countertop and

header displays containing the corrective statements and

“require retailers who participate in such program” to display

them for two years. Philip Morris, 449 F. Supp. 2d at 939–40.

The freestanding countertop displays must be at least thirty

inches high and eighteen inches wide, and retailers must place

them on their counters “within the line-of-sight of any customer

who is standing in line for the register.” Id. at 946. The header

displays must be of at least equivalent size to Defendants’ other

brand advertising headers and placed “in an equivalent position

with any other brand advertising header” at the top of the

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cigarette display case. Id. at 939–40, 947. Under the injunctive

order, each Defendant must “suspend from its Retail

Merchandising Program for a period of one year any retailer that

fails to comply with this provision.” Id. at 940.

Retailers affected by this order—none of whom were

involved in the litigation in any way—did not receive notice of

this remedy or an opportunity to present evidence or arguments

to the district court regarding the impact the injunction would

have on their businesses. Nor does it appear that the district

court independently considered the impact of this program on

affected retailers. In their appellate brief as amicus curiae and

in affidavits filed with Defendants’ motion for a stay of final

judgment pending appeal, the National Association of

Convenience Stores represents that this injunction will cost

retailers substantial revenue. The convenience stores indicate

that countertop space is the most important space within a

convenience store, and the loss of one square foot of countertop

space can cost the industry $82 million in sales per year. Yet if

the retailers choose not to carry the countertop displays,

Defendants must suspend them from their retail merchandising

program for one year, which one retailer asserted would cost ten

to fifteen percent of his convenience stores’ annual profits. See

Hartman Aff. at 2.

Section 1964(a) explicitly cautions that in crafting an

injunctive remedy the court must “mak[e] due provision for the

rights of innocent persons.” 18 U.S.C. § 1964(a). We believe

that the district court exceeded its authority by failing to

consider the rights of retailers and crafting an injunction that

works a potentially serious detriment to innocent persons not

parties to or otherwise heard in the district court proceedings.

Even though not explicitly bound by the terms of an injunction

on pain of contempt, third parties may be so adversely affected

by an injunction as to render it improper. See, e.g., Cook Inc. v.

76

Boston Scientific Corp., 333 F.3d 737, 744 (7th Cir. 2003).

We therefore vacate the order regarding point-of-sale

displays and remand for the district court to evaluate and

“mak[e] due provision for the rights of innocent persons,” either

by abandoning this part of the remedial order or by crafting a

new version reflecting the rights of third parties. 18 U.S.C.

§ 1964(a). Of course, any such remedy the district court

imposes on remand can only affect contracts entered after the

injunctive order issues. See Nat’l Wildlife Fed’n v. Burford, 835

F.2d 305, 315 (D.C. Cir. 1987) (explaining an injunction’s

validity due to the fact that it “does not affect the contractual

rights of third parties”). In addition, we agree with Defendants

that the injunction appears to order each Defendant separately to

require the same retail store to display substantively identical,

but separate, signs. The government concedes that, despite the

language of the order, the district court could not have intended

to require the burden of multiple duplicative displays at each

retail store. We therefore direct the district court, if it concludes

that some form of a point-of-sale display injunction is still

appropriate after considering the rights of third parties and

existing contracts, to clarify that its order does not require

duplicative displays.

First Amendment

The district court also ordered each Defendant to publish

the corrective statements on its corporate website, as a one-time

full-page advertisement in thirty-five major newspapers, and as

at least ten advertisements on a major television network over

the course of one year. Philip Morris, 449 F. Supp. 2d at

939–41. The court chose these media in order to “structure a

remedy which uses the same vehicles which Defendants have

themselves historically used to promulgate false smoking and

health messages.” Id. at 928. The court concluded compelled

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corrective advertising is permissible under the commercial

speech doctrine. Id. at 926–28.

The First Amendment protects against government

infringement on “the right to speak freely and the right to refrain

from speaking at all.” Wooley v. Maynard, 430 U.S. 705, 714

(1977). This holds true whether applied to individuals, see W.

Va. State Bd. of Educ. v. Barnette, 319 U.S. 624, 642 (1943), or

to companies, see Pac. Gas & Elec. Co. v. Pub. Utils. Com., 475

U.S. 1, 16 (1986) (“For corporations as for individuals, the

choice to speak includes within it the choice of what not to

say.”). In limited circumstances, however, courts have upheld

the government’s ability to dictate the content of mandatory

speech. This largely occurs in the commercial context.

Under the commercial speech doctrine, the government’s

“power to regulate commercial transactions justifies its

concomitant power to regulate commercial speech that is ‘linked

inextricably’ to those transactions.” 44 Liquormart v. Rhode

Island, 517 U.S. 484, 499 (1996). Thus, the government may

require commercial speech to “appear in such a form, or include

such additional information, warnings, and disclaimers, as are

necessary to prevent its being deceptive.” Va. Bd. of Pharmacy

v. Va. Citizens Consumer Council, Inc., 425 U.S. 748, 762

(1976). Because commercial speech receives a lower level of

protection under the First Amendment, burdens imposed on it

receive a lower level of scrutiny from the courts. Zauderer v.

Office of Disciplinary Counsel of Supreme Court, 471 U.S. 626,

637 (1985); Cent. Hudson Gas & Elec. Corp. v. Pub. Serv.

Comm’n, 447 U.S. 557, 562–64 (1980). Although the standard

for assessing burdens on commercial speech has varied, Bd. of

Trs. v. Fox, 492 U.S. 469, 476–78 (1989) (describing the diverse

levels of scrutiny applied in various cases, including Central

Hudson, 447 U.S. at 566, In re R. M. J., 455 U.S. 191, 203

(1982), and Zauderer, 471 U.S. at 644), the Supreme Court’s

78

bottom line is clear: the government must affirmatively

demonstrate its means are “narrowly tailored” to achieve a

substantial government goal, id. at 480.

Defendants object that the “freestanding” corrective

statements violate the First Amendment because they are not

connected to existing advertising and, therefore, cannot be

considered commercial speech. That being the case, Defendants

contend the less rigorous commercial speech standard does not

apply. Alternatively, Defendants argue that, even if these

statements are commercial speech, the corrective statements do

not directly and materially advance a substantial government

interest. See Cent. Hudson, 447 U.S. at 566. Defendants’

arguments misunderstand the commercial speech doctrine and

misstate the commercial speech standard.

Defendants’ first argument, that the stand-alone corrective

statements do not fall within the commercial speech doctrine

because they are not attached to advertisements, is a red herring.

The context of the corrective statements does not dictate the

level of scrutiny; rather, the level of scrutiny depends on the

nature of the speech that the corrective statements burden. Riley

v. Nat’l Fed’n of Blind, 487 U.S. 781, 796 (1988) (“Our

lodestars in deciding what level of scrutiny to apply to a

compelled statement must be the nature of the speech taken as

a whole and the effect of the compelled statement thereon.”).

Here, the district court clearly imposed these statements as a

burden on Defendants’ current and future commercial speech.

Philip Morris, 449 F. Supp. 2d at 926–28 (justifying ordering

the freestanding corrective statements under the commercial

speech doctrine).

Commercial speech is defined as “expression related solely

to the economic interests of the speaker and its audience” or

“speech proposing a commercial transaction.” Cent. Hudson,

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447 U.S. at 561–62. In addition to information related to

proposing a particular transaction, such as price, it can include

material representations about the efficacy, safety, and quality

of the advertiser’s product, and other information asserted for

the purpose of persuading the public to purchase the product.

See, e.g., Zauderer, 471 U.S. at 637 & n.7, 639–40 (information

and legal advice about a defective product and the possibility of

suing were commercial); Bolger v. Youngs Drug Prods. Corp.,

463 U.S. 60, 66–68 (1983) (informational brochures discussing

“important public issues such as venereal disease and family

planning” distributed by contraceptives manufacturer were

commercial); Brown & Williamson Tobacco Corp., 778 F.2d at

38, 43 (claims that cigarettes contained one milligram of tar and

were “99% tar free” were commercial); Nat’l Comm’n on Egg

Nutrition v. FTC, 570 F.2d 157, 159, 163 (7th Cir. 1977)

(holding egg trade association’s advertisements about the

relationship between eggs and heart disease were commercial

speech). Defendants’ various claims—denying the adverse

effects of cigarettes and nicotine in relation to health and

addiction—constitute commercial speech. Defendants

disseminate their fraudulent representations about the safety of

their products, both in formats that do and those that do not

explicitly propose a particular commercial transaction, in

attempts to persuade the public to purchase cigarettes.

The fact that some—but certainly not all—of these

advertisements involve Defendants as a group joined in

advertising their common product, discuss cigarettes generically

without specific brand names, or link cigarettes to an issue of

public debate, does not change the commercial nature of the

speech. Bolger, 463 U.S. at 66 n.13, 67–68; Nat’l Comm’n on

Egg Nutrition, 570 F.2d at 163. Moreover, the reality that these

corrective statements may tangentially burden noncommercial

speech does not render the statements unconstitutional. A

burden on commercial speech, whether it be suppression or

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mandatory disclosure, only triggers a higher level of scrutiny if

the commercial speech is “inextricably intertwined” with fully

protected speech. Riley, 487 U.S. at 796 (“[S]peech [does not]

retain[] its commercial character when it is inextricably

intertwined with otherwise fully protected speech.”). Here,

Defendants’ past participation in the public controversy

surrounding smoking and health may have been inextricably

intertwined with their marketing efforts, but the intentionally

fraudulent character of the noncommercial public statements

undermines any claim for more exacting scrutiny. See McIntyre,

514 U.S. at 357. Moreover, because the injunctive order cannot

retroactively burden Defendants’ past communications, to

determine the constitutionality of the corrective statements we

must look to the future and evaluate whether the district court’s

order targeting commercial speech cuts too broad a swath.

The issue of corrective advertising’s possible peripheral

impact on protected speech does not affect the character of the

burdened speech, but rather bears on whether the remedy is

sufficiently narrowly tailored to achieve a substantial

government interest—in this case, preventing Defendants from

committing future RICO violations. We have no reason to think

it is not. The district court found that, for over fifty years,

Defendants violated RICO by making false and fraudulent

statements to consumers about their products. Philip Morris,

449 F. Supp. 2d at 26–27. The court also found Defendants

reasonably likely to commit similar violations in the future, id.

at 908–15, and concluded the corrective statements were

necessary to counteract these anticipated violations, see id. at

927 (“The injunctive relief sought here is narrowly tailored to

prevent Defendants from continuing to disseminate fraudulent

public statements and marketing messages by requiring them to

issue truthful communications.”). Thus, contrary to Defendants’

argument, the publication of corrective statements addressing

Defendants’ false assertions is adequately tailored to preventing

81

Defendants from deceiving consumers.

The district court has not yet determined the content of the

corrective statements. Id. at 928. As the validity of its order

relies on the commercial nature of the speech it burdens, the

court must ensure the corrective disclosures are carefully

phrased so they do not impermissibly chill protected speech.

Zauderer, 471 U.S. at 651. Consequently, the court must

confine the statements to “purely factual and uncontroversial

information,” id., geared towards thwarting prospective efforts

by Defendants to either directly mislead consumers or capitalize

on their prior deceptions by continuing to advertise in a manner

that builds on consumers’ existing misperceptions. Warner-

Lambert Co., 562 F.2d at 769 (concluding, due to Listerine’s

fifty year history of false advertisements, “advertising which

fails to rebut the prior claims . . . [would] inevitably build[] upon

those claims; continued advertising continues the deception,

albeit implicitly rather than explicitly”). Assuming the

corrective advertising once drafted meets these requirements, it

is a permissible restraint on Defendants’ commercial speech.

E. Intervention

Tobacco-Free Kids Action Fund and five other public health

organizations intervened in both the trial and appeal in order to

advocate additional remedies against Defendants. Defendants

assert that the intervenors are not properly before the court

because they do not have standing and do not have the ability to

pursue remedies for RICO violations under the statute. Not

surprisingly, the intervenors disagree. Before we address the

merits of the intervenors’ cross-appeal we must resolve the

propriety of their intervention.

Section 1964(b) authorizes the Attorney General to

“institute proceedings under” section 1964(a) for equitable

82

remedies. 18 U.S.C. § 1964(b). Private parties, on the other

hand, may seek relief under section 1964(c), which allows suits

for damages. The statutory scheme does not directly provide

private parties with a cause of action for equitable remedies. Id.

§ 1964(c). According to Defendants, the inability to bring an

action under section 1964(a) precludes private intervention in a

RICO suit instituted by the government under subsection (a) and

permitting private intervenors would contravene congressional

intent. Id. § 1964 (a), (c).

Defendants are wrong. Under Federal Rule of Civil

Procedure 24(a)(2), “the question is not whether the applicable

law assigns the prospective intervenor a cause of a

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