United States v. Philip Morris USA, Inc.

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA, :

:

Plaintiff, :

: Civil Action No.

v. : 99-2496 (GK)

:

PHILIP MORRIS USA, INC., :

et al. :

:

Defendants. :

MEMORANDUM OPINION

Back in 2006, the Court issued its Final Judgment and Remedial

Order #1015 [Dkt. No. 5733], mandating that Defendants publish

corrective statements on each of five topics on which the Court

found they had made false and deceptive statements. These topics

are: “(a) the adverse health effects of smoking; (b) the

addictiveness of smoking and nicotine; (c) the lack of any

significant health benefit from smoking ‘low tar,’ ‘light,’ ‘ultra

light,’ ‘mild,’ and ‘natural,’ cigarettes; (d) Defendants'

manipulation of cigarette design and composition to ensure optimum

nicotine delivery; and (e) the adverse health effects of exposure

to secondhand smoke.” United States v. Philip Morris USA, Inc., 449

F. Supp. 2d 1, 938-39 (D.D.C. 2006) (“Original Opinion”). Upon

consideration of the briefs, the oral argument, and the entire

record herein, the Court herein finalizes the text of the

corrective messages to be published. See infra Section II.A-E.

I. Background

On September 22, 1999, the United States filed this civil suit

against Defendants pursuant to the Racketeer Influenced and Corrupt

Organizations Act (“RICO”), 18 U.S.C. §§ 1961-1968. After nearly

five years of discovery, motions, and other pretrial proceedings,

trial began in September 2004. The bench trial lasted nine months

and on August 17, 2006, this Court issued a lengthy opinion finding

that all Defendants “(1) have conspired together to violate the

substantive provisions of RICO, pursuant to 18 U.S.C. § 1962(d),

and (2) have in fact violated those provisions of the statute,

pursuant to 18 U.S.C. § 1962(c).” Original Opinion, 449 F. Supp. 2d

at 26. In particular, the Court concluded that Defendants

“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.

A. Factual Findings

The Court made detailed Findings of Fact on each of the

various topics on which Defendants made their false, deceptive, and

misleading public statements. Id. at 146-839. First, the Court

found that “each and every one of these Defendants repeatedly,

consistently, vigorously - and falsely - denied the existence of

any adverse health effects from smoking,” despite “the massive

documentation in their internal corporate files from their own

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scientists, executives, and public relations people” that confirmed

that there was little evidence supporting their claims. Id. at 208.

Specifically, Defendants “knew there was a consensus in the

scientific community that smoking caused lung cancer and other

diseases” by at least January 1964. Id. at 180. Despite this

internal knowledge, the Defendants embarked on a “campaign of

proactive and reactive responses to scientific evidence that was

designed to mislead the public about the health consequences of

smoking.” Id. at 187-88.

Second, the Court found that Defendants “have publicly denied

and distorted the truth as to the addictive nature of their

products for several decades.” Id. at 209. Defendants “knew and

internally acknowledged that nicotine is an addictive drug,” id. at

218, but “publicly made false and misleading denials of the

addictiveness of smoking, as well as nicotine’s role in causing

that addiction.” Id. at 271. The Court found that this conduct was

continuing, observing that “no Defendant accepts the Surgeon

General’s definition of addiction, no Defendant admits that

nicotine is the drug delivered by cigarettes that creates and

sustains addiction, and no Defendant acknowledges that 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.

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Third, the Court found that “Defendants have designed their

cigarettes to precisely control nicotine delivery levels and

provide doses of nicotine sufficient to create and sustain

addiction.” Id. at 309. Specifically, most cigarettes are

“manufactured using reconstituted tobacco material, additives, burn

accelerants, ash conditioners, and buffering substances, all of

which affect nicotine levels and delivery.” Id. “Other cigarette

design features used by Defendants to control nicotine delivery

include filter design, paper selection and perforation, ventilation

holes, leaf blending, and use of additives (such as ammonia) to

control the PH of cigarette smoke.” Id. However, the Defendants

“denied, repeatedly and publicly, that they manipulate nicotine

content and delivery in cigarettes in order to create and sustain

addiction.” Id. at 374.

Fourth, the Court found that, for several decades, Defendants

marketed and promoted “low tar brands” as less harmful than

conventional cigarettes. Id. at 430. Defendants knew that “smokers

of low tar cigarettes modify their smoking behavior, or

‘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. Based on their

sophisticated understanding of compensation, Defendants understood

that low tar/light cigarettes offered no clear health benefits. Id.

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at 456-75. However, they “concealed that knowledge and disseminated

false and misleading statements to downplay its existence and

prevalence.” Id. at 500. 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.

Fifth, the Court found that “Defendants crafted and

implemented a broad strategy to undermine and distort the evidence

indicating passive smoke as a health hazard.”1 Id. at 693. Research

funded by Defendants provided evidence confirming that

“nonsmokers[’] exposure to cigarette smoke was a health hazard.”

Id. at 709. However, Defendants made “numerous public statements

denying the linkage” between secondhand smoke and disease in

nonsmokers. Id. at 788. The Court found that the Defendants’

conduct was continuing, noting that “currently no Defendant

publicly admits that passive exposure to cigarette smoke causes

disease or other adverse health effects.” Id. at 693.

B. Remedies

Based on these findings, as well as many others, the Court

imposed a number of injunctive measures in order to prevent and

restrain future violations of RICO. Id. at 937-45; see also id. at

908-09 (recognizing that 18 U.S.C. § 1964(a) limits remedies to

1

Secondhand smoke, “also called passive smoke or environmental tobacco

smoke (‘ETS’), is a mixture of mostly sidestream smoke given off by the

smoldering cigarette and some mainstream smoke exhaled by smokers.” Id.

at 693.

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those which “prevent and restrain violations of section 1962"). The

Court concluded that there was a reasonable likelihood that

Defendants would continue to violate RICO in the future. Id. at

908-19. The Court also found that the “evidence in this case

clearly establishes that Defendants,” with the exception of several

parties who have since been dismissed, “have not ceased engaging in

unlawful activity.” Id. at 910. Further, “[e]ven after the

Complaint in this action was filed in September 1999, Defendants

continued to engage in conduct that is materially indistinguishable

from their previous actions, activity that continues to this day.”

Id.

One of the injunctive measures ordered Defendants to make

corrective statements on each of the five topics on which they had

historically made (and were currently making) false and deceptive

statements. Id. at 925-26. These statements were necessary to

prevent and restrain “Defendants from continuing to disseminate

fraudulent public statements and marketing messages by requiring

them to issue truthful corrective communications.” Id. at 927. The

statements are to be published in newspapers and disseminated

“through television, advertisements, onserts, in retail displays,

and on their corporate websites.” Id. at 928; see also id. at 938-

41. The Court stated that it would receive proposals from the

parties “for the exact wording of such corrective statements, with

any supporting materials deemed necessary.” Id. at 939.

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C. Post-Trial Rulings of the Court of Appeals

On May 22, 2009, the Court of Appeals affirmed this Court’s

judgment of liability and affirmed major provisions in its Remedial

Order.2 United States v. Philip Morris USA, Inc., 566 F.3d 1095,

1150 (D.C. Cir. 2009) (“Affirmance Opinion”). The Court of Appeals

specifically affirmed many of the individual Findings of Fact

discussed above, including that Defendants made false and

misleading statements: (1) denying the addictive properties of

nicotine; (2) suggesting that “light” and “low tar” cigarettes were

less harmful than regular cigarettes; and (3) denying the health

hazards of secondhand smoke. 566 F.3d at 1124-26, 1126-27, 1127-28.

In addition, the Court upheld the finding that there was a

reasonable likelihood that Defendants would commit future RICO

violations and concluded that corrective statements were

appropriate “to counteract these anticipated violations.” Id. at

1131-34, 1144. Defendants petitioned for a writ of certiorari,

which was denied. 130 S. Ct. 3501 (2010).

Since then, the Court of Appeals has issued two additional

opinions upholding this Court’s post-remedial decisions.3 First,

the Court of Appeals affirmed this Court’s broad remedial powers

2

The Court of Appeals remanded the case with directions to address four

discrete matters not at issue in this opinion.

3

Those decisions by this Court can be found at 778 F. Supp. 2d 8 (D.D.C.

2011) (disaggregated marketing data decision) and 787 F. Supp. 2d 68

(D.D.C. 2011) (denying motion for vacatur).

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when it declined to overturn its clarification of its disaggregated

marketing disclosure remedy. United States v. Philip Morris USA

Inc., 686 F.3d 839 (D.C. Cir. 2012). Second, the Court of Appeals

upheld this Court’s determination that the passage of the Family

Smoking Prevention and Tobacco Control Act (“TCA” or “Act”), Pub.

L. No. 111-31, 123 Stat. 1776 (2009), did not eliminate the

reasonable likelihood that Defendants would commit future RICO

violations. United States v. Philip Morris USA Inc., 686 F.3d 832,

837 (D.C. Cir. 2012). In affirming this Court’s decision not to

assume that the Defendants would comply with the TCA, the Court of

Appeals noted that the Act did not establish penalties as broad as

those available under RICO, and observed that, “[i]f the defendants

were not deterred by the possibility of RICO liability, the

district court reasonably found the defendants were not likely to

be deterred by the Tobacco Control Act either.” Id. at 836-37.4

Thereafter, this Court ordered briefing from the parties on

whether it should defer consideration of the issue of corrective

statements pending the resolution of various challenges to the

regulations promulgated by the Food and Drug Administration under

the TCA. Order, Nov. 17, 2011 [Dkt. No. 5950]. After considering

4

This finding is corroborated by the continuing legal challenges being

brought by tobacco companies, including many of the Defendants, against

various provisions of the Tobacco Control Act. See, e.g., Discount

Tobacco City & Lottery, Inc. v. United States, 674 F.3d 509 (6th Cir.

2012) (refusing to grant facial challenge under the First Amendment to

FDA’s authority to require graphic warning labels), pet. for cert. filed,

Oct. 26, 2012.

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the submissions of the parties, this Court decided not to defer a

decision pending a final resolution of R.J. Reynolds Tobacco Co. v.

Food & Drug Administration, 823 F. Supp. 2d 36 (D.D.C. 2011), then

pending on appeal. However, mindful of the expedited manner in

which the Court of Appeals was handling that case and mindful of

the possibility that a ruling in that case might have a substantial

impact on its corrective statements ruling in this case, this Court

took no action until the Court of Appeals ruled on Aug. 24, 2012 in

R.J. Reynolds Tobacco Co. v. Food & Drug Administration, 696 F.3d.

1205 (D.C. Cir. 2012) (“Reynolds”).

II. Corrective Statements

Each party submitted proposed corrective statements. After

carefully evaluating the submissions, the Court concludes that the

following Corrective Statements will most effectively prevent and

restrain future violations of RICO. Appendix A directs the reader

to the citations in the Original Opinion supporting each of these

Statements.

A. Adverse Health Effects of Smoking

A Federal Court has ruled that the Defendant tobacco companies

deliberately deceived the American public about the health effects

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of smoking, and has ordered those companies to make this statement.

Here is the truth:5

• Smoking kills, on average, 1200 Americans. Every

day.

• More people die every year from smoking than from

murder, AIDS, suicide, drugs, car crashes, and

alcohol, combined.

• Smoking causes heart disease, emphysema, acute

myeloid leukemia, and cancer of the mouth,

esophagus, larynx, lung, stomach, kidney, bladder,

and pancreas.

• Smoking also causes reduced fertility, low birth

weight in newborns, and cancer of the cervix and

uterus.

B. Addictiveness of Smoking and Nicotine

A Federal Court has ruled that the Defendant tobacco companies

deliberately deceived the American public about the addictiveness

of smoking and nicotine, and has ordered those companies to make

this statement. Here is the truth:

• Smoking is highly addictive. Nicotine is the

addictive drug in tobacco.

• Cigarette companies intentionally designed

cigarettes with enough nicotine to create and

sustain addiction.

• It's not easy to quit.

• When you smoke, the nicotine actually changes the

brain - that's why quitting is so hard.

5

Each Statement begins with similar language declaring that a court has

ruled the Defendants deceived the public about a particular topic and has

ordered them to make corrective statements. These introductory sentences

will be referred to as the “preamble.”

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C. Lack of Significant Health Benefit from Smoking

“Low Tar,” “Light,” “Ultra Light,” “Mild,” and

“Natural” Cigarettes

A Federal Court has ruled that the Defendant tobacco companies

deliberately deceived the American public by falsely selling and

advertising low tar and light cigarettes as less harmful than

regular cigarettes, and has ordered those companies to make this

statement. Here is the truth:

• Many smokers switch to low tar and light cigarettes

rather than quitting because they think low tar and

light cigarettes are less harmful. They are not.

• "Low tar" and filtered cigarette smokers inhale

essentially the same amount of tar and nicotine as

they would from regular cigarettes.

∙ All cigarettes cause cancer, lung disease, heart

attacks, and premature death - lights, low tar,

ultra lights, and naturals. There is no safe

cigarette.

D. Manipulation of Cigarette Design and Composition to

Ensure Optimum Nicotine Delivery

A Federal Court has ruled that the Defendant tobacco companies

deliberately deceived the American public about designing

cigarettes to enhance the delivery of nicotine, and has ordered

those companies to make this statement. Here is the truth:

∙ Defendant tobacco companies intentionally designed

cigarettes to make them more addictive.

∙ Cigarette companies control the impact and delivery

of nicotine in many ways, including designing

filters and selecting cigarette paper to maximize

the ingestion of nicotine, adding ammonia to make

the cigarette taste less harsh, and controlling the

physical and chemical make-up of the tobacco blend.

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∙ When you smoke, the nicotine actually changes the

brain - that's why quitting is so hard.

E. Adverse Health Effects of Exposure to Secondhand

Smoke

A Federal Court has ruled that the Defendant tobacco companies

deliberately deceived the American public about the health effects

of secondhand smoke, and has ordered those companies to make this

statement. Here is the truth:

∙ Secondhand smoke kills over 3,000 Americans each

year.

∙ Secondhand smoke causes lung cancer and coronary

heart disease in adults who do not smoke.

∙ Children exposed to secondhand smoke are at an

increased risk for sudden infant death syndrome

(SIDS), acute respiratory infections, ear problems,

severe asthma, and reduced lung function.

∙ There is no safe level of exposure to secondhand

smoke.

III. The Court Has Broad Discretion to Formulate Corrective

Statements

The parties are in agreement that this Court has broad

discretion to determine the content of the Corrective Statements in

order to most effectively prevent and restrain future RICO

violations. See Hr’g. Tr., Oct. 15, 2012. The Court can, but is not

obligated to, receive additional evidence. See United States v.

Local 1804-1, Int’l Longshoremen’s Ass’n, 812 F. Supp. 1303

(S.D.N.Y. 1993), modified by 831 F. Supp. 177, 182-84 (S.D.N.Y.

1993) (evaluating whether to admit additional evidence in remedial

phase of RICO litigation and determining not to admit it after

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deeming it irrelevant on the questions of fact at issue). The

parties have submitted twenty-five briefs related to the content of

these Corrective Statements, and the Court heard oral argument on

October 15, 2012.

Naturally, this Court’s equitable power is limited by the

terms of the underlying statute, as well as the Constitution. See

United States v. Philip Morris USA, Inc., 396 F.3d 1190, 1197 (D.C.

Cir. 2005). While RICO provides a district court with jurisdiction

to issue orders that “prevent and restrain” RICO violations, our

Court of Appeals made it clear that this language limits a court’s

equitable discretion to “forward looking remedies that are aimed at

future violations.” 396 F.3d at 1198.

In its Affirmance Opinion, the Court of Appeals upheld this

Court’s determination that corrective statements, targeted at

“reveal[ing] the previously hidden truth” about cigarettes and

“correct[ing] Defendants’ campaign of deceptive marketing,” will

prevent and restrain future RICO violations. Id.; see also

Reynolds, 696 F.3d at 1216 & n.10 (observing that this case

requires statements in order “to correct any false or misleading

claims made by cigarette manufacturers in the past”). Thus, the

corrective statements remedy has been upheld as within the scope of

this Court’s discretion, presuming that the Statements are targeted

at correcting the fraud perpetuated by the Defendants.

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IV. First Amendment Analysis

As already noted, even though the Court has a significant

amount of equitable discretion under RICO, its discretion is also

cabined by the provisions of the Constitution. The Defendants argue

that certain portions of the Statements violate the First Amendment

because they exceed the scope of permissible governmental

restrictions on commercial speech. After reviewing the Supreme

Court’s development of the commercial speech doctrine and in light

of recent cases decided by the Supreme Court and our Court of

Appeals, this Court concludes that the Statements pass

constitutional muster.

A. Historical Development of “Commercial Speech”

Protection

The First Amendment prohibits the government from

“restrict[ing] expression because of its message, its ideas, its

subject matter, or its content.” Brown v. Entm’t Merchs. Ass’n, 131

S. Ct. 2729, 2733 (2011) (quoting Ashcroft v. A.C.L.U., 535 U.S.

564, 573 (2002)). Content-based restrictions on protected speech

are entitled to “strict scrutiny” when reviewed by courts. Id. at

2738. This heightened scrutiny invalidates a government restriction

on speech “unless it is justified by a compelling government

interest and is narrowly drawn to serve that interest.” Id. (citing

R.A.V. v. City of St. Paul, 505 U.S. 377, 395 (1992)). However,

certain types of speech, such as obscenity, incitement, and

fighting words, have been deemed unworthy of such heightened

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scrutiny, and are considered “unprotected speech.” See Brown, 131

S. Ct. at 2733 (discussing categories of unprotected speech). Thus,

when the government restricts speech, the court must evaluate what

kind of speech it is and what level of protection is due that type

of speech.

Over the years, the Supreme Court has sought to identify how

much and what level of protection the First Amendment provides for

so-called “commercial speech,” defined as “expression related

solely to the economic interests of the speaker and its audience.”

Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n, 447 U.S. 557,

562 (1980). Initially, the Court indicated that “purely commercial

advertising” might be entirely unprotected. Valentine v.

Chrestensen, 316 U.S. 52, 54 (1942) (observing that “the

Constitution imposes no . . . restraint on government as respects

purely commercial advertising”). However, a quarter of a century

later, the Court decided that commercial speech was not outside the

realm of constitutional protection, observing that “speech does not

lose its First Amendment protection because money is spent to

project it.” Virginia Bd. of Pharm. v. Virginia Citizens Consumer

Council, Inc., 425 U.S. 748, 761 (1976). While the Court did not

specify what level of protection commercial speech was entitled to,

it did conclude that “whatever may be the proper bounds” of

permissible government restrictions, they were “plainly exceeded”

in that case. Id. at 771.

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A few years later, the Court set forth a general framework for

evaluating whether a particular government restriction on

commercial speech was constitutional. See Central Hudson, 447 U.S.

at 566. The Court established a four-step test:

For commercial speech to come [under the First

Amendment], it at least must concern lawful

activity and not be misleading. Next, we ask

whether the asserted governmental interest is

substantial. If both inquiries yield positive

answers, we must determine whether the

regulation directly advances the governmental

interest asserted, and whether it is not more

extensive than is necessary to serve that

interest.

Id. at 566. This standard, which is often referred to as an

“intermediate” level of scrutiny, is less demanding than the strict

scrutiny standard applied to traditionally protected speech. See

Brown, 131 S. Ct. at 2733 (defining strict scrutiny); see also

Reynolds, 696 F.3d at 1212 (describing Central Hudson test as “not

quite as demanding” as strict scrutiny).

In 1985, the Supreme Court then established an even lower

level of scrutiny for government restrictions aimed at commercial

speech that is false or misleading. In Zauderer v. Office of

Disciplinary Counsel, 471 U.S. 626 (1985), the Court analyzed the

constitutionality of various Ohio state disciplinary rules,

including a rule requiring an attorney to affirmatively disclose

that clients may be responsible for legal costs regardless of the

outcome of their case. Id. at 629-30.

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The Court began by observing that an advertiser has only a

“minimal” constitutional interest in not providing any particular

“purely factual and uncontroversial” information. Id. at 651. Thus,

given that the interests of the advertiser are less pressing,

warnings or disclaimers “might be appropriately required” to avoid

“consumer confusion or deception.” Id. (citing In re R.M.J., 455

U.S. 191, 201 (1982)).

The Court then concluded that “an advertiser's rights are

adequately protected as long as disclosure requirements are

reasonably related to the State's interest in preventing deception

of consumers.” 471 U.S. at 651. It specified in a footnote that

such disclosure requirements were not subject to a “least

restrictive means” analysis. Id. at 651 n.14. However, the Court

also noted that “unjustified or unduly burdensome” disclosure

requirements might offend the First Amendment if they “chill[ed]

protected commercial speech.” Id. at 651.

B. Choosing the Appropriate Standard of Review

1. Recent Cases Discussing Which Commercial

Speech Standard Applies

a. Affirmance Opinion

Courts have long struggled on a case-by-case basis with

whether Central Hudson or Zauderer applies to particular

governmental restrictions on commercial speech. In the Affirmance

Opinion, the Court of Appeals directly addressed the question of

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what level of First Amendment scrutiny should be applied to the

corrective statements in this case. 566 F.3d at 1142-45.

The Court began by acknowledging that several standards exist

for evaluating commercial speech restrictions under the First

Amendment. Id. at 1142. It went on to observe that, whatever

standard was applicable, the “fit” required between the means and

the end was the same: such restrictions must be “narrowly tailored

to achieve a substantial government goal.” Id. at 1143 (citing Bd.

of Trustees v. Fox, 492 U.S. 469, 480 (1989)).6

The Court of Appeals rejected the Defendants’ argument that

the corrective statements should not be considered “commercial

speech,” id. at 1143, and then analyzed whether the corrective

statements remedy was appropriately tailored to the government’s

interest as required by the various commercial speech standards.

Id.

The Court of Appeals began by discussing this Court’s Factual

Findings, observing that Defendants had “violated RICO by making

false and fraudulent statements to consumers about their products,”

and were “reasonably likely to commit similar violations in the

future.” Id. It also emphasized this Court’s determination that a

corrective statements remedy was “necessary to counteract these

6

It is clear that strict scrutiny does not apply in this case, although

Defendants have preserved the issue for appellate review. See Hr’g. Tr.,

Oct. 15, 2012; see also Defs.’ Supplemental Br. Regarding the Gov’t’s

Proposed Corrective Statements, 6 n.2 [Dkt. No. 5985] (raising strict

scrutiny argument).

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anticipated violations.” Id. The Court of Appeals concluded, based

on this Court’s Findings, that the corrective statements remedy was

narrowly tailored to achieve the substantial governmental interest

of “preventing Defendants from committing future RICO violations.”

Id. at 1144.

The Court of Appeals then directed this Court to develop

statements that would satisfy the Zauderer requirements. Id. It

cautioned that this Court “must confine the statements to purely

factual and uncontroversial information, 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.” Id. at 1144-45 (citations and internal quotations

omitted). This statement echoes the key requirements of Zauderer,

which, as discussed above, apply to the review of mandatory

disclosures of purely factual and uncontroversial information

directed towards preventing consumer deception. Zauderer, 471 U.S.

at 651.

In sum, the Court of Appeals’ discussion of the corrective

statements remedy in the Affirmance Opinion established two

important guidelines. First, the Court has established that,

regardless of which commercial-speech standard applies, the test

regarding the “fit” is the same and is satisfied in this case.

Second, the Court of Appeals directed this Court to develop

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statements that would satisfy the requirements of Zauderer, thereby

indicating that the Zauderer test was the appropriate standard of

review.

b. Cases Decided Since the Affirmance Opinion

Several cases decided by the Supreme Court and our Court of

Appeals since the issuance of the Affirmance Opinion in 2009

underscore the appropriateness of applying Zauderer to these

Corrective Statements.

First, in 2010, the Supreme Court considered whether Central

Hudson or Zauderer review applied to federal regulations that

required a law firm to identify itself as a “debt relief agency.”

Milavetz, Gallop & Milavetz, P.A. v. United States, 130 S. Ct. 1324

(2010). Emphasizing the fact that the disclosure requirements were

directed at misleading commercial speech, id. at 1339, the Court

concluded that Zauderer review was appropriate and then re-affirmed

the Zauderer analysis:

Unjustified or unduly burdensome disclosure

requirements offend the First Amendment by

chilling protected speech, but “an

advertiser's rights are adequately protected

as long as disclosure requirements are

reasonably related to the State's interest in

preventing deception of consumers.”

Id. at 1339-40 (citing Zauderer, 471 U.S. at 651).

Second, our Court of Appeals recently applied Zauderer to a

final rule issued by the Department of Transportation (“DOT”)

requiring that the most prominent figure on airline print

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advertisements and websites be the final price, including taxes, in

order to avoid consumer confusion. Spirit Airlines, Inc. v. Dep’t

of Transp., 687 F.3d 403, 408 (D.C. Cir. 2012). The Court noted

that, as in Milavetz, the regulation required a disclosure of

accurate information targeted at correcting misleading or confusing

commercial speech. Id. at 412-13 (describing rule in Zauderer as

requiring a “clarifying” disclosure). The Court also held that the

DOT rule was reasonably related to the goal of “prevent[ing]

consumer confusion” about the total price consumers would have to

pay. Id. at 414.

In addition, the Court of Appeals analyzed the DOT rule under

Central Hudson, and summarized the Central Hudson analysis as

follows:

First, is the asserted government interest

substantial? . . . The second and third

inquiries are related: whether the regulation

directly advances the governmental interest

asserted, and whether the fit between the

government's ends and the means chosen to

accomplish those ends is not necessarily

perfect, but reasonable.

687 F.3d at 415 (citing Pearson v. Shalala, 164 F.3d 650, 656 (D.C.

Cir. 1999) (internal quotation and citation omitted)). Remarking

that the analysis was “easy,” the Court first declared that there

was no question that the government’s interest in “ensuring the

accuracy of commercial information in the marketplace is

substantial.” Id. (citing Edenfield v. Fane, 507 U.S. 761, 769

(1993)). It then observed that the interest was “clearly and

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directly advanced” by a rule requiring the total price to be the

most prominent price in a particular advertisement. Id. Finally,

the Court of Appeals concluded that the rule was “reasonably

tailored.” Id. (noting that the rule focused primarily on the

manner of disclosure and did not impose any burden on speech other

than requiring disclosure of the final price).

Third, our Court of Appeals again examined the issue of which

level of First Amendment scrutiny applies to restrictions on

commercial speech in Reynolds. As noted above, tobacco companies

challenged a Final Rule issued by the Food and Drug Administration

that used its authority under the TCA to promulgate graphic warning

labels depicting the negative health consequences of smoking to be

placed on cigarette packages. Reynolds, 696 F.3d at 1209.

In Reynolds, the Court rejected application of the Zauderer

test. It concluded that Zauderer review is limited to government

restrictions targeted at “misleading or incomplete commercial

messages.” Id. at 1213 (citing Glickman v. Wileman Bros. v.

Elliott, Inc., 521 U.S. 457, 491 (1997) (Souter, J., dissenting)).

Because the FDA’s “interest” was in discouraging consumers from

buying cigarette products, not preventing consumer deception, the

Court held that Zauderer did not apply. See id. at 1215-16.

Significantly, the Court of Appeals specifically distinguished

Reynolds from this litigation. It noted that this case did involve

“remedial measure[s] designed to counteract specific deceptive

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claims made by the Companies.” Id. at 1216 n.10 (observing that

“[s]uch matters are the subject of a pending — and entirely

separate — line of litigation against the Companies,” citing this

case).

The Court then discussed how, even if Zauderer applied, the

warnings would fail that test because the graphic images were not

“purely factual and uncontroversial.” Id. at 1216 (citing Zauderer,

471 U.S. at 651); see also id. (describing the disclosures in

Zauderer and Milavetz as “clear statements that were both

indisputably accurate and not subject to misinterpretation by

consumers”).

The Court relied on two crucial concessions made by the FDA in

determining that the images were not “purely factual.” First, the

FDA conceded that the graphic images were “not meant to be

interpreted literally,” which raised concerns that the images

“could be misinterpreted by consumers.” Id. Second, the FDA

“tacitly admit[ted]” the images were intended to evoke an emotional

response and/or shock the reader into retaining information. Id. at

1216. Because of these admissions, the Court concluded:

These inflammatory images . . . cannot

rationally be viewed as pure attempts to

convey information to consumers. They are

unabashed attempts to evoke emotion (and

perhaps embarrassment) and browbeat consumers

into quitting. . . . While none of these

images are patently false, they certainly do

not impart purely factual, accurate, or

uncontroversial information to consumers.

-23-

Consequently, the images fall outside the

ambit of Zauderer.

Id. at 1216-17.

The Court of Appeals then found that the appropriate level of

scrutiny to apply to the graphic images was the Central Hudson

test. Id. at 1217 (citing its Affirmance Opinion, 566 F.3d at 1142-

43). The Court reiterated its finding that the intended purpose of

the FDA rule was “to encourage current smokers to quit and dissuade

other consumers from ever buying cigarettes.” Id. at 1218. Assuming

without deciding that such a government interest was substantial,

the Court concluded that the FDA had offered no evidence to show

that the graphic warnings directly advanced that interest. Id. at

1218-21. For those reasons, the FDA rule did not survive Central

Hudson scrutiny and was struck down.

These recent cases clarify two basic principles regarding

First Amendment scrutiny of commercial speech. First, Zauderer only

applies to government restrictions on commercial speech that

require purely factual and noncontroversial disclosures in order to

prevent and correct consumer deception. If a restriction qualifies

for Zauderer review, it then need only be “reasonably related” to

the state’s interest, as long as it is not otherwise unjustified or

unduly burdensome. Second, assuming Zauderer does not apply, the

restriction is to be reviewed under Central Hudson and will survive

First Amendment scrutiny if it directly advances a substantial

-24-

government interest, and the fit between the government’s interest

and the means chosen to advance that interest is reasonable.

2. Zauderer Is the Applicable Standard for Review of

the Corrective Statements

A government restriction on speech is reviewed under Zauderer

if: (1) the government restriction requires a disclosure rather

than a ban on speech; (2) the required disclosures are purely

factual and uncontroversial; and (3) the disclosures are aimed at

false and misleading commercial speech and preventing such speech

from deceiving consumers. Since no party is arguing that the

Corrective Statements are bans on speech rather than “disclosures,”

the Court will turn to the remaining two requirements.

a. The Statements Are Purely Factual

and Uncontroversial

i. “Purely Factual”

Every sentence of the Corrective Statements is based in

specific Findings of Fact made by this Court in the Original

Opinion. See Appendix A. Moreover, each Statement is “clear” and

“accurate.” Reynolds, 696 F.3d at 1216 (describing the statements

found factual in Zauderer and Milavetz). Defendants disagree.

Defendants’ first argument alleges that the preamble language

that introduces the various Statements is not “purely factual.”

However, Defendants fail to raise any substantive argument against

the content of the preamble, which does nothing more than state

that a federal court ruled that Defendant tobacco companies

-25-

deceived the public about the topic of the particular Statement and

ordered them to issue an accurate Statement.

For example, the preamble in Corrective Statement B states, “A

Federal Court has ruled that the Defendant tobacco companies

deliberately deceived the American public about the addictiveness

of smoking and nicotine, and has ordered those companies to make

this statement.” This Court made a number of explicit findings that

the tobacco companies perpetuated fraud and deceived the public

regarding the addictiveness of cigarettes and nicotine. See, e.g.,

Original Opinion, 449 F. Supp. 2d at 209 (“Defendants have publicly

denied and distorted the truth as to the addictive nature of their

products for several decades.”); id. at 271 (“Defendants have

publicly made false and misleading denials of the addictiveness of

smoking[.]”); id. at 307 (“For approximately forty years,

Defendants publicly, vehemently, and repeatedly denied the

addictiveness of smoking and nicotine’s central role in smoking.”);

id. at 856 (“Defendants have made and continue to make false and

fraudulent statements about the addictiveness of nicotine and

smoking.”). These findings were upheld on appeal. Affirmance

Opinion, 566 F.3d at 1127-28 (upholding the district court’s

conclusion that Defendants engaged in “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”).

-26-

It is also factually true that the Court is ordering the

Corrective Statements to be made on this topic so as to prevent

further dissemination of untruthful information by Defendants.

Original Opinion, 449 F. Supp. 2d at 928 (ordering Defendants to

make corrective statement about addiction). Similar findings of

fraud were made as to each of the other topics addressed, and the

Court similarly ordered the Defendants to make statements on those

topics. See Appendix A. Thus, there is simply no support for

Defendants’ argument that the language of the preamble text is not

“factual.”

Recognizing this flaw in their argument, Defendants’ attack on

the preamble language does not suggest that the actual content is

inaccurate, but instead argues that the language evokes an

“emotional response” and “embarrassment” and thus is not factual

under Reynolds.7 Defendants’ attempts to analogize this case to

Reynolds ignore the enormous and analytically significant

differences between the two. The required disclosures in the two

cases contain vastly different content, were issued under different

statutes, and serve different government interests.

The warnings at issue in Reynolds contained graphic images

such as a man smoking through a tracheotomy hole, a woman crying,

7

In this context, as in the Supreme Court’s many cases attempting to

define obscenity, whether a Statement evokes an “emotional response” or

“embarrassment” will often be in the eye of the beholder. See, e.g.,

Jacobellis v. Ohio, 378 U.S. 184, 197 (1964) (Stewart, J., concurring)

(noting difficulty of defining “hard-core pornography,” but observing “I

know it when I see it”).

-27-

and a man wearing a shirt with the words “I QUIT” on it. Reynolds,

696 F.3d at 1216. The FDA conceded that these images were “not

meant to be interpreted literally.” Id. In contrast, the Corrective

Statements contain no pictures and merely disclose facts. Thus,

there is no danger that the Statements do “not convey any warning

information” nor is there any fear that they are “not meant to be

interpreted literally,” as the Court of Appeals concluded about the

graphic images. Id. at 1216-17 (emphasis in original). Thus,

Defendants make no substantive argument for why the Statements

should be found not to be factual under Reynolds.

Defendants then raise a number of challenges against the

phrasing of particular facts in various Statements. First,

Defendants argue that the assertion in Corrective Statement A

regarding how many Americans die each day from smoking-related

illnesses is not factual “because the calculation is based on a

rough estimate of the number of Americans who die each year from

smoking-related illnesses, not each day.” Defs.’ Resp. to the

Gov’t’s Proposed Corrective Statements, 18 [Dkt. No. 5881]. The

Original Opinion explicitly phrased the statistic in terms of days.

Original Opinion at 854-55 (“Cigarette smoking and exposure to

secondhand smoke kills . . . more than 1,200 [Americans] every

single day.”). To the extent the Defendants’ argument is that the

text of the statement does not properly indicate that the number is

a “rough estimate,” the final version of Corrective Statement A

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reads, “Smoking kills, on average, 1,200 Americans. Every day.”

Thus, the text has been amended to address Defendants’ concerns.

Second, Defendants argue that the portion of Corrective

Statement D which asserts that Defendants “manipulated cigarettes

to make them more addictive” is “misleading” because “it suggests

that Defendants spike cigarettes with additional nicotine.” Defs.’

Resp. to the Gov’t’s Proposed Corrective Statements, 18 [Dkt. No.

5881]; see also Defs.’ Reply to Pub. Health Intervenors’ Resp. to

U.S. Submission of Proposed Corrective Statements & Expert Report,

3-4 [Dkt. No. 5889]. It does no such thing.

The language does not state or imply that Defendants “spiked”

or added nicotine to their cigarettes. Instead, the Statement

summarizes the Factual Findings concluding that Defendants

manipulated nicotine delivery in a number of ways. This Court found

that:

Defendants have used a variety of physical and

chemical design parameters to manipulate the

nicotine delivery of their commercial

products. . . . Defendants' goal to ensure

that their products deliver sufficient

nicotine to create and sustain addiction

influences their selection and combination of

design parameters. No single design parameter

is responsible, on its own, for the level of

nicotine delivered by a particular cigarette.

Rather, Defendants combine design parameters

to ensure that any particular cigarette

delivers a sufficient level of nicotine.

Original Opinion, 449 F. Supp. 2d at 337-38 (emphasis added); see

also id. at 858-59 (“Defendants have studied extensively how every

-29-

characteristic of every component of cigarettes – including the

tobacco blend, the paper, the filter, additives, and the

manufacturing process – affects nicotine delivery. They have

utilized that understanding in designing their cigarettes.”)

(emphasis added). Thus, the language asserting that Defendants

manipulated cigarettes is amply supported by the record and is

factually accurate.

Third, Defendants argue that Corrective Statement D errs when

it states that cigarette companies “add[] ammonia to make the

cigarette taste less harsh,” because the assertion is “subject to

the misinterpretation that all of Defendants’ cigarettes are

presently made with ammonia as an added ingredient, which is not

correct.” Defs.’ Supplemental Br. Regarding the Gov’t’s Proposed

Corrective Statements, 5 [Dkt. No. 5985]. However, the text clearly

specifies that adding ammonia is only one of “many ways” in which

cigarette companies control the impact and delivery of nicotine.

See Corrective Statement D (“Cigarette companies control the impact

and delivery of nicotine in many ways, including . . . adding

ammonia to make the cigarette taste less harsh . . . .”). The

language of Statement D in no way suggests that all Defendants add

ammonia to all of their cigarettes.

Fourth and finally, Defendants challenge the assertion in

Corrective Statements B and D that quitting is difficult because

nicotine actually changes the brain. They suggest that the language

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inaccurately suggests that “smokers cannot quit smoking because of

changes to the brain caused by smoking.” Defs.’ Resp. to the

Gov’t’s Proposed Corrective Statements, 13 n.3 [Dkt. No. 5881].

Again, the Corrective Statement cannot reasonably be read in this

way. The challenged language states, “When you smoke, the nicotine

actually changes the brain – that’s why quitting is so hard.” The

Factual Findings of this Court, affirmed by the Court of Appeals,

support this assertion. See Original Opinion, 449 F. Supp. 2d at

210 (“[B]ecause the smoker's brain has adapted to the constant

presence of nicotine, it becomes dependent on nicotine to function

normally. When a smoker doesn't have nicotine, the brain functions

abnormally and most people, approximately 80%, experience

withdrawal symptoms.”); see also id. (“Over time, the brain becomes

tolerant to the effects of nicotine and needs even greater amounts

of it to produce the same effects on hormones as it once did before

the development of tolerance.”). Identifying that quitting smoking

is difficult, a fact Defendants do not dispute, is not the same as

asserting that quitting smoking is impossible.

In conclusion, it is significant that Defendants do not point

to any evidence that the assertions they challenge are not true.

Rather, they argue that certain portions of the Statements will be

misconstrued by consumers. As discussed above, their arguments are

not based on reasonable readings of the language. Thus, since the

Corrective Statements are grounded in the affirmed Findings of Fact

-31-

of this Court, convey accurate information, and do not attempt to

“shock” the reader or elicit embarrassment, they are “factual”

under Zauderer.

ii. “Uncontroversial”

The Corrective Statements also satisfy Zauderer’s requirement

that they be uncontroversial. “Controversy” is defined as “a cause,

occasion or instance of disagreement or contention,” or “a

difference marked especially by the expression of opposing views.”

Webster’s Third New International Dictionary 497 (1993). However,

in the context of litigation, controversy must mean more than “the

fact that some people may be highly agitated and be willing to go

to court over the matter.” Fund for Animals v. Frizzell, 530 F.2d

982, 988 (D.C. Cir. 1975). By the same token, it must also mean

more than that Defendants simply disagree with a particular

proposition that has been decided against them.

Our Court of Appeals discussed the contours of a

“controversial” government restriction on commercial speech in

Reynolds. The FDA, as noted earlier, conceded that the graphic

images were intended to “symbolize the textual warning statements.”

Reynolds, 696 F.3d at 1216. The Court found this to be problematic

because the images did not clearly convey the particular text, but

rather were “subject to misinterpretation” and required

“significant extrapolation on the part of consumers.” Id.

The text of the Corrective Statements, in comparison, consists

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of simple declarative sentences and basic, uncomplicated language.

There are no images at issue and the language used does not raise

similar concerns about misinterpretation. Nor is there any need for

the consumer to “extrapolate” from the text. In short, the

Statements are, as noted earlier, entirely distinguishable from the

images in Reynolds.

Defendants raise two specific arguments to support their claim

that the Statements are “controversial.” First, Defendants again

attack the preamble, reiterating their argument that it is

controversial under Reynolds because it intends to evoke an

emotional response. Defs.’ Supplemental Br. Regarding the Gov’t’s

Proposed Corrective Statements, 4 [Dkt. No. 5985] (citing Reynolds,

696 F.3d at 1217); see also Defs.’ Reply to Pub. Health

Intervenors’ Resp. to U.S. Submission of Proposed Corrective

Statements & Expert Report, 3 [Dkt. No. 5889] (calling the preamble

“unprecedented, self-denigrating language which would compel

Defendants to make public admissions of past wrongdoing”).

Putting aside Defendants’ hyperbole, their argument ignores

the fact that the government regularly requires wrongdoers to make

similar disclosures in a number of different contexts. The language

of the preamble is hardly “unprecedented,” and the variety of

contexts in which such language has been approved undermines

Defendants’ position that the preamble is “controversial.”

For example, the Federal Trade Commission (“FTC”) has required

-33-

corporations to issue corrective messages for decades. Recently,

the FTC ordered a seller of supposed “cancer remedies” to send a

letter, on its own letterhead, signed by the seller itself, to

individuals who had purchased its product. In re Daniel Chapter

One, No. 9329, 2010 WL 387917, at *2 (F.T.C. Jan. 25, 2010). The

letter included the statement, “the Federal Trade Commission

(‘FTC’) has found our advertising claims for these products to be

deceptive because they were not substantiated by competent and

reliable scientific evidence, and the FTC has issued an Order

prohibiting us from making these claims in the future.” Id. at *4.

The letter went on to specify that “[c]ompetent and reliable

scientific evidence” did not support the company’s claims that

their products were “effective when used for prevention, treatment

or cure of cancer.” Id.

The company argued that requiring it to send the letter was

compelled speech, barred by the First Amendment. See Br. of Pet’rs

at *61, Daniel Chapter One v. F.T.C., 405 F. App’x 505 (D.C. Cir.

2010) (No. 10-1064), 2010 WL 5644693 (citations omitted). Our Court

of Appeals firmly rejected this claim:

Deceptive commercial speech is entitled to no

protection under the First Amendment and, even

if it were, that would not preclude the

Commission's order, which is carefully

tailored to protect DCO's clientele from

deception.

Daniel Chapter One, 405 F. App’x at 506 (citations omitted), cert.

-34-

denied, 131 S. Ct. 2917 (2011).8 The Corrective Statements are

similarly “carefully tailored to protect” consumers from deception.

They alert the consumer to the fact that they have been

misinformed, and then provide the accurate information.

The National Labor Relations Board (“NLRB” or “Board”) has

also required companies that have violated federal labor law to

post at their facilities a notice that it refers to as an

“Appendix.” See, e.g., Parkwood Dev. Ctr., Inc., 347 N.L.R.B. 974,

977-78 (2006), pet. for rev. denied, 521 F.3d 404 (D.C. Cir. 2008);

Guardsmark, LLC & Serv. Employees Int’l Union, Local 24/7, 344

N.L.R.B. 809, 812, 814 (2005), pet. for rev. denied in relevant

part, 475 F.3d 369, 380-81 (D.C. Cir. 2007). The Appendix begins:

NOTICE TO EMPLOYEES

POSTED BY ORDER OF THE NATIONAL LABOR

RELATIONS BOARD

An Agency of the United States Government

The National Labor Relations Board has found

that we violated Federal labor law and has

ordered us to post and obey this notice.

Parkwood, 347 N.L.R.B. at 978; Guardsmark, 344 N.L.R.B. at 814. The

Appendix then goes on to detail what rights the workers have and

specifies what the company can and cannot do under federal law.

Parkwood, 347 N.L.R.B. at 978; Guardsmark, 344 N.L.R.B. at 814. The

Appendix is signed by the company itself. Parkwood, 347 N.L.R.B. at

8

Similar FTC orders have been upheld. See, e.g., In re Brake Guard

Prods., Inc., 125 F.T.C. 138 (1998) (requiring letter saying that FTC had

determined that certain statements are “FALSE and MISLEADING”), aff’d sub

nom. Jones v. F.T.C., 194 F.3d 1317 (9th Cir. 1999) (unpublished table

opinion).

-35-

978; Guardsmark, 344 N.L.R.B. at 814. Again, these cases

demonstrate that there is nothing novel about requiring those who

have violated the law to identify their wrongdoing and correct

their conduct.

In addition, a number of other statutory and regulatory

provisions establish that manufacturers can be compelled to

disclose adverse determinations about themselves and their

products. For example, under the National Traffic and Motor Vehicle

Safety Act, the National Highway Transit Safety Administration

(“NHTSA”) can determine that there is a safety defect or

noncompliance with an applicable safety standard and order the

manufacturer to issue a notice alerting “owners, purchasers, and

dealers” to that defect or noncompliance. 48 U.S.C.

§ 30118(b)(2)(A). If there is litigation and the government

prevails, NHTSA can order the manufacturer to provide a notice

alerting consumers that a defect exists, and that NHTSA’s “decision

has been upheld in a proceeding in the Federal Courts.” 49 C.F.R.

§§ 577.5, 577.6(c)(I). Thus, mandatory disclosures alerting the

consumer to wrongdoing and giving accurate information about that

wrongdoing have been upheld. They are neither unprecedented nor

controversial.

Defendants’ second argument is that the Factual Findings of

this Court are inherently “controversial” because no other court

has made similar findings. In fact, Defendants go so far as to

-36-

argue that other courts have actually made findings that directly

contradict the Findings of this Court. See Defs.’ Resp. to the

Gov’t’s Proposed Corrective Statements, 10 [Dkt. No. 5881]; Defs.’

Reply in Support of Resp. to the Gov’t’s Proposed Corrective

Statements, 8-9 [Dkt. No. 5893].

The simplest response is that this Court’s Findings are the

law of this case – differing findings in another case do not create

a legal “controversy.” Regardless, none of the cases cited by

Defendants support their argument. See U.S.’ Surreply in Support of

the U.S.’ Submission of Proposed Corrective Statements & Expert

Report, App’x 1 (addressing each case cited by Defendants and

identifying why those cases do not contain findings that contradict

the findings in this case); see also Grisham v. Philip Morris,

Inc., 670 F. Supp. 2d 1014, 1035 (C.D. Cal. 2009) (“[N]o previous

case appears to include an ultimate finding of fact absolving

tobacco companies of liability on the basis that they did not

engage in fraudulent activities. Rather, the verdicts in favor of

the tobacco companies are based on issues such as standing, absence

of harm, or plaintiffs' non-reliance on the fraud.”). Thus, the

Defendants point to nothing that directly and substantively

contradicts the Findings of this Court.

Because the Statements are grounded in Factual Findings that

have been upheld on appeal and are not inflammatory or likely to be

-37-

misunderstood, they are both factual and uncontroversial under

Zauderer and its progeny.

b. The Government Interest Is to Correct and

Prevent Consumer Deception

The next requirement for a government restriction on speech to

receive First Amendment review under Zauderer is that the factual

and uncontroversial disclosures must be aimed at correcting

misleading speech and preventing deception of consumers. Milavetz,

130 S. Ct. at 1339-40. There can be no question that this is the

purpose of the Corrective Statements. In the words of the Court of

Appeals, the Statements intend to “reveal the previously hidden

truth” about the products and “correct Defendants’ campaign of

deceptive marketing” in an attempt to prevent and restrain future

RICO violations. Affirmance Opinion, 566 F.3d at 1140; see also

Reynolds, 696 F.3d at 1216 & n.10 (observing that this case’s

remedial justification is “to correct any false or misleading

claims made by cigarette manufacturers in the past”).

Defendants suggest that the government’s proposed statements

were inappropriately motivated by a desire to motivate smokers to

quit. Defs.’ Reply in Support of Resp. to the Gov’t’s Proposed

Corrective Statements, 13 [Dkt. No. 5893]. The Statements say

nothing about the choices of individual smokers to quit or continue

smoking. Unlike in Reynolds, where the FDA chose images with the

express purpose of “encourag[ing] current smokers to quit and

dissuad[ing] other consumers from ever buying cigarettes,” 696 F.3d

-38-

at 1218, this Court has never suggested or indicated that its

Corrective Statements seek to encourage smokers to quit. In fact,

it has specifically acknowledged that such a goal would be

inappropriate and not authorized by the RICO statute.9

Thus, the Defendants offer no substantive argument that the

Statements are not “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,” as directed by the

Court of Appeals. Affirmance Opinion, 566 F.3d at 1144-45 (citation

omitted).

In conclusion, the Corrective Statements should be reviewed

under Zauderer because they are purely factual and uncontroversial

disclosures aimed at preventing commercial speech from deceiving

consumers.

C. The Corrective Statements Satisfy the Zauderer

Requirements

Once a court has concluded that the Zauderer standard of

review is appropriate, the challenged disclosures survive

constitutional scrutiny under Zauderer if they are (1) reasonably

9

This Court rejected the government’s request that a national smoking

cessation program be included in the Remedial Order. Original Opinion,

449 F. Supp. 2d at 933. At that time, the Court observed that, while

adoption of a cessation program would “unquestionably serve the public

interest,” it was not a permissible remedy under section 1964(a) because

“it is not specifically aimed at preventing and restraining future RICO

violations.” Id.

-39-

related to the government interest in preventing consumer deception

and (2) not otherwise unjust or unduly burdensome. The Court will

address these issues separately.

1. The Statements Are Reasonably Related to Correcting

and Preventing Consumer Deception

To satisfy Zauderer, the Statements must be “reasonably

related” to the government’s interest in correcting Defendants’

false and misleading speech in order to prevent future consumer

deception.10

As already discussed, the FTC regularly uses corrective

statements as a tool to correct a public campaign of

misinformation. In Warner-Lambert Company v. F.T.C., 562 F.2d 749

(D.C. Cir. 1977), the FTC ordered the manufacturer to inform

consumers that, “[c]ontrary to prior advertising, Listerine will

not help prevent colds or sore throats or lessen their severity.”

562 F.2d at 763. Our Court of Appeals ruled that the First

Amendment presented “no obstacle to government regulation of false

or misleading advertising.” Id. at 758 (discussing Virginia Bd. of

Pharm., 425 U.S. at 772). After examining the specific wording and

the details of publication, the Court approved the corrective

statement as “well calculated to assure that the disclosure will

10

This does not require a “least restrictive means” analysis. See Full

Value Advisors, LLC v. S.E.C., 633 F.3d 1101, 1109 (D.C. Cir.) (noting

that Zauderer rejected idea that disclosure requirements are subject to

“least restrictive means” analysis), cert. denied, 131 S. Ct. 3003

(2011).

-40-

reach the public.” Warner-Lambert, 562 F.2d at 763.

Though the Court of Appeals affirmed the corrective statement

generally, it deleted the “contrary to prior advertising” language

as unnecessary. Id. It observed that, although this case was not

such an “egregious case of deliberate deception” as to justify the

inclusion of such a preamble, it was possible that such a statement

might be appropriate in another situation. Id.

While Warner-Lambert was decided well before the development

of the commercial speech doctrine, our Court of Appeals reaffirmed

its principal holding as to the value of corrective statements in

Novartis Corporation v. F.T.C., 223 F.3d 783 (D.C. Cir. 2000). In

that case, the FTC found that Novartis’s advertisements for Doan

back pain remedies were “deceptive.” 223 F.3d at 785. The

administrative law judge who originally ruled on the complaint

decided that corrective advertising was unjustified and too

“drastic.” Id. at 786. The Commission, however, concluded that it

was warranted “because the Doan's advertisements had created or

reinforced consumer misbelief in Doan's superior efficacy and the

misbelief was likely to continue.” Id. Therefore, it ordered

Novartis to include a disclaimer stating, “Although Doan's is an

-41-

effective pain reliever, there is no evidence that Doan's is more

effective than other pain relievers for back pain.” Id.

The Court of Appeals affirmed the Commission’s finding that

the advertising was “deceptive,” id. at 786-87, and held that the

expert testimony proffered by the FTC provided “substantial

evidence” in support of the Commission’s decision. Id. at 788.

Significantly, the Court of Appeals also concluded that there was

“no First Amendment impediment to the remedy” under Central

Hudson.11 Id. at 788-89. The Court observed that the remedy chosen

by the FTC advanced the government’s interest in the “avoidance of

misleading and deceptive advertising.” Id. at 789. It then noted

that, because the order was appropriate and justified under the

Commission’s regulatory standard, the remedy was no greater than

necessary to serve the interest involved, and was thus not overly

broad. Id. (citing Warner-Lambert, 562 F.2d at 758).

In addition to the fact that corrective statements have

historically been used to target and redress consumer deception,

our Court of Appeals has already ruled in this case that “the

publication of corrective statements addressing Defendants’ false

assertions is adequately tailored to preventing Defendants from

deceiving consumers.” Affirmance Opinion, 566 F.3d at 1144. The

Court of Appeals explained that “[r]equiring Defendants to reveal

11

Interestingly, Novartis reviews the statements under Central Hudson,

without any mention or discussion of Zauderer.

-42-

the previously hidden truth about their products will prevent and

restrain them from disseminating false and misleading statements,

thereby violating RICO, in the future.” Id. at 1140; see also id.

(“Defendants will be impaired in making false and misleading

assurances about, for instance, smoking-related diseases or the

addictiveness of nicotine . . . if they must at the same time

communicate the opposite, truthful message about these matters to

consumers.”) Defendants offer no argument that challenges this

conclusion.

Defendants’ only concrete argument is that the preamble to the

Corrective Statements is not “reasonably related” to the

government’s interest, because, under Warner-Lambert and Novartis,

the Corrective Statements must be focused on facts regarding the

product, not the speaker’s past conduct. Defs.’ Resp. to the

Gov’t’s Proposed Corrective Statements, 7 [Dkt. No. 5881].

Defendants’ argument is not persuasive for two reasons. First,

as discussed above, while Warner-Lambert and Novartis did not see

the need for a preamble focused on a speaker’s past conduct, the

FTC and our Court of Appeals have upheld determinations that

alerting people to the deceptive nature of a business practice is

warranted and tailored to “protect” consumers from further

deception. See, e.g., Daniel Chapter One, 405 F. App’x at 506; see

also supra Sec. IV.B.2.a.ii (discussing compelled disclosures under

other statutes).

-43-

Second, the deception at issue in Warner-Lambert and Novartis

is very different from the deceptive campaign waged for close to

fifty years by Defendants.12 In those cases, companies presented one

specific claim, namely, that their product provided a benefit that

it did not, in fact, provide. To address that single untruth, the

corrective statements merely had to state that the claim was not

true. Warner-Lambert, 562 F.2d at 763 (“Listerine will not help

prevent colds or sore throats or lessen their severity.”);

Novartis, 223 F.3d at 786 (“Although Doan's is an effective pain

reliever, there is no evidence that Doan's is more effective than

other pain relievers for back pain.”). There was no finding of bad

faith or intentional deception in either of those cases. See

Warner-Lambert, 562 F.2d at 763 (“While we do not decide whether

petitioner proffered its cold claims in good faith or bad, the

record compiled could support a finding of good faith.”); Novartis,

223 F.3d at 786 (noting that Novartis did not dispute that the

implied claim was “likely to deceive,” but not mentioning fraud,

intentional deception, or bad faith).

The scope of the consumer fraud at issue here is much greater.

The Defendants not only proffered scientific claims they knew were

false, such as when they explicitly denied the adverse health

12

As the Original Opinion discussed at length, even though a scientific

consensus existed by 1964 that smoking caused disease, 449 F. Supp. 2d

at 174-179, Defendants falsely denied and distorted that information for

many years thereafter. Id. at 187-204.

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effects of smoking and secondhand smoke, Original Opinion, 449 F.

Supp. 2d at 187-204, 788-800, but also, for example, concealed and

repressed research data showing that nicotine is addictive, id. at

289-307, marketed to young people to recruit “replacement smokers”

in order to ensure their economic future, id. at 561-691,

manipulated cigarette designs to ensure that cigarettes delivered

doses of nicotine adequate to create and sustain addiction, id. at

338-74, conspired to undermine and discredit the scientific

consensus that secondhand smoke causes disease, id. at 723-88,

suppressed and concealed scientific research, id. at 801-14, and

destroyed relevant documents to support their public and litigation

positions, id. at 814-31. The length of time this went on and the

scope of the manipulation of information that was given to

consumers went far beyond a single advertising campaign making a

single claim that a health benefit existed when it did not.

The Court of Appeals directed this Court to look to the

entirety of the Defendants’ deceptive scheme in crafting its

remedy. See Affirmance Opinion, 566 F.3d at 1144-45 (citation

omitted) (noting that the interest at issue is “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.”); see also Warner-Lambert, 562 F.2d at 769

(determining that “advertising which fails to rebut the prior

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claims . . . [would] inevitably build[] upon those claims;

continued advertising continues the deception, albeit implicitly

rather than explicitly”). Thus, in light of the record, this Court

concludes that the massive scope of Defendants’ campaign of

deception and fraud differentiates this case from cases requiring

simpler corrective statements such as Warner-Lambert and Novartis.

Given the lengthy record detailing Defendants’ deceptions over

the last several decades, and the finding, affirmed twice by the

Court of Appeals, that Defendants are likely to commit future RICO

violations, the preamble language provides important and necessary

context for the consumer to understand the accurate information

that follows.

Since the preamble is reasonably related to correcting and

preventing future consumer deception, and the Defendants offer no

substantive argument to suggest that the substance of the

Statements is not also reasonably related to that interest, the

Court concludes that the Statements in their entirety satisfy the

“reasonably related” prong of Zauderer review.

2. The Corrective Statements Are Not Unjustified or

Unduly Burdensome

The final step in the Zauderer analysis is determining whether

the Corrective Statements are unjustified or unduly burdensome.

Defendants argue that the Statements are “unduly burdensome”

because they “impose far greater burdens on Defendants’ speech than

necessary to further the Government’s anti-fraud interest.” Defs.’

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Supplemental Br. Regarding the Gov’t’s Proposed Corrective

Statements, 9 n.3 (citing Zauderer, 471 U.S. at 651).

Defendants fail to point to any “burden” or “chill” that the

Statements would actually have on their speech. There is no reason

to believe that issuing these Corrective Statements would place any

burden on Defendants’ speech other than the desired one, namely

preventing Defendants from denying the accuracy of them. See Spirit

Airlines, 687 F.3d at 415 (considering, while conducting more

stringent Central Hudson review, that DOT rule did not impose any

burden on speech other than requiring disclosure of final price).

Nor do Defendants acknowledge that the Court of Appeals has already

concluded, presuming the Statements are “‘purely factual and

uncontroversial information’ geared towards thwarting prospective

efforts by Defendants to either directly mislead consumers or

capitalize on their prior deceptions,” that such Statements do not

impermissibly chill Defendants’ protected speech. Affirmance

Opinion, 566 F.3d at 1144-45 (quoting Zauderer, 471 U.S. at 651).

In sum, the Court finds no basis for deeming the Statements to be

unduly burdensome.

Based on the foregoing review, the Court concludes that the

Corrective Statements satisfy the Zauderer requirements.

D. Even if the Zauderer Requirements Are Not Satisfied, the

Corrective Statements Satisfy the Requirements of Central

Hudson

Even if the Corrective Statements do not satisfy Zauderer,

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they meet the Central Hudson requirements and thus survive First

Amendment scrutiny. Our Court of Appeals has indicated that it is

correct to evaluate a government restriction on commercial speech

under Central Hudson if it does not survive Zauderer review. See

Reynolds, 696 F.3d at 1217 (holding that when FDA rule did not

“fall within the narrow enclave carved out by Zauderer,” Central

Hudson review was appropriate); see also Spirit Airlines, 687 F.3d

at 415 (determining that Zauderer applied and was satisfied, but

also ruling that the DOT rule survived Central Hudson scrutiny).

Three questions must be answered under Central Hudson: (1)

whether the asserted government interest is substantial; (2)

whether the regulation directly advances the government interest

asserted; and (3) whether the fit between the government’s interest

and the means chosen is “not necessarily perfect, but reasonable.”

Id. (citation omitted).

The answer to the first question is easy. Defendants do not

deny that the government’s interest in preventing and restraining

future consumer deception is substantial.

As to the second question regarding whether the Statements

directly advance the governmental interest asserted, the burden is

on the government to show that “the harms it recites are real and

that its restriction will in fact alleviate them to a material

degree.” Florida Bar v. Went for It, Inc., 515 U.S. 618, 626 (1995)

(citing Rubin v. Coors Brewing Co., 514 U.S. 476, 487 (1995)).

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There has been some discussion as to what quantum of evidence is

necessary to support the government’s assertion that corrective

statements are necessary and will be effective. Florida Bar, 515

U.S. at 626. However, in 2001 the Supreme Court clarified that:

We do not . . . require that empirical data

come . . . accompanied by a surfeit of

background information. . . . [W]e have

permitted litigants to justify speech

restrictions by reference to studies and

anecdotes pertaining to different locales

altogether, or even, in a case applying strict

scrutiny, to justify restrictions based solely

on history, consensus, and simple common

sense.

Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 555 (2001)

(citations and internal quotation marks omitted).

In this case, “simple common sense,” as well as deference to

the guidance proffered by the Court of Appeals, supports this

Court’s conclusion that "reveal[ing] the previously hidden truth"

about the products and "correct[ing] Defendants' campaign of

deceptive marketing" will prevent and restrain future RICO

violations. Affirmance Opinion, 566 F.3d at 1140.

As to the third question, Defendants argue that the statements

they originally proposed advance the same government interest with

less encroachment on their First Amendment rights. Defendants

appear to be arguing that the “fit” between the government’s

interest and the Statements is not “reasonable.” Spirit Airlines,

687 F.3d at 415 (citation omitted).

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This argument fails for several reasons. First, there is no

“least restrictive means” test under Central Hudson. Fox, 492 U.S.

at 477 (“Whatever the conflicting tenor of our prior dicta may be,

we now focus upon this specific issue for the first time, and

conclude that the reason of the matter requires something short of

a least-restrictive-means standard.”). Rather, the test is whether

there is “a reasonable fit between the [government]’s ends and the

means chosen to accomplish those ends, . . . a means narrowly

tailored to achieve the desired objective.” Lorillard Tobacco, 533

U.S. at 556 (citing Florida Bar, 515 U.S. at 632 (citations and

internal quotation marks omitted)).

Our Court of Appeals has already concluded that the Corrective

Statements meet this standard, observing that the remedy is

narrowly tailored to achieve the substantial government interest in

“preventing Defendants from committing future RICO violations.” Id.

at 1144; see also Novartis, 223 F.3d at 789 (citing Warner-Lambert,

562 F.2d at 758) (holding that corrective statements were no

greater than necessary to serve the interest involved). In its

Affirmance Opinion, the Court made clear that “[a]lthough the

standard for assessing burdens on commercial speech has

varied . . ., the Supreme Court’s bottom line is clear: the

government must affirmatively demonstrate its means are ‘narrowly

tailored’ to achieve a substantial government goal.” Affirmance

Opinion, 566 F.3d at 1143 (citations omitted).

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Moreover, there are significant differences between

Defendants’ proposed submissions and the Statements fashioned by

the Court. These differences are material for predicting how

effective the Statements will be at preventing and restraining

Defendants from violating RICO in the future. For example, the

Original Opinion found that an “overwhelming accumulation of data

demonstrates that [secondhand smoke] causes disease,” 449 F. Supp.

2d at 703, and that such a consensus has existed since at least

1986. Id. at 800. The Opinion also found that Defendants recognized

these dangers as early as 1961, based on studies done by public

health officials and their own internal research. Id. at 708-09.

Despite publicly promising to fund independent research on the

issue, Defendants “took steps to undermine independent research, to

fund research designed and controlled to generate industry-

favorable results, and to suppress adverse research results.” Id.

at 722-23; see also id. at 724-88 (describing various consultants

and organizations created and funded by Defendants and publicized

as “independent” that in reality controlled and manipulated

scientific information about secondhand smoke).

Based on these Findings of Fact, this Court and the Court of

Appeals concluded that there was a reasonable likelihood that

Defendants would continue to engage in false and deceptive

advertising practices in the future. Original Opinion, 449 F. Supp.

2d at 910; Affirmance Opinion, 566 F. 3d at 1131-34.

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The corrective statements submitted by the Defendants would be

less effective at preventing and restraining such future violations

because they would allow Defendants, once the two-year publication

period expires,13 to falsely deny that secondhand smoke causes

disease. Defendants’ proposed statements depict this well-

established fact as if it were a mere opinion held by public health

officials, rather than representing a consensus held by the

scientific community at large.14

By ensuring that consumers know that Defendants have misled

the public in the past on the issue of secondhand smoke in addition

to putting forth the fact that a scientific consensus on this

subject exists, Defendants will be less likely to attempt to argue

in the future that such a consensus does not exist. Thus,

Defendants’ proposed statements do not advance the interest in

13

The corrective statements are to be published in various forms, but the

longest-running public statements will be the cigarette onserts and the

point-of-sale displays, which will continue for two years. 449 F. Supp.

2d at 939-40. The statements will be placed on Defendants’ websites “for

the duration of this Final Judgment and Remedial Order,” however, which

may be longer. Id. at 939.

14

All of the statements on secondhand smoke submitted by the Defendants

phrased the fact as merely a “conclusion” held by either the Surgeon

General or “public health officials.” See Philip Morris USA’s Proposed

Corrective Statements As Compelled by the Final J. & Remedial Order, 5

[Dkt. No. 5776] (“Public health officials have concluded that secondhand

smoke from cigarettes causes disease . . . .”); Certain Joint Defs.’

Submission of Proposed Corrective Statements Pursuant to Order #1015, 6-7

[Dkt. No. 5780] (“The Surgeon General has concluded: Exposure to

environmental tobacco smoke has been proven to cause . . . .”); Lorillard

Tobacco Company’s Proposed Corrective Statements Required by Order #1015,

4 [Dkt. No. 5781] (“The Surgeon General has concluded: The evidence is

sufficient to infer a causal relationship between exposure to secondhand

smoke and [various diseases].”).

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preventing future consumer deception to the same extent as the

final Corrective Statements. Beyond that, Defendants offer no

concrete reasons to support their argument that the “fit” between

the chosen Corrective Statements and the government’s interest is

not “reasonable.”15

Thus, since the Corrective Statements satisfy the requirements

of both Central Hudson and Zauderer, they do not violate the First

Amendment.

V. Due Process

One last argument needs to be briefly addressed. Defendants

argue that the preamble is “confessional” and has “an exclusively

punitive purpose.” It then argues that such a punitive measure

cannot be imposed in the absence of the procedural protections

available to defendants in criminal cases. Defs.’ Resp. to the

Gov’t’s Proposed Corrective Statements, 25-26 [Dkt. No. 5881].

First, the Court does not construe the preamble as

confessional. Its purpose is not punitive, but corrective. Second,

court have, in various cases and under various statutes, upheld

decisions ordering defendants to admit wrongdoing and publish

15

Defendants’ only other support for the proposition that its statements

would be effective is the government’s expert report. See Defs.’

Supplemental Br. Regarding the Gov’t’s Proposed Corrective Statements,

8-9 [Dkt. No. 5985]; Defs.’ Supplemental Reply Br. Regarding the Gov’t’s

Proposed Corrective Statements, 7 [Dkt. No. 5989]. Although the Court has

not relied on the report, it can’t help but note that the Defendants’

reliance on the report contradicts its vigorous attempts to convince the

Court that it is “fundamentally flawed” and “unreliable.” Defs.’ Resp.

to the Gov’t’s Proposed Corrective Statements, 3 [Dkt. No. 5881].

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corrections, though those defendants were not provided with the

procedural protections of the criminal justice system. See supra

IV.B.2.a.ii. Third, this argument attempts to relitigate an issue

raised by Defendants at an earlier stage that was resolved against

them. See United States v. Philip Morris, Inc., 273 F. Supp. 2d 3

(D.D.C. 2002) (rejecting Defendants’ arguments for a jury trial).

VI. Conclusion

This Court’s authority to order corrective statements as a

remedy for past deception was affirmed by the Court of Appeals.

This Court has heeded its mandate to fashion Corrective Statements

that are purely factual and uncontroversial and are directed at

preventing and restraining the Defendants from deceiving the

American public in the future.

Now that the text for the Corrective Statements has been

finalized, the Court intends to address the details of

implementation. Originally, Defendants were ordered to publish the

Statements on their corporate websites, publish them as full-page

advertisements in major newspapers, run them on major television

networks, and attach onserts containing the Statements to their

cigarette packaging. Original Opinion, 449 F. Supp. 2d at 939-41.16

16

Defendants were also ordered to include the statements on Countertop

Displays and Header Displays provided as part of their Retail

Merchandising Programs. Id. at 939-40. This part of the remedial order

was vacated and remanded “for the district court to evaluate and ‘make

due provisions 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.” Affirmance Opinion, 566 F.3d at 1142

(continued...)

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These media were chosen 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.

Over six years have passed since the Court issued that ruling.

During that interval, the types of media in which Defendants convey

commercial messages of this nature have changed dramatically. See

Appendix B (listing various implementation considerations).

Because of the complexity of these issues, the Court has

concluded that the most efficient way to address them is to have

the parties meet and confer with the Special Master to see if

agreement can be reached. If not, the Court will order a Report and

Recommendation from the Special Master.

Even though the holiday season is upon us, the Court wants

discussions to begin in December and expects them to conclude by

March 1, 2013, unless the Special Master believes that additional

time would prove useful.

/s/

November 27, 2012 Gladys Kessler

United States District Judge

Copies via ECF to all counsel of record

16

(...continued)

(citing 18 U.S.C. § 1964(a)). This issue has been fully briefed, and will

be resolved in the near future.

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