United States District Court for the District of Columbia
February 24, 2004.
UNITED STATES OF AMERICA, Plaintiff,
PHILIP MORRIS INCORPORATED, et al., Defendants
The opinion of the court was delivered by: GLADYS KESSLER, District Judge
This matter is now before the Court on Defendants'*fn1 Motion for
Partial Summary Judgment on Claims that Defendants Advertised, Marketed,
and Promoted Cigarettes to Youth and Fraudulently Denied Such Conduct.
Upon consideration of the Motion, the Government's Opposition and the
entire record herein, and for the reasons stated below, the Joint
Defendants' Motion is denied.
Plaintiff, the United States of America ("the Government") has brought
this suit against the Defendants pursuant to Sections 1962(c) and (d) of
the Racketeer Influenced and Corrupt
Organizations Act ("RICO"), 18 U.S.C. § 1961, et
seq.*fn2 Defendants are manufacturers of cigarettes and other
tobacco-related entities. The Government seeks injunctive relief and
billions of dollars 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
about, among other things, the harmful nature of tobacco products, the
addictive nature of nicotine, and the possibility of manufacturing safer
and less addictive tobacco products. Amended Complaint ("Am. Compl.") at
The present Motion focuses on one sub-scheme of the overarching
conspiracy alleged by the Government, namely the Government's allegations
that the Defendants have deliberately marketed cigarettes to children and
fraudulently denied doing so. According to the Government, even though
the sale of cigarettes to children is illegal, and even though Defendants
deny doing so, they have marketed their products to children. Defendants
are allegedly motivated to target children as new smokers because they
"fail to appreciate the risk that, by engaging in smoking while they are
adolescents, they will become long term smokers because of the
development of an addiction to nicotine." Am. Compl. at ¶ 95. Once
addicted, these new smokers serve as "replacements" for older smokers who
quit smoking or die. Am. Compl. at ¶ 94.
R.J. Reynolds' Joe Camel campaign is just one of the most well-known
examples of what the Government characterizes as Defendants' practice of
"aggressively target[ing] their campaigns to children." Am. Compl. at
¶¶ 96-97. According to the Government, Defendants have conducted
research on young people and designed their marketing practices to
exploit what they have learned about their interests and vulnerabilities,
in order to induce them to smoke. Gov't Mem. in Opp'n at 7 (citing United
States' Master Rule 7.1/56.1 Statement of Material Facts Demonstrating
the Existence of Genuine Issues for Trial ("Master Stmt"). Defendants
have allegedly enticed children to smoke using advertising that
"glamorizes smoking," using "content . . . intended to entice young
people to smoke, for example, as a rite of passage into adulthood or as a
status symbol." Am. Compl. at 1 96.
Defendants are also alleged to have advertised in stores near high
schools, given away cigarettes at places where young persons congregate,
paid for product placement in movies with youth audiences, placed
advertisements in magazines with high youth readership, and sponsored
sporting events, rock concerts, and other events of interest to children.
Am. Compl. at 1 96. At the same
time, according to the Government, Defendants have consistently
made false and misleading statements that their expenditures on
advertising and marketing were directed exclusively at convincing current
smokers to switch brands, not at enticing children to start smoking. Am.
Compl. at ¶ 100.
Defendants vehemently deny that they have advertised, marketed and
promoted cigarettes to children. In their Motion they seek summary
judgment against the Government's allegations relating to what Defendants
call "the youth marketing sub-scheme." Mem. in Supp. at 13. Defendants
ask the Court to dismiss with prejudice all of the Government's
racketeering acts*fn3 related to this sub-scheme along with the related
These racketeering acts comprise two groups. The first category is
actual cigarette advertisements that allegedly promote cigarettes to
children along with conduct, apart from advertising, that furthers the
goal of marketing smoking to children, such as obtaining surveys of youth
smoking habits (collectively "youth marketing acts"). The second category
of racketeering acts are Defendants' denials that they targeted their
marketing at children.
Defendants advance three principal arguments that these racketeering
acts should be dismissed:
(1) The youth marketing acts do not constitute RICO predicate acts of
mail and wire fraud.
(2) Their conduct is protected by the First Amendment.
(3) Their denials of marketing to children were not part of a scheme to
defraud anyone of "money or property" as required by the mail and wire
Defendants are not entitled to summary judgment on the basis of any of
these arguments, for the following reasons; consequently, the Government
must be given the opportunity to prove its claims about Defendants' youth
marketing sub-scheme at trial.
First, the youth marketing acts cannot be assessed in isolation, but
must be evaluated in the context of the totality of the Government's
allegations of fraud.
Second, whether Defendants have targeted children
as replacement smokers and whether they have falsely denied doing so,
involve disputed factual issues of intent that must be resolved at
Third, the Government has, contrary to Defendants' argument, alleged a
deprivation of "money or property," namely the purchase price consumers
paid for cigarettes.
Fourth, it is irrelevant under the applicable case law that the
challenged acts are not illegal per se and that the mailings
are not alleged to contain misrepresentations.
Fifth, the Government's requested injunctive relief is not a basis on
which to dismiss its RICO claims relating to youth marketing acts.
Finally, whether any of the challenged racketeering acts should be
described as "petitioning" and thus immunized under the
Noerr-Pennington doctrine, is a factual matter in dispute.
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).
III. DEFENDANTS ARE NOT ENTITLED TO SUMMARY JUDGMENT
A. Claims Relating to Youth Advertising Must Be Decided in the
Context of the Entire Alleged Scheme to Defraud
The Government has alleged a pervasive, overarching scheme to defraud
the public of money going back fifty years and continuing into the
present. According to the Government, this conspiracy has been carried
out through a variety of means or sub-schemes, including the youth
marketing sub-scheme. Defendants have also allegedly: disseminated false
and misleading statements denying that smoking causes disease and that
smoking is addictive, Master Stmt ¶¶ 227-384, 572-672; used
sophisticated technologies to manipulate and increase the potency of
nicotine in their cigarettes while repeatedly denying that they
manipulated the level of nicotine in their products, id. at
¶¶ 673-764; fraudulently promised to sponsor independent research
into the health risks of smoking, id. at ¶¶ 385-571; and
marketed "low tar" cigarettes as less hazardous than other cigarettes,
even though they knew that smokers of these cigarettes are "not
appreciably reducing their health risk." Am. Compl. at ¶ 86, 87.
Defendants ask the Court to view the youth advertising acts in
artificial isolation from the rest of the pervasive scheme alleged
by the Government to assess whether, for example, the challenged
Racketeering Acts properly constitute mail or wire fraud or meet the
proof requirements for fraud. Defs.' Mem. in Supp. at 14, 27. However,
claims relating to Defendants' alleged targeting of children as
replacement smokers are just one component of the overarching scheme to
defraud which the Government has alleged. The Government's theory is that
the component sub-schemes described above collectively served the goal of
sustaining and expanding the market for Defendants' cigarettes and
maximizing their profits by defrauding consumers of the purchase price of
cigarettes. The youth marketing sub-scheme can only be meaningfully
assessed in the context of the entirety of the Defendants' alleged
The interdependence of the sub-schemes is demonstrated by the fact that
predicate acts not identified by Defendants as youth-related
are seen by the Government as having "furthered the `youth marketing'
component of the fraudulent scheme." Gov't Mem. in Opp' n at 16 n.26. For
that reason, predicate acts relating to other sub-schemes must be
considered before the predicate acts challenged by Defendants in their
Motion can be fully evaluated since these other acts may have contributed
to the youth marketing sub-scheme. For example, the Government claims
that Defendants' denials of the health risks of smoking and of the
addictiveness of smoking and nicotine, denials not challenged in this
had an effect on young people deciding whether to try smoking.
Therefore, summary judgment as to the youth marketing claims is
inappropriate because, among other reasons, the Court must evaluate the
over-all scheme to defraud based on the totality of the circumstances
alleged, including the relationship of the challenged acts to the other
sub-schemes. See United States v. Godwin, 272 F.3d 659, 666-667
(4th Cir. 2001) ("In order to establish . . . the scheme to defraud,
the Government must prove that the defendants acted with the specific
intent to defraud, which may be inferred from the totality of the
circumstances and need not be proven by direct evidence.") (internal
citation omitted). Because the sub-schemes are interdependent, the
totality of circumstances necessary to evaluate the challenged
racketeering acts goes beyond those particular acts challenged in this
Motion and can only be properly understood in the context of a trial.
B. Material Issues of Intent and Motive Are Very Much in
Summary judgment with regard to the youth marketing acts is also
inappropriate because material factual issues of intent and motive remain
very much in dispute. The Government has put forth evidence, including
expert opinions, to show that Defendants intentionally targeted youth as
replacement smokers. See generally United States' Supplemental
Rule 7.1/Rule 56.1 Statement of Material Facts Demonstrating the
Existence of Genuine Issues for Trial Particular to Defendants' [Motion]
("Suppl. Stmt"). For
example, Racketeering Act #76 alleges that
From about April 1, 1988, through about June 30,
1988, defendant [Reynolds] caused an advertisement
for Camel cigarettes to be placed in various print
media. . . . This advertisement was captioned
"Get On Track with Camel's 75th Birthday!" and
depicted the Joe Camel character in a Formula
One-type automobile racing suit, opening a bottle
of champagne, with racing cars whizzing by in the
App. to Compl at ¶ 76.
Government expert Michael Eriksen concludes that the Joe Camel campaign
caused children and adolescents to smoke Camel Cigarettes, Suppl. Stmt at
43. According to Government expert Dean Krugman, the market share of
Camel among adolescents rose 64 percent with the introduction of Joe
Camel in 1988; he is of the opinion that Defendant Reynolds' and other
Defendants' marketing campaigns are designed to appeal to youth.
Id. at 44.
The Government has also put forth evidence to show that Defendants'
denials of youth marketing were knowingly false. For example, alleged
Racketeering Act #89 concerns a 1990 letter from R.J. Reynolds' Public
Relations Department to a citizen in response to the citizen's letter
"expressing concern that the Joe Camel campaign, specifically the `Camel
Smooth Character' campaign, appealed to youth." Suppl. Stmt. at 16.
Reynolds' letter stated that its "advertising is directed to adult
smokers and not younger people" and that "research shows that among all
the factors that might influence a young person to start smoking,
advertising is insignificant." Id.
As proof of the falsity of this statement, the Government points to
internal documents that it says establish that R.J. Reynolds "sought to
appeal to youth with its `Joe Camel' advertising campaign."
Years of internal research culminated in the
testing and development of Joe Camel . . .
Between 1979 and 1982, R.J. Reynolds's CEO Edward
A. Horrigan, Jr. initiated the Joe Camel campaign
by asking his marketing department to look at the
French "Funny Camel" campaign and see if R.J.
Reynolds could reinvigorate Camel with a similar
approach. According to Horrigan, people at the
company were excited about the idea. The French
"Funny Camel" campaign had been very effective
with young people in France. As a February 7, 1984
memorandum from Dana Blackmar to Rick McReynolds
about the "French Camel Filter Ad" stated: "I
think the French Advertisement for Camel filters
is a smash. It would work equally well, if not
better, for Camel regular. It's about as young as
you can get, and aims right at the young adult
smoker Camel needs to attract." Horrigan testified
that despite R.J. Reynolds's knowledge that the
French "Funny Camel" was "as young as you can
get," R.J. Reynolds did not specifically look at
the impact the campaign might have on underage
Suppl. Stmt at 17.
The Government also relies on its expert's opinion that this campaign
"succeeded in incorporating themes with appeal to an adolescent interest
in sex and social approval." Id. (citing Expert Report of
Anthony Biglan. The Government has submitted similar evidence as to
the other allegedly false denials of youth marketing.
The question of fraudulent intent is a question of fact that is rarely
appropriate for summary judgment. Citizens Bank of Clearwater v.
Hunt, 927 F.2d 707, 711 (2d Cir. 1991). Because the
Government, as non-movant, has demonstrated that there are disputed
material facts regarding whether the Defendants intentionally targeted
children as replacement smokers and whether their denials of youth
marketing were knowingly false, Defendants are not entitled to summary
judgment. See Hunt v. Cromartie, 526 U.S. 541, 552 (1999) ("it
was error . . . for the District Court to resolve the disputed fact of
motivation at the summary judgment stage" where non-movant had presented
circumstantial evidence in support of their claim).
C. The Government Has Offered Sufficient Evidence of Intent to
Defraud the Public of Money or Property
The mail and wire fraud statutes forbid "any scheme or artifice to
defraud, or for obtaining money or property by means of false
or fraudulent pretenses, representations, or promises. . . ."
18 U.S.C. § 1341 and 1343 (emphasis added). Defendants claim that the
predicate acts which allege that they falsely denied marketing to youth
must be dismissed as a matter of law because the denials were not efforts
to "obtain money or property."
The Government has alleged that Defendants made false and deceptive
statements, including denials that they marketed to youth, "that were
intended to induce the public to begin and continue smoking cigarettes
and to thereby defraud the public of money through the purchase of
cigarettes." Gov't Mem. in Opp'n at 11. According to the Defendants, the
Government defines "money or property" as either "enhanced profits" or
the forestalling of
regulatory efforts, neither of which is a legally cognizable
deprivation under the mail and wire fraud statutes. Defs.' Mem. in Supp.
at 29. However, the Government clearly explains that "`the specific money
or property that was the object of each alleged predicate act of mail or
wire fraud' is the purchase price consumers paid for the cigarettes from
1954 to the present." Id. at 11 n.17 (quoting U.S. Supp. Resp. to JD.
First Set of Cont. Interrogs. Nos. 29-31 and 33-35, at 15). Because the
Government has alleged a deprivation of "money or property," Defendants
are not entitled to summary judgment on this basis.*fn4
D. Predicate Acts Need Not Be Illegal Per Se
or Contain Misrepresentations
Defendants claim that because "marketing to youth does not per
se constitute a predicate act under RICO", a scheme to market
cigarettes to children is not a scheme to defraud. Defs.' Mem. in Supp.
at 14-15 (internal quotation omitted). However, it is irrelevant that
marketing to children does not per se constitute a predicate
racketeering act, so long as the conduct constitutes wire or mail fraud.
See supra at 4 n3.
In order to prove mail fraud,*fn5 the Government must prove two
elements: (1) a scheme to defraud and (2) the use of the mails in
furtherance of the scheme. Carter v. United States,
530 U.S. 255, 262 (2000). Defendants argue that the Government's claims
relating to youth marketing fail as a matter of law because, as the
Government concedes, neither the advertisements nor the other
marketing conduct "misrepresent or conceal any fact."*fn6 Defs.'
Mem. in Supp. at 16. However, it has long been the law that, in order to
establish mail fraud, "it is not necessary that the individual mailing
relied upon . . . be shown to be in any way false or inaccurate, if
the matter mailed is utilized in furtherance of or pursuant to the scheme
to defraud." United States v. Reid, 533 F.2d 1255, 1263 (B.C.
Cir. 1976). See also Schmuck v. United States, 489 U.S. 705,
715 (1989)("innocent" mailings may supply the mailing element in mail
fraud case); Atlas Pile Driving Co. v. DiCon Financial Co.,
886 F.2d 986, 991 (8th Cir. 1989) ("no misrepresentation of fact is required
in order to establish mail fraud.").
Here, assuming the truth of the evidence of the Government as the
non-moving party, and drawing all justifiable inferences in its favor, as
required by Rule 56, the challenged acts are in furtherance of the
Defendants' alleged scheme to defraud. The Government has offered proof
as to each advertisement that it was in furtherance of the overall scheme
to defraud. See e.g., supra,
p. 9 (Racketeering Act No. 76); see generally, Suppl.
Stmt. at 42-73 (offering proof that Racketeering Acts Nos. 76, 83, 84,
97, 102, 135, 136, 137, 138, 139, 140, 141, 142, 147, and 148
(Defendants' Cigarette Advertisements) were in furtherance of the alleged
scheme to defraud). In light of these disputed material facts concerning
whether the advertisements and other youth marketing acts were in
furtherance of the overall scheme, summary judgment must be denied.
E. The Government's Conspiracy Claims Do Not Violate the First
Defendants assert, on a variety of grounds, that the Government's RICO
claims violate the First Amendment. For the reasons set forth below,
these arguments cannot prevail.
1. Defendants Are Not Entitled to Summary Judgment on the
Basis of The Injunctive Relief Sought by the Government
According to Defendants, the Government's characterization of their
advertising as "fraud" in pursuit of injunctive relief relating to
cigarette marketing "violates the First Amendment." Defs.' Mem. in Supp.
at 16. Defendants rely on Lorillard Tobacco Co. v. Reilly,
533 U.S. 525 (2001), for the proposition that "speech restrictions like those
sought by Plaintiff here are unconstitutional." Defs.' Mem. in Supp. at
16. In Reilly, the Supreme Court held, inter alia,
that certain Massachusetts regulations that restricted advertising of
cigars, cigarettes and smokeless tobacco violated the First Amendment
because their "broad sweep" imposed an undue burden on speech. 533 U.S.
at 561 (internal
Defendants' reliance on Reilly is misplaced for two related
reasons. First, and very obviously, any injunctive relief in this case
would only be imposed after a finding by the Court that
Defendants had committed acts of mail and/or wire fraud in violation of
RICO. If the Government successfully establishes that the Defendants
disseminated their advertising in furtherance of an overall scheme to
defraud, the First Amendment will not present an obstacle to appropriate
injunctive and equitable relief to remedy the fraud.*fn7 See United
States v. Carson, 52 F.3d 1173, 1185 (2d Cir. 1995).
In Carson, the Second Circuit upheld an injunction imposed on
a former union officer under RICO enjoining him from future racketeering.
The injunction did not violate First Amendment
freedom of association because "an individual's right to freedom of
association may be curtailed to further the public's compelling interest
in eliminating the public evils of crime, corruption, and racketeering"
(internal quotation omitted). Id. Similarly here, if the Court
finds a RICO violation, an injunction that curtails Defendants' speech
in some way is not necessarily barred by the First Amendment.*fn8
Any such injunctive relief would, of course, have to be sufficiently
narrowly tailored to comply with the relevant First Amendment
Second, in Reilly, the Massachusetts Attorney General
"assumed for purposes of summary judgment that [defendants'] speech [was]
entitled to First Amendment protection." Id. at 555. Here, by
contrast, the Government makes no such concession. It argues that
Defendants' youth marketing acts promote an illegal activity
(purchase of cigarettes by minors) and constitute conduct in
furtherance of a multifaceted scheme to defraud.
The Supreme Court has recently reiterated, albeit in a different
factual context, that "the First Amendment does not shield fraud."
Illinois ex rel. Madigan v. Telemarketing Associates, Inc.,
123 S.Ct. 1829, 1836 (2003). As Reilly itself makes clear, for
commercial speech to come within the protection of the First Amendment it
must "concern lawful activity and not be misleading." 533 U.S. at 554.
See also Zauderer v. Office of Disciplinary Counsel,
471 U.S. 626, 638 (1985)("[t]he States and the Federal Government are free to
prevent the dissemination of commercial speech that is false, deceptive,
or misleading . . . or that proposes an illegal transaction" (internal
citations omitted).)*fn10 The Defendants will have a full opportunity
at trial to demonstrate that the conduct in question was not in
furtherance of a scheme to defraud.
2. There Are Material Facts in Dispute About Whether the
Challenged Predicate Acts Occurred in the Context of Petitioning the
Government, as Required under the Noerr-Pennington
Defendants seek to immunize all of their public denials about
having marketed to children under the Noerr-Pennington
doctrine.*fn11 The Noerr-Pennington doctrine immunizes those
who petition the government for redress from anti-trust liability even if
they are motivated by anti-competitive intent. Professional Real
Estate Investors v. Columbia Pictures Industries, Inc., 508 U.S. 49,
56 (1993). "The `doctrine is a direct application of the Petition Clause'
of the First Amendment." Falise v. American Tobacco Co.,
94 F. Supp.2d 316, 350 (E.D.N.Y. 2000) (quoting Kottle v. Northwest
Kidney Centers, 146 F.3d 1056, 1059) (9th Cir. 1998).*fn12 Although
it originally "arose in the context of lobbying for legislative action,
it was subsequently expanded to include activities aimed at the executive
and judicial branches of
government." Id. at 350-351 (internal citation omitted),*fn13
According to the Defendants, all of the denials of youth marketing
identified by the Government as predicate acts "are statements of
opinion, made in the course of petitioning the Government, and are fully
protected by the First Amendment." Def s.' Mem. in Supp. at 20. They make
much of the fact that Racketeering Acts ## 125-127 in particular relate
to letters from the chief executives of Defendant manufacturers to Joseph
Califano, Jr., President Jimmy Carter's Secretary of Health, Education
and Welfare. Defs.' Mem. in Supp. at 1. However, even assuming
arquendo that these few letters represent "petitioning," very
few of the other challenged Acts appear on their face to be fairly
characterized as acts of petitioning the Government. Several of them are
simply press releases allegedly distributed by Defendants to newspapers
and news outlets, not to government officials. See
e.g., Appendix at 34, 36, 38 (Racketeering Acts Nos. 87,
Others are statements made to members of the public. See
e.g., App. to Compl. at 35 (Racketeering Acts #89 (described
at supra p. 10)).
It is true that the mere fact that conduct intended to influence
government officials happens to involve the use of a public relations
campaign is not sufficient to defeat Noerr-Pennington
immunity. Allied Tube & Conduit Corp. v. Indian Head, Inc.,
486 U.S. 492, 503 (1988). Indeed, Noerr itself involved a
publicity campaign aimed at influencing government action. However, it
certainly does not follow that all use of advertisements or public
relations campaigns is to be automatically characterized as petitioning
of the government, and therefore immunized under the
Here, whether the conduct in question is petitioning is in dispute. The
Government contends that the conduct was undertaken
"pursuant to a multifaceted fraudulent scheme aimed at defrauding
the public," Gov't Mem. in Opp'n at 26. Because a determination of
whether the challenged predicate acts are acts of petitioning is a
fact-intensive inquiry that can only be resolved at trial, Defendants are
not entitled to summary judgment on the basis of the
Noerr-Pennington doctrine. See Allied Tube & Conduit
Corporation, 486 U.S. 492 at 499 (applicability of Noerr
immunity "varies with the context and the nature of the activity").
For all the foregoing reasons, the Defendants are not entitled to
summary judgment as to the Government's allegations relating to claims
that they advertised, marketed and promoted cigarettes to youth and
fraudulently denied such conduct, and their Motion is denied.
An Order will accompany this opinion.