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U.S. v. PHILIP MORRIS INCORPORATED

January 23, 2004.

UNITED STATES OF AMERICA, Plaintiff, PHILIP MORRIS INCORPORATED, et al., Defendants


The opinion of the court was delivered by: GLADYS KESSLER, District Judge

MEMORANDUM OPINION

This matter is now before the Court on the United States' Motion for Partial Summary Judgment on Defendants'*fn1 Equitable Defenses of Waiver, Equitable Estoppel, Laches, Unclean Hands, and In Pari Delicto ("Motion"). The Government argues that each of these affirmative defenses is insufficient as a matter of law and must be dismissed.*fn2

The essence of the Government's argument is that the equitable defenses of waiver, equitable estoppel, laches, unclean hands and in pari delicto may not be asserted against the United States when, Page 2 as here, "it is acting in its sovereign capacity to exercise public rights to protect the public interest." Motion at 1-2. Defendants argue to the contrary that equitable defenses are routinely available against the Government and are supported by the evidence in this case.

  The case law overwhelmingly supports the Government's position. The United States brings its RICO claims in its capacity as sovereign, acting on behalf of the public to vindicate public rights. The Supreme Court has stated that any waiver of such sovereign authority must be unmistakable, United States v. Cherokee Nation of Oklahoma, 480 U.S. 700, 707 (1987) (internal citation omitted), yet the Defendants have not pointed to anything in the record that constitutes an unmistakable waiver of the Government's right to pursue these claims. The case law is also clear that if equitable estoppel is ever to apply to the Government, the justification for it must be compelling and must go beyond the showing a party would have to make against an ordinary opponent in an ordinary case. ATC Petroleum, Inc. v. Sanders, 860 F.2d 1104, 1111 (D.C. Cir. 1988). In this case, the Defendants have not even satisfied the traditional elements of equitable estoppel. It is equally clear that, under the law of this Circuit, laches and unclean hands are both unavailable as a matter of law when, as here, the Government acts in the public interest. Illinois Central Railroad Co. v. Rogers, 253 F.2d 349, 353 (D.C. Cir. 1958)(laches); Page 3 United States ex rel. Purcell v. MWI Corp., 254 F. Supp.2d 69, 74 n.2 (D.D.C. 2003)(laches); SEC v. Sprecher, No. 92-2860, 1993 WL 544306, *2 (D.D.C. 1993) (citing Pan American Petroleum & Transport Co. v. United States, 273 U.S. 456, 506 (1927))(unclean hands); SEC v. Gulf & Western Ind., Inc., 502 F. Supp. 343, 348 (D.D.C. 1980)(unclean hands). Finally, in pari delicto is only available when a party has "violated the law in cooperation with the defendant," Pinter v. Dahl, 486 U.S 622, 632 (1988). Since Defendants have not even alleged that the Government has committed any illegality during the period covered by the Complaint's allegations of conspiracy, the defense of in pari delicto has no applicability.

  Upon consideration of the Motion, the Opposition, the Reply and the entire record herein, and for the reasons set forth below, the United States' Motion is granted.

 I. BACKGROUND

  A. Factual Allegations

  Plaintiff, the United States of America ("the Government") has brought this suit against Defendants pursuant to Sections 1962(c) and (d) of the Racketeer Influenced and Corrupt Organizations Act ("RICO), 18 U.S.C. § 1961 et seq.*fn3 Defendants are manufacturers of Page 4 cigarettes and other tobacco-related entities. The Government seeks injunctive relief and $289 billion *fn4 for what it alleges to be an unlawful conspiracy to deceive the American public.

  The Government's Amended Complaint describes a four-decade long conspiracy, dating from at least 1953, to intentionally and willfully deceive and mislead the American public. According to the Government, the underlying strategy Defendants adopted was to deny that smoking caused disease and to consistently maintain that whether smoking caused disease was an "open question." Am. Compl. at ¶ 34. In furtherance of that strategy, Defendants allegedly issued deceptive press releases, published false and misleading articles, destroyed and concealed documents which indicated that there was in fact a correlation between smoking and disease, and aggressively targeted children as potential new smokers. Am. Compl. at ¶ 36.

  The Government also alleges that over the course of the conspiracy, Defendants made false and misleading statements concerning the addictiveness of nicotine. Defendants continually denied that nicotine is addictive, even in the face of what the Government calls overwhelming evidence to the contrary. Am. Compl. Page 5 at ¶¶ 71-72. Defendants allegedly took actions to make cigarettes even more addictive by manipulating and increasing the potency of nicotine in their cigarettes. Am. Compl. at ¶ 77. Nevertheless, Defendants have repeatedly denied that they manipulated the level of nicotine in their products. Am. Compl. at ¶ 79.

  The Government also alleges that Defendants used deceptive marketing to exploit smokers' desire for less hazardous products and "misled consumers by marketing products that consumers believe are less harmful, even though they are not." Am. Compl. at ¶ 83. For example, according to the Government, Defendants have marketed "light" or "low tar/low nicotine" cigarettes as being less hazardous to smokers even though there is no basis for believing they are any safer than other cigarettes. Am. Compl. at ¶ 86.

  B. Affirmative Defenses

  Defendants have asserted a variety of affirmative defenses to these allegations in their Answers, responses to interrogatories, and in Joint Defendants' Preliminary Proposed Conclusions of Law Regarding Affirmative Defenses ("J.D. PPCL"). These defenses include waiver, equitable estoppel, laches, unclean hands and in pari delicto.

  The thrust of Defendants' equitable defenses is that the Government itself has been involved with, permitted, encouraged, and even mandated the very conduct it now challenges in this RICO action. For example, while the Government claims that the Page 6 Defendants deceived its agencies and employees about the relationship between smoking and disease, Defendants respond that the Government itself has known of that relationship for decades. Mem. in Opp'n at 1. Regarding allegations of Defendants' concealment of the addictive nature of nicotine, they claim that "the Government seeks to obscure the fact that . . . it officially maintained that nicotine was not `addictive' until the Surgeon General changed the definition of addiction in 1988." Id. According to Defendants, despite the fact that the Federal Trade Commission ("FTC") required Defendants to use the so — called FTC Method for reporting tar and nicotine, the Government now alleges that their compliance with this requirement is fraudulent. J.D. PPCL 816.

  Similarly, regarding the allegation that they affirmatively suppressed research into safer cigarettes, Defendants claim that "the Government disregards that, for over ten years, it worked closely with [D]efendants in pursuit of such a cigarette, and that it was responsible for disbanding the joint effort." Mem. in Opp'n at 1. Although the Government now attacks Defendants' development and marketing of low tar cigarettes, "it was the Government that actively encouraged and publicly lauded the development of those cigarettes." Id. (emphasis in original).

  In short, Defendants contend in their affirmative defenses that "the Government's involvement with, acquiescence in, and Page 7 encouragement of the challenged conduct forecloses equitable relief." Mem. in Opp'n at 5.

 II. SUMMARY JUDGMENT STANDARD

  Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment is appropriate if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). Material facts are those that "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In considering a summary judgment motion, "the evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Id. at 255; see also Washington Post Co. v. United States Dep't of Health and Human Servs., 865 F.2d 320, 325 (D.C. Cir. 1989).*fn5 Page 8

 III. ANALYSIS

  The Court will assume for purposes of this Motion that the facts relied upon by Defendants ...


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