United States v. Philip Morris USA Inc.

          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 Stales 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 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 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 to to. 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 ("PI. 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 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 M. 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 "[fundamental 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 M. 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 did not apply also to corrective statements for POS displays, so long as this Court considered and gave due consideration to the rights of innocent persons.

         The law of the case doctrine establishes that "a court involved in later phases of a lawsuit should not re-open questions decided (i.e. established as the law of the case) by that court or a higher one in earlier phases." See Crocker v. Piedmont Aviation, Inc., 49 F.3d 735, 739 (D.C. Cir. 1995). See also United States v. Philip Morris, 855 F.3d 321. 327-28 (D.C. Cir. 2017); United States v. Philip Morris, 801 F.3d 250, 257 (D.C. Cir. 2015); LaShawn v. Barry, 87 F.3d 1389, 1393 (D.C. Cir. 1996) (en banc) (explaining that the law of the case doctrine dictates that "[t]he same issue presented a second time in the same case in the same court should lead to the same result" (emphasis in original)). It would be a waste of judicial resources - and it would contravene the law of the case doctrine - to permit relitigation of those legal conclusions. See, e.g.. New York v. Microsoft Corp., 224 F.Supp.2d 76, 88 (D.D.C. 2002) ("When issues have been resolved at a prior stage in the litigation, based upon principles of judicial economy, courts generally decline to revisit resolved issues.")- Because the D.C. Circuit affirmed the majority of Judge Kessler's Remedial Order and remanded only as to four discrete issues, Judge Kessler's legal conclusions - even if not explicitly affirmed by the D.C. Circuit - remain the law of the case. Consistent with the law of the case doctrine, this Court will respect and apply Judge Kessler's prior legal conclusions to the POS remedy issue.

         Thus, contrary to the defendants' arguments, the Court's task is not to determine whether the POS remedy - one form of corrective statement - is an appropriate remedy under Section 1964(a), or whether to enter a permanent injunction after engaging anew in a balancing of the equities. See Def. Op. Br. at 2, 12-16; Def. Reply at 4-5. The prevent-and-restrain efficacy of a POS remedy, its constitutionality, and its propriety as injunctive relief have already been decided by Judge Kessler. The D.C. Circuit's decision to vacate and remand part of the Remedial Order did not disturb her conclusions; it merely set aside the specific plan to implement the POS remedy proposed by Judge Kessler and directed this Court to determine whether a new version of the POS remedy could be crafted. See United States v. Philip Morris, 566 F.3d at 1142.^[6] Specifically, the D.C. Circuit "vacate[d] the order regarding point-of-sale displays and remand[ed] for the district 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." Id. The only question therefore is whether this Court can craft a new proposal to implement the POS remedy that makes due provision for retailers' rights. The Court will not revisit Judge Kessler's justifications for ordering corrective statements in the first place.

         2. Due Provision for the Rights of Innocent Persons

         The court of appeals vacated the POS remedy because in crafting it, Judge Kessler had not "considered] the impact of th[e] program on affected retailers," United States v. Philip Morris, 566 F.3d at 1141; accordingly, the court of appeals directed this Court to "evaluate and make due provision for the rights of innocent persons" on remand. Id. at 1142 (internal quotations omitted). After the court of appeals' decision, Judge Kessler required the parties to identify third parties who should be invited to file briefs on the impact of POS displays; being so advised she invited eight retailer associations to participate in the litigation. See Order #19-Remand [Dkt. No. 5916]. Two prominent national retailers associations accepted her invitation, and will participate in the upcoming evidentiary hearing. NACS is the "preeminent representative" of convenience store operators. See NACS's Submission Concerning Order #1015's Point of Sale Display Requirements [Dkt. No. 5934] at 6. It is a non-profit organization founded almost 60 year ago that represents 2, 100 retail members and 1, 500 supply companies. Id. NATO is a national retail trade association that represents approximately 20, 000 tobacco stores, convenience stores, grocery stores, and liquor stores that sell cigarettes and tobacco products. See NATO Brief Regarding Retailers Affected by the Retail Display Component of the Court's Corrective Statement Remedy [Dkt. No. 5933] at 1. Their participation will help this Court "consider[] the impact of [proposals to implement the POS remedy] on affected retailers." See United States v. Philip Morris, 566 F.3d at 1141.

         In remanding to this Court, the court of appeals did not give much direction as to how this Court should go about "considering" the retailers' rights, in order to satisfy Section 1964's requirement that "due provision" be made for the rights of innocent persons. The statute itself does not give any express indication about what "due provision" means, and there is sparse case law addressing this question.

         The defendants and amici argue that when "making due provision" for the rights of innocent persons under Section 1964(a) the Court must undertake a "balancing" of competing interests - here, comparing the benefits of the POS remedy against the harms to or the burden on the retailers. See Def. Op. Br. at 13 (arguing the Court must "measur[e] the intrusions [on the retailers] against the remedy's ostensible benefit"). According to the defendants, the benefits to be considered are the need to prevent and restrain future RICO violations and the POS remedy's ability to do so within the current factual context. See Id. at 11. In framing the Court's task as one of "balancing," the defendants place great emphasis on the D.C. Circuit's instructions that the POS remedy should be abandoned if the Court cannot craft a version that "reflect[s] the rights of third parties." See United States v. Philip Morris, 566 F.3d at 1142.

         By contrast, the plaintiffs argue that the Court's task does not involve balancing at all; rather, it is to "tailor" an order imposing a new POS remedy, taking into account the rights of the retailers. See PI. Response at 22, 25-26. The plaintiffs frame the Court's task as merely adjusting the design of the POS remedy to conform with Section 1964(a)'s requirements, emphasizing ...