United States v. Philip Morris USA Inc.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 20, 2012 Decided July 27, 2012

No. 11-5145

UNITED STATES OF AMERICA,

APPELLEE

v.

PHILIP MORRIS USA INC., ET AL.,

APPELLANTS

Appeal from the United States District Court

for the District of Columbia

(No. 1:99-cv-02496)

Miguel A. Estrada argued the cause for appellants. With

him on the briefs were Amir C. Tayrani, Dace C. Martinez,

Robert F. McDermott, Peter J. Biersteker, Noel J. Francisco,

R. Michael Leonard, Michael B. Minton, Bruce D. Ryder, A.

Elizabeth Blackwell, Beth A. Wilkinson, and Thomas J.

Frederick.

Daniel J. Popeo and Richard A. Samp were on the brief

for amicus curiae Washington Legal Foundation in support of

appellants.

Sarang Vijay Damle, Attorney, U.S. Department of

Justice, argued the cause for appellee. With him on the brief

were Michael F. Hertz, Deputy Assistant Attorney General,

2

and Mark B. Stern and Alisa B. Klein, Attorneys. R. Craig

Lawrence, Assistant U.S. Attorney, entered an appearance.

Katherine A. Meyer and Howard M. Crystal were on the

brief for appellees Tobacco Free Kids Action Fund, et al.

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

and SILBERMAN, Senior Circuit Judge.

Opinion for the Court by Circuit Judge BROWN.

BROWN, Circuit Judge: In this latest round in the

Government’s heavyweight bout against the tobacco industry,

the defendant cigarette manufacturers challenge the district

court’s refusal to vacate injunctions imposed in 2009.

Because the district court’s ruling survives our review, we

give this round to the Government.

I

Thirteen years ago, the Government sued several

cigarette manufacturers and related industry organizations for

civil violations of the Racketeer Influenced and Corrupt

Organizations Act (“RICO”). The suit asserted the

defendants had conspired to deceive consumers about the

health effects and addictiveness of smoking. It sought

injunctive relief and disgorgement of $280 billion in profits

under RICO’s Section 1964(a). See 18 U.S.C. § 1964(a).

On appeal of an interlocutory order, we held Section

1964(a) did not provide a disgorgement remedy. We

explained that because the Section only affords the district

court with jurisdiction to “prevent and restrain” future RICO

violations, the court was “limited to forward-looking

remedies.” United States v. Philip Morris USA, Inc., 396 F.3d

3

1190, 1198 (D.C. Cir. 2005). Disgorgement, as “a

quintessentially backward-looking remedy,” was out. Id.

The district court proceeded to conduct a nine-month

bench trial, make over 4000 findings of fact, and impose an

extensive set of injunctions. The court identified “more than

100 predicate [RICO violations] spanning more than a half-

century,” and found the defendants’ “numerous misstatements

and acts of concealment and deception were made

intentionally and deliberately . . . as part of a multi-faceted,

sophisticated scheme to defraud.” United States v. Philip

Morris USA, Inc., 449 F. Supp. 2d 1, 909 (D.D.C. 2009)

(“Injunction Opinion”). Based on that long history of

misconduct, and the defendants’ “countless [future]

‘opportunities’ and temptations to take similar unlawful

actions in order to maximize their revenues,” the court

determined there was “a reasonable likelihood that

[d]efendants’ RICO violations will continue in most of the

areas in which they have committed violations in the past.”

Id. at 909–12. Asserting its authority to “prevent and

restrain” the defendants from committing such future RICO

violations, 18 U.S.C. § 1964(a), the court prohibited the

defendants from making false or deceptive statements about

cigarettes, or “conveying any express or implied health

message or health descriptor for any cigarette brand.” Id. at

938. The court also ordered the defendants to issue

“corrective statements” in various media outlets about the

health effects of smoking, id. at 938–41, and disclose certain

marketing and sales information to the public and the

Department of Justice, id. at 941–45.

On appeal, we affirmed all but four discrete aspects of the

injunction order and remanded for further proceedings on

those narrow issues alone. See United States v. Philip Morris

USA, Inc., 566 F.3d 1095 (D.C. Cir. 2009) (per curiam)

4

(“Affirmance Opinion”). We held the district court had

jurisdiction to issue the injunctions because it did not clearly

err in finding the defendants exhibited a reasonable likelihood

of committing future RICO violations. See id. at 1131–34.

And though we acknowledged that the court’s chosen

injunctions were “broad,” we held that breadth was

“warranted to prevent further violations where[, as here,] a

proclivity for unlawful conduct has been shown.” Id. at 1137.

Exactly one month after we issued our opinion, the

President signed the Family Smoking Prevention and Tobacco

Control Act (the “Tobacco Control Act” or the “Act”) into

law. See Pub. L. No. 111-31, 123 Stat. 1776 (2009). The Act

imposed stringent restrictions on the conduct of cigarette

manufacturers. It limited marketing by prohibiting

distribution of branded merchandise, id. § 102, false or

misleading labeling, id. § 903(a), and claims of reduced risk

of harm (such as the use of descriptors like “light” or “mild”)

without prior approval of the FDA, id. § 911. It strengthened

warning labels by directing cigarette manufacturers to include

one of several textual warnings on every pack. Id. § 202(b).

And to ensure enforcement, it granted the FDA a hefty

budget, id. § 919, and the authority to impose monetary

penalties, id. § 103(c).

The defendants responded by moving to vacate the

injunctions on jurisdictional grounds because the Tobacco

Control Act’s restrictions on their conduct eliminated any

“reasonable likelihood” they would commit future RICO

violations. Alternatively, they claimed the court should

vacate the injunctions out of deference to the FDA’s

newfound primary jurisdiction over cigarette sales and

marketing.

5

The court rejected both arguments and left the injunctions

intact. See United States v. Philip Morris USA, Inc., 787 F.

Supp. 2d 68 (D.D.C. 2011) (“Vacatur Opinion”). On the

jurisdictional argument, it found the defendants were still

reasonably likely to commit future RICO violations because:

(1) the defendants were not likely to comply with the Tobacco

Control Act given their previous disregard for RICO and the

Master Settlement Agreement they had entered into with 46

state attorneys general in 1998; (2) the Act “target[ed]

different conduct” than the injunctions did; and (3) the

defendants’ pending lawsuits challenging the Act had resulted

in the invalidation of some of its restrictions, and could result

in the invalidation of even more restrictions, id. at 75–76. On

the primary jurisdiction argument, the court chose to retain

jurisdiction because several factors—including its relative

expertise in RICO cases, and the dissimilarities between the

proscriptions of the RICO statute and the requirements of the

Tobacco Control Act—weighed against ceding jurisdiction to

the FDA. Id. at 77–82.

The defendants appealed. We have jurisdiction to

entertain their challenge under 28 U.S.C. § 1292(a)(1).

II

The defendants advance the same arguments they

advanced below. Their primary argument is that the Tobacco

Control Act deprived the district court of jurisdiction by

eliminating any reasonable likelihood they would commit

future RICO violations. Their fallback argument is that even

if the district court retained jurisdiction following the passage

of the Act, it should have vacated the injunctions out of

deference to the FDA’s newly obtained primary jurisdiction.

We address those claims in turn.

6

A

RICO’s “Section 1964(a) grants district courts

jurisdiction ‘to prevent and restrain’ RICO violations.”

Affirmance Opinion, 566 F.3d at 1131. Accordingly, the

district court only had jurisdiction to maintain its injunctions

if it found the defendants “exhibit[ed] a reasonable likelihood

of committing future [RICO] violations.” Id. The court

found such a likelihood existed despite the passage of the

Tobacco Control Act because the defendants “offer[ed] no

facts which would warrant revisiting” the court’s pre-Act

findings on their proclivity for misconduct. Vacatur Opinion,

787 F. Supp. 2d at 75.

The defendants contend the district court twice applied

the wrong legal standard. They argue the court erred first

when it refused to vacate the injunctions under a line of cases

involving intervening legislation. In those circumstances,

courts had “deemed cases moot where a new law [wa]s

enacted during the pendency of an appeal and resolve[d] the

parties’ dispute.” Log Cabin Republicans v. United States,

658 F.3d 1162, 1166 (9th Cir. 2011) (per curiam).

The intervening legislation in those cases is

distinguishable from the Tobacco Control Act because the

legislation there made it “impossible for the court to grant any

effectual relief whatever.” Cody v. Cox, 509 F.3d 606, 608

(D.C. Cir. 2007). In Log Cabin Republicans, for example, the

court could not grant the plaintiffs any effectual relief on their

challenge to the “Don’t Ask, Don’t Tell” policy because

Congress subsequently passed a law repealing the policy. See

658 F.3d at 1165–66. Similarly, in Diffenderfer v. Gomez-

Colon, 587 F.3d 445 (1st Cir. 2009), the court could not grant

the plaintiffs any effectual relief on their challenge to Puerto

Rico’s Spanish-only ballots because Puerto Rico subsequently

7

passed a law requiring the bilingual ballots plaintiffs desired.

Id. at 450–51. By contrast, the Tobacco Control Act did not

make it impossible to grant effectual relief because it did not

make it impossible for the defendants to commit future RICO

violations; it did not repeal RICO, exempt the defendants

from RICO’s application, or legislate the defendants out of

existence. It simply subjected the defendants “to the

comprehensive regulatory oversight of the FDA.”

Appellants’ Br. at 31. The relevant question—as the district

court recognized—was whether that oversight made it so

difficult for the defendants to commit RICO violations that

there was no longer a reasonable likelihood of such violations

occurring. See Vacatur Opinion, 787 F. Supp. 2d at 75.

The defendants contend the district court made a second

error when answering that question. In reaching its

conclusion that the defendants “offer[ed] no facts which

would warrant revisiting” its earlier finding of reasonable

likelihood, the court noted that “‘a defendant claiming that its

voluntary compliance moots a case bears the formidable

burden of showing that it is absolutely clear that the allegedly

wrongful behavior could not reasonably be expected to

recur.’” Id. (quoting Friends of the Earth, Inc. v. Laidlaw

Environmental Services, Inc., 528 U.S. 167, 190 (2000)). The

defendants argue the court should not have imposed such a

“formidable” burden of proof because their claimed future

compliance with RICO was not “voluntary”—it was

mandatory under the terms of the Tobacco Control Act.

Of course, that argument assumes the defendants’

compliance with the Tobacco Control Act. And in light of the

defendants’ history of non-compliance with various legal

requirements, there was no reason for the district court to

make such an assumption. Indeed, the court expressly found

the Tobacco Control Act was not likely to produce

8

compliance when RICO and the Master Settlement

Agreement (“MSA”) had failed to do so in the past. See

Vacatur Opinion, 787 F. Supp. 2d at 76. The defendants

claim the Tobacco Control Act imposes tougher restrictions

and penalties than the MSA did, and is therefore more likely

to spur compliance, but the Act does not provide for penalties

as sweeping as those available under RICO. If 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. In light of

that finding, it was appropriate for the district court to hold

the defendants to the higher standard of proof reserved for

claims of mootness based on voluntary compliance.1

Even if the district court had found the defendants were

likely to comply with the Act, the injunctions would not have

been moot. There are significant parts of the injunctive order

that the Act does not cover, see Appellee’s Br. at 26–28, and

as the court noted, the injunctions, unlike the Act, are

specifically designed to combat racketeering activity, see

Vacatur Opinion, 787 F. Supp. 2d at 75, and therefore may be

enforced differently. Moreover, the scope of the Act itself

was unclear when the court ruled because another court had

struck down portions of the Act as unconstitutional. See id. at

76 (citing Commonwealth Brands, Inc. v. United States, 678

F. Supp. 2d 512, 521 (W.D. Ky. 2010)).

1

That finding—that the Tobacco Control Act was unlikely to

produce compliance where other laws had failed—also justifies the

district court’s refusal to vacate the portions of the injunctions that

overlapped with certain restrictions in the Act. See Appellants’ Br

at 46–51 (requesting such relief). If the defendants were not likely

to comply with those particular restrictions in the Act, those

restrictions did not moot the similar provisions in the injunctive

order.

9

In sum, we hold the district court maintained jurisdiction

because it applied the correct legal standard, and did not

clearly err in finding the defendants still exhibited a

reasonable likelihood of committing future RICO violations.

See Affirmance Opinion, 566 F.3d at 1131.

B

The defendants’ primary jurisdiction argument fares no

better. When adjudicating a claim would “require[] the

resolution of issues which, under a regulatory scheme, have

been placed within the special competence of an

administrative body,” the primary jurisdiction doctrine

permits a court to suspend the judicial process “pending

referral of such issues to the administrative body for its view.”

United States v. W. Pac. R.R. Co., 352 U.S. 59, 64 (1956); see

also Reiter v. Cooper, 507 U.S. 258, 268 (1993). The district

court found “this case d[id] not present the appropriate

circumstances for invocation of the primary jurisdiction

doctrine.” Vacatur Opinion, 787 F. Supp. 2d at 78. We

review that ruling for abuse of discretion, see Nat’l Tel. Coop.

Ass’n v. Exxon Mobil Corp., 244 F.3d 153, 156 (D.C. Cir.

2001), and find none.

Although “[n]o fixed formula exists for applying the

doctrine of primary jurisdiction,” some principles emerge

from our precedents. W. Pac. R.R. Co., 352 U.S. at 64. “The

primary jurisdiction doctrine rests both on a concern for

uniform outcomes (which may be defeated if disparate courts

resolve regulatory issues inconsistently) . . . and on the

advantages of allowing an agency to apply its expert

judgment.” Allnet Comm’cn Serv., Inc. v. Nat’l Exchange

Carrier Ass’n, 965 F.2d 1118, 1120 (D.C. Cir. 1992).

Consequently, we have found the primary jurisdiction

doctrine applicable when the precise question before the

10

district court was one within the particular competence of an

agency: whether a tariff levied by local exchange carriers

complied with FCC regulations, for example, see id. at 1120–

21, or whether, under FDA regulations, a new drug was “safe

and effective for interstate sale,” Israel v. Baxter Labs., Inc.,

466 F.2d 272, 280 (D.C. Cir. 1972).

The question before the district court here was whether it

was still reasonably likely the defendants would commit

future RICO violations despite the passage of the Tobacco

Control Act. As the district court observed, that question was

squarely within its area of expertise; 13 years of litigation,

nine months of trial, and 4000 findings of fact surely gave it

unique insight into the defendants’ tendency to circumvent or

ignore the law. See Vacatur Opinion, 787 F. Supp. 2d at 79–

80. And while the Tobacco Control Act gave the FDA the

authority to regulate much of the defendants’ conduct, it gave

the FDA no particular insight into whether the defendants

were likely to comply with those restrictions. That is why

courts consistently have refused to invoke the primary

jurisdiction doctrine for “claims based upon fraud or

deceit”—claims that are “within the conventional competence

of courts.” Dana Corp. v. Blue Cross & Blue Shield Mut. of

N. Ohio, 900 F.2d 882, 889 (6th Cir. 1990) (citing Nader v.

Allegheny Airlines, Inc., 426 U.S. 290, 305–06 (1976), and In

re Long Distance Telecomm., 831 F.2d 627, 633–34 (6th Cir.

1987)).

The defendants attempt to draw support from

Kappelmann v. Delta Air Lines, Inc., 539 F.2d 165 (D.C. Cir.

1976). There, shortly after Congress gave the FAA authority

to regulate the transportation of hazardous materials, the

plaintiff sought an injunction requiring an airline to provide

“adequate warning” to passengers about the “presence of a

significant amount of radioactive materials” on board a flight.

11

Id. at 168. We affirmed the district court’s invocation of the

primary jurisdiction doctrine because the requested injunction

“would in effect constitute a regulation covering one phase of

the interstate transportation of one group of hazardous

materials on one airline,” and such “determinations [we]re

better made on an industry-wide basis in an agency

rulemaking proceeding.” Id. at 171.

Though Kappelmann bears a passing resemblance to this

case, there are two critical, and ultimately dispositive,

differences. First, in Kappelmann, we noted “that Congress

recognized the need for uniformity of regulation in this area”

when it passed the law empowering the FAA to engage in

rulemaking. Id. at 170. By contrast, when it passed the

Tobacco Control Act, Congress was aware of the district

court’s injunctions, see Pub. L. No. 111-31, 123 Stat. 1776, §

2(47)–(49), yet it explicitly stated the Act should not be

construed to “affect any action pending in Federal, State, or

tribal court,” id. § 4(a)(2). We can infer from that statement

that Congress was not concerned about the district court’s

injunctions interfering with the proper functioning of the Act.

The second difference is timing. In Kappelmann—and in

every other case the defendants cite on primary jurisdiction—

the court’s decision to defer to the agency came near the

beginning of the case. That is no coincidence. The primary

jurisdiction doctrine is rooted in part in judicial efficiency; if

an agency has particular expertise in an area, then invoking

the primary jurisdiction doctrine could “enhance court

decision-making and efficiency by allowing the court to take

advantage of [that] administrative expertise.” Chabner v.

United of Omaha Life Ins. Co., 225 F.3d 1042, 1051 (9th Cir.

2000). Here, the district court has spent over a decade with

the case, and has issued expansive injunctions that this Court

has largely affirmed. Vacating those injunctions now would

12

turn the efficiency rationale for the primary jurisdiction

doctrine on its head.

III

The district court did not clearly err when it found the

defendants were reasonably likely to commit future RICO

violations despite the passage of the Tobacco Control Act.

Nor did the court abuse its discretion when it refused to

vacate its injunctions under the primary jurisdiction doctrine.

Accordingly, the district court’s denial of the defendants’

motion to vacate the injunction is

Affirmed.