Opposition Brief — Attorney General of Canada v. R. J. Reynolds Tobacco Holdings, Inc.

% Supreme Court VU.»

(4) FILED

No. 01-1317 APR 10 2002

wishin CB OF THE CLERK

Supreme Court of the Anite tes

THE ATTORNEY GENERAL OF CANADA,

Petitioner,

Vv.

R.J. REYNOLDS TOBACCO HOLDINGS, INC.; R.J. REYNOLDS

TOBACCO COMPANY; R.J. REYNOLDS TOBACCO

INTERNATIONAL, INC.; RJR-MACDONALD, INC.;

R.J. REYNOLDS TOBACCO COMPANY, PR; NORTHERN

BRANDS INTERNATIONAL, INC.; AND CANADIAN

TOBACCO MANUFACTURERS COUNCIL,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI

To THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF IN OPPOSITION FOR RESPONDENTS

TIMOTHY J. FINN JEFFREY S. SUTTON

CHRISTOPHER F. DUGAN (Counsel of Record)

LAURA TUELL PARCHER CHAD A. READLER

JONES, DAY, REAVIS & POGUE JONES, DAY, REAVIS & POGUE

51 Louisiana Avenue, N.W. 1900 Huntington Center

Washington, D.C. 20001-2113 41 South High Street

(202) 879-3939 Columbus, OH 43215

(614) 469-3855

WILLIAM T. PLESEC

JONES, DAY, REAVIS & POGUE Counsel for Respondents

901 Lakeside Avenue

Cleveland, OH 44114-1190

(216) 586-3939

eee ar te PR er A Be SS 5A NERNEY ERAGON AIA RS A AE ee

Nee

C. STEPHEN HEARD, JR.

CHARLES SULLIVAN

ANDREW M. MCNEELA

SULLIVAN & HEARD LLP

405 Lexington Avenue

61st Floor

New York, NY 10174

(212) 307-5500

Counsel for Respondents R.J.

Reynolds Tobacco

International, Inc., R.J.

Reynolds Tobacco Company,

PR, RJR-MacDonald, Inc., and

Northern Brands International,

Inc.

RICHARD A. SCHNEIDER

KING & SPALDING

191 Peachtree Street, N.E.

Atlanta, GA 30303-1763

(404) 572-4600

PATRICIA A. GRIFFIN

DANIELLE SALLAH

KING & SPALDING

1185 Avenue of the Americas

New York, NY 10036-4003

(212) 556-2100

Counsel for Respondent

Canadian Tobacco

Manufacturers Council

Sei Pte ARENA TR RR RNR

QUESTION PRESENTED

In permitting treble-damages actions by “person([s]” for

injuries to their “business or property” caused by racketeering

(18 U.S.C. § 1964(c)), does RICO abrogate the common-law

revenue rule, which has long barred one country from directly

or indirectly enforcing its tax laws in the courts of another

country?

il

RULE 29.6 STATEMENT

1. R.J. Reynolds Tobacco Holdings, Inc.:

(A) does not have a parent company and the following

publicly-held companies own 10% or more of the

corporation’s stock: Fidelity Management, and Capital

Research and Management Company; and

(B) is the parent corporation for R.J. Reynolds Tobacco

Company, R.J. Reynolds Tobacco International, Inc., R.J.

Reynolds Tobacco Company, PR, and Northern Brands

International, Inc. No publicly-held company owns 10% or

more of the stock of any of these subsidiaries.

2. RJR-MacDonald, Inc. (currently JTI-MacDonald Corp.)

has a parent corporation, Japan Tobacco Inc., and no

publicly-held company owns 10% or more of Japan

Tobacco Inc.’s stock.

3. The Canadian Tobacco Manufacturers Council

("CTMC") is a non-profit corporation with its principal

office in Ottawa, Canada that does not sell stock to the

public. The members of the CTMC are Imperial Tobacco

Ltd., Rothmans, Benson & Hedges, Inc., and JTI-

MacDonald Corp.

ili

TABLE OF CONTENTS

Page

Sob g 8 6 ss re i

AERA APOEPRRMOMERE vss vcd ecbaceinecknnn. ll

pe Fe elie 8 yy Vv

veto coe ore one EE epee pare Or tana ]

Wee Ss SeN OR EG ou eEK so sian dd eben ks 2

Il. THE DECISIONS BELOW ................... 3

REASONS FOR DENYING THE WRIT ............. 5

I. | THE SECOND CIRCUIT’S DECISION DOES

NOT CONFLICT WITH ANY OTHER

LOWER-COURT DECISIONS ................ 6

II. _ASCANADA’S OWN ACTIONS ATTEST,

THE QUESTION PRESENTED DOES NOT

HAVE THE IMPORTANCE THAT THE

ATTORNEY GENERAL ASCRIBES TOIT ..... 7

Ill. THE SECOND CIRCUIT’S DECISION IS

CORRECT ON THE MERITS ................. 9

A. In Enacting RICO, Congress Did Not

Abrogate The Time-Honored Revenue Rule .... 9

1. The Revenue Rule Was Well Established

Long Before Congress Passed RICO ....... 9

2. RICO Does Not Abrogate This

Common-Law Rule .................... 12

B. The Revenue Rule Applies To Efforts To Use

U.S. Fraud Law To Collect Foreign Taxes .... 13

iv

C. The Attorney General Errs In Claiming That

The Second Circuit’s Decision Will Interfere

With Traditional Tax-Collection Efforts ...... 16

IV. THIS CASE PRESENTS A POOR VEHICLE FOR

REVIEWING THESE ISSUES ............... 17

CREE. 6c ahedcusced dase eb wesenss cdscons 19

Vv

TABLE OF AUTHORITIES

Cases Page

Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501

Uy ehh vig gl SAO stcacet 12

Banco Do Brasil, S.A. y. A.C. Israel Commodity Co.,

190 N.E.2d 235 Os ei 14

Banco Nacional de Cuba vy. Sabbatino,

376 U.S. 398 J atacg, Ct 10, 11

Beck v. Prupis, 529 U.S. 494 og [Oe 1, 5,12

Bennett v. Spear, 520 U.S. 154 ( sed: TO ea 18

Braxton v. United States, 500 U.S. 344 , _; PRO 6

Crosby v. Nat'l F. oreign Trade Council,

530 U.S. 363 oy Soe a 7

Gov't of India v. Taylor, [1955] A.C. 49] al.) «..... 10, 11

Her Majesty the Queen in Right of the Province

of British Columbia y. Gilbertson, 597 F 2d

1161 (9th Cir. ett ae 9,10

Holmes v. Sec. Investor Prot. Corp., 503

U.S. 258 cee Sn 1, 5, 12

Huntington v. Attrill, 146 U.S. 657 ee 10

Milwaukee County v. M.E. White Co., 296

U.S. 268 CAIIID ssaesinssensccnasscteeersnsonerinstssscaseee... 14

Moore y. Mitchell, 30 F.2d 600 (2d Cir. 1929),

aff'd, 281 U.S. 18 GRRE <chicthenscnscetsaniieiencadaniessse. 14

Nat'l Collegiate Athletic Ass'n v. Smith, 525

Oe NE seers thracace, 18

Nat'l F oreign Trade Council y. Natsios,

181 F.3d 38 (1st Cir. PITT secstnenecbstneninsinteanssiane... 7

Peter Buchanan Ltd. y. McVey, [1954] LR. 89

(Ir. H. Ct. 1950), aff'd, [1954] LR. 89

gop aay! 11,15

Vi

United States v. First Nat’l City Bank,

321 F.2d 14 (2d Cir. 1963), rev’d on

other grounds, 379 U.S. 378 (1965) .......see0e0 10, 11

United States v. Harden, [1963]

is BT REE ‘sadictdcsnthanemansionsiebenccebats 10, 14, 15, 16

Williams & Humbert Ltd. v. W. & H.

Trade Marks (Jersey) Ltd., shite

pM oh 8 Rh EI SER Ce EO TT 1]

Statutes

ae eas SE IE SIO inch cnactssndonesanonnsiciaesnemaneninhaninonesiiaien’ 2

Be es ND ciiniesintetaiiineiaeniesntaiemmnies passim

Miscellaneous

Hans W. Baade, The Operation of Foreign

Public Law, 30 Tex. Int’] L.J. 429, 482 (1995) ....... 10

Canadian Criminal Code, Sec. 465(1)(C) ..........cccscccessseeeeees 2

Canadian Excise Act, R.S.C., 1985, Sec. 240 (1) ......... 2, 12

Convention Between the United States of America

and Canada With Respect to Taxes on Income

and Capital, Sept. 26, 1980, U.S.-Can., ji

Pe Pe aoe 2, 12, 16

1 Dicey & Morris, The Conflict of Laws

EE: SUED vin nhicsienniiicnaiticicinaansindnncnatnanbundansinniiiies 15

Protocol Amending the Convention Between the

United States of America and Canada With

Respect to Taxes on Income and Capital,

Nov. 9, 1995, U.S.-Can., Art. XXVIA(2),

1 Tax Treaties (CCH) § 1901.261 at

RAR cisctvsstenignseicbiiasecisainianicaianuidinnaniigin 2, 12, 16

STATEMENT

In their decisions below, both lower courts rejected an

attempt by the Attorney General of Canada to use RICO to

collect three times the tax revenues Canada allegedly lost as a

result of a scheme to smuggle cigarettes into the country. The

court’s opinion joined an unbroken line of decisions over the

past 200 years in which courts in this country and abroad have

applied the venerable “revenue rule” to bar one country from

enforcing its tax laws, directly or indirectly, in the courts of

another country. The Attorney General concedes that there is

no circuit conflict over the issue. And he cannot dispute that

Canada’s own judiciary would invoke—and has previously

invoked—the revenue rule to bar a suit by the United States to

enforce American tax laws in Canadian courts.

Against this backdrop, petitioner asks the Court to rule,

thirty-two years after RICO was enacted, that Congress

intended to abrogate the revenue rule when it passed this anti-

racketeering statute. If true, this theory of abrogation would

allow any country, whether friend or foe, to ignore its own tax-

collection laws and to avoid the trouble of negotiating a

reciprocal tax-collection treaty with our government simply by

invoking RICO in American courts to recover treble taxes plus

attorney fees. But as the Court has made abundantly clear and

as the lower courts correctly recognized, the general words of

RICO do not customarily alter common-law principles in

existence when the statute was written. Beck v. Prupis, 529

U.S. 494 (2000); Holmes v. Sec. Investor Prot. Corp., 503 U.S.

258 (1992). In the absence of any Clear direction by Congress

to abrogate the revenue rule (or for that matter any mention of

the rule in the legislative debates over RICO), and in the

absence of any conflict in the courts of appeals (or for that

matter any foreign courts), no cognizable basis exists for this

Court to be “drawn into issues and disputes of foreign

relations policy that are assigned to—and better handled

by—the political branches of government.” Pet. App. A18-19.

I. FACTS.

In 1991, Canada doubled its taxes on tobacco products.

Pet. App. A3. Soon thereafter, it realized that smugglers were

bringing cigarettes into the country through the St.

Regis/Akwesasne Indian Reservation on the New York-

Canadian border in an effort to avoid these taxes. Jd. at A3.

At the time Canada discovered this alleged tax-evasion

scheme, as today, it had a variety of tax-enforcement

provisions available to address this type of problem. These

included numerous civil and criminal laws as well as a 1980

American-Canadian Treaty and a 1995 Protocol between the

countries designed to facilitate cross-border tax collection of

certain final tax judgments. See Section 240(1), The Canadian

Excise Act, R.S.C., 1985; Canadian Criminal Code, Section

465(1)(c); Convention Between the United States of America

and Canada With Respect to Taxes on Income and Capital,

Sept. 26, 1980, U.S.-Can., T.LA.S. No. 11087; Protocol

Amending the Convention Between the United States of

America and Canada With Respect to Taxes on Income and

Capital, Nov. 9, 1995, U.S.-Can., Art. XXVI A(2), 1 Tax

Treaties (CCH) 4 1901.261, at 21,005-26 (hereinafter “U.S.-

Canada Income Tax Treaty (1995 Protocol”); see also

Appendix A (summarizing Canadian and U.S. treaties and

laws that address smuggling and related cross-border criminal

activities).

Rather than invoke these laws and treaties and rather

than use its own courts to recover these tax revenues, Canada

tried something different. Its Attorney General filed a civil

action for treble damages in an American court seeking to

recover the allegedly lost Canadian taxes under an American

law—the Racketeer Influenced and Corrupt Organizations Act

(“RICO”), 18 U.S.C. § 1961 et seq.

In doing so, the Attorney General filed the action in

federal court in the Northern District of New York, and named

a variety of international defendants: RJR-MacDonald, Inc.,

a Canadian company; the Canadian Tobacco Manufacturers

Council, a trade association based in Canada; and several other

companies—Northern Brands International, Inc., R.J.

Reynolds Tobacco International, Inc., R.J. Reynolds Tobacco

Holdings, Inc., R.J. Reynolds Tobacco Company, and R.J.

Reynolds Tobacco Company, PR. According to the

complaint, the parties responsible for the alleged tax evasion

were not just the cigarette smugglers themselves but the

distributors of the cigarettes and the manufacturers as well. As

for damages, each of the Attorney General’s claims stemmed

from a tax-related injury, ranging from (1) lost revenue due to

the evasion of tobacco duties and taxes to (2) law-enforcement

costs incurred to stop the alleged smuggling.

In response, all of the defendants moved to dismiss the

complaint as a matter of law. They raised a variety of legal

defenses, including the claim that the RICO treble-damages

provision (18 U.S.C. § 1964(c)) does not abrogate the long-

established revenue rule, which bars one country from directly

or indirectly collecting its taxes in the courts of another

country. The Canadian Tobacco Manufacturers Council also

separately moved to dismiss on personal-jurisdiction and

forum-non-conveniens grounds, and continues to object to the

federal courts’ jurisdiction over it.

II. THE DECISIONS BELOW.

The district court granted the motion on revenue-rule

grounds. “Enforcing foreign revenue laws,” it concluded, “is

precisely the type of meddling in foreign affairs the Revenue

Rule forbids.” Pet. App. B16. Because the Canadian Attorney

General’s claim would have required the court to adjudicate

and enforce foreign tax claims both directly and indirectly, it

determined that the revenue rule applied. Jd. at B13. And

because the general language of RICO did not abrogate this

common-law principle, the court reasoned that the rule barred

this claim: “[T]Jhis Court is precluded from affording the

Canadian government an alternative mechanism not expressly

4

authorized by the legislative and/or executive branches of

government—those branches particularly responsible for

establishing and conducting international relations—by which

it may recoup lost tax revenues in the courts of the United

States.” Pet. App. B17 (emphasis added). Nor, the court

added, did international tax-collection treaties bolster the

claim. To the contrary: “[W]hile the [United States-Canadian

Income Tax Convention] may abrogate the Revenue Rule

insofar as the two countries may recognize one another’s final

judgments (or their equivalents), it does not go so far as to

eliminate the Rule with respect to unadjudicated or otherwise

non-final revenue claims.” Jd. at B12.

The Second Circuit affirmed. “The revenue rule,” the

court observed, “is a longstanding common law doctrine

providing that courts of one sovereign will not enforce final

tax judgments or unadjudicated tax claims of other

sovereigns.” Jd. at Al0. It then determined that an

“fe]xamination of both the policies underlying the revenue

rule, and the rule’s congruence with the international tax

policies pursued by the political branches of our government,

supports the conclusion that the revenue rule is applicable to

the particular facts of the case at hand.” /d.

Discerning nothing in the text, purpose or legislative

history of RICO that Congress meant suddenly to abrogate the

revenue rule when it enacted the provision in 1970, the

appellate court concluded that RICO did not alter the rule.

Nor was the court persuaded by the alternative claim that the

revenue rule could be evaded simply by invoking the law of

the home forum—be it American fraud law, breach-of-contract

law, tort law, or (as here) RICO law. “We are not persuaded

by Canada’s arguments that this is an action brought solely

under United States law, and not a claim for Canadian taxes.

On the contrary, Canada seeks to use the United States law to

enforce, both directly and indirectly, its tax laws.” Jd. at A48-

50. Recognizing that this exception would swallow the rule

5

and that no court at all events had ever recognized such an

exception, the court thus rejected this alternative theory. /d.

In dissent, Judge Calabresi acknowledged that he “fully

share[s] the majority’s concerns that applying civil RICO to

violations of foreign tax law may be harmful to American

trade interests and to American companies doing business

abroad.” Pet. App. A65. But he nonetheless believed, among

other things, that the court’s holding conflicted witk Second

Circuit precedent. See id. at AS8. When the Attorney General

sought rehearing en banc, however, not a single judge on the

Second Circuit voted for the petition. Jd. at C2.

REASONS FOR DENYING THE WRIT

The petition fails to satisfy the customary prerequisites

for review. Not only does the decision below hew closely to

established revenue-rule and RICO decisions, but it also does

not conflict with a single decision of any lower court or of this

Court. Indeed, to our knowledge, the description of the

revenue rule by the Second Circuit—that courts will not enter

the “‘forbidden waters’” of assessing the validity and

applicability of foreign tax laws (Pet App. A8-A9)—does not

conflict with a single decision of any court, foreign or

domestic, over the last two hundred years. This universality

of opinion, including decisions from Canada’s own courts, not

only confirms the firmly-entrenched nature of the rule, but

also illustrates the dramatic impact on foreign policy that a

sudden change in this practice could have. On this historical

record, the courts below correctly resisted being “drawn into

issues and disputes of foreign relations policy” (Pet. App.

A18-19) by concluding that Congress, which said nothing

about the revenue rule in RICO or its legislative history, did

not alter this age-old common-law rule. See Beck v. Prupis,

529 U.S. 494, 503 (2000); Holmes v. Sec. Investor Prot. Corp.,

503 U.S. 258 (1992).

Canada’s own actions, moreover, disprove the other

contention in the petition—that the matter is otherwise

6

sufficiently pressing to warrant the Court’s time. The country

has never enacted a treble-damages remedy under its own laws

for tax evasion; it has never negotiated a tax treaty with the

United States providing for such damages; and it has not even

attempted to collect the allegedly lost taxes under its own laws

and under existing American-Canadian treaties. Under these

circumstances, the Canadian Attorney General cannot credibly

claim that this Court (rather than Canadian courts or Canadian

law enforcement) should be the first governmental entity to

redress these alleged injuries. The writ should be denied.

I. THE SECOND CIRCUIT’S DECISION DOES

NOT CONFLICT WITH ANY OTHER

LOWER-COURT DECISIONS.

The first flaw in the petition is that it fails to satisfy the

first explanation for granting review. Neither in the court of

appeals’ decision, in the dissenting opinion, nor in the petition

iiself does anyone allege that the Second Circuit’s decision

conflicts with a single lower-court decision from any other

federal circuit or state court. Nor could any such claim be

made. The Second Circuit’s decision simply does not conflict

with other lower-court decisions, to say nothing of decisions

from foreign courts. The reason is straightforward: Imposing

and collecting taxes are quintessentially sovereign acts. As

such, the powers do not extend beyond the borders of one

country into those of another, and as such no court has ever

permitted one sovereign to collect its lost revenues in the

courts of another. For this reason alone, the petition should be

denied. Braxton v. United States, 500 U.S. 344, 347 (1991)

(“A principal purpose for which we use our certiorari

jurisdiction . . . is to resolve conflicts among the United States

courts of appeals and state courts concerning the meaning of

provisions of federal law. See this Court’s Rule 10.1.”).

7

II. AS CANADA’S OWN ACTIONS ATTEST,

THE QUESTION PRESENTED DOES NOT

HAVE THE IMPORTANCE THAT THE

ATTORNEY GENERAL ASCRIBES TO IT.

Conspicuously lacking a lower-court conflict, petitioner

argues (Pet. 16) that the Court has “repeatedly granted the

Writ, even in the absence of a circuit conflict, in cases

involving the rights of foreign nations to proceed . . . in the

courts of the United States.” In making this argument, the

Attorney General initially cites (id.) a series of Supreme Court

cases that purportedly lacked lower-court conflicts and that

involved foreign nations or foreign commercial interests. But

only one of the cases, Crosby v. National Foreign Trade

Council, 530 U.S. 363 (2000), has any bearing on the Court’s

certiorari practices over the last 16 years, and it did involve a

lower-court conflict. See Nat’! F oreign Trade Council y.

Natsios, 181 F.3d 38, 55-56 (1st Cir, 1999) (citing lower-court

split over “challenges to . . . laws targeting specific foreign

States” and noting further that “[cJourts have also split” in

interpreting related buy-American Statutes). While it is

difficult to argue in any setting that prior certiorari decisions

recommend review in a later case, that argument is particularly

unpersuasive here.

The Attorney General attempts to shore up this

contention by suggesting (Pet. 16) that the question is

important in view of the relationship between his country and

the United States. But it was precisely the nature of the

American-Canadian relationship and the risk of cross-border

smuggling in the first instance that prompted Canada to enact

numerous laws designed to prevent and punish alleged tax

avoidance of this sort, then to negotiate an American-Canadian

Treaty and Protocol designed specifically to address cross-

border tax-collection matters. See Appendix A. Through it

all, however, Canada never enacted a treble-damages remedy

for tax avoidance under its own laws, never negotiated a tax

treaty with the United States that would authorize this tax-

8

collection effort, and has not even attempted to collect the lost

taxes under the Canadian laws and American-Canadian

treaties that do exist. As Canada’s own actions demonstrate,

the claim that the Second Circuit’s interpretation of RICO’s

treble-damages provision suddenly demands this Court’s

review rings hollow.

Also unavailing is the Attorney General’s related

suggestion (Pet. 16) that this Court should supplement these

Canadian remedies with a RICO claim because Canada is a

“friendly foreign nation.” One of the core functions of the

revenue rule is to avoid asking courts—whether the Second

Circuit or this Court —to determine which nations are friendly

and which are not. Such requests, as the Second Circuit

correctly concluded, “are assigned to—and better handled

by—the political branches of government.” Pet. App. A19.

Nothing in RICO itself, moreover, authorizes courts to make

special allowances for claims by “friendly” foreign countries

or for that matter provides any criteria for ascertaining which

countries are sufficiently friendly to warrant a remedy that the

political branches of their governments have chosen not to

confer by treaty.

Lastly, the availability of remedies under Canadian law

and extant American-Canadian treaties shows why the

Attorney General cannot credibly claim that the decisions of

the lower courts leave Canada without other means to address

these issues. Not only may Canada still enforce existing laws

in its own courts regarding these claims, but it always retains

the option of negotiating a treaty or protocol with the United

States that would allow access to American courts to recover

its taxes. Though Canada has entered a comprehensive tax

treaty with the United States that addresses tax collection

assistance (see Appendix A), there is no dispute that the

Treaty and Protocol do not authorize this claim. As the

Second Circuit found, “[b]y permitting such a claim to go

forward, we would be ignoring and undermining the treaty

negotiation process and the clearly expressed views of the

9

political branches of the United States.” Pet. App. A34.

Under these circumstances, the Attorney General’s petition for

relief is more appropriately addressed to the political branches

than to this Court. Perhaps appreciating these factors, one of

Canada’s provinces did not even seek Supreme Court review

in 1979 when the Ninth Circuit rejected its effort to collect lost

tax revenues in American courts. See Her Majesty the Queen

in Right of the Province of British Columbia v. Gilbertson, 597

F.2d 1161, 1165 (9th Cir. 1979).

fl. THE SECOND CIRCUIT’S DECISION IS

CORRECT ON THE MERITS.

Unable to establish the customary grounds for seeking

review, the Attorney General devotes most of his petition to

arguing the merits of the two lower-court decisions against

him. But even if this were a traditional basis for seeking

certiorari (which it is not), the argument fails on its own terms.

The Second Circuit correctly followed this Court’s general

interpretive canons as well as their specific application to

RICO. And because petitioner does not allege, much less

show, that the holding below conflicts with a single decision

of this Court, this rarely-sufficient ground for granting the writ

also comes up short. See Ross v. Moffitt, 417 U.S. 600, 616-17

(1974) (“This Court’s review . . . is discretionary and depends

on numerous factors other than the perceived correctness of

the judgment we are asked to review.”).

A. In Enacting RICO, Congress Did Not

Abrogate The Time-Honored Revenue

Rule.

1. The Revenue Rule Was Well

Established Long Before Congress

Passed RICO.

In 1970, when Congress passed RICO, the revenue rule

was as deeply embedded in the common law as it was

widespread. Not only had every country to consider the rule

10

embraced it, including both the United States and Canada, but

the rule also formed a pertinent background principle to

numerous American tax-collection treaties.

In the United States, it “has long been a general rule that

one sovereignty may not maintain an action in the courts of

another state for the collection of a tax claim.” United States

v. First Nat'l City Bank, 321 F.2d 14, 23-24 (2d Cir. 1963),

rev'd on other grounds, 379 U.S. 378 (1965). The revenue rule

“has become so well recognized” that when Canada tried to

enforce a tax claim in this country in the 1970s, the Ninth

Circuit observed (in rejecting the claim) “that this appears to

be the first time that a foreign nation has sought to enforce a

tax judgment in the courts of the United States.” Gilbertson,

597 F.2d at 1164 n.7.

This Court, too, has recognized the “principle enunciated

in federal and state cases that a court need not give effect to

the penal or revenue laws of foreign countries ... .” Banco

Nacional de Cuba v. Sabbatino, 376 U.S. 398, 413-14 (1964);

see also Huntington v. Attrill, 146 U.S. 657, 671 (1892)

(federal courts may not entertain “suits . . . for the recovery of

pecuniary penalties for any violation of statutes for the

protection of [a foreign nation’s] revenue”). Other countries,

including Canada itself, have embraced this “ancient rule” as

well: “[FJoreign states cannot directly or indirectly enforce

their tax claims in our courts. . . .” United States v. Harden,

[1963] S.C.R. 366, 370-71 (Can. 1963). Indeed, the revenue

rule “has never been challenged successfully in an

international context.” Hans W. Baade, The Operation of

Foreign Public Law, 30 Tex. Int’! L.J. 429, 482 (1995).

In applying the revenue rule, the courts have given it

force in at least three settings, among others. It applies when

one sovereign attempts to enforce a tax judgment in the courts

of another. See Gilbertson, 597 F.2d at 1163 n.1. It applies

when one sovereign attempts to use another country’s courts

to collect unadjudicated tax claims. See Gov't of India v.

11

Taylor, [1955] A.C. 491 (H.L. 1955). And it applies when the

action is indirectly “a suit brought for the purpose of collecting

the debts of a foreign revenue.” See Peter Buchanan Ltd. v.

McVey, [1954] IR. 89 (Ir. H. Ct. 1950), aff'd, [1954] LR. 89,

115 (Ir. S.Ct. 1951).

In all three settings, the rationale for barring these extra-

territorial claims and for steering clear of these “forbidden

waters” is the same. Pet. App. B17. Namely, the unilateral

enforcement of foreign tax claims, like foreign penal laws, in

another nation’s courts risks infringing bedrock principles of

national sovereignty that are singularly appropriate for

political rather than judicial resolution. “[A] claim for taxes

is but an extension of the sovereign power which imposed the

taxes, and . . . an assertion of sovereign authority by one State

within the territory of another . . . is (treaty or convention

apart) contrary to all concepts of independent sovereignties.”

Gov't of India v. Taylor, [1955] A.C. at 511. The “presume[d]

invalidity” of foreign revenue laws thus stems from “the desire

to avoid embarrassing another state by scrutinizing its penal

and revenue laws” in the courts of another. Sabbatino, 376

USS. at 437.

Nor, contrary to petitioner’s suggestion (Pet. 12-15), has

this principle required countries to abandon efforts to stop

cross-border tax evasion and smuggling. One nation after

another has responded to this limitation on the judicial power

in at least two ways. First, they have entered into mutually

advantageous executive-branch treaties with other sovereigns

to ensure that this kind of tax avoidance does not go

unregulated. See First Nat’! City Bank, 321 F.2d at 24. Thus,

while “the international rule with regard to the

non-enforcement of revenue and penal laws is absolute,” the

“revenue laws may in the future be modified by international

convention.” Williams & Humbert Ltd. v. W. & H. Trade

Marks (Jersey) Ltd., [1986] A.C. 368, 428 (H.L. 1986).

Proving the point, the United States has entered into tax

treaties with sixty-one countries, with collection assistance

12

provisions ranging from the relatively generous assistance

given Canada to none at all. See, e.g., U.S.-Canada Income

Tax Treaty (1995 Protocol) (permits tax-collection assistance

for claims that have been “finally determined” by proceedings

in the taxing sovereign’s own courts). Second, countries have

relied on their own courts to enforce their own civil and

criminal laws to collect taxes and prevent smuggling. See

Canadian Excise Act, R.S.C., 1985, Sec. 240(1). Notably, no

claim has been made here that the Canadian Attorney General

lacks remedies in Canadian courts against these defendants.

2. RICO Does Not Abrogate

This Common-Law Rule.

As the Second Circuit recognized, courts do not lightly

impute to Congress a desire to abrogate common-law

doctrines. “[W]Jhere a common-law principle is well

established,” this Court repeatedly has said, “the courts may

take it as [a] given that Congress has legislated with an

expectation that the principle will apply except when a

statutory purpose to the contrary is evident.” Astoria Fed.

Sav. & Loan Ass’n v. Solimino, 501 U.S. 104, 108 (1991)

(internal quotation omitted). The Court, moreover, has

specifically applied this principle in the context of construing

RICO’s general terms. See, e.g., Beck, 529 U.S. at 504

(construing RICO not to abrogate “well-established common-

law civil conspiracy principles”); Holmes, 503 U.S. at 267-70

(construing RICO not to abrogate common-law proximate

cause requirements).

In the face of these precedents, both lower courts

properly recognized that the anti-racketeering provisions of

RICO could not be read as a directive to require courts

suddenly to entertain tax-evasion claims brought by foreign

sovereigns. Indeed, in view of the long-established history of

judicial refusal to enforce other countries’ tax laws and of

executive-branch efforts to negotiate tax-collection treaties, it

would have been exceedingly unusual for Congress suddenly

13

to abrogate the rule when it enacted RICO in 1970. And it

would have been doubly so to erect a treble-damages remedy

in its stead. Not only would such a law have eliminated more

than two centuries of precedent and rendered all but irrelevant

countless international tax treaties, but it also invariably would

have made American courts the tax-collection capital of the

world.

Yet RICO, by its terms, did no such thing. The statute

merely authorizes a treble-damages action for injuries to a

“person” in “his” or her “business or property” caused by

racketeering violations. 18 U.S.C. § 1964(c). It says nothing

about authorizing foreign governments to enter this country to

collect their lost tax revenues. Nor, throughout the extensive

legislative debates over RICO, was a single word mentioned

about the revenue rule, to say nothing of abrogating the rule.

All told, the court of appeals’ analysis of the words, context,

history and common-law backdrop of section 1964(c),

together with this Court’s relevant RICO decisions, reached

the only tenable conclusion available. That thoughtful,

comprehensive and ultimately correct analysis does not

war!rant review.

B. The Revenue Rule Applies To Efforts To

Use American Fraud Law To Collect

Foreign Taxes.

The Attorney General all but ignores this foundational

basis for the lower court’s decision. He does not deny that

federal statutes, and particularly generally-worded statutes,

must be read against the common-law tradition in which they

were written. And he does not deny that the revenue rule is

just such a common-law doctrine. Instead, he attempts (Pet.

9-11) to carve out an exception to the revenue rule—not

recognized in 1970 and not recognized at any time

since—under which the rule would be inapplicable when the

foreign nation purports to rely, in part, on the law of the home

state’s forum in collecting its taxes.

14

The argument as an initial matter misapprehends the

revenue rule. The rule historically has limited direct and

indirect attempts to enforce foreign revenue laws—as the

following decisions illustrate. In Banco Do Brasil, S.A. v. A.C.

Israel Commodity Co., 190 N.E.2d 235 (N.Y. 1963), the New

York Court of Appeals found that Brazil could not bring a

fraud action governed by New York law against an American

coffee importer for a conspiracy to circumvent foreign

exchange regulations. The Court found that Brazil was

“seeking, by use of an action for conspiracy to defraud, to

enforce what is clearly a revenue law.” Jd. at 237. Like

Canada, Brazil attempted to use American law and American

courts to recover damages stemming from violations of its

revenue law, and like the Second Circuit here the court

rejected the claim. Jd.

The same was true in Moore v. Mitchell, 30 F.2d 600 (2d

Cir. 1929), aff'd, 281 U.S. 18 (1930). There, an Indiana

official sought to recover back taxes from the executors of an

estate in a federal district court located in New York. Jd. at

603. In doing so, the official brought the claims not under

Indiana law, see id., but under “the law of New York.” Id. As

here, the court of appeals rejected this cross-jurisdictional tax

collection effort, holding that the Indiana tax collector could

not enforce Indiana’s tax laws indirectly in New York courts

under New York law. See id. at 604. Cf: Milwaukee County

v. ME. White Co., 296 U.S. 268, 277-80 (1935) (while the

Supreme Court later determined that the Full Faith and Credit

Clause requires one State to recognize the tax judgment of

another State, it observed that the Clause does not apply to

foreign countries, which are “free to ignore obligations created

under the laws or by the judicial proceedings of the others”).

No less significantly, the Attorney General’s attempt to

restrict the reach of the revenue rule ignores the teachings of

his own Supreme Court. In United States v. Harden, [1963]

S.C.R. at 371, the Canadian Supreme Court foiled an effort by

the United States to enforce an American tax-collection

} 15

judgment in a Canadian court against a Canadian resident. As

in this case, the United States did not try to enforce the foreign

tax judgment directly but sought to do so indirectly by

purporting to enforce an agreement—the tax settlement—

under a breach-of-contract theory. See id. (plaintiff's

argument was that “the claim asserted was simply for the

performance of an agreement, made for good consideration”).

The court, however, rejected this end run around the revenue

tule, holding—for reasons similar to those offered by the

Second Circuit here—that “[w]e are concerned not with form

but with substance .... The nature of the liability is not

altered. It is a liability to pay income tax... . [FJoreign

States cannot directly or indirectly enforce their tax claims in

our courts....” Jd. See also 1 Dicey & Morris, The Conflict

of Laws 91 (13th ed. 2000) (“Indirect enforcement occurs

where the foreign State (or its nominee) in form seeks a

remedy, not based on the foreign rule in question, but which

in substance is designed to give it extra-territorial effect .. . he

(emphasis added); ORS ] APS v. Frandsen, 3 All E.R. 289

(C.A. 1999), 1999 WL 477337 (Danish companies suing under

English negligence theories could not pursue action in English

courts as the claims, “in substance, . . . involve[d] the indirect

enforcement of Denmark’s revenue law”); Peter Buchanan

Lid. v. McVey, [1954] LR. 89 (Ir. H. Ct. 1950) (barring a party

in Irish court who was asserting an Irish fraud theory from

relying indirectly on Scottish revenue laws to obtain relief).

Not just precedent, but common sense as well, defeats

the Attorney General’s novel theory. As these courts

appreciated and as the Second Circuit recognized, petitioner’s

innovation has no cognizable limit. For it invariably will be

the case that an effort to recover lost taxes may be converted

into a claim for breach of contract, tort, fraud, or some other

tax-recovery theory masquerading as a domestic law of the

home forum. So long as the measure of damages is lost

revenues or law-enforcement costs related to them, the

revenue rule applies. In the end, Canada’s own Supreme

16

Court put it best: The rule bars one country from “directly or

indirectly” enforcing the tax claims of another country.

Harden, supra, at 371. That was true in Harden; it is true

here.

C. The Attorney General Errs In Claiming

That The Second Circuit’s Decision Will

Interfere With Traditional Tax-Collection

Efforts.

Petitioner also claims (Pet. 12-15) that the Second

Circuit’s decision will undermine international tax-collection

efforts. In truth, however, the Attorney General has it exactly

backwards. The sudden repeal of the revenue rule not only

would open American courts to an onslaught of foreign tax

claims but also would undermine the executive branch’s

ability to negotiate tax treaties with other nations.

The American courts’ acceptance of the revenue rule

stems from core separation-of-power requirements, which

allow the political branches to determine whether, when and

how U.S. government instrumentalities may be used to assist

foreign governments in the collection of their taxes.

Permitting claims like this would interfere with the authority

of the political branches of government to address the

enforcement of foreign revenue laws through international

treaties.

In the case of Canada, moreover, the United States has

specifically addressed mutual assistance in collecting revenue

claims in recent amendments to the U.S.-Canada Cor’ ention

With Respect to Taxes on Income and Capital. See income

Tax Treaty (1995 Protocol); see also Appendix A. This

assistance is limited in a number of ways, however, reflecting

the considered policy judgment of the political branches of

each government. See Pet. App. A28-34. Canada is one of

only five countries (including France, Netherlands, Denmark,

and Sweden) with whom the United States has agreed to

provide general assistance in collecting tax judgments. And

eee me yee wae eR

17

all of these treaties (1) require final determinations of liability

in the requesting country, and (2) expressly exclude US.

assistance in the collection of foreign taxes from U.S. citizens

or corporations. See Pet. App. A21-28.

In bringing this lawsuit, the Attorney General chose to

ignore the 1995 Protocol. Had the lower courts permitted a

RICO treble-damages remedy here, they would have given

Canada—and every other foreign sovereign (friendly or not)

—a powerful incentive to pursue an American litigation

remedy to their tax disputes rather than take the steps

necessary either to make use of the collection processes

established by treaty or to re-negotiate the applicable treaty.

Canada and other foreign nations in short would have no

tenable reason to negotiate reciprocal tax collection assistance

rights with the United States if our courts and our legal

theories were already available to collect their taxes. In the

final analysis, petitioner could not be more mistaken in

arguing (Pet. 9) that “[t]here is no foreign policy reason” to

prevent its claims.

IV. THIS CASE PRESENTS A POOR VEHICLE

FOR REVIEWING THESE ISSUES.

Petitioner, lastly, errs in claiming (Pet. 17) that this case

presents “an excellent vehicle” for review. For one, a case

rarely presents a good vehicle for review in the absence of a

split in lower-court decisions. The percolation process by

itself illustrates which cases are good vehicles and which are

not, allows other lower courts to weigh in on the issue, and

ultimately ensures (to quote petitioner (Pet. 17)) that the

“genie” is not let out of the bottle prematurely.

For another, respondents have raised a host of additional

grounds for dismissing the Attorney General’s claims as a

matter of law, not one of which the Second Circuit needed to

reach in light of its conclusion that RICO did not abrogate the

revenue rule. In the lower courts, respondents argued that the

extension of RICO to foreign tax-collection claims would

18

violate the Constitution’s separation-of-power requirements,

would (at a minimum) trigger constitutional-avoidance

considerations, would raise an impermissible political

question, and would implicate this Court’s sovereign-

immunity decisions since petitioner’s theory of relief

necessarily would permit money-damages claims by and

against foreign sovereigns. The Second Circuit, however, did

not address any of these alternative grounds for relief. Under

these circumstances, not only would denying the petition allow

the issue that was addressed to percolate in the lower courts,

but it also would give lower courts an opportunity to reach

these additional defenses. While respondents may of course

raise these defenses in this Court as alternative grounds for

affirming the judgment, see Bennett v. Spear, 520 U.S. 154,

166 (1997), the Court has long expressed a preference for

reviewing decisions that have considered the federal questions

presented, see Nat'l Collegiate Athletic Ass'n v. Smith, 525

U.S. 459, 470 (1999). Review of the issue thus is not only

premature but is not well presented either.

19

CONCLUSION

The petition should be denied.

Respectfully submitted,

TIMOTHY J. FINN JEFFREY S. SUTTON

CHRISTOPHER F. DUGAN (Counsel of Record)

LAURA TUELL PARCHER CHAD A. READLER

JONES, DAY, REAVIS & POGUE JONES, DAY, REAVIS & POGUE

51 Louisiana Avenue, N.W. 1900 Huntington Center

Washington, D.C. 20001-2113 41 South High Street

(202) 879-3939 Columbus, OH 43215

(614) 469-3855

WILLIAM T. PLESEC

JONES, DAY, REAVIS & POGUE Counsel for Respondents

901 Lakeside Avenue

Cleveland, OH 44114-1190

(216) 586-3939

C. STEPHEN HEARD, JR. RICHARD A. SCHNEIDER

CHARLES SULLIVAN KING & SPALDING

ANDREW M. MCNEELA 191 Peachtree Street, N.E.

SULLIVAN & HEARD LLP Atlanta, GA 30303-1763

405 Lexington Avenue (404) 572-4600~

61st Floor

New York, NY 10174 PATRICIA A. GRIFFIN

(212) 307-5500 DANIELLE SALLAH

KING & SPALDING

Counsel for Respondents R.J. 1185 Avenue of the Americas

Reynolds Tobacco New York, NY 10036-4003

International, Inc., R.J (212) 556-2100

Reynolds Tobacco Company,

PR, RJR-MacDonald, Inc.,and Counsel for Respondent

Northern Brands International, Canadian Tobacco

Inc. Manufacturers Council

April 2002

LL

APPENDIX

Appendix A

Current International, Bilateral and Domestic

Mechanisms Available to Combat US-Canadian Cross-

border Smuggling and Money Laundering

TREATIES ADDRESSING SMUGGLING AND OTHER

CROSS-BORDER CRIMINAL CONDUCT

* Convention Between the United States of America and

Canada with Respect to Taxes on Income and on

Capital, Sept. 26, 1980, T.I.A.S. No. 11087; Protocol

Amending Tax Convention with Canada, Nov. 9, 1995,

U.S.-Can., | Tax Treaties (CCH) § 1901. 261, at 21,005-

26. The Treaty specifically addresses tax collection

assistance and provides that the parties to the treaty will

assist each other in collecting certain revenue claims that

have been “finally determined” by proceedings in the

taxing sovereign’s own courts. Art. XXVI A(2). Unlike

the other provisions of the treaty, this provision applies to

all types of taxes collected by each party. The assistance

is limited in several ways. Among other things, the Treaty

(1) applies only to claims against the requesting country’s

citizens; (2) is limited to revenue claims that have been

“finally determined” after exhaustion of all administrative

and judicial rights; and (3) is limited to claims that are

“accepted for collection” by the Secretary of the Treasury,

who is empowered to reject claims for any reason.

¢ The United Nations Convention Against Transnational

Organized Crime (2000) (the “Palermo Treaty”). The

United States and Canada have both signed the Palermo

treaty but neither has yet ratified it. The multilateral treaty

is intended to combat transnational money laundering and

organized crime. It requires each signatory to criminalize

participation in transnational organized crime and money

laundering and to establish criminal and/or civil remedies.

A “serious crime,” which is the predicate offense for

: organized crime, includes any offense punishable by a

ie a dee

2a

maximum deprivation of liberty of at least four years or

more. This encompasses a number of crimes, including

mail fraud and wire fraud. Finally, the Treaty provides for

extradition where appropriate under the signatory

country’s laws.

CANADIAN LAWS AND INITIATIVES ADDRESSING

SMUGGLING AND OTHER CROSS-BORDER CRIMINAL

CONDUCT

The Canadian Excise Act makes it a crime to sell or offer

for sale tobacco products on which excise taxes have not

been paid. The statute provides for remedies including

fines and jail time. See Excise Act, R.S.C., 1985, sec.

240(1). The criminal conspiracy statute creates equivalent

penalties for conspiring to sell or offer to sell such tobacco

products, including by smuggling them. See Criminal

Code, Sec. 465(1)(c).

The Anti-Smuggling Initiative, introduced in 1994,

provides resources for the Canadian police and the

Ministries of Justice and Revenue to target smuggling and

distribution networks at the border, in ports, and across the

country. In June of 1999, the Government of Canada

injected another $78 million over the next four years to

combat smuggling. This initiative has led to 17,000

smuggling-related charges resulting in fines in excess of

$113 million, and $118 million in evaded taxes and duties

have been identified.

UNITED STATES LAWS ADDRESSING SMUGGLING

AND OTHER CROSS-BORDER CRIMINAL CONDUCT

Smuggling: Using a vessel to smuggle goods into a

foreign country in violation of that country’s laws is

criminalized by 18 U.S.C. § 546; 19 U.S.C. § 1701

authorizes the boarding of vessels to investigate

smuggling. Depositing goods in a building on the

boundary between the U.S. and another country or

3a

transporting goods across such a boundary in violation of

law is criminalized by 18 U.S.C. § 547.

Other U.S. Criminal Laws Used to Fight Smuggling:

Prosecutors have successfully targeted smuggling schemes

by using mail fraud, wire fraud and money laundering

laws. Laundering money in furtherance of a criminal

scheme is prohibited by 18 U.S.C. § 1956. Committing

any scheme to defraud using the United States mail is

criminalized by 8 U.S.C. § 1341. Committing any scheme

to defraud using the interstate wires, including the

telephone, is criminalized by 18 U.S.C. § 1343.

BILATERAL INITIATIVES COMBATING SMUGGLING

AND OTHER CROSS-BORDER CRIMINAL ISSUES

The Canada-U.S. Cross-Border Crime Forum is a

bilateral consultative mechanism to address cross-border

crime issues, particularly smuggling. Established in April,

1997 by the President of the United States and the Prime

Minister of Canada, the Forum brings together over 100

senior law enforcement and justice officials from Canada

and the U.S. on transnational crime problems such as

smuggling, organized crime, telemarketing fraud, money

laundering, missing and abducted children, crime using

computers and other emerging cross-border issues.

Resulting agreements between Canadian and U.S. law

enforcement agencies provide reciprocal direct access to

each other’s criminal databases. See Office of the

Solicitor General of Canada, The Canada-U.S. Cross-

Border Crime Forum(Sept.2001) at

http://www.sge.ca/WhoWeAre/

Policing/CrossBorder/ecrossborder/ecrsbrdr__

bkgrd200109.htm.

Integrated Border Enforcement Teams (“IBET’) are

multi-agency law enforcement teams of United States and

Canadian police, immigration and customs officials

working together with local, state and provincial

4a

enforcement agencies. The West Coast IBET, established

in 1997, averages seizures of about $1 million a month.

These seizures include illicit drugs, weapons, tobacco and

alcohol, and vehicles. An East Coast IBET was created in

June 2000. See Press Release, Office of the Solicitor

General of Canada, U.S. Attorney General and Solicitor

General of Canada Announce New Measures to Tighten

Border Security (June 9, 2000) at http://www.sgc.gc.ca/

Releases/Backgrounders/e20020228.PDF

The Government of Canada and the Mohawk Council of

Akwesasne have instituted new measures to fight cross-

border crime, including the investment of an additional

$4.6 million to enhance the capacity of the Akwesasne

Mohawk Police (AMP) to combat criminal activities in

and around the region, which straddles the U.S-Canadian

border. The funding will mean more AMP officers for the

Mohawk Territory of Akwesasne, which allows for

increased participation by the AMP in joint-force border

operations. See Press Release, Office of the Solicitor

General of Canada, Canada-Akwesasne Get Tough on

Cross-Border Crime (Feb. 28, 2002) at http://www.sgc.gc.

ca/Releases/e20020228.htm.