Opinion ID: 187362
Heading Depth: 2
Heading Rank: 1

Heading: Likelihood of Future Violations

Text: Section 1964(a) grants district courts jurisdiction to prevent and restrain RICO violations. 18 U.S.C. § 1964(a). Hence, before a district court may order remedies under RICO it must find the defendant exhibits a reasonable likelihood of committing future violations of the Act. Disgorgement Opinion, 396 F.3d at 1198. Here, the district court found a reasonable likelihood that Defendants would commit future RICO violations. Philip Morris, 449 F.Supp.2d at 908-15. Defendants attack this finding, asserting: (1) the district court applied an erroneous legal standard, (2) the Master Settlement Agreement (MSA) makes future violations unlikely, and (3) Defendants' business practices and public positions alone preclude future violations. We conclude the district court applied the correct legal standard and its factual conclusions were not clearly erroneous. In the mid-1990s, the attorneys general of several states brought suit against the major tobacco companies for the reimbursement of state costs associated with smoking. Five Defendants, Philip Morris, Reynolds, Brown & Williamson, Lorillard, and Liggett entered into a settlement agreement, the MSA, with forty-six states and the District of Columbia. The MSA prohibited, inter alia, youth marketing, any material misrepresentations regarding the health consequences of tobacco use, agreements between manufacturers to limit either competition or the distribution of information about the health effects associated with smoking, and other specific marketing techniques (e.g., cartoon characters and billboards). The MSA specifically required the dissolution of CTR, TI, and CIAR. The National Association of Attorneys General and the individual states' attorneys general enforce the MSA, which requires informal dispute resolution before any enforcement action commences whenever possible. To obtain equitable remedies, the government must demonstrate a reasonable likelihood of further violation[s] in the future. Savoy Indus., Inc., 587 F.2d at 1168 (quotation marks omitted). Considered under the totality of the circumstances, three factors determine whether a reasonable likelihood exists: whether a defendant's violation was isolated or part of a pattern, whether the violation was flagrant and deliberate or merely technical in nature, and whether the defendant's business will present opportunities to violate the law in the future. SEC v. First City Fin. Corp., 890 F.2d 1215, 1228 (D.C.Cir.1989). The district court applied this standarda standard both sides agree is appropriate. Philip Morris, 449 F.Supp.2d at 909; Defs. Br. 39-40; Gov. Br. 182. Defendants quibble with two aspects of the district court's application. First, Defendants assert the district court could not rely on inferences drawn from past conduct alone because the MSA already proscribes future violations and imposes a legal barrier to the repetition of such conduct in the future. Defs. Br. 40. This is an odd argument, suggesting a tort settlement automatically limits the remedial options in a RICO suit. Notably, the first two factors of the First City test focus entirely on inferences arising from past conduct. 890 F.2d at 1228. And, as the district court correctly found, [t]he likelihood of future wrongful acts is frequently established by inferences drawn from past conduct. United States v. Philip Morris USA, 316 F.Supp.2d 6, 10 n. 3 (D.D.C.2004) (quotation marks omitted); see also SEC v. Bilzerian, 29 F.3d 689, 695 (D.C.Cir.1994) (inferring a likelihood of future violations based on the nature of past conduct); SEC v. Gruenberg, 989 F.2d 977, 978 (8th Cir.1993); First City, 890 F.2d at 1228-29. Defendants attempt to bolster their position by claiming the MSA precludes the need for injunctions by fully addressing their prior misconduct. As discussed infra, future violations remain likely notwithstanding the MSA. Therefore, Defendants' argument fails. Also, Defendants deftly mischaracterize the district court's opinion. Based on a single footnote in the opinion's section discussing the MSA's failure to alter Defendants' conduct and concluding remedies in this case were appropriate, Philip Morris, 449 F.Supp.2d at 913 n. 82, Defendants accuse the trial court of impermissibly shift[ing] the burden to defendants to prove that RICO violations will not occur in the future ... under the `absolutely clear' test. Defs. Br. 42. Contrary to Defendants' fears, the district court obviously did not intend to announce a new standard or alter the reigning standard via footnote. The First City standard was carefully articulated at the start of the discussion addressing future violations and conscientiously applied. Philip Morris, 449 F.Supp.2d at 908-09, 911-13. The footnote, regarding voluntary termination of illegal conduct, appears much later in the opinion where the court sought to emphasize the suspension of disbelief necessary to agree with Defendants, noting the court must assume Defendants have complied with and will continue to comply with the terms of the MSA, and that the MSA has adequate enforcement mechanisms in order to conclude the MSA obviates the need for injunctive relief. Id. at 913 (quotation marks omitted). This is a far cry from altering the legal standard. Indeed, the district court found, under the correct standard, that Defendants continued to commit violations even after 1999, well after the execution of the MSA. Id. at 910-11. Since the district court applied the standard enunciated in Savoy and First City and gave appropriate weight to the inferences drawn from Defendants' past conduct, we uphold the district court's decision to order remedies. The district court concluded the MSA alone [could not] remove the reasonable likelihood of Defendants' future RICO violations. Id. Defendants contend the MSA effectively prevents prospective RICO violations because it prohibits them from participating in an enterprise or committing any predicate acts. The district court, however, found Defendants began to evade and at times even violate the MSA's prohibitions almost immediately after signing the agreement and, consequently, concluded the MSA did not limit the court's ability to order [a]ppropriate [r]emedies. Id. The court's factual findings are not clearly erroneous. Defendants assert the MSA prevents their participation in a RICO enterprise because the organizations that allowed for joint activity no longer exist, and neither the government nor the district court identified any joint activity between Defendants after 1998, the start of the MSA. Defendants' post-agreement activities belie these statements. For example, though the MSA required Defendants to dissolve CIAR, only two days after signing the MSA Lorillard's general counsel wrote Philip Morris, Reynolds, and Brown & Williamson asking to discuss the status of the plan to reinstate CIAR. Id. at 798 (quotation marks omitted). Shortly thereafter, Covington & Burling LLP informed the CIAR contractors [t]he members of CIAR have decided to create a new organization to continue the work.... The members of CIAR that will be members of the new organization intend to continue to fund the research. Gov. Ex. 75,412, at 2. Subsequently, in 2000, Philip Morris initiated a new research program that had the same offices, phone numbers, and board as CIAR and many of the same employees, management, researchers, peer reviewers, and grantees. Philip Morris, 449 F.Supp.2d at 798-99. CIAR is not the lone example of Defendants' organizations poised to circumvent the MSA's prohibitions against joint activities or participation in an enterprise. The district court found, with the exception of CTR and TI, all of the other organizations either still exist or can be readily re-activated. Id. at 871. For example, even at the time of trial Defendants continued to participate in the Center for Cooperation in Scientific Research Relative to Tobacco (CORESTA), a nonprofit making association with objectives to enhance the scientific cooperation for research on tobacco perceived as unique and very valuable because it enjoys the perception of being objective, technical and independent. Gov. Ex. 21,788, at 1. Defendants presume the MSA's prohibition against joint activity is effective. The record, however, demonstrates the tobacco companies retain both the ability and the desire to continue joint activities. Accordingly, the district court did not commit clear error when it determined the MSA could not effectively prevent Defendants' participation in an enterprise. Defendants next assert the MSA's scores of injunctions and related prohibitions prevent repetition of the core wrongdoing. Defs. Br. 48. The district court determined the MSA does not prevent Defendants' commission of future racketeering acts because: (1) Defendants have not fully complied with the MSA, (2) the States could not be relied upon to vigorously enforce the MSA, see Br. For Amici Curiae States 7-11, (3) some provisions of the MSA have and will expire, and (4) BATCo and Altria are not subject to the agreement. Philip Morris, 449 F.Supp.2d at 913-15. As evidence of the MSA's failures and pitfalls, the district court noted that despite the MSA Defendants still fraudulently denied the dangers of secondhand smoke, marketed low tar cigarettes as a healthier alternative to quitting, and falsely denied manipulating nicotine delivery and marketing to youth. Id. at 910. Defendants offer no rebuttal to these factual findings, but instead argue failure to comply with all the details or the `spirit' of the MSA does not even begin to approach a RICO violation. Defs. Br. 50. Obviously. But as the district court rightly recognized, Defendants cannot hide behind the MSA to avoid the imposition of RICO remedies when they do not comply with the agreement. Philip Morris, 449 F.Supp.2d at 913. Therefore, the district court did not commit clear error when it determined the MSA does not adequately prevent or restrain Defendants' future racketeering activities and did not abuse its discretion by ordering equitable relief. Defendants claim they have admitted for years that smoking causes lung cancer and other serious diseases, smoking is addictive, and low tar cigarettes may not be safer. Defs. Br. 53-54, 56. They insist their positions on these issues preclude future RICO violations. Id. at 53. The district court acknowledged Defendants' varying degrees of lip service to these facts, but disagreed that these admissions translated into a guarantee against later violations. According to the district court, Defendants' essential position on the relationship of smoking and health remains virtually unchanged from the fraudulent positions it first took in the 1950s. Philip Morris, 449 F.Supp.2d at 204; see also id. at 204-08 (citing corporate statements and statements from Defendants' executives). The district court condemned Defendants for failing to embrace the Surgeon General's definition of addiction, to admit nicotine specifically creates and sustains addiction, or to acknowledge[] ... the reason quitting smoking is so difficult, and not simply a function of individual will power, is because of its addictive nature. Id. at 286; see also id. at 284-88. Finally, examples in the record of Defendants' marketing campaigns and internal documents amply support the district court's conclusion that Defendants continue to make[] false and misleading statements regarding low tar cigarettes in order to reassure smokers and dissuade them from quitting. Id. at 507-08. While we may not have reached all the same conclusions as the district court, under the highly deferential clearly erroneous standard the district court's factual findings have sufficient evidentiary support; its decision to order equitable relief was not an abuse of discretion.