Opposition Brief — European Community v. RJR Nabisco, Inc.

3

STATEMENT OF THE CASE

Il. These Actions Involve Efforts By Foreign

Governments To Enforce Their Revenue Laws in U.S.

Courts

In these consolidated lawsuits, several Departments of

the Republic of Colombia (“Colombian Departments”), the

European Community (“EC”), and ten of the EC’s member

states (“Member States”) sought to recover unpaid foreign

taxes and obtain related relief arising from alleged cigarette

smuggling schemes. Petitioners alleged, among other things,

that the respondent companies “facilitated the smuggling of

cigarettes illegally” into their countries. CA App. A-311;

accord CA App. 1944; App. 4a, 2la-22a.

In their complaints, petitioners sought principally to

recover taxes lost by reason of the alleged schemes. CA App.

A-312-13, A-1934; App. 8a. Specifically, petitioners —_—

to recover as monetary damages:

¢ “[E}xcise taxes that would have been paid on

the cigarettes in question absent the wrongfu!

activities of the Defendants”;

« “Customs duties”;

* “Value-added tax levied on cigarettes”; and

¢ Derivative costs such as law enforcement and

other governmental expenses incurred “to

fight against cigarette smuggling.”

CA App. A-409-11; accord CA App. A-2021-26; App. Sa,

23a. Petitioners’ complaints also sought injunctive and

_ « ai i, ae — le a,

2. “CAApp.” refers to the Joint Appendix filed with the United

States Court of Appeals for the Second Circuit.

4

equitable relief, including orders to “disgorge” proceeds from

the smuggling scheme and court-ordered protocols that would

help petitioners “track and monitor the movement of

Cigarettes into and within” their foreign territories to assist

in their enforcement of foreign revenue and customs laws.

CA App. A-419-20, A-2025-26; accord App. 5a, 23a.

Petitioners sued under the civil provision of the

Racketeer Influenced and Corrupt Organizations Act (RICO),

18 U.S.C. § 1964(c), and brought state common law claims

based on diversity jurisdiction.’ App. 3a, 19a.

Despite the focus of their complaints, petitioners now,

as in their previous petition for certiorari, abandon their

federal RICO claims and their claims for damages, apparently

in an attempt to make these cases appear less like Canada

and Honduras, where certiorari was denied. Instead, they

assert that the “main focus” of these actions is state tort law,

specifically, state common law claims seeking injunctive and

equitable relief. See Pet. 2-3 nn.3-4.

Ii. Other Circuit Court Decisions Concerning Identical

Civil Actions By Other Foreign Governments

While these consolidated actions were pending in the

district court, the Second Circuit decided Attorney General

of Canada v. R.J. Reynolds Tobacco Holdings, Inc. , 268 F.3d

103 (2d Cir. 2001), cert. denied, 537 U.S. 1000 (2002). There,

Canada filed a civil RICO and state common law action in

New York federal court alleging that several tobacco

3. Diversity jurisdiction, however, is lacking in the Colombian

Departments’ action because there is no complete diversity—there

are foreign parties on both sides of the case. See Grupo Dataflux v.

Atlas Global Group, 541 U.S. 567, 569 (2004) (diversity is absent

where “aliens [are] on both sides of the case”) (citing Mossman v.

Higginson, 4 Dall. 12, 14 (1800)).

5

companies had engaged in a scheme to smuggle cigarettes

into Canada. Id. at 105-06. Like petitioners here, Canada

sought to recover unpaid taxes, treble damages related to

these taxes, and injunctive relief designed to enforce its tax

laws. Id.

The Second Circuit held that the Revenue Rule—a

“common law doctrine providing that courts of one sovereign

will not enforce final tax judgments or unadjudicated tax

claims of other sovereigns”—barred all of Canada’s claims.

Id. at 109. The court explained that the Rule had “continuing

vitality” in modern times because it serves important

separation-of-powers interests. /d. For instance, it avoids

judicial scrutiny of another nation’s tax policies, which

prevents “embroil{ing] United States courts in delicate issues

in which they have little expertise or capacity.” /d. at 113.

The Rule also ensures that the judiciary will not interfere

with foreign tax matters and be “drawn into issues and

disputes of foreign relations policy that are assigned to—

and better handled by—the political branches of

government.” /d. at 114. The court recognized, for instance,

that allowing civil tax-based actions would undercut the

Executive Branch’s ability to negotiate treaties, since nations

would know they could obtain tax enforcement without

providing the U.S. reciprocal rights simply by filing a lawsuit

in U.S. courts. /d. at 119, 122.

Finally, the Second Circuit explained why the Revenue

Rule barred Canada’s civil action, despite its prior ruling in

Trapilo that the Rule was no bar to criminal wire fraud

prosecutions based on a scheme to smuggle liquor from the

U.S. into Canada: “When the United States prosecutes a

criminal action ... the foreign relations interests of the

United States may be accommodated throughout the

litigation.” /d. at 123.

6

Canada subsequently filed a petition for a writ of

certiorari, and the Court invited the Solicitor General to

express the views of the United States. On behalf of the

United States, the Acting Solicitor General—in a joint

submission with the Departments of State and Treasury—

opposed the granting of certiorari and supported the Second

Circuit’s application of the Revenue Rule based on

“important separation-of-powers interests.” Brief for the

United States As Amicus Curiae at 6, Canada, 537 U.S. 1000

(No. 01-1317). This Court denied certiorari. Canada,

537 U.S. 1000.

After Canada was filed, but before the Second Circuit

issued its decision, various Central and South American

countries brought a series of actions modeled after Canada

in Florida federal court, seeking to recover lost foreign taxes

and various forms of injunctive relief from purported

smuggling schemes. Like the Second Circuit, the Eleventh

Circuit affirmed the dismissal of these suits based on the

Revenue Rule. Republic of Honduras v. Philip Morris Cos.,

341 F.3d 1253 (11th Cir. 2003). The plaintiff-governments

there also filed a petition for a writ of certiorari, which this

Court denied. Honduras, 540 U.S. 1109.

Ill. The Initial Proceedings Below

A. The District Court’s Decision

After the Second Circuit issued its decision in Canada,

the district court dismissed petitioners’ complaints based on

the Revenue Rule. App. 47a. The court considered both

petitioners’ demands for lost tax revenue as well as the claims

for injunctive and equitable relief. App. 57a-58a. Noting that

petitioners’ requested injunctive relief was “designed to

impede smuggling, improve future defenses against

smuggling, and recoup monies lost to smuggling,” the court

7

determined that this relief also triggered the Revenue Rule.

App. 58a.

Although the district court dismissed with prejudice

petitioners’ RICO and common law claims predicated on

smuggling, App. 68a-69a, the court dismissed their “money

laundering” claims without prejudice on other grounds,

allowing petitioners to bring new money laundering

allegations to the extent that the claims had no nexus to

foreign tax enforcement. App. 76a.‘

B. The Second Circuit’s Initial Decision

In its initial opinion, the Second Circuit affirmed the

dismissal of the present cases. App. 45a. The court found

that petitioners’ allegations were “markedly similar to those

at issue in Canada.” App. 30a. Like the Canadian

government, the court noted, petitioners premised their

complaints on various tax-related injuries. App. 30a-31a.

Accordingly, the court found its decision controlled by

Canada. App. 31a.

The Second Circuit rejected petitioners’ argument that

the foreign policy concerns underlying the Revenue Rule

were nct implicated in these cases. App. 31a. First, the court

reiterated that enforcement of foreign tax laws is a question

of “‘foreign relations policy ... assigned to—and better

handled by—the political branches of government.’”

App. 28a (quoting Canada, 268 F.3d at 123). Thus,

“the modern revenue rule is rooted in both our perception

4. The court dismissed the “money laundering” claims because

they lacked a “causal connection to the harm alleged, once the moncy

laundering allegations are removed from the context of the smuggling

scheme... .” App. 73a. The claims were dismissed without prejudice,

allowing petitioners to refile. App. 76a, 78a-79a. Petitioners

subsequently have refiled those claims against certain defendants.

§

that the branches of government responsible for conducting

foreign affairs wish to uphold the rule, and our reluctance to

intrude upon the greater expertise of the political

branches. . . .” App. 29a. Like the Eleventh Circuit, the court

found that over 50 tax treaties between the United States

and other nations “reflected the political branches’ continuing

recognition of the revenue rule.” App. 29a.

Second, the court rejected the argument that petitioners’

claims for injunctive relief fell beyond the scope of the

Revenue Rule. App. 42a. The court found that, where a

foreign sovereign seeks to enforce foreign tax laws, the same

separation-of-powers problems arise irrespective of whether

the remedy sought is compensation o~ an injunction.

App. 42a.

Finally, as in Canada, the court reiterated the

fundamental distinction between civil and criminal cases

when it comes to the Revenue Rule:

[W]here the executive branch has “expressed its

consent to adjudication by the courts,” the

institutional and separation of powers concerns

behind the rule are mitigated, because the branch

with primary responsibility for conducting foreign

relations has indicated that extraterritorial

enforcement of the foreign tax laws at issue is in

the interests of the United States.

App. 29a (quoting Canada, 268 F.3d at 123 n.25).

9

IV. Pasquantino, the Remand, and the Second Circuit’s

Decision on Remand

In May 2005, the Court granted, vacated, and remanded

these cases to the Second Circuit “for further consideration

in light of Pasquantino v. United States,” App. \5a, a decision

that held that the Revenue Rule did not bar the United States

from bringing a criminal wire fraud prosecution based on a

scheme to smuggle liquor from the U.S. into Canada.

A. Pasquantino v. United States

In Pasquantino, the Court addressed two principal

questions: (1) whether the smuggling scheme at issue fell

within the “literal terms of the wire fraud statute”; and (2) if

so, whether the Revenue Rule still barred such a prosecution.

Pasquantino, 125 S. Ct. at 1771, 1773.

After finding that the smuggling scheme fell within the

language of 18 U.S.C. § 1343, the Court addressed whether

the Revenue Rule nevertheless barred the prosecution.

The Court first looked at whether, when the wire fraud statute

was enacted, the Revenue Rule precluded the government

from prosecuting a defendant under its own domestic laws

for an attempted smuggling scheme. 125 S. Ct. at 1774. The

Court found no precedent applying the Revenue Rule to

preclude a sovereign from enforcing its penal laws. /d.

Turning then to the purposes of the Revenue Rule, the

Court recognized that the Rule serves separation-of-powers

interests, but held that the special characteristics of criminal

prosecutions brought by the Executive Branch rendered the

Revenue Rule inapplicable. /d. at 1779. For example, the

Court recognized that the Revenue Rule was designed to

prevent the judiciary from becoming embroiled in a foreign

nation’s social policies, but found that this purpose had little

10

application to the prosecution before the Court: “[T]his

prosecution poses little risk of causing the principal evil

against which the revenue rule was traditionally thought to

guard: judicial evaluation of the policy-laden enactments of

other sovereigns.” /d. Federal criminal prosecutions do not

pose such a risk, the Court reasoned, because of the active

participation of the Executive Branch in enforcing its

domestic criminal laws. /d. at 1777 (“The present prosecution

creates little risk of causing international friction. . . . This

action was brought by the Executive to enforce a statute

passed by Congress”).

While finding the Revenue Rule inapplicable to the

criminal prosecution in Pasquantino, the Court “express[ed]

no view” on “whether a foreign government . . . may bring a

civil action under the Racketeer Influenced and Corrupt

Organizations Act for a scheme to defraud it of taxes. See

Attorney General of Canada v. R.J. Reynolds (|, Republic of

Honduras v. Philip Morris Cos.” Id. at 1771 1.1.

B. The Second Circuit's Decision on Remand

In September 2005, the Second Circuit issued its remand

decision affirming the dismissal of petitioners’ complaints

under the Revenue Rule. App. 3a. The court held that

“Pasquantino casts no doubt on the reasoning or the result”

of its initial decision. App. 14a.

As a threshold matter, the court noted that Pasquantino

expressly declined to state a view on the Revenue Rule's

application to civil cases like those here. App. 6a. The court

then addressed whether the reasoning of Pasquantino in any

way altered its decision. The court concluded that it did not.

The court reiterated its view that the Revenue Rule is

“designed to address two concerns: first, that policy

1]

complications and embarrassment may follow when one

nation’s courts analyze the validity of another nation’s tax

laws; and second, that the executive branch, not the judicial

branch, should decide when our nation will aid others in

enforcing their tax laws.” App. 8a. The Second Circuit

explained why these policy concerns are not implicated in

crimina! prosecutions: “when the executive branch

affirmatively consents to litigation (¢.g., by initiating it in a

criminal prosecution), there is little reason to worry about

infringing on the executive's sphere of decision-making, and

the rule will not be applied.” App. 9a.

The court then concluded that Pasquantino recognized

the same principles. Specifically, the Second Circuit found

that “the involvement of the United States government was

a key factor in determining the outcome of Pasquantino.”

App. lla. The absence of the United States in the present

cases, therefore, was critical: “The present civil lawsuit, on

the other hand, is brought by foreign governments, not by

the United States.” App. lla. Indeed, “in Pasquantino, as

well as in Canada, the United States government argued that

the revenue rule does not apply to criminal prosecutions, but

agreed that the rule applies to civil cases brought by foreign

governments involving any direct or indirect attempt to

enforce their tax laws.” App. lla n.8.

Finally, the court addressed and rejected petitioners’

arguments, identica! to those here, that (a) the Revenue Rule

applies only to suits where the “whole object” is the collection

of taxes; (b) the Rule does not apply to domestic law claims

for injunctive and equitable relief; and (c) the discussion of

tax treaties in Pasquantino conflicts with the Canada

decision. App. 12a-14a.

In sum, the Second Circuit, after a thorough analysis that

considered all of petitioners’ arguments, held that

“Pasquantino casts no doubt on the reasoning or the result

of” its initial decision. App. |4a.

A

lo

REASONS FOR DENYING THE PETITION

I. THE SECOND CIRCUIT CORRECTLY HELD

THAT PASQUANTINO IS FULLY CONSISTENT

WITH THE DECISIONS BELOW.

Rather than grant petitioners’ request for “summary

reversal,”* this Court should deny review because the Second

Circuit correctly determined that Pasquantino is entirely

consistent with the lower courts’ grounds for dismissal of

these civil cases under the Revenue Rule. Moreover, that

determination does not conflict with any federal or state court

ruling. Denial of review also is consistent with the views of

the United States, which support the dismissal below.

A. Pasquantino Validated, Not Superseded, the

Second Circuit’s Approach to the Revenue Rule.

The Court’s analytical framework, reasoning, and

holding in Pasquantino fully support the dismissal of these

cases under the Revenue Rule.

First, Pasquantino confirmed the analytical framework

used by the Second Circuit. Specifically, in Pasquantino, the

Court began its analysis of the Revenue Rule with an inquiry

5. Given that the Court in Pasquantino “express[ed] no view”

on cases like these, the request for summary reversal is absurd.

Pasquantino, 125 S. Ct. at 1771 n.1. Summary reversal is an

extraordinary remedy appropriate only when “the lower court result

is ... clearly erroneous” and contrary to “a controlling Supreme

Court precedent.” Robert L. Stern et al., Supreme Court Practice

316 (8th ed. 2002); Maryland v. Dyson, 527 U.S. 465, 467 n.1 (1999)

(“[S}ummary reversal does not decide any new or unanswered

question of law, but simply corrects a lower court’s demonstrably

erroneous application of federal law.”). That petitioners disagree with

the Second Circuit's remand opinion is hardly grounds for such

extraordinary relief.

13

into whether, at the time the criminal wire fraud statute was

enacted, the Revenue Rule was a well-established bar to the

federal government prosecuting a defendant under its

domestic laws for an attempted smuggling scheme.

Pasquantino, 125 S. Ct. at 1774 & n.5 (following Texas and

Astoria cases). The Court found no precedent applying the

Revenue Rule to preclude a domestic criminal prosecution.

Id. at 1774. In the decisions below and in Canada, the Second

Circuit applied the same framework, concluding that the

Revenue Rule always applied in civil actions brought by

foreign governments, including when RICO was enacted.

Canada, 268 F.3d at 126-29 (following Texas and Astoria

cases); accord App. 30a, 7a-8a.

Second, Pasquantino identified the same purposes

underlying the Revenue Rule relied upon by the Second

Circuit. For example, the Court recognized that the Revenue

Rule was designed to prevent the judiciary from becoming

embroiled in a foreign nation’s social policies and served

separation-of-powers purposes. Compare Pasquantino, 125

S. Ct. at 1779-80 with App. 8a-9a (decision below on

remand); App. 28a-30a (original decision).

Third, Pasquantino recognized that the sovereignty and

separation-of-powers purposes underlying the Rule are not

implicated in criminal prosecutions because of the control

of the Executive Branch in enforcing its domestic criminal

laws:

[W]e may assume that by electing to bring this

prosecution, the Executive has assessed this

prosecution’s impact on this Nation's relationship

with Canada, and concluded that 1: poses little

danger of causing internationa! friction. We know

of no common-law court that has applied the

revenue rule to bar an action accompanied by such

14

a safeguard, and neither petitioners nor the dissent

directs us to any.

Pasquantino, 125 S. Ct. at 1779.

This, as the remand decision below recognized, “actually

affirmed] the prior law of [the Second] Circuit, under which

the revenue rule was held inapplicable to § 1343 smuggling

prosecutions” in United States v. Trapilo. See App. 12a;

accord Pasquantino, 125 S. Ct. at 1771 (noting that Court

was resolving conflict between Trapilo and other cases).

Indeed, in Canada, the Second Circuit expressly explained

the fundamental difference between criminal and civil cases

in this context:

[With regard to the revenue rule, there is a critical

difference between this civil suit brought by a

foreign sovereign and the criminal actions

previously considered by panels of this court. In

Trapilo ... the executive branch of the United

States brought the case, while here, Canada is the

plaintiff. When the United States prosecutes a

criminal action .. . the foreign relations interests

of the United States may be accommodated

throughout the litigation. In contrast, a civil RICO

case brought to recover tax revenues by a foreign

sovereign to further its own interests, may be, but

iS NOt necessarily, consistent with the policies and

interests of the United States.

Canada, 268 F.3d at 123-24 (footnotes omitted); see also

App. 29a. This distinction also was central in the remand

decision: “In Pasquantino, [the separation-of-powers]

concern was alleviated by the direct participation of the

political branches in the litigation. Here we have no such

assurance. We therefore see no reason why Pasquantino’s

analysis should disturb our conclusion that the revenue rule

bars” the present cases. App. |4a (citations omitted).

15

Thus, though Pasquantino expressly stated “no view”

on civii cases like these, the decision was fully consistent

with the rulings below and certainly presents no ground for

review. Indeed, even Judge Calabresi, who dissented in

Canada, recognized that “Pasquantino does not cast doubt

on the holding in EC /.” App. 7a n.6.

B. There Is Complete Unanimity Among this Court’s

Decision in Pasquantino, the Views of the United

States, and the Decisions of the Second Circuit

and Other Federal Courts.

The decision below does not conflict with any decision

of this Court, any Court of Appeals, or for that matter, any

court anywhere in the world. Both the Second Circuit and

Eleventh Circuit have now squarely considered the Revenue

Rule’s application to civil suits to vindicate foreign revenue

laws, and both have reached the same conclusion: as a matter

of foreign relations and separation-of-powers, civil actions

by foreign governments secking to enforce their revenue laws

in U.S. courts are barred by the Revenue Rule. That includes

not only actions seeking to collect foreign taxes, but also

those seeking common law claims for injunctive relief

designed to enforce foreign tax laws. App. |4a, 42a;

Honduras, 341 F.3d at 1257-59, Canada, 268 F.3d at 118-

19. Within the last three years, the Court twice has refuseu

to grant certiorari in these cases to review this long-settled

principle. The Court should reach the same result here.

Petitioners erroneously claim that the holding below

“conflicts” with the holdings of the Fourth and Ninth Circuits

that application of the Revenue Rule is limited to tax

judgments. Pet. 20. No such conflict exists. The Fourth

Circuit's Pasquantino decision addressed a criminal

prosecution, not a civil judgment. And nothing in Her Majesty

the Queen in Right of the Province of British Columbia v.

16

Gilbertson, 597 F.2d 1161 (9th Cir. 1979), suggests that the

Rule was limited to tax judgments. This Court’s decision in

Pasquantino itself recognized that courts addressing the

Revenue Rule in civil cases have considered not the form of

the action, but the “‘substance of the claim.’” Pasquantino,

125 S. Ct. at 1776 (quotation source omitted).°

Further, the Second Circuit’s holding not only ts

consistent with the holdings of every other federal court, but

is also fully in accord with the views of the United States.

As noted, in Canada, the Acting Solicitor General—at the

invitation of the Court in the context of the Canadian

government’s petition for certiorari—expressed the views

of the United States that the Second Circuit “correctly held

that the revenue rule precludes a foreign government from

bringing a civil RICO claim where its alleged injury is lost

tax revenue.” Brief for the United States As Amicus Curiae

at 6, Canada, 537 U.S. 1000 (No. 01-1317). The United

States recognized that the Revenve Rule serves

important separation-of-powers interests in the civil context.

6. Petitioners also erroneously claim that the decision below

“conflicts” with the laws of Ireland and Canada because, they say,

those countries apply the Revenue Rule only when the “whole object”

of the claims are to enforce foreign revenue laws. Pet. 20. As a

threshold matter, a conflict with foreign law is no grounds for review.

S. Ct. R. 10(a). Furthermore, even if Ireland and Canada applied the

Rule more restrictively, that would not be grounds for U.S. courts to

follow suit, particularly when doing so would be contrary to the views

of the political branches. In any event, the cases cited by petitioncrs

expressly recognize that the Revenue Rule applies to direct and

indirect enforcement of foreign revenue laws. See Canada, 268 F.3d

at 130-32 (discussing Peter Buchanan and Harden foreign cases cited

in Pet. 20). Finally, even under petitioners’ view of those cases, there

would be no conflict with the decision below since the Second Circuit

found that “the ‘whole object’ of the present suit is to collect tax

revenue and costs associated with its collection.” App. 13a (emphasis

added).

17

Id. at 6-7. At the same time, the United States recognized

that these interests are not implicated in criminal

prosecutions, where tne Revenue Rule should not apply:

The distinction between a criminal prosecution

brought by the United States and a civil action

for the recovery of tax revenue brought by a

foreign sovereign is critical, and it precisely aligns

with the policies underlying the revenue rule. As

the court of appeals explained, criminal

prosecutions vindicate the interests of the United

States, and they are subject to Executive Branch

control. In contrast, a foreign sovereign brings a

civil RICO action to further its own interest in

collecting taxes, and that interest is not in all

circumstances necessarily consistent with the

interests of the United States.

Id. at 16 (citations omitted). In Pasquantino, the Acting

Solicitor General, again expressing the views of the United

States, confirmed the United States’ position in Canada that

the Revenue Rule does not apply to criminal prosecutions,

but does apply to civil suits brought by foreign governments

to vindicate foreign tax laws. Brief for the United States at

15 n.4, Pasquantino, 125 S. Ct. 1766 (No. 03-725).

The present cases aptly illustrate the concerns underlying

the United States’ views. For instance, the United States

negotiated an agreement with the national Colombian

government, which provides for limited information sharing

on tax issues. See Agreement for the Exchange of Tax

Information, U.S.-Colom., Mar. 30, 2001, 2001 WTD

88-16. Petitioners cannot expiain why the Colombian

Departments—political subdivisions of the Republic of

Colombia that do not have any tax treaty with the United

States—should have greater rights to tax enforcement

18

assistance than those the United States agreed to give the

national Colombian government. Nor, for that matter, can

petitioners explain why the Colombian Departments should

be entitled to greatei rights in American courts than the

United States would receive in Colombian courts.’

Similarly, the EC case, if allowed to proceed, would

provide the Member States with tax assistance denied to them

by treaty. The United States has separate treaties with each

of the Member States in this suit “providing for limited

extraterritorial tax enforcement assistance but stopping well

short of the assistance requested here.” Canada, 268 F.3d at

113; accord id. at 115-19. These tax treaties with the Member

States are not uniform, but reflect U.S. foreign policy and

reciprocity considerations unique to each country. Not one

of those treaties authorizes enforcement of the claims in this

case.

Petitioners nowhere address the United States’ concerns

that allowing the present suits could undercut its ability to

negotiate future treaties. In the end, petitioners’ proper

recourse is to the political branches or their own courts.

7. Indeed, the sovereigns here follow the Revenue Rule.

See, e.g., QRS 1 ApS v. Frandsen, (1999) 3 All E.R. 289 (C.A. 1999)

(Revenue Rule “‘is deeply embedded not only in the common law,

but also in the law of civil law countries’) (citation omitted); accord

Williams & Humbert Ltd. v. W. & H. Trade Marks (Jersey) Lid. , | 1986]

A.C. 368, 428 (H.L.) (“[A]t present the international rule with regard

to the non-enforcement of revenue and penal laws is absolute.”).

The Member States in fact have executed a multilateral treaty, in

which they retain the Revenue Rule in their own jurisdictions.

See European Communities: Convention On Jurisdiction and

Enforcement of Judgments in Civil and Commercial Matters art. i,

July 28, 1990, 29 LL.M. i413, 1418.

19

C. Petitioners’ Arguments That-Pasquantino

Mandates Reversal Are Meritless

1. Pasquantino Did Not “Supplant” the

Revenue Rule’s Longstanding Bar to Foreign

Tax Enforcement Claims Brought Under

U.S. Domestic Law

Pasquantino recognized that the purpose of the federal

government’s criminal prosecutions is not enforcing a foreign

nation’s interests, but protecting domestic interests.

Pasquantino, 125 S. Ct. at 1776. But such is not the case

where, as here, a foreign government brings a civil suit. The

clear purpose of such a suit is the vindication of the foreign

government’s tax laws. Petitioners thus err in attempting to

stretch Pasquantino beyond the criminal context to

“supplant” the bar on efforts by foreign governments to

enforce foreign revenue laws in U.S. courts using U.S.

domestic law. Pet. 18-19, 21-22.

The complaints in these actions illustrate this distinction.

Petitioners sought to recover as damages unpaid taxes and

derivative costs such as foreign law enforcement and other

governmental expenses incurred “to fight against cigarette

smuggling.” CA App. A-409-14; accord CA App. A-2021-

26, App. 5a, 23a. The claims for equitable relief sought,

among other things, to require respondents to create

“protocols” that would help petitioners combat smuggling

and “track and rnonitor the movement of cigarettes into and

within” their foreign territories. CA App. A-419-20, A-2025-

26. By any measure, the purpose of these suits is to vindicate

and enforce foreign tax laws and the various foreign social

policies embodied therein.

Nor does the fact that plaintiffs no longer wish to “focus,”

Pet. 2-3 nn.3-4, on their federal RICO claims and now assert

20

only state law claims allow them to circumvent the Revenue

Rule. See Pet. 2-6, 22-23. In fact, if anything, Pasquantino

suggests that there is a heightened need to apply the Revenue

Rule to state common law claims. The Court held that federal

prosecutions “emibod[y] the policy choice of” the Executive

and Legislative branches of government. 125 S. Ct. at 1780.

Here, by contrast, neither the Executive nor Legislative

branch has allowed these plaintiffs to assert state claims to

vindicate foreign tax laws. Allowing such claims would not

only undermine the Rule; it also would trigger federalism

concerns because it would inject fifty separate state law

regimes into matters of foreign relations, compounding

exponentially the very problems that the Rule is designed to

prevent. Thus, the Second Circuit's application of the

Revenue Rule to common law claims is in no way contrary

to Pasquantino.

Finally, simply because petitioners “disavowed” that

their domestic law claims involve foreign tax enforcement

does not make it so, and the Second Circuit did not

“misapprehend the claims as pled.” Pet. 22. Petitioners cannot

evade the Revenue Rule by recharacterizing their claims.

As the United States itself recognized in Canada:

If foreign sovereigns could avoid the revenue rule

by recharacterizing a foreign tax claim as a cause

of action based on domestic law, such as common

law fraud, or unjust enrichment, or breach of

contract, or injury from a pattern of racketeering,

the revenue rule would lose much of its force.

Many, if not most, schemes to avoid the payment

of taxes can be recharacterized in such terms.

Brief for the United States As Amicus Curiae at 13, Canada,

537 U.S. 1000 (No. 01-1317). Because the complaints here

facially seek lost taxes and equitable relicf aimed at enforcing

foreign revenue laws, the Revenue Rule bars these claims.

21

2. The Revenue Rule Applies to Claims Seeking

Injunctive Relief

Petitioners assert that the Second Circuit “applied an

incorrect legal standard” because a “claim for injunctive relief

under domestic law . . . falls well outside the traditional ambit

of the revenue rule.” Pet. 21.

Nothing in Pasquantino limits the reach of the Revenue

Rule only to cases involving attempts to collect damages.

On the contrary, this Court recognized the traditional

definition of the Rule, which forbids “enforcing” foreign tax

laws in the courts of another sovereign, not just suits to collect

money. Pasquantino, 125 S. Ct. at 1770 (“At common law,

the revenue rule generally barred courts from enforcing the

tax laws of foreign sovereigns.”); accord id. at 1779 (citing

Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 448

(1964) (White, J., dissenting) (“[C]ourts customarily refuse

to enforce the revenue rule and penal laws of a foreign state,

since no couniry has an obligation to further the governmental

interests of a foreign sovereign.”)).

That is consistent with the purposes of the Rule. Whether

petitioners seek damages or equitable relief, the granting of

any relief would be to permit exactly what the Revenue

Rule was designed to prevent: allowing the judiciary to

provide a foreign government greater enforcement assistance

than that which the United States was willing to grant by

treaty. As the United States stated in Canada, “claims for

equitable relief seek to vindicate the same interest in avoiding

tax loss and increased law enforcement costs as do

petitioner's claims for damages.” Brief for the United States

As Amicus Curiae at 14 n.1, Canada, 537 U.S. 1000

(No. 01-1317). Indeed, the extensive equitable relief

requested by petitioners would require the district court to

become even more embroiled in foreign affairs, on a more

22

on-going basis, than would an award of monetary damages.

Every court to address this issue agrees that the Revenue

Rule applies to such equitable claims. Republic of Ecuador

v. Philip Morris Cos., 188 F. Supp. 2d 1359, 1365 n.4 (S.D.

Fla. 2002), aff'd, 341 F.3d 1253 (11th Cir. 2003), cert. denied,

540 U.S. 1109 (2004); Canada, 268 F.3d at 135 (dismissing

all monetary and injunction claims).

3. Pasquantino’s Mention of Tax Treaties

Provides No Basis For Reversal or Review

Although this Court stated in Pasquantino that it

“expess[ed] no view” on the Canada case and whether a

foreign government may bring a RICO action for a scheme

to defraud it of taxes, Pasguantino, 125 S. Ct. at 1771 n.1,

petitioners now claim that this Court in Pasquantino

“considered, debated, and squarely declined to follow

Canada’s . . . view of the revenue rule.” Pet. 16.

Specifically, petitioners rely on the following single

sentence in Pasquantino to argue that the holding below must

be reversed (Pet. 12, 15-17): “Neither the antismuggling

statute, 18 U.S.C. § 546, nor U.S. tax treaties, see [Canada],

convince us that petitioners’ scheme falls outside the terms

of the wire fraud statute.” Pasquantino, 125 S. Ct. at 1773.

The quoted sentence has nothing to do with the issue of

whether the Revenue Rule applies in this case. As noted, in

Canada, the Second Circuit discussed treaties to assess

whether allowing civil cases to proceed would result in

improper judicial interference in foreign tax matters. The

Second Circuit found that the political branches negotiated

tax treaties against the backdrop of the Revenue Rule and

that allowing a foreign government to bring a civil cause of

action to vindicate and enforce foreign tax laws would put

the courts in the position of giving foreign governments

23

greater tax assistance than they have negotiated (or could

negotiate) with the Executive Branch. Canada, 268 F.3d at

118-21. That analysis simpiy was not implicated in

Pasquantino, where the Executive Branch decided to bring

a criminal prosecution under U.S. law—an issue that would

hardly be subject to treaty negotiations with another country.

Rather, in Pasquantino, this Court addressed treaties not

in connection with its discussion of the Revenue Rule

(in Part III of its opinion), but in connection with the

threshold question of whether the smuggling scheme at issue

fell within the “literal terms of the wire fraud statute” in Part

II of the opinion. 125 S. Ct. at 1771. There, all this Court did

was state that the existence of tax treaties did not limit the

plain meaning of the wire fraud statute or limit the Executive

Branch’s ability to prosecute someone for violating the

statute. The sentence in Pasquantino, therefore, did not

address the Revenue Rule at all; rather, it addressed the extent

to which the Court deemed “overlapping” laws, such as

treaties or other statutes, to be significant in construing the

scope of the wire fraud statute. Compare id. at 1773 & n.4

with id. at 1785-86 (Ginsburg, J., dissenting).

Il. THE SECOND CIRCUIT NEVER HELD THAT

THE REVENUE RULE IS “JURISDICTIONAL”

AND NO CONFLICT EXISTS

Petitioners’ only other basis for review asserts another

straw man conflict, claiming that the Second Circuit erred

on whether the Revenue Rule is a “jurisdictional” or

discretionary doctrine. Pet. 25-28. Petitioners misstate the

Second Circuit’s ruling. The Second Circuit did not hold that

the Revenue Rule “divests” the federal courts of their

jurisdiction. Pet. 25. In fact, the court consistently has held

the opposite, recognizing that the Rule is “not absolute.”

App. 29a; accord App. 9a. The court explained that “the

24

revenue rule will not be triggered where the sovereignty and

extraterritoriality concerns that inform the rule’s application

are not present.” App. 29a. But, “once the sovereignty and

separation of powers concerns that inform the rule are

implicated by the substance of a plaintiff's claims, the court

may not hear those claims absent evidence that the rule has

been abrogated.” App. 43a. Thus, there is no conflict with

the cases cited by petitioner stating that the Rule is not

jurisdictional, Pet. 26."

In any event, petitioners’ alleged desire to grant courts

discretion to permit “U.S. allies,” Pet. 26, access to our courts

to vindicate foreign revenue laws only underscores the need

to leave such decisions to the political branches. To allow

courts to decide which foreign government is an “ally” and

which is not (or which foreign revenue laws deserve

enforcement and which do not) would interject the judiciary

into sensitive diplomatic issues better left to the political

branches.

Finally, petitioners’ suggestion that the Second Circuit

erred in failing to remand the cases to the district court for a

“claim-by-claim” review ignores the opinions below. Pet. 28-

29. The Second Circuit twice engaged in its own de novo

review of petitioners’ complaints. App. 27a; see also App.

3a. Each time it found that the Revenue Rule applied to each

claim.

—_ =

8. Petitioners also suggest that the Second Circuit's holding

conflicts with the general rule that U.S. courts are “open to foreign

governments.” Pet. 27 & n.7. However, the Revenue Rule represents

a well-established exception in both this country and abroad.

See generally William S. Dodge, Breaking the Public Law Taboo,

43 Harv. Int'l) LJ. 161 (2002).

25

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted,

RONALD S. ROLFE Murray R. Garnick

Gary A. BORNSTEIN Counsel of Record

CravatH, Swaine & Moore LLP Antony J. FrRanze

825 Eighth Avenue ArNnoLp & Porter LLP

New York, NY 10019 555 12th Street, N. W.

(212) 474-1000 Washington, D.C. 20004

(202) 942-5000

Counsel for Respondents

British American Tobacco Counsel for Respondents

(Investments) Limited, and Altria Group, Inc.

British AmericanTobacco (f/k/a Philip Morris

(South America) Limited Companies Inc.),

Philip Morris USA Inc.

(f/k/a Philip Morris

Incorporated),

Philip Morris International

Inc., Philip Morris Products

Inc., Philip Morris Latin

America Sales Corporation,

and Philip Morris

DutyF ree Inc.

26

Davip M. Bernick

JONATHAN C, BUNGE

CHRISTOPHER TURNER

KiRKLAND & Exzis LLP

200 East Randolph Drive

Chicago, IL 60601

(312) 861-2000

Counsel for Respondents

Brown & Williamson Tobacco

Corporation and BATUS

Tobacco Services, LLC.

Mary ExvizasetH McGarry

Simpson THACHER & Bartiett LLP

425 Lexington Avenue

New York, NY 10017

(212) 455-2000

Counsel for Respondent

B.A.T Industries p.1.c.

Witla T. PLEsEc

Jones Day

901 Lakeside Avenue

North Point

Cleveland, OH 44114

(216) 586-3939

Timotny J. Finn

LAURA TUELL PARCHER

Jones Day

51 Louisiana Avenue, N.W.

Washington, D.C. 20001

(202) 879-3939

Counsel for Respondents

R.J. Reynolds Tobacco

Holdings, Inc., R.J.

Reynolds

Tobacco Company

and RJR Acquisition Corp.

C. STEPHEN HEARD, Jr.

EDMUND M. O’ TooLe

MatrHew T. McLAuGHLIN

VENABLE LLP

405 Lexington Avenue

62nd Floor

New York, NY 10174

(212) 307-5500

Counsel for Respondent

R.J. Reynolds Tobacco

International, Inc.

198118

COUNSEL PRESS

(800) 774-3321 + (BOO) 389-6859

-

FILED

No. 05-549

Mek. 4 2005

OFFICE OF THECLERK

IN THE

Supreme Court of the United States

THE EUROPEAN COMMUNITY, et ai.,

Petitioners,

v.

RJR NABISCO, INC., et al.,

Respondents.

DEPARTMENTS OF THE REPUBLIC OF COLOMBIA,

Petitioners,

Vv

PHILIP MORRIS COMPANIES, INC., e¢ a/.,

Respondents.

On Petirion For A Writ of CERTIORARI TO THE

Untrep STATES COURT OF APPEALS FOR THE SECOND Circuit

———— ae a

REPLY BRIEF

Joun J. HALLORAN, JR.

Counsel of Record

Joun F. Scuutry Ill

SPEISER, Krause, NOLAN

Of Counsel: & GRANITO

Kev A. MALONE Two Grand Central Tower

Carios A. ACEVEDO 140 East 45th Street

New York, NY 10017

KRUPNICK CAMPBELL MALONE

Buser SLAMA HANCOCK

LIBERMAN & McKEE Attorneys for Petitioners

Sieineenieee —

(212) 661-0011

el

—

TABLE OF CONTENTS

TABLE OF CITEDAUTHORITIES ............ ii

I. THE SECOND CIRCUIT OVERLOOKED

OR MISAPPREHENDED THE EQUITABLE

ie cesevcceeéverceeven: 2

This Case Does Not Assert a Claim Against a

DT Sieueebs Gareeocevecvccceses 2

The Second Circuit Exceeded the Permissible

EEE EEDUEEEY ccccvevcccccvccccceces 3

The Second Circuit Deprived Petitioners of a

Hearing Upon Their Claims as Pled ....... 4

Il. THE REVENUE RULE DOES NOT BAR

THE EQUITABLE CLAIMS ............ 5

The Second Circuit Applied an Incorrect Legal

Standard to Dismiss the Equitable Claims .. . . 5

Pasquantino \|s Not Limited to Criminal

Uhh sess bebseccevesecocereces 7

The Second Circuit's Decision Is Unprecedented

Pcs deetecees i eeineeh Ceres és oes 8

Respondents Misrepresent the Views of the

W.0. SOUCHOT Gomera on. ccccccevesecces 9

Ill. THE REVENUE RULE IS A DISCRETION-

ED seccctcccoeccccescecs 10

PCr tr sc bveecnecccetedeeececess 10

u

TABLE OF CITED AUTHORITES

Page

Cases:

Attorney General of Canada v. R.J.Reynolds Tobacco

Co., 268 F.3d 103, cert. denied, 537 U.S. 1000

CRUD ocewnedecencdséduvénséanebasaeaneut 8,9

Dye v. Hofbauer, 126 S. Ct. 5 (2005) ............ 4

European Community v. RJR Nabisco, Inc., 125

Ge SOO EREEOD waddecedevienetueuaveess 8

Lincoln Property Co. v. Roche, 126 §. Ct. 606

GROUND cetecceccdevévedsoniesenaveeedeens 4

Milwaukee County v. M.E. White Co., 296 U.S. 268

TEED éececeeuscueedereeauesnunnteaseeat 10

Pasquantino v. United States, 125 §. Ct. 1766

CRUE cuvvawdccevvacdesbbcuceeseevessdes passim

Pennsylvania v. Wheeling & Belmont Bridge Co., 54

ae LED CEO) PUD CUSSED cccccccevscseceess 7

Republic of Ecuador v. Philip Morris Cos., 188 F.

Supp. 2d 1359, aff'd sub nom. Republic of

Honduras v. Philip Marris Cos., 341 F.3d 1253

(Lith Cir. 2003), cert. denied, 124 S. Ct. 1075

BPPPrrrre ieseverebeuessareruendey %

Swierkiewicz v. Sorema N.A, 534 U.S. 506 (2002) ... 3

United States v. Carver, 260 U.S. 482 (1923) ..... i)

iii

Cited Authorities

Page

United States v. Pasquantino, 336 F.3d 321 (4th Cir.

2003), aff'd, 544 U.S. __ (2005) ............. 5

U.S. Securities and Exchange Commission v. Shull,

[1999] CarswellBC 1772, 1999 WL 33191253

(B.C.S.C. ['n Chambers]}) (Can.) ............. 6

Federal Rules of Civil Procedure:

8 Ae Re BT TTT Tri Te ee 3

Other Authorities:

European Communities: Convention on Jurisdiction and

Enforcement of Judgments in Civil and Commercial

Matters, July 28, 1990, 29 LL.M 1413 ......... 6

Restatement (Third) of Foreign Relations Law § 483

ERIN Sega ace i Sap a Pak Ape passim

Restatement (Second) of Torts § 821C cmt. j

PR aa nem eee ee SCR, ps yet EG Se 7

1

REPLY BRIEF

The Opposition Brief addresses issues that are not germane

to the Petition, but does not, and cannot, dispute the main points

on the Petition.

1. The Second Circuit's conclusions that Petitioners had

claimed that “defendants violated tax laws” (App. 14a), and

sought to compel Respondents to “obey [foreign] tax laws”

(App. 14a n.10), are clearly erroneous. Petitioners made no such

claims (Pet. 22-25), and even Respondents do not suggest

otherwise. On the contrary, Respondents concede that Petitioners

did not allege that Respondents were tax debtors. The court

below thus misapprehended the equitable claims.

2. It is indisputable that the Second Circuit, on remand

from this Court, applied its own, pre-Pasquantino version of

the revenue rule to bar the equitable claims. App. 14a n.10.

Accordingly, the Second Circuit applied an incorrect standard

and reached an incorrect result in dismissing the equitable

claims.

3. Respondents acknowledge, as they must, that the Second

Circuit held that the federal courts “*may not’” hear Petitioners’

equitable claims. Opp. 24 (citing App. 43a). The Fourth and

Eleventh Circuits (and settled law), in contrast, have held that

the revenue rule is a permissive abstention doctrine.

The Second Circuit's decision is unprecedented and

warrants review by this Court.

2

I. THE SECOND CIRCUIT OVERLOOKED OR

MISAPPREHENDED THE EQUITABLE CLAIMS AS

PLED

This Case Does Not Assert a Claim Against a Tax Debtor

The Second Circuit made two pivotal errors (which are

not addressed or disputed by Respondents): that Petitioners

claimed that “defendants violated tax laws” (App. |4a), and

that Petitioners’ equitable claims sought to compel Respondents

to “obey [foreign] tax laws.” App. 14a n.10. Petitioners never

made such claims, Petitioners repeatedly disavowed such claims;

and, in any event, Petitioners could not have made such claims

because Respondents are not alleged to be tax debtors.

Pet. 22-25. Indeed, it is undisputed that there is no claim that

Respondents are tax debtors. This critical fact was brought to

the attention of the Second Circuit, but was overlooked. Pet. at

22-23. The Second Circuit's decision is thus clearly and

demonstrably erroncous.

The equitable claims, as pled, do not implicate the revenue

rule. These claims do not seek to “collect” taxes or “enforce”

foreign tax laws, contrary to Respondents’ suggestions. Opp. i,

1. On the contrary, the equitable claims seek to enjoin and deter

domestic conduct, committed by domestic defendants, that

contravenes domestic common law. If the equitable claims

succeed, Respondents would be enjoined from selling cigarettes

to and through organized criminal networks and terrorist groups

— conduct that threatens security interests in the United States

and elsewhere, and harms interests that are wholly independent

of tax collection. This conduct, which the Second Circuit found

to be irrelevant to its revenue rule analysis (App. 32a), should

not be immunized »y the revenue rule.'

1. Respondents accuse the Petitioners of “recharacterizing their

claims.” Opp. 20. As Petitioners have made clear, “the Defendants

themselves are not alleged to owe taxes.” Pet. 22 (citation omitted)

(emphasis in original). There was no tax claim against Respondents

that could have been “recharacterized.”

3

Respondents would have this Court gloss over the

dispositive fact that they are not alleged to be tax debtors.

Respondents state: “Petitioners assert that the Second Circuit

‘applied an incorrect legal standard’ because a ‘claim for

injunctive relief under domestic law . . . falls well outside the

traditional ambit of the revenue rule."” Opp. 21 (quoting, in

part, Pet. 21). In fact, the full quote from the Petition is:

“A claim for injunctive relief under domestic law (against

domestic defer dants which are not alleged to owe foreign taxes)

falls well outside the traditional ambit of the revenue rule.”

Pet. 21 (emphasis added).’

The Second Circuit Exceeded the

Permissible Scope of Review

Respondents ignore the basic principles of civil practice. _

The case comes before this Court in the context of an appellate

ruling affirming a judgment dismissing a complaint on a motion

to dismiss for failure to state a claim pursuant to Fed. R. Civ.

P. 12(b)(6). Pet. 23-24. In reviewing a motion to dismiss, the

court fnust assume that all well-pleaded factual allegations are

true atid draw all reasonable inferences in the plaintiff's favor.

Swrerkiewicz v. Sorema N.A., 534 U.S. 56, 508 n.1 (2002).

The Second Circuit did not follow this well-established

standard. Rather, the Second Circuit recharacterized the

pleadings, drew all inferences against Petitioners, and attributed

equitable claims to Petitioners that were: (i) not pled in the

2. Respondents’ discussion of tax treaties is irrelevant. See Opp.

2, 17-18. Respondents are not alleged to be tax debtors, and therefore,

their obligations are not defined, covered, or addressed by tax treaties.

As this Court recognized in Pasquantino, tax tr-aties do not limit

otherwise applicable “domestic” law. Pasquantino v. United States, 125

S. Ct. 1766, 1773, 1776 (2005) (emphasis in original). Moreover,

Respondents’ suggestion that the revenue rule would bar the U.S.

government from seeking equitable relief is foreign courts is incorrect.

See Pet. 26-28 & n.7. Finally, the Republic of Co.ombia does not

recognize the revenue rule (C.A. App. 3003-13) and, therefore, the

revenue rule would not bar a U.S. claim in the Colombian courts as

Respondents allege. Opp. 18.

4

Complaints; (ii) specifically disavowed by the Petitioners; and

(iii) legally unavailable because Respondents are not alleged to

be tax debtors. Pet. 22-25.

The Second Circuit Deprived Petitioners of a

Hearing Upon Their Claims as Pled

Contrary to Respondents’ assertion (Opp. 24), there has

never been a claim-by-claim analysis of the claims as pled.

On remand, the Second Circuit did not consider each claim

as pled. Rather, the Second Circuit recharacterized the

Petitioners’ equitable claims, aggregated the claims, and reached

the incorrect and sweeping conclusion that the “present suif”

was one to collect tax revenue and related costs. App. |3a

(emphasis added); see Opp. at 16 0.6. This Court, in contrast,

underscored the importance of conducting a claim-by-claim

analysis in resolving a revenue rule defense. Pasquantino, 125

S. Ct. at 1777. The Second Circuit, through its misapprehension

of the equitable claims as pled, and its failure to conduct a claim-

by-claim analysis of those claims, failed to apply the applicable

standard of review.

It cannot seriously be contended that the Second Circuit

undertook a “thorough analysis” of Petitioners’ claims. Opp.

11. While some claims for damages (previously asserted in the

lower courts) might implicate the revenue rule as suggested by

Respondents (Opp. 3), it is unimaginable that the revenue rule

could reach the equitable claims as pled. This Court should

therefore review and summarily reverse the judgment of the

Second Circuit. See Dye v. Hofbauer, 126 S. Ct. 5 (per curiam)

(2005) (judgment summarily reversed where the Court of

Appeals simply overlooked properly presented claim); Lincoln

Property Co. v. Roche, 126 S. Ct. 606 (2005) (judgment

summarily reversed where the Court of Appeals, in disregard

of the pleadings, purported to ascertain the real party in interest).

5

Il. THE REVENUE RULE DOES NOT BAR THE

EQUITABLE CLAIMS

The Second Circuit Applied an Incorrect

Legal Standard to Dismiss the Equitable Claims

Respondents suggest that this Court's review is not

warranted because the Second Circuit's decision applies a“ long-

settled” (Opp. 15) and “longstanding” (Opp. 19) rule. This

argument is wholly misplaced.

The Second Circuit applied its own, overly broad “version”

of the revenue rule to bar the equitable claims. Pet. 2! (citing

App. !4an.10). That “version” focused only upon the purported

“effect” of the claims as recharacterized by the Second Circuit

(App. 14a n.10); in contrast, this Court's revenue rule analysis

focused upon the “domestic” conduct at issue (Pasquantino,

125 S. Ct. at 1777), the “domestic” legal basis of the claim (id.

at 1776), and whether the “‘whole object"” of the claim is to

collect foreign taxes (id. at 1777) (citation omitted). There should

be no question that, prior to Pasquantino, the revenue rule was

“unclear” and “uncertain| J" in scope. /d. at 1778. The Second

Circuit’s overly broad, pre-Pasquantino “version” of the revenue

rule is not well-established.’

Under the correct legal standard, the revenue rule does not

bar Petitioners’ common law equitable claims. In Pasquantino,

this Court determined that the wire fraud case did not seck as

its “‘whole object’ to “collect tax for a foreign revenue,"” and

was, therefore, not barred by the revenue rule. Pasquantino,

125 S. Ct. at 1777 (citation omitted). Where the sole purpose of

3. The Second Circuit's “version” of the revenue rule also conflicts

with the en banc decision of the Fourth Circuit, holding that the revenue

rule only “pertains to the nonenforcement of foreign tax judgments.”

United States v. Pasquantino, 34% F.3d 321, 329 & a.3 (4th Cir. 2003)

(en banc), aff'd, 125 S.Ct. 1766 (2005). Respondents’ effort to limit the

Fourth Circuit's holding to “criminal prosecution{s]” (Opp. 15) is

unavailing. There is one revenue cule, equally applicable in civil and

criminal cases, as the Fourth Circuit confirmed.

6

the claim is not to collect taxes, the claim is not barred by the

revenue rule. See U.S. Securities and Exchange Commission vy.

Shull, [1999] CarswellBC 1772, 1999 WL 33191253 (B.C.S.C.

{In Chambers]) (Can.) (SEC may seek enforcement of U.S.

judgment, “the disgorgement order is neither a penal sanction

nor a taxation measure” even though a portion of the recovery

would pay “some taxes”). It is undisputed that the equitable

claims do not seck, in whele or part, to collect taxes owed by

Respondents. Therefore, the revenue rule does not bar the

common law equitable claims.*

Respondents assert in a footnote that the Second Circuit

applied the “whole object” test as stated in Pasquantino. Opp.

16 n.6. This argument does not withstand scrutiny. The Second

Circuit dismissed the equitable claims under its pre-Pasquantino

version of the revenue rule (App. 14a n. 10); only the dissent in

Pasquantino embraced the Second Circuit's overly-broad

version of the revenue rule. Moreover, the Second Circuit did

not apply the “whole object” test to each claim; it applied the

test to what it perceived to be the “suit” as a whole (App. 13a),

in conflict with Pasquantino, which requires a claim-specific

review. Most importantly, the Second Circuit did not apply the

“whole object” test to the equitable claims as pled, the Second

Circuit recharacterized and imputed claims to Petitioners that

were not made and could not have been made.

4. Respondents assert that the EC and Member States recognize

the revenue rule. Opp. 18 9.7 (citing European Communities: Convention

on Jurisdiction and Enforcement of Judgments in Civil and Commercial

Matters art. |, July 28, 1990, 29 LL.M 1413, 1418). However, the said

Convention addresses the reciprocal recognition of judgments, just as

the revenue rule (as defined by the Fourth and Ninth Circuits and the

Restatemem (Third) on Foreign Relations Law) addresses claims to

enforce judgments against tax debtors. In any event, because this is

neither an action to enforce any sort of foreign judgment, nor an action

against a tax detor, the Convention is irrelevant

7

Illustrating the sweeping nature of their view of the revenue

rule, Respondents assert that the revenue rule covers all claims

that might indirectly “enforce” or “vindicate” foreign law.

Opp. i, 3, 17, 19-22. This Court, however, rejected this

amorphous and subjective view of the revenue rule, holding

that “the revenue rule never proscribed ali enforcement of

foreign revenue law.” Pasquantino, 125 S. Ct. at 1778. The

“indirect,” “incidental” or “attenuated” enforcement of foreign

tax law — such as may occur in cases under domestic law

addressing domestic conduct — is permissible. Pasquantino,

125 S. Ct. at 1777-79. Thus, even if the equitable claims had an

indirect effect of furthering foreign interests, the revenue rule

would not bar that result.’

Pasquantino \s Not Limited to Criminal Cases

Respondents suggest that review is not warranted because

Pasquantino is limited to criminal cases. Opp. i, 1, 9-10, 12-

15. However, Respondents do not address the fact that, in

Pasquantino, this Court confirmed that there is only one version

of the revenue rule, equally applicable in civil and criminal cases.

In Pasquantino, a criminal case, this Court recognized and

applied a revenue rule definition that was developed in modern

civil cases. In turn, this Court vacated and remanded in the

present civil case for consideration of this Court's guidance in

Pasquantino. This Court by its GVR Order obviously intended

5. Respondents argue against injunctive relief, raising the

specter of fifty States applying differing laws to address their conduct.

Opp. 2, 20. The revenue rule is inapplicable to the equitable claims as

pled, and there would be no occasion for any state to apply the revenue

rule to such claims. In any event, it is well-established, across a spectrum

of jurisdictions, that an equitable remedy is available to a governmental

plaintiff to enjon the sort of cross-border tortious activity at issue here.

See, ¢.g., Pennsylvania v. Wheeling & Belmont Bridge Co., 54 US.

(13 How.) 518, 564 (1851) (government may seck injunction to enjoin

cross-border public nuisance), see also Restatement (Second) cf Torts

§ 821C cmt. ; (1979).

8

its guidance to be followed on remand in the present civil case

European Community v. RJR Nabisco, Inc., 125 S. Ct. 2611

(2005).°

The Second Circuit’s Decision Is Unprecedented

Before this case, the revenue rule had never been applied

to bar equitable claims, under State common law, addressing

domestic conduct by domestic companies.

Respondents point to two decisions to support their view

that the revenue rule bars equitable claims for injunctive relief

under State law. Opp. 22 (citing Republic of Ecuador v. Philip

Morris Cos., 188 F. Supp. 2d 1359, 1365 n.4 (S.D. Fla. 2002),

aff'd, 341 F.3d 1253 (11th Cir. 2003), cert. denied, 540 U.S.

1109 (2004), and Attorney Gen. of Canada vy. R.J. Reynolds

Tobacco Holdings, 268 F.3d 103, 135 (2d Cir. 2001)). In

Ecuador, the court did not decide State law issues. Ecuador,

188 F. Supp. 2d at 1367 n.6 (“the Court only decides the

applicability of the revenue rule in the civil RICO context”).

Similarly, Canada decided only civil RICO claims and, upon

the dismissal of the federal claims, the court had no occasion to

address the State law claims. Canada, 103 F. Supp. 2d at 155

(“the court declines to exercise supplemental jurisdiction over

the common law fraud action”). Both cases were ultimately the

subject of a petition to this Court; however, the questions

6. Respondents embrace a “civil-criminal distinction,” arguing that

the revenue rule is defined and applied differently in civil and criminal

cases, Opp. 9-10, 12-15, There is one revenue rule, and if the particular

claim does not seek to collect foreign taxes from a tax debtor (as here),

the claim does not trigger the revenue rule, regardless of the identity of

the plaintiff. The factual predicate for invocation of the revenue rule -

a tax claim against a tax debtor ~ is not present in the instant case, and

the “civil-criminal” distinction is not remotely implicated by the

equitable claims before this Court. Because the claims before this Court

are not tax claims, none of the policies said to underlie the revenue rule

is implicated, there is no risk of embroiling the courts in the conduct of

foreign relations, and no special safeguards are necessary to allow the

cases to be heard.