Reply Brief — Watson v. Philip Morris Companies, Inc.

Ws

~~ -

No. 05-1284

pe _________ ____ _ __ _ _________+f

IN THE

Supreme Court of the United States

LISA WATSON AND LORETTA LAWSON, INDIVIDUALLY

AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,

Petitioners,

V.

PHILIP MORRIS COMPANIES, INC., A CORPORATION;

AND PHILIP MORRIS, INCORPORATED, A CORPORATION,

Respondents.

On Writ of Certiorari

to the United States Court of Appeals

for the Eighth Circuit

REPLY BRIEF FOR PETITIONERS

STEVEN EUGENE CAULEY DAVID C. FREDERICK

JAMES ALLEN CARNEY Counsel of Record

MARCUS N. BOZEMAN MARK L. EVANS

CAULEY, BOWMAN, CARNEY KELLY P. DUNBAR

& WILLIAMS, PLLC KELLOGG, HUBER, HANSEN,

11311 Arcade Drive TODD, EVANS & FIGEL,

Suite 200 gman

Little Rock, Arkansas 72212 1615 M Street, N.W.

(501) 312-8500 Suite 400

Washington, D.C. 20036

(202) 326-7900

Counsel for Petitioners

April 18, 2007

SS

TABLE OF CONTENTS

Page

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SN TITIITTTIITIY nists dine ssisiceschictnapeiitinadiiindadnaneniiienieiadunidedes 1

IEE sisi centiiatireansecnnathieniinintianishininninintpidtauinmssinapitiiidniieiie 2

I. PHILIP MORRIS’S “DELEGATED AUTHOR-

ITY” THEORY IS WITHOUT MERIT..............0......... 2

A. Petitioners’ Claims Do Not Challenge The

Cambridge Filter Method..........................:seeee0e000 2

B. Compliance With FTC Regulation Is Not An

Exercise Of “Delegated Authority” ................00+ 5

II]. PHILIP MORRIS’'S DEFENSE OF THE

EIGHTH CIRCUIT'S TEST IS UNAVAILING......... 13

~ TI. PHILIP MORRIS IS NOT SUBJECT TO COM-

PREHENSIVE AND DETAILED CONTROL......... 17

IN ceieichisciat inc ahnct aciiatiadaiitclertinigitinbindiitaes bitpdisinattinidebiipindhagd 20

li

TABLE OF AUTHORITIES

Page

CASES

Beatrice Foods Co. v. FTC, 540 F.2d 303 (7th Cir.

SED ascii eiichsetinabeniaheiebetabeipmieiiaii aah i ecaiaaliins 19

Blatchford v. Native Village of Noatak, 501 U.S. 775

SST wiiseisicacaliciiidense dipieidipintliebdeabbeanieiainhticilaincitiaignialacibistanadei 7

Brentwood Academy v. Tennessee Secondary Sch.

Athletic Ass'n, 531 U.S. 288 (2001).................00.008 5-6, 9

Brown v. Brown & Williamson Tobacco Corp.,

479 F.3d 383 (Sth Cir. 2007) 0.0... cccceeeeceeeeeeeeeeeeneneees 5

Caterpillar Inc. v. Lewis, 519 U.S. 61 (1996)...............00000 2

Caterpillar Inc. v. Williams, 482 U.S. 386 (1987) .......... 4,5

Chick Kam Choo v. Exxon Corp., 486 U.S. 140 (1988)....... 5

City of Greenwood v. Peacock, 384 U.S. 808 (1966)....13, 14

Davis v. South Carolina, 107 U.S. 597 (1883)............ 10, 13

FTC v. Brown & Williamson Tobacco Corp., 778 F.2d

SE GTI, TI sitesi nitetanrialetedaiahena baibiidiatedniieatatiababilind 18

FTC v. Mandel Bros., Inc., 359 U.S. 385 (1959) ............... 19

Gonzalez v. Oregon, 126 S. Ct. 904 (2006) 00.0.0... eee 15

International Primate Prot. League v. Adminis-

trators of Tulane Educ. Fund, 500 U.S. 72

(1991) ........ Svtndinntnigddmagdanepeuumedutginepetpadensitidanivantiitpeviindiann 12

Jefferson County v. Acker, 527 U.S. 423 (1999).................. 4

Johnson v. Wells, Fargo & Co., 98 F. 3 (C.C.N.D. Cal.

I A, MPUEE dnconnrnntantiiiensaisuaieniingsamacannddimsnnies 10, 11

Maryland v. Soper, 270 U.S. 9 (1926) 0.2.0... eeeeeeeeeee 10, 13

McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316

SEITE -actcppcchsteseshiidncinvehinnesidideiaminighassiatadeidabiineisetdapaiieipiaibisaheibiiahaceie 16

ill

Paldrmic v. Altria Corporate Servs., Inc., 327 F.

I: Te IS I HI cittcnnteresscccccninctvdeecnencunstes 3

Papasan v. Allain, 478 U.S. 265 (1986) ..............:cccceeeeeeees 18

Polk County v. Dodson, 454 U.S. 312 (1981)........-.0-0+0--+ 8, 9

Public Citizen v. United States Dep't of Justice,

re es I piniiicichusitninicsiiinesiidintiniideisitibdiiaiitalnastiadindiia 13

Shook v. District of Columbia Fin. Responsibility &

Mgmt. Assistance Auth., 132 F.3d 775 (D.C. Cir.

SUTITEIE wictintndienideabetiadiusinellaandabdcobeciincensieinpahemssinialtnimnditisanaaiepnamihia )

Tennessee v. Davis, 100 U.S. 257 (1880) ........cceecseereeeenes 14

Trans Union Corp. v. FTC, 245 F.3d 809, on denial

of reh’g, 267 F.3d 1138 (D.C. Cir. 2001)...................0.. 19

United States v. E.l. du Pont d- Nemours & Co.,

ee aie MEP TUITIE sctectinsisitnictscxicunticiinitileiineihbbadtbihinieatabinlbenctaniel 19

United States v. Philip Morris Inc., 263 F. Supp. 2d

Se is SIE a tidisitescencntitnticdandiiainibiiemssdieiialiaiiiiniapitiaiesiiinns 3

United States Telecom Ass’n v. FCC, 359 F.3d 554

Das I i ita ll all 9

Virden v. Altria Group, Inc., 304 F. Supp. 2d 832

SRE "Wile Sts: SUEY cciseichdeinctebcceihcacelinebhaeaendeteibeiaesidiebeachiati 3

Willingham v. Morgan, 395 U.S. 402 (1969) .................... 12

ADMINISTRATIVE DECISIONS

In re Ed Hamilton Furs, Inc., 51 F.T.C. 186 (1954) ...19, 20

iv

STATUTES AND REGULATIONS

Act of Feb. 4, 1815, ch. 31, 3 Stat. 195 (Customs

TD iiskscciisiiatindibiiidibaieiintipiliniiitartiihpiinbbaiapiaiiiabinsidabmasiiaieinpniiel 11

Federal Trade Commission Act, 15 U.S.C. §§ 41

UT: Miicrrdecsinebiaditinniniapetabgniniaeiinecnmmeieimeteianddiial 9,11

Ba eae Se Giese Rissnuiuitciteiipenteniishteninanbincaninieniaiddides 9

er res Se iintiicciilsetinsinibdharidominsiinatccniinticaiiisdsisittetasiied )

Fur Products Labeling Act, 15 U.S.C. §§ 69 et seg. ......... 19

Toxic Substances Control Act, 15 U.S.C. § 2601(b)(1) .....10

ae ee ae canteen isciicibiinceicatbancidisdetdinantibilenipibilasibintisiteiais 7

es SED ssitenintentccnesensasesannsnees 1, 2, 4, 14, 15, 16

ee es Oe I D shenreagndiipictnicnsiancisinccnniintntencillnpheiiiibins 4

ee BE ansiciniiesincitddictnsaivitinietpacteanteidanneesitpuiiaimetadinsites 14

es Ue nisin onthiciaebicnatcrnainihdudatnepsiodacesiniaicisainticinieiainitn 18

a Pe Wh schcledtieniteisinltstadahedininintttetiiansinitiaciindicanenasainheiiaiin’ 9

LEGISLATIVE MATERIALS

H.R. Rep. No. 80-308 (1947) ...... SAAS OR ON TOON COST Re OF A 17

H.R. Rep. No. 104-798 (1996) ........ccssssssssssecsssessnneessneesseee 16

Strengthening the Cigarette Labeling Act, 112 Cong.

Se: Be IIIIEY ruin testindinibicesithiipunciatindiuitapeisinidiiuennphduigmnnsion 13

i le 13

\

ADMINISTRATIVE MATERIALS

Comments of Philip Morris Inc., et al., On the

Proposal Entitled FTC Cigarette Testing Method-

ology, FTC File No. P944509 (filed Feb. 5, 1998).....

Notice, Cigarette Testing: Request for Public

Comment, 62 Fed. Reg. 48,158 (1997)............c.ccceeeee

OTHER MATERIALS

John S. Applegate, The Perils of Unreasonable Risk:

Information, Regulatory Policy, and Toxic Sub-

stances Control, 91 Colum. L. Rev. 261 (1991)..........

Black’s Law Dictionary:

i I i a

A mere Ne, Een

Bradley C. Karkkainen, Information as Environ-

mental Regulation: TRI and Performance Bench-

marking, Precursor to a New Paradigm, 89 Geo.

Radi BIG GR ED mcoceccsecscsiiocsevesisnissiidetinsanenssensaeadinaiiaas

Laurence H. Tribe, American Constitutional Law

GGG, TEED cccevisinsctinstdvisiniicenstinitinnbiaiasadid alain

INTRODUCTION

Congress enacted the federal officer removal statute to

ensure that federal officers (and later agencies) would

have a means of removing to federal court cases brought

against them in state court. The primary purpose was to

provide a federal forum for immunity defenses that fed-

eral officers and those “acting under” them could assert.

As this Court’s cases establish, persons “acting under”

such officers or agencies are persons who aid or assist in

the performance of official functions. Under any reason-

able view, Philip Morris in its marketing and sale of ciga-

rettes is considerably far afield of the type of actor Con-

gress intended the statute to protect.

In its brief, Philip Morris largely abandons the compre-

hensive-control theory that it has advanced in numerous

cases in the lower courts and that it led the Eighth Circuit

below erroneously to embrace. That theory, which opened

up the statute to removals by scores of companies regu-

lated far more heavily than tobacco companies, finds no

support in this Court’s cases construing the federal officer

removal statute. Instead, Philip Morris now argues that

cigarette makers are unique not because of the degree of

governmental control over their operations, but because of

what they assert to be the historical happenstance that

the FTC for a time tested the tar and nicotine content of

cigarettes and then stopped doing so, imposing instead a

reporting requirement on cigarette makers. That new-

found theory, however, is no more persuasive than Philip

Morris’s previous arguments to obtain § 1442(a)(1)’s bene-

fits. It rests on mischaracterizations of the complaint, the

procedural effect to be given to its removal notice, the

facts underlying the FTC’s decision to stop testing ciga-

rettes for tar and nicotine, and the regulatory conse-

quences of the FTC’s actions. Philip Morris’s new theory

therefore should be rejected just as decisively as its for-

mer theory has now essentially béen discarded.

2

ARGUMENT

I. PHILIP MORRIS’S “DELEGATED AUTHORITY”

THEORY IS WITHOUT MERIT ;

Largely forsaking its defense of the Eighth Circuit’s

comprehensive-control test, Philip Morris asserts (at 26-

32) that it is “acting under” a federal officer for purposes

of 28 U.S.C. § 1442(a)(1) because, in testing the tar and

nicotine yields of its cigarettes, it exercises authority

“delegated” to it by the FTC. This theory — which reflects

a sea change in Philip Morris's position' — rests on two

flawed premises: first, that petitioners’ state-law claims

challenge Philip Morris’s cigarette-testing program; and,

second, that Philip Morris conducts the testing program

on behalf of, and by delegation of authority from, the FTC.

A. Petitioners’ Claims Do Not Challenge The

Cambridge Filter Method

Philip Morris concedes (at 42) that it is not “acting

under” the FTC in marketing and selling its light ciga-

rettes in compliance with FTC regulation. That conces-

sion should be dispositive here, because the claims that it

purported to remove relate solely to its marketing and

sale of light cigarettes.”

‘ Until it filed its brief on the merits in this Court, Philip Morris

consistently argued simply that federal officer removal is proper when-

ever “a defendant [is] sued for actions that were subject to the direc-

tion, control, and supervision of federal officials.” PM Br. in Opp. 10.

It accordingly offered no counterstatement of the Question Presented

‘th in the petition for a writ of certiorari. In its brief on the mer-

» ». -owever, Philip Morris attempts for the first time to reformulate

the yuestion Presented to fit its new “delegation” theory. See PM Br. i.

Having accepted petitioners’ formulation at the certiorari stage, Philip

Morris is not free to recast the issue before this Court to accommodate

its newly developed theory of the case: “Under this Court’s Rule 15.2, a

nonjurisdictional argument not raised in a respondent’s brief in opposi-

tion to a petition for a writ of certiorari may be deemed waived.”

Caterpillar Inc. v. Lewis, 519 U.S. 61, 75 n.13 (1996) (internal quota-

tion marks omitted).

. Philip Morris itself repeatedly acknowledged below that petition-

ers’ claims were focused on its marketing practices. See, e.g., PM C.A.

3

In accordance with its new theory of the case, however,

Philip Morris now insists that “[p]etitioners’ complaint is,

at its core, a direct attack upon the official tar and nico-

tine testing program that the FTC delegated to” Philip

Morris. PM Br. 22. But Philip Morris cannot manufac-

ture a right of removal simply by recharacterizing peti-

tioners’ claims to suit its new legal theory.

The essence of petitioners’ claims is that Philip Morris

intentionally designed its “light” cigarettes — by, among

other things, “modification of tobacco blend, weight, rod

length, and circumference,” “use of reconstituted tobacco

sheets and/or expanded tobacco,” and “increase of smoke

pH levels by chemical processing and additives” — to in-

crease.the nicotine and tar levels delivered to smokers,

while at the same time fraudulently marketing those

cigarettes as delivering less tar and nicotine than regular

cigarettes when actually smoked by consumers. Pet. App.

64a-65a (Am. Compl. 4 12(a), (c)); id. at 65a (Am. Compl.

§ 13). That Philip Morris’s fraudulent scheme involved,

in part, knowingly designing its cigarettes to trick a fea-

ture of the FTC’s regulatory regime — the Cambridge Fil-

ter Method — and then reporting those results (which

Philip Morris knew to be misleading) in marketing its

light cigarettes does not mean petitioners’ claims are “ul-

timately” a challenge to that regime. PM Br. 1.*

Br. 2 (plaintiffs’ complaint “challengfes} PM USA’s marketing of ‘light’

cigarettes”) (emphasis added); id. at 34 (“Plaintiffs’ complaint chal-

lenges PM USA’s marketing pursuant to the FTC's policies and direc-

tives.”) (emphasis added); id. at 35 (“the very conduct at issue” in this

case 1s the “alleged deceptive marketing of Lights”) (emphasis added).

* See, e.g., United States v. Philip Morris Inc., 263 F. Supp. 2d 72, 81

(D.D.C. 2003) (“The specific advertisements which the Government

claims were intentionally misleading . . . were certainly not mandated

by the FTC.”); Paldrmic v. Altria Corporate Servus., Inc., 327 F. Supp.

2d 959, 966-67 (E.D. Wis. 2004) (design and manufacture of Marlboro

Lights were “acts that most assuredly were not performed under the

direct and detailed control of the FTC”); Virden v. Altria Group, Inc.,

304 F. Supp. 2d 832, 846 (N.D. W. Va. 2004) (“[T}]he FTC . . . did not

direct [Philip Morris] to ‘trick’ the testing procedure, and did not re-

quire [Philip Morris] to disseminate misleading information.”).

4

Philip Morris cannot evade that conclusion by contend-

ing (at 21-22) that the Court must “credit” the company’s

“theory of the case.” Though the removing defendant is

entitled to craft its own colorable argument for federal

removal, the plaintiff remains “master of [its own] claim,”

and the defendant is not free to recast the complaint to

suit its removal theory. Caterpillar Inc. v. Williams, 482

U.S. 386, 392, 394 (1987) (rejecting defendant’s claim that

plaintiffs’ “state-law contract claims [were] in reality com-

plevely preempted” federal-law claims) (emphasis added).

Were it otherwise, any federally regulated entity with a

plausible preemption defense could remove to federal

court simply by asserting that the “core” of the plaintiff’s

case is a challenge to a federal regulatory regime.‘

In all events, Philip Morris's attempt to recast petition-

ers’ state-law claims as a challenge to the Cambridge Fil-

ter Method is ultimately beside the point. Even if this

case were “about” nothing more than the Cambridge Fil-

ter Method, Philip Morris would have no right to removal

under § 1442(a)({1). In Philip Morris’s view of the case, it

. Contrary to Philip Morris’s assertion, nothing in Jefferson County

v. Acker, 527 U.S. 423 (1999), requires this Court to credit Philip Mor-

ris’s revisionist reading of petitioners’ claims. At issue in Acker was

whether two federal judges could remove to federal court a state-court

suit for the collection of a county license tax imposed, in the judges’

view, on the performance of their federal judicial duties and therefore

in violation of the intergovernmental tax immunity doctrine. Unlike

Philip Morris, the judges in Acker were self-evidently within the class

of federal judicial officers entitled to removal under 28 U.S.C.

§ 1442(a)(3). See id. at 432. The question was whether there was a

causal connection between the tax-collection suit and the judges’ offi-

cial action sufficient to establish that the suit was “for any act under

color of office” within the meaning of § 1442(a)(3). Because that issue

necessarily merged with the merits of the judges’ defense, and because

all that is required of federal officers for purposes of removal is a “col-

orable defense,” not-“an airtight case on the merits,” the Court ac-

cepted the judges’ “theory of the case” on the merits for purposes of its

jurisdictional] inquiry. /d. The alternative would have required the

Court “to decide the merits of this case” in order to resolve the removal

issue. Jd There is no similar reason here to credit Philip Morris's re-

characterization of petitioners’ claims.

5

was compelled by regulatory edict to use the Cambridge

Filter Method as part of a comprehensive regime govern-

ing the marketing and sale of cigarettes. See PM Br. 1-10.

But see infra pp. 18-19. Even if its theory is presumed to

be true at this stage in the litigation, that theory merely

sets up a preemption defense that its compliance with the

strictures of the federal regime precludes state-law claims

based on that compliance. See, e.g., Brown v. Brown &

Williamson Tobacco Corp., 479 F.3d 383, 392-93 (5th Cir.

2007). But this Court’s cases make clear that a preemp-

tion defense is not a basis for removal. See Caterpillar,

482 U.S. at 393; Chick Kam Choo v. Exxon Corp., 486 U.S.

140, 149-50 (1988).

Finally, Philip Morris’s claim (at 2, 12, 22) that this

Court must accept as true the factual averments in its

removal petition is of no practical consequence. Petition-

ers here challenge not the facts on which Philip Morris

relies but the legal conclusions it seeks to draw from those

facts. See Pet. Br. 44-48. No principle of law requires this

Court to accept for purposes of removal the legal conclu-

sions or assumptions embodied in a defendant's removal

petition.

B. Compliance With FTC Regulation Is Not An

Exercise Of “Delegated Authority” |

The federal officer removal statute protects federal offi-

cers and agencies in their enforcement of the law and offi-

cial functions. It does not afford a removal right to regu-

lated entities complying with federal law. See Pet. Br. 23-

27. Philip Morris’s contrary approach turns the statute’s

purposes upside down, by giving a right of removal to

private commercial actors (like Philip Morris) that are

the objects of, rather than participants in, federal law

enforcement. See id. at 23-24. Distinguishing between

compliance with and enforcement of federal regulation is

necessary to avoid a bizarre interpretation of the “acting

under” clause that would “convert opponents into virtual

agents.” Brentwood Academy v. Tennessee Secondary Sch.

6

Athletic Ass’n, 531 U.S. 288, 303-04 (2001); see Pet. Br. 24-

25.

Philip Morris does not confront these concerns head-on.

Instead, it tries to clothe itself in the mantle of law

enforcement by depicting its cigarette-testing obligation

as a “delegation” of authority from the FTC. Philip Mor-

ris's theory is that it conducts testing activities as an

agent of the federal government and is therefore entitled

to the protections of federal officer removal when it is

sued in state court for acts committed in its agency capac-

ity. The suit in this case, of course, challenges Philip

Morris’s marketing and sale of light cigarettes, not its

testing of those cigarettes. But, even if Philip Morris

could permissibly recast petitioners’ claims as attacks on

the cigarette-testing regime, its characterization of its role

in that regime as a delegated federal law-enforcement of-

ficer, as opposed to simply an object of federal regulation,

is both implausible and baseless.

1. Philip Morris’s own factual averments do not estab-

lish “delegation” of authority by the FTC. Crediting Philip

Morris's averments in full, the facts are that, in the 1980s,

the FTC restructured its regulation of the tobacco in-

dustry by compelling tobacco companies, rather than the

FTC, to bear the costs of cigarette testing. That restruc-

turing concerned the 1970 voluntary agreement, which, in

Philip Morris’s view, was the pillar of the FTC’s regu-

lation of light cigarettes. See PM Br. 8 (arguing that “the

FTC has strictly policed [the terms of the 1970 agree-

ment]” to ensure compliance). Specifically, in the 1980s,

the 1970 pact was amended to require tobacco-company

testing, to allow the FTC access to industry testing facili-

ties, and to “obligat[e]” tobacco companies to use “the ‘tar’

and nicotine ratings” generated by such testing in the

companies’ “cigarette advertising.” PM C.A. App. 654-57;

see PM Br. 30 (“the FTC ordered the industry to instead

perform the testing (under the FTC’s control)”). Despite

that shift in FTC policy — from conducting tests itself to

requiring the industry to conduct the tests — the testing

7

requirement (as a condition for marketing and selling

light cigarettes and assuming for the sake of argument

that there was such a requirement) remained fundamen-

tally an incident of federal regulation.°

This case — on Philip Morris’s own theory — therefore

bears all the hallmarks of an agency imposing regulatory

requirements on a regulated entity. Despite more than 20

references to “delegation” and “delegated authority” in its

brief, Philip Morris points to no document, rule, policy

statement, regulation, or any other evidence demonstrat-

ing that the FTC in fact delegated (or intended to dele-

gate) its statutory authority to the tobacco industry. In

fact, nothing in the public record suggests that the FTC

ever contemplated any such delegation of authority. To

support its bald assertion, Philip Morris points only to a

simple sequence of events: first the agency did the testing

of cigarettes; then the agency halted its own testing ac-

tivities and required the industry to perform the testing.

From that bare chronology Philip Morris infers that the

FTC necessarily “delegated” its testing authority to the

industry. The inference is unwarranted. Philip Morris’s

“delegation” theory is “entirely a creature of [its] own in-

vention.” Blatchford v. Native Village of Noatak, 501 U.S.

775, 785-86 (1991) (rejecting the “strange notion” that 28

U.S.C. § 1362 represents a “delegation” to Indian tribes of

federal exemption from state sovereign immunity where

nothing in the statute or case law “mention{ed] [the]

word” “‘delegation’”).

° Evidence submitted by Philip Morris, for example, makes clear

that the FTC thought it was doing nothing unusual in closing its labo-

ratory and relying on regulation to compel the industry to conduct the

testing. William C. MacLeod, then-director of the Bureau of Consumer

Protection, responded to congressional concern vhat the FTC had

elected to rely on tobacco companies to test by pointing out that “[i]t is

generally the case in the regulation of measurements of performance

and constituent standards that the Government leaves it to the indus-

try with appropriate checks and balances upon the performance that

the industry reports.” JA 99 (emphasis added).

8

The facts alleged by Philip Morris evince none of the or-

dinary indicia of delegation. Delegation is “(t]he act of

entrusting another with authority or empowering another

to act as an agent or representative.” Black’s Law Dic-

tionary 459 (8th ed. 2004) (emphases added). That stan-

dard is not remotely met here.

To begin with, Philip Morris did not need the FTC’s au-

thorization to test its own products. Indeed, the cigarette

companies had long been conducting tar and nicotine test-

ing themselves without any official authorization. See PM

C.A. App. 689 (during the operation of the FTC labora-

tory, TITL was testing as well). The tobacco companies’

untrustworthiness in performing their own testing and

reporting of accurate results had led the FTC to begin its

testing program in 1967.° That private, commercial test-

ing — which predated the FTC program — was done to

advance the tobacco companies’ profits, not to promote the

FTC’s regulatory agenda or the public interest.

Moreover, Philip Morris was not “exercising power pos-

sessed by virtue of... law” or “clothed with the authority

of .. . law” in testing its own cigarettes and providing the

FTC with the results. Polk County v. Dodson, 454 U.S.

312, 317-18 (1981) (internal quotation marks omitted).

The FTC certainly took no formal or informal action ex-

pressly endowing the industry with the agency’s authority

or responsibility. Nor did it empower Philip Morris to

act as its agent in testing cigarettes in compliance with

® When it announced the ending of its testing program as a cost-

saving measure, the FTC explained in congressional testimony that it

viewed market forces (tobacco companies reporting their rivals’ dishon-

est test results), random checks by FTC inspectors of the TITL labora-

tory, and occasional alternative tests on cigarettes at a different gov-

ernment laboratory to be suitable checks on the cigarette-testing proc-

ess to ensure accuracy in the reporting of tar and nicotine levels. See

JA 100-03. The FTC thus sought to obtain the same regulatory effects

— true and accurate information about tar and nicotine content —

through a different use of government resources. That change in

regulatory strategy. however, in no way constituted a “delegation” of

authority.

9

federal regulation. On the contrary, as a regulated com-

mercial actor with interests “characteristically” antago-

nistic to those of the regulatory agency, id. at 318-19,

Philip Morris was an “opponent,” not a “virtual agent,” of

the FTC. Brentwood Academy, 531 U.S. at 303-04.’

2. Philip Morris’s alternative theory of being a “contrac-

tor” with the FTC has no merit. In an alternate formula-

tion, Philip Morris says (at 31) that the FTC “contracted

out its testing obligations” to the tobacco companies. But

Philip Morris has pointed to no actual contract, and there

is none. The FTC never solicited bids for conducting ciga-

rette testing on its behalf, never awarded any contract to

perform such testing, and never compensated the tobacco

companies for conducting the tests. Yet these are pre-

cisely the steps a government agency would be expected to

take if it wished to “contract out” a service. See 48 C.F.R.

Pt. 1 (Federal Acquisition Regulations). Instead, the FTC,

exercising its regulatory authority under the FTC Act,

compelled tobacco companies to test their products and to

disclose those results to the Commission. See PM Br. 14

(citing court of appeals’ holding that FTC “requires the

cigarette manufacturers to conduct the testing”); see also

15 U.S.C. § 46(a) (authorzing FTC “[tjo gather and com-

pile information” from regulated entities); id. § 46(b) (au-

thorizing FTC to require regulated entities “to file with

the Commission . . . annual or special . . . reports”). Even

on Philip Morris’s testing theory, this case is about an

7 It is doubtful that the FTC couid lawfully have “delegated avthor-

ity to test cigarettes” to tobacco companies, as Philip Morris insists

it did (at 31). An agency ordinarily may not, absent express congres-

sional authorization, delegate official tasks to outside parties. See

United States Telecom Ass'n v. FCC, 359 F.3d 554, 565-66 (D.C. Cir.

2004); Shook v. District of Columbia Fin. Responsibility & Mgmt.

Assistance Auth., 132 F.3d 775, 783-84 & n.6 (D.C. Cir. 1998). Philip

Morris points to no congressional statute expressly authorizing such a

delegation.

ae 10

agency's exercise a regulatory authority, not a contract-

ing out of services.®

3. Philip Morris’s delegation theory finds no support in

this Court’s cases. Philip Morris’s novel theory of delega-

tion by regulation is foreign to the federal officer removal

statute. A clear difference exists between the soldier in

Davis v. South Carolina, 107 U.S. 597 (1883), and the

chauffeur in Maryland v. Soper, 270 U.S. 9 (1926), on the

one hand, and Philip Morris on the other: the soldier and

chauffeur were actively participating in enforcing the fed-

eral revenue laws, whereas Philip Morris, in conducting

its testing activities, is complying with regulatory re-

quirements as an object of federal regulation. Nothing in

the text, history, or purposes of the federal officer removal

statute suggests that it was meant to benefit those who

merely comply with, as opposed to those who assist in en-

forcing, federal regulation.

Courts long ago rejected the concept that private actors

could remove on the theory that, in complying with fed-

eral regulation, they were assisting federal officers. See

Johnson v. Wells, Fargo & Co., 98 F. 3, 7-8 (C.C.N.D. Cal.

* The FTC is hardly alone in requiring regulated entities to perform

testing. For example, “[bjoth FIFRA and TSCA ... permit EPA to

require the manufacturer or processor of an existing chemical to un-

dertake testing at its own expense covering the entire range of infor-

mation relevant to [an] unreasonable risk determination.” John S.

Applegate, The Perils of Unreasonable Risk: Information, Regulatory

Policy, and Toxic Substances Control, 91 Colum. L. Rev. 261, 312

(1991). The TSCA testing provisions were adopted to avoid burdening

the government with the costs of testing. See 15 U.S.C. § 2601(b)(1).

Private testing, moreover, supplements the EPA’s own research and

testing of chemicals, undertaken “to avoid the bias that can affect pri-

vately produced data.” Applegate, 91 Colum. L. Rev. at 306; see also

Bradley C. Karkkainen, /nformation as Environmental Regulation:

TRI and Performance Benchmarking, Precursor to a New Paradigm, 89

Geo. L.J. 257, 265-(2001) (noting that, in addition to authority to re-

quire manufactures to test new chemicals, “EPA itself screens” chemi-

cals each year). Regulatory regimes that combine public and private

testing obligations are not unique to the EPA. See Public Citizen Br.

20-22 (discussing FDA, USDA, and NHTSA testing).

11

1899) (No. 12739) (a regulated common carrier, though

subject to federal tariff regulations, was not “acting un-

der” a federal revenue officer when it refused, under the

authority of those regulations, to transport a tendered

package that lacked a required revenue stamp). Likewise,

Philip Morris does not assist in enforcing the FTC Act

when it merely complies with what Philip Morris claims

to be FTC-imposed testing obligations; rather, it is a regu-

lated party that, like the carrier in Wells Fargo, is simply

“brought within the range” of a federal regulatory regime.

Id.

Philip Morris maintains that, “[a]s an historical matter,

PMUSA’s delegated responsibility for testing . . . is no dif-

ferent from a private individual’s delegated responsibility

to examine imported goods to determine whether they had

been shipped from England in violation of the Customs

Act of 1815.” PM Br. 30. But that claim fails to account

for the essential difference between regulated entities

(which comply with federal law) and federal officers and

their agents (who enforce federal law). Under Philip Mor-

ris’s rendition of the statute, shippers obliged to comply

with the Custom Act of 1815 would as a class have been

entitled to removal. Yet that notion has no basis in the

historical purpose of the statute, which was to safeguard

those charged with enforcing unpopular federal laws ~

against regulated entities from harassing suits brought by

those regulated entities. See Pet. Br. 17-18. Philip Morris

cites no evidence that Congress intended to extend a bene-

fit of removal to the regulated entities themselves.

Nor does such a view make historical sense: the animus

directed at those enforcing federal law would not logically

be directed at regulated entities complying with federal

regulation. See id. at 18. Indeed, it is telling that Philip

Morris makes no serious effort to explain how regional

animus against enforcement of the FTC Act could be

12

directed against it, such that it needs the protection of a

federal forum.°

4. Philip Morris’s novel limiting principle is self-serving

and wrong. Recognizing the breadth of the Eighth Cir-

cuit’s comprehensive-control test, Philip Morris proposes a

limitation that, it posits, only tobacco companies can

meet: its delegated-authority theory applies, Philip Mor-

ris says, only because “the government itself previously

performed ... the testing.” PM Br. 43 (emphasis added).

Regardless of whether such a limitation would restrict

removal by regulated entities in other industries, the his-

torical sequence of testing activities does not transform

this case from one of regulatory compliance into one of

delegated authority.” The essential relationship between

Philip Morris and the FTC remains that of regulating

agency and regulated entity — a relationship that is

manifestly insufficient to support federal officer removal.

See supra pp. 10-11.

Beyond those problems, Philip Morris’s proposed stan-

dard would lead to absurd results. It would mean, for ex-

ample, that, if the FTC had opened its laboratory after it

had imposed a testing requirement on tobacco companies,

Philip Morris would lack a basis for removal, even though

the relevant conduct — Philip Morris’s testing, market-

ing, and sale of light cigarettes — would have been the

same regardless of the timeline. It would also mean that

a federal agency with a history of public testing — such as

® Philip Morris properly concedes (at 46) that it cannot claim the

protections of official immunity. Because a core purpose of the federal

officer removal statute is to afford a federal forum for resolution of

immunity defenses, see Willingham v. Morgan, 395 U.S. 402, 407

(1969); International Primate Protection League v. Administrators of

Tulane Educ. Fund, 500 U.S. 72, 86-87 (1991), Philip Morris's conceded

inability to invoke that defense reinforces the conclusion that it is not

within the class entitled to removal.

© Philip Morris's historical characterization is also wrong: tobacco

companies did not start testing after the FTC closed its laboratory;

they had been doing their own testing all along. See PM C.A. App. 689.

13

the EPA — would extend a right of federal officer removal]

to any entity on which it subsequently imposed testing

requirements.

In addition, making dispositive the fact that the FTC it-

self tested cigarettes would result in the perverse outcome

that an industry uniquely distrusted by a federal agency

would have a claim to federal officer removal precisely be-

cause of that distrust. The FTC opened its own laboratory

because it considered it “highly undesirable to allow ciga-

rette manufacturers to use tar and nicotine data in ad-

vertising obtained from the manufacturers’ own labora-

tories.” JA 153-54; see also Strengthening the Cigarette

Labeling Act, 112 Cong. Rec. 17270, 17274 (1966) (quoting

letter from FTC chairman expressing concern “that the

manufacturers will publish misleading figures” and rec-

ommending that “products be tested by a central labora-

tory”). The FTC concluded “that the past record of ciga-

rette manufacturers in matters related to false and mis-

leading advertising makes reliance on their good faith

alone .. . highly inadvisable.” JA 156. Because the FTC

tested cigarettes out of a distrust of tobacco companies

before imposing the testing obligation on the regulated

entities themselves, Philip Morris views itself as entitled

to a statutory benefit not available to any other regulated

industry. See PM Br. 43. This Court should reject an in-

terpretation of the statute that produces such a bizarre

outcome. Cf. Public Citizen v. United States Dept of

Justice, 491 U.S. 440, 454 (1989) (rejecting reading of

statute that would “compel an odd result”) (internal quo-

tation marks omitted).

It. PHILIP MORRIS’S DEFENSE OF THE EIGHTH

CIRCUIT’S TEST IS UNAVAILING

The federal officer removal statute protects private par-

ties only when they are sued for acts committed while

aiding or assisting federal officers in the performance of —

their official duties. See City of Greenwood v. Peacock,

384 U.S. 808 (1966); Maryland v. Soper, supra; Davis

v. South Carolina, supra. Contrary to the Eighth Circuit's

14

approach, the statute does not extend a nght of re-

moval to private commercial actors on the basis of their

compliance with “comprehensive and detailed” federal

regulation.

Philip Morris offers only a half-hearted defense (at 33-

36) of the Eighth Circuit’s comprehensive-control test.

First, Philip Morris claims that this Court has never

defined the “outer bounds” of the “acting under” clause:

“Although the Court’s precedents indicate that aiding or

assisting a federal officer is si , ficient to satisfy the ‘acting

under’ standard, they do not establish that the provision

of aid or assistance is necessary to meet that require-

ment.” Jd. at 33. But Philip Morris overlooks Peacock,

in which this Court held that removal under 28 U.S.C.

§ 1443(2) is limited to instances in which a private actor is

“authorized to act with or for [federal officers or agents] in

affirmatively executing duties under . . . federal law.” 384

U.S. at 824; see Pet. Br. 22-23; U.S. Br. 11-16. The

Court’s analysis in Peacock applies with added force to

§ 1442(a)(1). If the civil-rights removal statute’s implicit

“acting under” clause restricts private-party removal to

those who aid or assist a federal officer, the federal officer

removal statute’s explicit “acting under” clause surely

embodies the same restriction. That conclusion is rein-

forced by the Peacock Court’s reliance on the history of the

federal officer removal statute, in which it found ample

support for an “aiding or assisting” restriction on removal

by private parties. See 384 U.S. at 820 n.17.

Second, Philip Morris asserts, relying on a snippet of

language drawn out of context from Tennessee v. Davis,

100 U.S. 257 (1880), that removal is proper whenever “a

private party acts at the direction of a federal officer.” PM

Br. 33-34. In Tennessee v. Davis, this Court upheld the

constitutionality of the removal statute as applied to a

federal officer engaged in the discharge of his law-

enforcement duties as a deputy collector of internal reve-

nue. See 100 U.S. at 260-63; id. at 263 (discussing in-

terest in protecting federal “officers and agents”). Philip

15

Morris claims that the decision points to a ground for re-

moval in any case in which a private party claims to have

acted “under the immediate direction of the national gov-

ernment, and in obedience to its laws.” PM Br. 33 (inter-

nal quotation marks and emphases omitted). That asser-

tion grossly misapprehends this Court’s holding and as-

cribes a historically inaccurate purpose to the statute. It

confuses the role of federal officer removal — which is lim-

ited to federal officers and those assisting them in enforc-

ing federal law — and the defense of preemption — which

is more broadly available to private regulated parties

based on compliance with federal directives. See Pet. Br.

17-18, 30-31.

Third, Philip Morris tries to put a more favorable spin

(at 34) on the definitions of “acting under” cited by peti-

tioners and the United States. But those definitions con-

firm what is clear from the adjoining “color of . . . office”

clause and the lineage of the statute — namely, that a

private party acts under a federal officer in assisting the

officer as subordinate in performing official duties. See,

e.g., Black’s Law Dictionary 1695 (4th ed. 1968) (“under”

is “[slJometimes used in its literal sense of below in posi-

tion, beneath, but more frequently in its secondary mean-

ing of ‘inferior’ or ‘subordinate’”). A contrary reading of

“under,” which would significantly expand fedéral juris-

diction by affording a right of removal to private entities

merely because they are subject to federal regulation, is

inconsistent with settled canons of interpretation. See

Pet. Br. 27 & n.9; see also Gonzalez v. Oregon, 126 S. Ct.

904, 925 (2006) (“{[Bjackground principles of our federal

system ... belie the notion that Congress would use . .

an obscure grant of authority to regulate areas tradition-

ally supervised by the States’ police power.”).

Fourth, Philip Morris seeks support for a comprehensive-

control test in the legislative history of the 1996 amend-

ment to § 1442(a)(1): a reference to “preemption” in a

House report, says Philip Morris (at 36), is “clear indica-

tion that Section 1442(a)(1) extends to private persons

16

subject to federal regulation.” The text of that House re-

port, however, makes clear that Congress's concern was

with the removal right of federal agencies, not private

regulated commercial actors: “The result of these deci-

sions has been that federal agencies have had to defend

themselves in state court, despite important and complex

federal issues such as preemption and sovereign immu-

nity.” H.R. Rep. No. 104-798, at 20 (1996) (emphasis

added). The notion that Congress must have been refer-

ring to private actors because federal agencies do not in-

voke preemption defenses is wrong: first, the quoted sen-

tence specifically refers to “federal agencies,” not to pri-

vate parties; second, the idea that a federal officer or

agency would invoke the supremacy of federal law as a

defense against application of state law is hardly novel."'

Fifth, Philip Morris analogizes (at 38) to cases involving

government contractors. But the fact that some courts

have allowed government contractors to remove under

§ 1442(a)(1) says nothing about whether a private actor

that lacks a contractual relationship with the govern-

ment and is merely an object of federal regulation may

do the same. Those courts have reasoned that a gov-

ernment contractor may be deemed a de facto federal

employee in certain circumstances and may have a ground

for removal when sued for acts performed in that role

and under the government’s control and supervision. See

Pet. Br. 32-33.'2 That analysis, if sound, might in some

"! See McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 426-28 (1819);

Laurence H. Tribe. American Constitutional Law § 6-30, at 511 (2d ed.

1988) (“state attempts to regulate or tax entities with some special link

to the federal government” raise issues of “federal preemption”).

12 Philip Morris indefensibly imputes to petitioners, by means of a

cropped quotation, a view that petitioners plainly were ascribing to

those courts that have allowed removal by government contractors.

Philip Morris says the following. quoting from our opening brief: “Ac-

cording to petitioners, removal is appropriate where ‘federal control

and oversight ... is substantial and the tasks being performed are

those that the government might otherwise perform itself.” PM Br.

26. This is what the sentence actually said (with the omitted portion

17

circumstances be reconciled with the text, history, and

purposes of the statute. See id. at 33; see also H.R. Rep.

No. 80-308, at A134 (1947). But Philip Morris cannot

sensibly be thought of as a de facto employee of the fed-

eral government based on its compliance with regulatory

obligations. Philip Morris is not on the government’s

payroll, is not exercising governmental authority, and can

point to no contract from which a government-contractor

defense might arise. Rather, Philip Morris is doing no

more than complying with regulatory duties for the pur-

pose of participating in commercial activity — namely, the

marketing and selling of light cigarettes. The government-

contractor cases therefore offer no support for Philip Mor-

ris’s removal theory.

Ill. PHILIP MORRIS IS NOT SUBJECT TO COM-

PREHENSIVE AND DETAILED CONTROL

Petitioners and their amici have shown that Philip

Morris is not entitled to removal even under a compre-

hensive-and-detailed-control test. See Pet. Br. 39-48; U.S.

Br. 2-5, 20-21; Public Citizen Br. 17-20; Campaign for

Tobacco-Free Kids Br. 20-25.

At the threshold, Philip Morris responds that “petition-

ers ... disregard the averments in PMUSA’s Notice of

Removal, which . . . are controlling for purposes of this~

Court’s jurisdictional analysis.” PM Br. 38. But petition-

ers do not quarrel here with the facts — e.g., whether the

FTC adopted a consent order with American Brands in

1971. They dispute only the legal conclusions that Philip

Morris seeks to draw from those facts — e.g., whether a

italicized): “Those /government-contractor] decisions rest on the view

that a government contractor may be deemed an employee of the federal

government when federal control and oversight of the contractor is sub-

stantial and the tasks being performed are those that the government

might otherwise perform itself.” Pet. Br. 32-33. To be clear, petition-

ers acknowledge but do not here endorse the lower court decisions per-

mitting federal officer removal by government contractors. Nor need

this Court reach the question in this case, because Philip Morris can-

not legitimately claim the status of a government contractor.

18

consent order has the effect of regulating on an industry-

wide basis. This Court is “not bound to accept as true a

legal conclusion couched as a factual allegation.” Papasan

v. Allain, 478 U.S. 265, 286 (1986).

Three points establish that the FTC’s regulation of light

cigarettes is anything but comprehensive. First, Philip

Morris does not dispute that, although the FTC has broad

authority to adopt trade regulation rules, it has never

promulgated a single rule governing cigarettes. See 16

C.F.R. Pt. 408; Pet. Br. 39-40. And, as FTC v. Brown &

Williamson Tobacco Corp., 778 F.2d 35 (D.C. Cir. 1985),

established, the FTC was not even authorized to require

the Cambridge Filter Method. At best, Philip Morris has

shown that the FTC adopted an informal policy of not

pursuing enforcement actions against companies that

make tar and nicotine disclosures. If that is the standard

for “comprehensive” regulation, then it is hard to imagine

a federally regulated entity that would not be entitled to

remove under the federal officer removal statute. See Pet.

Br. 34-36. -

In response, Philip Morris takes issue (at 39 n.11) with

petitioners’ reading of Brown & Williamson. But the D.C.

Circuit was clear that it did not want to “enshrine the cur-

rent FTC system as the sole legitimate testing method”

because “it was not passed [as a trade regulation rule]

pursuant to section 18 of the FTC Act.” 778 F.2d at 45.

And Philip Morris’s record evidence is to the same effect:

“In the litigation that arose from the Barclay cigarette is-

sue of a few years ago .. . [t]he answer that the courts

gave was [the FTC] cannot force a company to use nor can

[the FTC] approve in advance the kind of testing a com-

pany uses.” PM C.A. App. 329.

Second, the FTC itself has determined that there are no

regulatory definitions of “light” and “low tar,” thereby un-

dermining important parts of respondents’ claims. See

Notice, Cigarette Testing: Request for Public Comment, 62

Fed. Reg. 48,158, 48,163 (1997); Pet. Br. 40-41. Philip

Morris makes no attempt to reconcile its position here

19

that it is comprehensively regulated in its use of “light”

descriptors with the position it took in 1998 that there

was no need even for “official” regulatory “guidance” as to

those same descriptors. Comments of Philip Morris Inc.,

et al., at 94, On the Proposal Entitled FTC Cigarette Test-

ing Methodology, FTC File No. P944509 (filed Feb. 5,

1998).

Third, as demonstrated in our opening brief, the FTC’s

consent orders with parties other than Philip Morris are

not signs of comprehensive industry-wide regulation. See

Pet. Br. 44-48. In response, Philip Morris insists (at 41)

that “courts have repeatedly recognized that FTC consent

orders have regulatory effects that extend well beyond

the parties to the agreement.” None of its cited cases,

however, supports the claim that consent orders serve as

industry-wide regulation. Settled precedent establishes,

to the contrary, that FTC consent orders are not a vehicle

for establishing industry-wide policy. See United States v.

E.I. du Pont de Nemours & Co., 366 U.S. 316, 330 n.12

(1961) (“the circumstances surrounding such negotiated

[consent] agreements are so different that they cannot be

persuasively cited in a litigation context”); Trans Union

Corp. v. FTC, 245 F.3d 809, 816-17 (affirming FTC deci-

sion that previous consent order had no “precedential ef-

fect” on subsequent order and did not entitle regulated

party to the same negotiated bargain), on denial of reh’g,

267 F.3d 1138 (D.C. Cir. 2001); Beatrice Foods Co. v. FTC,

540 F.2d 303, 312 (7th Cir. 1976) (previous consent order

does not establish “controlling precedent for later Com-

mission action”)."*

'’ FTC v. Mandel Brothers, Inc., 359 U.S. 385, 391 (1959), does not,

as Philip Morris's amici contend, point to a different result. See For-

mer FTC Staff Br. 24. The Court there found support for its interpre-

tation of the Fur Products Labeling Act in the FTC's “consistent ad-

ministrative construction” of the Act, exemplified by Jn re Ed Hamilton

Furs, Inc., 51 F.T.C. 186 (1954), and reinforced by more than a hun-

dred subsequent cease-and-desist orders bused on that case. 359 U.S.

at 391 & n.6. Although styled a “Stipulation for Consent Order,” the

order ending the Ed Hamilton Furs proceeding was itself, in substance,

20

Philip Morris also quotes (at 41-42) the congressional

testimony of a former FTC chairman explaining that the

agency may choose to proceed by adjudication rather than

by rulemaking because adjudication is often more effi-

cient. But no one disputes that adjudicatory orders may

have precedential effect in prescribing permissible con-

duct by regulated parties. The question is whether FTC

consent orders, which cut short the adjudicatory process

and which consequently embody no findings of fact or

generally applicable conclusions of law, can nevertheless

serve as the foundation of the agency’s comprehensive

regulation of an industry. Nothing in the testimony or

anv case on which Philip Morris relies supports the con-

clusion erroneously reached by the Eighth Circuit (Pet.

App. 15a) that consent orders can have any such effect.

Finally, Philip Morris points (at 40) to a 1967 FTC pol-

icy statement purportedly authorizing the tobacco indus-

try to make representations about the tar and nicotine

content of cigarettes if substantiated by proper testing.

But Philip Morris cites no authority for its premise that a

policy statement has the force of a trade regulation (it

does not, see Campaign for Tobacco-Free Kids Br: 7 n.2),

let alone that it may form the basis for a comprehensive

regulatory regime.

CONCLUSION

The judgment of the court of appeals should be

reversed.

a cease-and-desist order. The defendant stipulated to the record, with-

drew its answer to the FTC’s complaint, and, most importantly,

“agree{d| that the order . . . shall have the same force and effect as if

made after a full hearing, presentation of evidence, and findings and

conclusions thereon.” 51 F.T.C. at 193-94. That language does not

appear in the 1971 and 1995 consent orders. on which Philip Morris

here relies.

STEVEN EUGENE CAULEY

JAMES ALLEN CARNEY

MARCUS N. BOZEMAN

CAULEY, BOWMAN, CARNEY

& WILLIAMS, PLLC

11311 Arcade Drive

Suite 200

Little Rock, Arkansas 72212

(501) 312-8500

Respectfully submitted,

DAVID C. FREDERICK

Counsel of Record

MARK L. EVANS

KELLY P. DUNBAR

KELLOGG, HUBER, HANSEN,

TODN, EVANS & FIGEL,

P.L.L.C.

1615 M Street, N.W.

Suite 400

Washington, D.C. 20036

(202) 326-7900

Counsel for Petitioners

April 18, 2007