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Daniel
K. Crane-Hirsch, Linda Margaret McMahon, U.S. Department of
Justice, Washington, DC, for Plaintiff.
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Alfred
McDonnell, Arnold & Porter Kaye Scholer LLP, London, UK,
Amy Elizabeth Ralph-Mudge, Amy L. Rohe, Duane J. Mauney,
Jonathan Louis Stern, Kevin M. Green, Leslie Wharton, Peter
Thomas Grossi, Jr., Ryan David Guilds, Sharon L. Taylor,
Arnold & Porter Kaye Scholer LLP, Michael R Geske, Cause
of Action Institute, Anastasia G. Weis, Jay L. Levine,
Matthew A. Campbell, Christopher J. Cullen, Robert M. Rader,
Timothy M. Broas, Winston & Strawn LLP, Daniel Church
Jordan, U.S. Commodity Futures Trading Commission, James
Miller Rosenthal, Wilkinson Walsh Eskovitz, PLLC, Thomas M.
Stimson, Cadwalader, Wickersham & Taft LLP, Amir Cameron
Tayrani, Miguel A. Estrada, Gibson, Dunn & Crutcher, LLP,
Washington, DC, Ashley Cummings, Hunton & Williams,
Atlanta, GA, Ben M. Germana, Herbert M. Wachtell, Jeffrey M.
Wintner, Steven M. Barna, Wachtell, Lipton, Rosen & Katz,
Bradley E. Lerman, Lauren J. Bernstein, David E. Mollon,
Winston & Strawn, C. Ian Anderson, Chadbourne & Parke
LLP, James Lewis Brochin, Theodore V. Wells, Jr., Paul,
Weiss, Rifkind, Wharton & Garrison LLP, Anand Agneshwar,
Pro Hac Vice, Arnold & Porter Kaye Scholer LLP, Lawrence
Edward Savell, Herbert Smith New York LLP, New York, NY,
Cindy L. Gantnier, Patricia M. Schwarzschild, Richard H.
Burton, Cheryl Grissom Ragsdale, Christy L. Henderson,
Michele B. Scarponi, Hunton & Williams, Murray R.
Garnick, Altria Group, Inc., Richmond, VA, Dan K. Webb,
Elizabeth D. Jensen, Jeffrey Wagner, Kevin J. Narko, Ricardo
E. Ugarte, Thomas J. Frederick, Winston & Strawn,
Chicago, IL, Renee D. Honigberg, Kirkland & Ellis, LLP,
Chicago, IL, Floyd Elwood Boone, Jr., Bowles Rice LLP,
Charleston, WV, Jeanna Maria Beck, Arnold & Porter Kaye
Scholer LLP, Los Angeles, CA, Melissa Marglous Merlin, Husch
Blackwell Sanders LLP, Michael B. Minton, Thompson Coburn,
LLP, St. Louis, MO, Seth Barrett Tillman, Department of Law,
Ireland, Andrew Maher, Allens Arthur Robinson, Australia,
George C. Lombardi, Winston & Strawn, LLP, Jessica L.
Zellner, Washington, DC, for Defendants.
OPINION
& ORDER #92 — REMAND
PAUL L.
FRIEDMAN, United States District Judge.
Litigation
in this case has persisted for over two decades. In 2006,
Judge Gladys Kessler, after conducting a nine-month bench
trial, issued a thorough opinion in which she found that the
defendant manufacturers had conspired to violate and in fact
did violate the substantive provisions of the Racketeer
Influenced and Corrupt Organizations Act ("RICO"),
18 U.S.C. § 1962. See United States v. Philip Morris
USA, Inc., 449 F.Supp.2d 1, 27 (D.D.C. 2006) ("J.
Kessler Op."). Section 1964 of RICO gives the Court
"jurisdiction to prevent and restrain violations of
section 1962 of this chapter by issuing appropriate orders...
making due provision for the rights of innocent
persons." See 18 U.S.C. § 1964(a). Judge
Kessler issued a remedial order that set out specific
remedies to prevent and restrain future RICO violations by
the defendant tobacco manufacturers, including an injunction
requiring the defendants to issue "corrective
statements." See J. Kessler Op. at 27; 938-41.
The D.C. Circuit "largely affirm[ed] the remedial order
... and remand[ed] to the district court regarding only four
discrete issues." See United States v. Philip
Morris, 566 F.3d 1095, 1150 (D.C. Cir. 2009). One of
those four discrete issues is the implementation of one
remedy: the corrective statements the defendants must include
in their retail point-of-sale ("POS") displays. The
D.C. Circuit "vacate[d] the remedial order as it regards
point-of-sale displays
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and remand[ed] for the district court to make due provision
for the rights of innocent third parties." Id.
This is the single remaining issue on remand before this
Court.[1]
I.
BACKGROUND
In her
2006 omnibus opinion, Judge Kessler determined that "an
injunction ordering Defendants to issue corrective statements
is appropriate and necessary to prevent and restrain them
from making fraudulent public statements on smoking and
health matters in the future." See J. Kessler
Op. at 926. Judge Kessler ordered that the corrective
statements be disseminated through newspapers, television,
advertisements, onsets in cigarette packages, in retail
displays, and on the manufacturers' corporate websites.
See id. at 928. The corrective statements
disseminated in retail displays (the POS remedy) would
require retailers that participate in the defendants'
Retail Merchandising Program — that is, those that
contract to display the manufacturers' in-store
advertising — to display signs containing corrective
statements. See United States v. Philip Morris, 566
F.3d at 1141. The Remedial Order set out the specifications
for the corrective statements; specifically, it dictated that
the POS corrective statements be publicized in countertop
displays and header displays. See J. Kessler Op. at
939-40.[2]
The
D.C. Circuit vacated Judge Kessler's remedial order as it
pertained to the POS displays only, finding that "the
district court exceeded its authority by failing to consider
the rights of retailers and crafting an injunction that works
a potentially serious detriment to innocent persons not
parties to or otherwise heard in the district court
proceedings." See United States v. Philip
Morris, 566 F.3d at 1141-42: see also 18 U.S.C.
§ 1964(a). The court reasoned that the "[r]etailers
affected by this order — none of whom were involved in
the litigation in any way — did not receive notice of
this remedy or an opportunity to present evidence or
arguments to the district court regarding the impact the
injunction would have on their businesses. Nor does it appear
that the district court independently considered the impact
of this program on affected retailers," a part of the
Court's obligations under Section 1964(a). See United
States v. Philip Morris, 566 F.3d at 1141.
Upon
vacating the remedial order as it pertained to the POS
displays, the D.C. Circuit instructed this Court "to
evaluate and `mak[e] due provision for the rights of innocent
persons,' either by abandoning this part of the remedial
order or by crafting a new version reflecting the rights of
third parties." See United States v. Philip
Morris, 566 F.3d at 1142 (quoting 18 U.S.C. §
1964(a)). In other words, the Court may now order "some
form of a point-of-sale display injunction" if it finds
that it "is still appropriate after considering the
rights of third parties and existing contracts." See
id. After considering a joint status report [Dkt. No.
6261] from the parties, this Court decided that an
evidentiary hearing would be necessary for the parties to
adequately present their legal and factual arguments with
respect to a "new version" of how the POS remedy
would be implemented, and to allow third
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party retailers the opportunity to air their concerns.
See May 21, 2019 Order [Dkt. No. 6283]. The
Court's immediate task, therefore, is to determine the
scope of that evidentiary hearing. A status conference was
held on June 24, 2019, during which the parties expressed
disagreement about the meaning and import of the D.C.
Circuit's instructions. The Court then ordered the
parties to brief their interpretations of those instructions
regarding the scope of the evidentiary hearing. It turns now
to an evaluation of the arguments the parties presented at
the status conference and in their filings.
II.
DISCUSSION
A.
The Parties' Arguments
The
defendant manufacturers assert that the D.C. Circuit vacated
the POS remedy in toto. Thus, they maintain that the
Court's task is expansive: it must essentially begin at
square one, allowing the parties to relitigate Judge
Kessler's legal conclusions and factual findings.
Specifically, defendants argue that the Court must evaluate
its own statutory authority under Section 1964(a) and balance
the equities before issuing an injunction. See
Manufacturers' Opening Brief on the Scope of the
Evidentiary Hearing ("Def. Op. Br.") [Dkt. No.
6293] at 2, 15-16.[3] According to the defendants, the Court
also must determine the benefit that the proposed POS remedy
would provide, so that any such benefit may be weighed
against "the burdens the remedy would impose on innocent
third parties." See id. at 2. Such a
calculation is necessary, the defendants argue, for the Court
to determine whether it should impose a new POS remedy or
whether such remedy should be abandoned altogether. See
id. at 5; Manufacturers' Reply Brief ("Def.
Reply") [Dkt. No. 6303] at 4. In evaluating the
propriety of the POS remedy, the defendants maintain that the
Court must consider current information — updated from
the point in time that Judge Kessler made her factual
findings and announced her legal conclusions — to
determine anew whether the POS remedy will prevent and
restrain future RICO violations. See Def. Op. Br. at
5-10.
The
plaintiffs urge a more limited approach.[4] In contrast to the
defendants' argument, the plaintiffs contend that
"[t]he D.C. Circuit's narrow remand does not
authorize, much less require, this Court to consider or
reconsider the many issues advanced by the manufacturers and
retailers that are not specific to the retailers, such as
whether the corrective statement remedy at retail
points-of-sale is necessary and appropriate to prevent and
restrain future violations of the RICO statute by the
manufacturers." See Plaintiffs' Response
Brief ("Pl. Response") [Dkt. No. 6300] at 7-8. They
maintain that the question to be considered at the hearing
instead is "whether Plaintiffs' proposed
implementation of the corrective statement remedy at retail
points-of-sale will affect retailers' rights, and if so,
whether the order can be tailored to make `due
provision' for them." See id. at 7
(emphasis added).
The
National Association of Convenience Stores ("NACS")
has also submitted briefing on this topic.[5] The arguments
of the
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NACS mirror those of the defendant manufacturers. Like the
defendants, NACS contends that "making due provision for
the rights of innocent persons" requires the Court to
"consider the burdens to non-parties versus the need to
restrain future RICO harms." See NACS Opening
Brief ("NACS Op. Br.") [Dkt. No. 6294] at 8;
see also id. at 11-12. NACS also argues that the
statutory language permitting district courts to order
"reasonable restrictions" necessarily implicates a
balancing analysis. See id. at 11. But the NACS goes
further. Analogizing to the process provided to innocent
third parties under Section 1963 of the same statute (related
to forfeiture remedies), NACS argues that "[f]undamental
principles of due process require notice and individual
process for each and every retailer or other
non-party that would be affected by the proposed
injunction" — which would total over 200,000
retailers, according to its calculations. See id. at
6 (emphasis in original). It therefore argues that
"there simply is no practical way to `make due
provision' for third parties not before the Court,"
see id. at 6, and "[p]roviding NACS with the
opportunity to brief issues and appear at the evidentiary
hearing is insufficient." See id. at 14. Thus,
the "concerns that led the D.C. Circuit to vacate the
prior POS remedy will not be alleviated," and the POS
remedy must be abandoned. See id. at 6. In addition,
NACS contends that the Court has no jurisdiction to issue an
injunction, binding the retailers, without such process.
See id. at 13.
B.
Analysis
1.
The Court's Role is Limited
The
Court concludes that its role is significantly narrower than
the defendants and NACS suggest, but somewhat more expansive
than the plaintiffs urge. Judge Kessler issued a detailed
opinion that settles most of the legal questions involved in
the Court's instant task. Specifically, she resolved the
following matters: (1) Once it made a finding of liability
under Section 1962, the Court had authority to enjoin future
RICO violations pursuant to Section 1964(a), see J.
Kessler Op. at 932; (2) pursuant to that authority, "an
injunction ordering Defendants to issue corrective statements
is appropriate and necessary to prevent and restrain them
from making fraudulent public statements," see
J. Kessler Op. at 926; (3) the defendants' First
Amendment rights did not prohibit the corrective statement
remedy, see id.; and (4) the corrective statement
injunction is "narrowly tailored to prevent Defendants
from continuing to disseminate fraudulent public statements
and marketing messages by requiring them to issue truthful
corrective communications." See id. at 927.
None of
these remain open questions to be litigated — or more
accurately, relitigated. Contrary to the defendants'
arguments, the D.C. Circuit did not upset these legal
conclusions. In fact, the court of appeals generally affirmed
the "corrective statements" fashioned by Judge
Kessler's remedial order as appropriate RICO remedies,
concluding that the "corrective statements will prevent
and restrain [the defendants] from making fraudulent public
statements on smoking and health matters in the future."
See United States v. Philip Morris, 566 F.3d at 1140
(internal quotations omitted). There was no suggestion in the
court of appeals' opinion that this conclusion
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did not apply also to corrective statements for POS displays,
so long as this Court considered and gave due consideration
to ...