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U.S. v. PHILIP MORRIS USA

February 2, 2004.

UNITED STATES OF AMERICA, Plaintiff,
v.
PHILIP MORRIS USA, INC., f/k/a PHILIP MORRIS INC., et al., Defendants



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

MEMORANDUM OPINION

Defendants have filed an Emergency Motion to Prohibit Plaintiff's Untimely Addition of 650 New Racketeering Acts to the Case ("Emergency Motion").*fn1 Upon consideration of the Motion, the Government's Opposition, the Reply, and the entire record herein, the Court concludes that the Motion should be granted in part and denied in part.

I. FACTUAL BACKGROUND

  As all parties know, the Government's Complaint, filed on September 22, 1999, was accompanied by an Appendix listing 116 "Racketeering Acts" of mail or wire fraud allegedly committed by the Defendants. Those Racketeering Acts were incorporated by Page 2 reference into Counts III and IV, which allege that Defendants engaged in, or conspired to engage in, a "pattern of Racketeering activity." On February 28, 2001, when the Government filed its Amended Complaint, it incorporated by reference the same 116 Racketeering Acts. In response to Defendants' interrogatory #35 which expressly required the Government to list "any alleged act of racketeering not set forth in the Appendix," the Government identified an additional 32 Racketeering Acts on December 10, 2001 (numbered as Racketeering Acts 117-148).*fn2 Mem. in Support of Defs' Emergency Motion at 2 (citing United States' Suppl. Resps. to Jt. Defs.' First Set of Continuing Interrog Nos. 29-31 and 33-35). The Government has not further supplemented Interrogatory #35. Accordingly, for the last two years, the Defendants have expected the Government's case to involve 148 Racketeering Acts.

  It is fair to say that this case has been subject to extraordinary and intensive case management and monitoring because of its size, its complexity, and its public interest. In the course of that case management, numerous case management orders have been entered dealing with all aspects of discovery, deadlines for summary judgment motions, submission of proposed findings of Page 3 fact and conclusions of law ("Preliminary Proposed Findings"), etc. See, e.g., Order #51, Order #230 (Tenth Case Management Order), Order #264 (Amendments to Order #230). The underlying purpose has been to ensure efficient and orderly management of the case so that trial would proceed on September 13, 2004, and to avoid last-minute "trial by ambush" tactics which might jeopardize that trial date.

  In Order #230, the Court set October 1, 2003 as the deadline for filing all summary judgment motions (later extended to October 8, 2003 in Order #408). On October 8, 2003, the United States filed a Motion for Partial Summary Judgment on Element that Defendants Have Caused Mailing and Wire Transmissions ("Mailings Motion"), seeking summary judgment that Defendants caused certain documents, advertisements, statements and website content to be mailed or communicated by interstate wire transmission. In that motion, Plaintiff referred — for the first time — to 650 Racketeering Acts, in addition to the 148 it had previously identified. Thus, Plaintiff contended that at trial, it would be establishing a total of 795 Racketeering Acts.*fn3 In support of its Mailings Motion, Plaintiff also submitted 29 declarations from 19 witnesses.

  While the number of new Racketeering Acts seems extraordinarily high, it is important to note exactly what is contained in the Government's filing. Of the 650 newly alleged Racketeering Acts, 640 consist of additional cigarette brand Page 4 advertisements and statements that Defendants themselves paid for and placed for publication. U.S. Opp'n to Defs. Emergency Motion at 4. Significantly, more than two-thirds of the 640 advertisements (70%) identified as Racketeering Acts in the Mailings Motion are simply later advertisements from the same campaigns named in the original 148 Racketeering Acts. See U.S. Opp'n to Defs' Emergency Motion at 5-6. In short, the advertisements and statements covered by the 650 new Racketeering Acts were all placed in widely circulated, published newspapers or magazines, or on the Defendants' own websites.

 II. PARTIES' CONTENTIONS

  The Defendants ask that the Court prohibit Plaintiff's additional 650 Racketeering Acts, as well as exclude the evidentiary materials upon which they are based. In support of their position, Defendants argue that by adding the additional 650 Racketeering Acts, the United States has violated both the spirit and letter of the Court's case management and discovery orders, has greatly prejudiced the Defendants, and threatens to delay the Court's trial schedule. They also assert that if the Racketeering Acts are admitted, they are entitled to further discovery, a prospect which threatens the scheduled trial date. The United States denies that it violated any procedural or discovery obligation, and argues that Defendants suffered no prejudice because they are fully aware of their own advertising campaigns, Page 5 that there is no need for further discovery by Joint Defendants and, therefore, there is no jeopardy to the Court's trial schedule. After cutting through the verbal underbrush of these arguments, the Court finds that there is some merit on all sides.

 
A. The United States Has Violated Its Obligation to Supplement Discovery Responses under Fed.R.Civ.P. 26(e)(2)
  Fed.R.Civ.P. 26(e)(2) states that a "party is under a duty seasonably to amend a prior response to an interrogatory . . . if the party learns that the response is in some material respect incomplete or incorrect. . . ." Early on in discovery, as noted earlier, Defendants directed interrogatories to the Government specifically focusing on the Racketeering Acts charged in this case. Other than providing one supplement to its original answers on December 10, 2001, the Government has provided no other information regarding additional Racketeering Acts. There is simply no justification whatsoever for the Government's failure to appropriately inform the Defendants, by formal supplementation of its interrogatory responses as required by the Rules, of its intention to rely on 650 additional Racketeering Acts to support its RICO claims.

  Moreover, in light of the intensive case management and oversight that this case has received, there is no question that Plaintiff's inclusion, at virtually the last minute, of 650 new Racketeering Acts in its summary judgment motion undermines the Page 6 comprehensive efforts of the Court to ensure an orderly march to trial by avoiding last minute surprises of this nature. For these reasons, the Court concludes that it is appropriate to preclude the Plaintiff under Fed.R.Civ.P. 37(c) from adding the additional 650 Racketeering Acts.

  Defendants have also asked for a much more severe sanction, namely, exclusion of all evidentiary materials relating to the 650 Racketeering Acts. The Court now turns to that issue.

 
B. Evidence Relating to the 650 New Racketeering Acts Is Not Excluded for All Purposes
  Defendants ask that all evidence supporting the 650 Racketeering Acts be barred for all purposes. They even ask for the exclusion of that portion of the evidence that goes to the issue of the mailing or wire transmission of the previously identified 148 Acts. Mem. in Supp. of Defs' Emergency Motion at 20 n. 22. That sanction for the violations already outlined is too draconian, is not mandated by whatever minor prejudice Defendants will suffer, if any, and is not supported by case law. Even though the proposed acts may not be added as Racketeering Acts, the evidence underlying them may well be admissible to prove other RICO elements. Uncharged, unlawful conduct may be proven to establish, for example, continuity and pattern of racketeering activity,*fn4 the Page 7 RICO enterprise or conspiracy, and the Defendants' participation therein.*fn5

  Moreover, the Government points out in its papers that knowledge of the substance of this additional evidence comes as no surprise to the Defendants, even though the Government ...


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