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United States v. Philip Morris Inc.

September 28, 2000

UNITED STATES OF AMERICA, PLAINTIFF,
v.
PHILIP MORRIS INCORPORATED, ET AL., DEFENDANTS.



MEMORANDUM OPINION

I. Introduction

Plaintiff, the United States of America ("the Government"), has brought suit against a number of companies and organizations involved in the tobacco industry. All Defendants concede personal jurisdiction except B.A.T. Industries p.l.c. ("BAT Ind."), which has moved to dismiss the Complaint for lack of jurisdiction. BAT Ind. owns two other Defendants, Brown & Williamson Tobacco Corporation ("Brown & Williamson") and British-American Tobacco (Investments) Limited ("BATCO"), neither of which contests jurisdiction.

II. Factual Allegations

The Government's Complaint alleges that BAT Ind. participated in the "association-in-fact enterprise" through which Defendants controlled tobacco research and the publication of research results, denied the harmful effects and addictiveness of cigarettes, and marketed cigarettes to children. BAT Ind. offers evidence that it was not a member of the alleged enterprise.

Attached to BAT Ind.'s Motion to Dismiss is an affidavit by Philip M. Cook, BAT Ind.'s Company Secretary. His affidavit refutes some of the Complaint's allegations based on his personal knowledge. Numerous exhibits are attached. With its Opposition, the Government made a 58-page Proffer of Publicly Available Evidence *fn1 ("Prof."), with exceedingly voluminous exhibits, attached to an affidavit by DOJ attorney Sharon Eubanks *fn2 attesting that all the evidence offered is publicly available. BAT Ind. filed a 35-page Response to the Proffer disputing the accuracy of much of the Proffer's content, and attached a Reply Affidavit of Philip Cook. The following summary of factual allegations identifies the source of each statement.

A. BAT Ind.'s Corporate Structure and History

Before 1976, BAT Ind. "was an investment company named Tobacco Securities Trust Company Limited ('TST')." Cook Aff. at 1. TST, an investment company incorporated in England in 1928, was partially owned by BATCO, while TST owned "approximately 0.21 percent of [BATCO'S] publicly held ordinary shares." Id. at 2. "No shareholder held a controlling interest in" BATCO before 1976. Id. BATCO "was the ultimate parent company of Brown & Williamson." Id. On July 23, 1976, in a "reverse takeover," "TST became the sole ordinary shareholder of [BATCO]," and "[t]he former public shareholders of ordinary shares of [BATCO] became shareholders of [BAT Ind.]." Id. TST changed its name to B.A.T. Industries Limited, then on July 8, 1981, changed it to B.A.T. Industries p.l.c. Id. "Since July 23, 1976, [BAT Ind.] has been a holding company of both Brown & Williamson and [BATCO]." Id. at 1. In 1979, BATCO went from being a parent company of Brown & Williamson to being its sister company. Id. at 2.

After the July 23, 1976, transaction and continuing through the present time, BATCO has "continued its operations and continued to retain its separate corporate existence and identity," as has BAT Ind. Id. BAT Ind., BATCO and Brown & Williamson have always "scrupulously maintained all corporate formalities." Id. at 4. BAT Ind. is an intermediate holding company of Brown & Williamson and BATCO, whose ultimate parent company is British American Tobacco p.l.c., which was created in September 1998. Id. at 3-4.

In 1994 Brown & Williamson, not BAT Ind. *fn3 , acquired the stock of the American Tobacco Company ("ATC") from American Brands, Inc. Id. at 6.

BAT Ind. has never had more than 185 employees, all of whom are "engaged in administering the company's investment interests as a shareholder directly and indirectly of hundreds of subsidiaries, including its indirectly owned subsidiaries Brown & Williamson and [BATCO]." Id. at 4. BAT Ind. has never "had the resources to dictate or direct the day-to-day internal operations of the hundreds of subsidiaries it has had worldwide." Cook Reply Aff. at ¶8. Most of BAT Ind.'s subsidiaries are tobacco businesses, but during the 1990s it also held many subsidiaries that provided financial services. Cook Aff. at 4.

BAT Ind. states that many of the Complaint's allegations do not or even cannot apply to it. It has never belonged to the Tobacco Industry Research Committee ("TIRC"), the Council for Tobacco Research - U.S.A. ("CTR"), or the Tobacco Institute ("TI"). Id. at 6. BAT Ind. did not exist in 1954 and did not sign the 1954 newspaper advertisement entitled "A Frank Statement to Cigarette Smokers." Id. BAT Ind. claims that it never received any research documents from Brown & Williamson and never employed any scientists or conducted any research. Id. at 7; Cook Reply Aff. at ¶11 (denying allegations in Compl. at ¶¶ 41 and 51).

The Complaint's allegations regarding a 1962 statement made by Sir Charles Ellis cannot apply to BAT Ind., which did not exist until 1976. Cook Aff. at 7; see Compl. at p.31. Sir Charles Ellis was never an employee of BAT Ind. Cook Aff. at 7. Any scientific research performed by Battelle Laboratories was not performed for BAT Ind., which has never used, contracted with, or directed Battelle Laboratories to conduct research. Id. (denying allegations in Compl. at ¶72). The BAT Board Guidelines were not issued by the BAT Ind. Board, and probably were issued by the BATCO Board. Cook Aff. at 7 (denying allegations in Compl. App. at ¶55). Similarly, the document entitled "Assumptions and Strategies of the Smoking Issues" was not a BAT Ind. document and probably was a BATCO document. Id. at 8 (denying allegations in Compl. App. at ¶55). A statement *fn4 attributed to BAT Ind. CEO Martin Broughton which was published in a 1996 Wall Street Journal article was "made in person in London and [was] not transmitted by [BAT Ind.] to The Wall Street Journal by means of the United States mail." Cook Aff. at 8 (denying allegations in Compl. App. at ¶101).

The Government's Proffer cites no authority for its statements that BAT Ind. "assumed the primary leadership role for coordinating smoking and health policy throughout the BAT Group" and that "BAT took steps to cooperate on smoking and health issues with other defendants named in this case". Prof. at 1 and 2.

B. BAT Ind.'s Relationship With Its Subsidiaries

The Government states that BAT Ind. "has received billions of dollars in profits derived from the sale of cigarettes in the United States by defendants B&W, [BATCO], and, since the mid-1990s, American Tobacco." Prof. at 4-5.

The Government states that there was significant overlap between BAT Ind. and its cigarette-manufacturing subsidiaries. For example, in 1976 the directors of BATCO became the directors of BAT Ind. Sir Patrick Sheehy, who became BAT Ind.'s chairman in 1982, had worked for BAT companies for over thirty years. Prof. at 6. BAT Ind. responds that "[a]part from the brief transition period immediately after the July 23, 1976 transaction, there has been little overlap in membership of the [BATCO] board of directors and the [BAT Ind.] board of directors. Currently, only one person sits on the board of both companies. Similarly, the overlap between the [BAT Ind.] and Brown & Williamson boards of directors has been minimal and currently no member sits on both boards." Cook Reply Aff. at ¶20.

The Government also states that BAT Ind. created policies for all its tobacco subsidiaries on smoking issues and tobacco research. Prof. at 6-16. The Government alleges that in 1984, BAT Ind. promulgated a document entitled "Legal Considerations on Smoking & Health Policy" that required BAT Ind.'s subsidiaries to take the position "that causation has not been proved and that we do not ourselves make health claims for tobacco products." Prof. at 18. At the time, according to the Government, BAT Ind. knew of the overwhelming scientific evidence on the health effects of smoking. Id. The Government claims that a few months later a BAT Ind. employee named Keith Richardson wrote a memo to a senior BATCO researcher emphasizing the existence of a genuine scientific controversy and suggesting the publication of a book to continue the controversy. Prof. at 19.

C. BAT Ind.'s Relationship With Non-Affiliated Defendants

In 1983, BAT Ind. Chairman Sheehy sent a letter to Philip Morris condemning an advertisement that appeared in Dutch newspapers. Sheehy wrote:

I believe this is the first time a Tobacco Manufacturer has purchased space to promulgate the anti-smoking position. In doing so, Philip Morris not only makes a mockery of Industry co-operation on smoking and health issues, but also appears to inaugurate a free-for-all in which illegal conduct *fn5 is condoned provided the commercial stakes are high enough. Prof. at 17.

In the aftermath of this conflict, "Eric Alfred Albert Bruell, in his capacity as a [BAT Ind.] director," warned that it was "essential to ensure that in future no member of the Industry does anything similar." Prof. at 17.

The Government claims that in December 1986, BAT Ind. Chairman Sheehy distributed a memorandum "to principals at tobacco companies worldwide urging their widespread circulation of a paper issued by a controversial scientist which rebutted a study attributing deaths to cigarette smoking." Prof. at 19.

III. Standard of Review

To prevail on a motion to dismiss for lack of personal jurisdiction, a plaintiff must make a prima facie showing of pertinent jurisdictional facts. See Edmond v. United States Postal Serv. Gen. Counsel, 949 F.2d 415, 424 (D.C. Cir. 1991); Naartex Consulting Corp. v. Watt, 722 F.2d 779, 787 (D.C. Cir. 1983). A plaintiff makes such a showing by alleging specific acts connecting the defendant with the forum, and not by making bare allegations of a conspiracy do not suffice. See Naartex at 787.

IV. Analysis

A. The Government's Burden of Establishing Personal Jurisdiction

The parties disagree what weight should be accorded their various factual submissions. According to the Government, in determining whether a basis for the exercise of personal jurisdiction exists, "factual discrepancies appearing in the record must be resolved in favor of the plaintiff." Crane v. New York Zoological Soc., 894 F.2d 454, 456 (D.C. Cir. 1990) ( citing Reuber v. United States, 750 F.2d 1039, 1052 (D.C. Cir. 1984)). Under this view, any discrepancies between the Government's Proffer and BAT Ind.'s Response to the Proffer should be resolved in favor of the Government.

BAT Ind. argues that in determining whether the plaintiff has demonstrated that the defendant's contacts with the forum suffice to justify the exercise of personal jurisdiction, "the Court is no longer bound to treat all of plaintiff's allegations as true." Tifa, Ltd. v. Republic of Ghana, Civ. A. No. 99-1513, 1991 WL 179098, at *8 (D.D.C. Aug. 27, 1991) ( citing 5A C. Wright & A. Miller, Federal Practice and Procedure: Civil 2d ยง 1351 (1990), for the proposition that "[w]hen a court is considering a challenge to its jurisdiction over a defendant or a res, it may receive and weigh affidavits and any other relevant matter to assist it in determining the jurisdictional facts"). Cf. Asociation de Reclamantes v. United Mexican States, 735 F.2d 1517, 1519 n.1 (D.C. Cir. 1984) (holding that on motions to dismiss for lack of subject matter jurisdiction, courts are not required to adopt plaintiffs' versions of controverted jurisdictional facts). BAT Ind. therefore concludes that its Response to the Government's Proffer, which relies on the Affidavits of people with personal knowledge of relevant jurisdictional facts such as BAT Ind.'s Company Secretary, Philip M. Cook, should trump the Government's Proffer, ...


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