Court Opinion

ID: 2664509
Source: CourtListenerOpinion
Date Created: 2014-04-04 04:02:41.162929+00
Date Added: 2024-06-11T13:04:43.259985
License: Public Domain

UNITED STATES DISTRICT COURT
                        FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA,                  :
                                           :
                  Plaintiff,               :
                                           :    Civil Action No.
          v.                               :    99-2496 (GK)
                                           :
PHILIP MORRIS USA, Inc.,                   :
et al.                                     :
                                           :
                  Defendants.              :

                             MEMORANDUM OPINION

     This civil action brought by the United States under the

Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18

U.S.C. §§ 1961-1968, is now before the Court on Plaintiff’s Motion

to   Compel    Defendant     British     American   Tobacco    (Investments)

Limited’s (“BATCo’s”) Compliance [Dkt. No. 5847] and Defendant

BATCo’s   Motion    for     Reconsideration      [Dkt.   No.    5849].   Upon

consideration of the respective Motions, Oppositions, Replies, and

the entire     record    herein,   and   for   the reasons     stated below,

Plaintiff’s Motion to Compel is granted in part and denied in part

and Defendant BATCo’s Motion for Reconsideration is granted in part

and denied in part.

I.   BACKGROUND

     On August 17, 2006, this Court issued a lengthy opinion

finding that all Defendants, including BATCo, “(1) have conspired

together to violate the substantive provisions of RICO, pursuant to
18 U.S.C. § 1962(d), and (2) have in fact violated those provisions

of the statute, pursuant to 18 U.S.C. § 1962(c).” U.S. v. Philip

Morris USA, Inc., et al., 449 F. Supp. 2d 1, 26 (D.D.C. 2006). In

particular,   the   Court   held   that   Defendants   “knowingly   and

intentionally engaged in a scheme to defraud smokers and potential

smokers, for purposes of financial gain, by making false and

fraudulent statements, representations, and promises.” Id. at 852.1

On May 22, 2009, the Court of Appeals for the District of Columbia

Circuit affirmed this Court’s judgment of liability and affirmed

major provisions in its remedial order.2 U.S. v. Philip Morris USA,

Inc., et al., 566 F.3d 1095, 1150 (D.C. Cir. 2009), cert. denied,

130 S. Ct. 3501 (2010).

     Unlike the other Defendants, BATCo is a corporation organized

under the laws of England and Wales with its principal place of

business in England. Although BATCo’s scientists and officials did

     1
       The extensive factual findings of the Court may be found at
Philip Morris, 449 F. Supp. 2d at 34-851.
     2
       The Court of Appeals remanded the case with directions to
(1) evaluate the extent to which Brown & Williams Holdings is
reasonably likely to commit future violations; (2) determine which
subsidiaries of the Defendants should be included in the remedial
order; (3) reformulate the prohibition on the use of health
messages or descriptors to exempt foreign activities that have no
substantial, direct, and foreseeable domestic effects; and (4)
consider the rights of innocent third parties and clarify
accordingly the remedial order’s provisions regarding point-of-sale
displays. Philip Morris, 566 F.3d at 1150. The Court of Appeals
also ordered this Court to dismiss CTI and TI from the suit, as
those organizations had dissolved, id., and that has been done. The
Court has already addressed the first two issues, in Orders #7
[Dkt. No. 5846] and #13 [Dkt. No. 5877].

                                   2
attend certain meetings with the other Defendants in the United

States, “many of BATCo’s activities and statements took place

outside of the United States.” Philip Morris, 449 F. Supp. 2d at

43, 51-52, 82, 125, 228, 873. Accordingly, this Court held BATCo

liable    under   RICO   because   “BATCo’s     activities   and    statements

furthered the Enterprise’s overall scheme to defraud, which had a

tremendous impact on the United States.” Id. at 873.

      On December 28, 2010, the United States filed a Motion to

Compel BATCo’s Compliance (“U.S. Mot.”) with the Court’s Final

Order #1015, dated August 17, 2006. On January 21, 2011, BATCo

opposed the United States’ Motion and moved for reconsideration of

the Court’s Final Order #1015 (“BATCo Mot.”). BATCo argues that the

Supreme    Court’s   intervening     decision    in   Morrison     v.   National

Australia Bank Ltd., 130 S. Ct. 2869, 177 L.Ed.2d 535 (2010),

rejected    the   “effects”   test    for   extraterritoriality,        thereby

invalidating the basis for BATCo’s liability under RICO. BATCo Mot.

1. On February 7, 2011, the United States filed its reply and

opposition [Dkt. No. 5861]. On February 21, 2011, BATCo filed its

reply [Dkt. No. 5868].

II.   STANDARD OF REVIEW

      The central issue presented by these two motions is whether

BATCo’s Motion for Reconsideration should be granted due to an

intervening change of controlling law. The parties agree that

                                      3
BATCo’s Motion may be considered under Federal Rule of Civil

Procedure 60(b)(5). U.S. Opp’n 1 n. 1, 2; BATCo Mot. 9 n. 5.

     Rule 60(b)(5) provides, in relevant part, that a district

court   may   grant   relief   from   a   final    order     if   “applying   it

prospectively is no longer equitable.” Fed. R. Civ. P. 60(b)(5)

(2011). The Supreme Court has held that “it is appropriate to grant

a Rule 60(b)(5) motion when the party seeking relief from an

injunction or consent decree can show ‘a significant change either

in factual conditions or in law.’” Agostini v. Felton, 521 U.S.

203, 215, 117 S. Ct. 1997, 138 L.Ed.2d 391 (1997) (quoting Rufo v.

Inmates of Suffolk County Jail, 502 U.S. 367, 384, 112 S. Ct. 748,

116 L.Ed.2d 867 (1992)). The Court went on to explain that “[a]

court may recognize subsequent changes in either statutory or

decisional    law.”   Agostini,   531     U.S.    at   215   (citing   Railway

Employees v. Wright, 364 U.S. 642, 652-653, 81 S.Ct. 368, 5 L.Ed.2d

349 (1961) (consent decree should be vacated under Rule 60(b) in

light of amendments to the Railway Labor Act); Rufo, 502 U.S. at

393 (vacating denial of Rule 60(b)(5) motion and remanding so

District Court could consider whether consent decree should be

modified in light of Bell v. Wolfish, 441 U.S. 520, 99 S.Ct. 1861,

60 L.Ed.2d 447 (1979)); Pasadena City Bd. of Ed. v. Spangler, 427

U.S. 424, 437-438, 96 S.Ct. 2697, 49 L.Ed.2d 599 (1976) (injunction

should have been vacated in light of Swann v. Charlotte-Mecklenburg

Bd. of Ed., 402 U.S. 1, 91 S.Ct. 1267, 28 L.Ed.2d 554 (1971))); see

                                      4
also Potter v. District of Columbia, 558 F.3d 542, 554 (D.C. Cir.

2009).3

     In    its   Motion,    BATCo   erroneously   relies   on    Rule   54(b),

although    it   suggests    that   Rule   60(b)(5)   could     serve   as   an

alternative procedural vehicle. Rule 54(b) states, in relevant

part, that “any order or other decision, however designated, that

adjudicates fewer than all the claims or the rights and liabilities

of fewer than all the parties does not end the action as to any of

the claims or parties and may be revised at any time before the

entry of a judgment adjudicating all the claims and all the

parties’ rights and liabilities.” Fed. R. Civ. P. 54(b). In order

to meet the requirements of Rule 54(b), BATCo contends that “this

Court’s July 29, 2010 [O]rder entering the D.C. Circuit’s mandate

as the judgment of this Court is not a final judgment, because

     3
       BATCo argues that its Motion may also be considered under
Rule 60(b)(6). Rule 60(b)(6) permits a district court to grant
relief from a final order for “any other reason that justifies
relief.” Fed. R. Civ. P. 60(b)(6). The Supreme Court has held that
only exceptional or extraordinary circumstances can justify relief
under Rule 60(b)(6). Ackermann v. United States, 340 U.S. 193,
199-202, 71 S. Ct. 209, 95 L.Ed. 207 (1950). Our Court of Appeals
has further cautioned that the Rule “should be only sparingly
used.” Twelve John Does v. District of Columbia, 841 F.2d 1133,
1140 (D.C. Cir. 1988) (quoting Good Luck Nursing Home, Inc. v.
Harris, 636 F.2d 572, 577 (D.C. Cir. 1980)). Most importantly,
“[i]ntervening developments in the law by themselves rarely
constitute the extraordinary circumstances required for relief
under Rule 60(b)(6).” Agostini, 521 U.S. at 239; see also Acree v.
Republic of Iraq, No. 08-5375, 2009 WL 1953503, at *1 (D.C. Cir.
Feb. 17, 2009). For these reasons, the Court concludes that Rule
60(b)(6) does not apply in this instance.

                                       5
there has been no final resolution of all the claims and requests

for relief as to all the parties.”4 BATCo Mot. 8-9 n. 5.

     BATCo is simply wrong about the scope of Rule 54(b). The

Federal Circuit has held that “Rule 54(b), which concerns the power

of the trial court before appeal, is not applicable” where the

Court of Appeals has affirmed a portion of the judgment. King

Instrument Corp. v. Otari Corp., 814 F.2d 1560, 1563 (Fed. Cir.

1987) (emphasis in original); Nat’l Australia Bank v. U.S., 74 Fed.

Cl. 435, 438 (Fed. Cl. 2006);   Home Savings of America, F.S.B. v.

U.S., 69 Fed. Cl. 187, 190 (Fed. Cl. 2005); see also Jones v.

District of Columbia, 646 F. Supp. 2d 42, 46-47 (D.D.C. 2009) (res

judicata applies to claims upon which judgment is affirmed by the

Court of Appeals, even when judgment is reversed as to other

claims).

     Therefore, in light of King Instrument Corp., Rule 54(b) has

no applicability to this case, since appeals have been exhausted

and the judgment of liability has been affirmed by the Court of

Appeals. See King Instrument Corp., 814 F.2d at 1563; Jones, 646 F.

Supp. 2d at 46-47.

     Consequently, the Court concludes that Rule 60(b)(5), not Rule

54(b), properly governs BATCo’s Motion for Reconsideration.

     4
       The order BATCo refers to is not, in fact, an order of this
Court. Rather, it is the Mandate of the Court of Appeals, entered
by the Clerk of that court. See Mandate of USCA, July 29, 2010
[Dkt. No. 5817].

                                 6
III. ANALYSIS

     A.   Intervening Change of Law Under Rule 60(b)(5)

     The dispositive issue presented in both Motions is whether

RICO continues to have extraterritorial reach after the Supreme

Court’s decision in Morrison, 130 S. Ct. 2869. BATCo contends that

“Morrison changed the law concerning the use of the ‘effects’ test

to measure extraterritoriality and invalidated the legal basis for

both the D.C. Circuit’s and this Court’s rulings with respect to

BATCo’s RICO liability.” BATCo Mot. 9. The Government argues that

Morrison applied only to Section 10(b) of the Securities Exchange

Act and not to RICO, because “Morrison did not turn principally on

the presumption against extraterritoriality.” U.S. Mot. 8.

     Fortunately, Morrison’s language is clear. “When a statute

gives no clear indication of an extraterritorial application, it

has none.” Morrison, 130 S. Ct. at 2878. “Rather than guess anew in

each case, we apply the presumption in all cases, preserving a

stable background against which Congress can legislate.” Id. at

2881 (emphasis added). That language demonstrates that the Supreme

Court intended the presumption against extraterritoriality to apply

to all statutes, not simply the Exchange Act. This conclusion is

further confirmed by the structure of Justice Scalia’s majority

opinion. In Section IIIA, that opinion sets out the Supreme Court’s

general rule on extraterritoriality, to be applied “in all cases,”

and then in Section IIIB specifically applies that general rule to

                                7
the Exchange Act. See id. at 2875-2888. The Government’s argument

ignores the plain language of Morrison and ignores its presumption

against territoriality and accompanying rejection of the “effects”

test. Therefore, the Court concludes that the ruling in Morrison

must be applied to RICO.5 Id. at 2880-81.

     Two courts––the Court of Appeals for the Second Circuit and

the District Court for the Southern District of New York––have each

considered RICO’s extraterritorial reach in light of Morrison. Both

have held that the RICO statute does not contain evidence of

Congressional intent to apply extraterritorially, and therefore

does not overcome Morrison’s presumption. Norex Petroleum Ltd. v.

Access Indus., Inc., 631 F.3d 29, 32-33 (2d Cir. 2010);6 Cedeno v.

     5
       Indeed, it would make particularly little sense to confine
Morrison proscription against the “effects” test to the Exchange
Act, as RICO’s “effects” test was explicitly borrowed from the
Exchange Act context. See, e.g., N. S. Fin. Corp. v. Al-Turki, 100
F.3d 1046, 1051 (2d Cir. 1996) (“Although there is little caselaw
in this Circuit regarding the extraterritorial application of RICO
. . . guidance is furnished by precedents concerning subject matter
jurisdiction for international securities transactions and
antitrust matters.”); Philip Morris, 449 F. Supp. 2d at 873 (citing
Al-Turki).
     6
        The Second Circuit did note, “we have no occasion to
address––and   express    no  opinion    on––the   extraterritorial
application of RICO when enforced by the government pursuant to
Sections 1962, 1963 or 1964(a) and (b).” Norex, 631 F.3d at 33. The
United States argues that in cases of civil and criminal
enforcement by the Government there is a presumption of
extraterritorial application under U.S. v. Bowman, 260 U.S. 94, 27
S. Ct. 655, 51 L.Ed. 956 (1922). See U.S. Mot. 19-27. As Defendants
point out, however, Bowman only applied the relevant criminal
statute to extraterritorial conduct because the statute was based
on “the right of the government to defend itself against
                                                     (continued...)

                                8
Intech Group, Inc., 733 F. Supp. 2d 471, 473-74 (S.D.N.Y. 2010).

Indeed, this Court has already ruled that “‘RICO itself is silent

as to its extraterritorial application.’” U.S. v. Philip Morris

USA, Inc., et al., 477 F. Supp. 2d 191, 197 (D.D.C. 2007) (quoting

Poulos v. Caesars World, Inc., 379 F.3d 654, 663 (9th Cir. 2004)).

     The Government argues that because some of the predicate acts

which may give rise to a “racketeering activity” prohibited by RICO

are extraterritorial in nature Congress must have assumed that RICO

would have extraterritorial scope in general. U.S. Mot. 20-23. The

question under Morrison, however, is whether Congress intended RICO

to criminalize extraterritorial activity. As Judge Rakoff explained

in rejecting the same argument in Cedeno,

          it is plain on the face of the statute that
          the statute is focused on how a pattern of
          racketeering affects an enterprise: it is
          these that the statute labels the “Prohibited
          activities,” 18 U.S.C. § 1962. But nowhere
          does the statute evidence a concern with
          foreign enterprises, let alone a concern
          sufficiently clear to overcome the presumption
          against extraterritoriality . . . . RICO is
          not a recidivist statute designed to punish

     6
      (...continued)
obstruction, or fraud wherever perpetrated, especially if committed
by its own citizens, officers, or agents.” Bowman, 260 U.S. at 98
(emphasis added). Bowman distinguished this category from crimes
against individuals, which “must, of course, be committed within
the territorial jurisdiction of the government.” Id.; see also U.S.
v. Gatlin, 216 F.3d 207, 2011 n. 5 (2d Cir. 2000) (explaining that
the “Bowman rule” does not apply to crimes against private
individuals). As the Defendants’ criminal enterprise does not
implicate “the right of the government to defend itself,” Bowman
poses no obstacle to the proper application of Morrison here.
Bowman, 260 U.S. at 98.

                                9
           someone for committing a pattern of multiple
           criminal acts. Rather it prohibits the use of
           such a pattern to impact an enterprise . . . .
           Thus, the focus of RICO is on the enterprise
           as the recipient of, or cover for, a pattern
           of criminal activity.

733 F. Supp. 2d at 473-74. In short, whether or not a criminal

enterprise    committed      a     predicate    act     with   extraterritorial

scope––and, in any case, no such extraterritorial predicate act is

implicated here––there is no evidence that Congress intended to

criminalize foreign racketeering activities under RICO.

     The Government next argues that even if RICO does not have

extraterritorial reach, BATCo’s RICO liability may be premised on

its domestic conduct. U.S. Mot. 8-19. The Government points to

communications    between        BATCo   and   United   States   companies   and

organizations, visits made to the United States by BATCo scientists

and officials, and BATCo’s involvement with an experimental farm in

North Carolina. Id. at 15-16.

     The problem with the Government’s argument is that BATCo’s

domestic conduct was not the basis for its RICO liability in this

case. At trial the Government never argued that BATCo’s domestic

activity     provided   an       adequate      basis    for    RICO   liability.

Accordingly, this Court found,

           While it is true that many of BATCo's
           activities and statements took place outside
           of the United States, they nevertheless had
           substantial direct effects on the United
           States. First, many of BATCo's statements and
           policies at issue in this case concerned U.S.
           subsidiary/affiliate Brown & Williamson and

                                         10
              potential litigation in the United States.
              Second,    and    most   importantly,   BATCo's
              activities    and   statements   furthered the
              Enterprise's overall scheme to defraud, which
              had a tremendous impact on the United States,
              as demonstrated in the Findings of Fact.

Philip Morris, 449 F. Supp. 2d at 873. Moreover, the Court of

Appeals affirmed on the same rationale, namely “that BATCo’s

participation had substantial, direct, and foreseeable effects in

the United States.” Philip Morris, 566 F.3d at 1131.

       Further, isolated domestic conduct does not permit RICO to

apply to what is essentially foreign activity. As the Supreme Court

stated,      “it   is   a   rare    case        of    prohibited   extraterritorial

application that lacks all contact with the territory of the United

States” and “the presumption against extraterritorial application

would be a craven watchdog indeed if it retreated to its kennel

whenever some domestic activity is involved in the case.” Morrison,

130 S. Ct. at 2884; see also Norex, 631 F.3d at 33 (“slim contacts

with   the    United    States      .     .    .     are   insufficient    to   support

extraterritorial application of the RICO statute”); Cedeno, 733 F.

Supp. 2d at 473 (rejecting the argument that alleging predicate

acts of money laundering involving transfers in and out of the

United States overcomes the prohibition against extraterritorial

application).

       In conclusion, the Supreme Court, in crystal clear language,

rejected the       “effects”       test       for    extraterritorial     application.

Morrison, 130 S. Ct. at 2881. In rejecting that test, the Supreme

                                              11
Court invalidated the sole basis for BATCo’s liability.7 Philip

Morris, 449 F. Supp. 2d at 873; Philip Morris, 566 F.3d at 1131.

Therefore, applying the Court’s Final Order #1015 against BATCo

“prospectively is no longer equitable.” Fed. R. Civ. P. (60)(b)(5).

     B.   Application of Rule 60(b)(5)

     Our Court of Appeals has made clear that “an order of judgment

may be modified under [the relevant] portion of Rule 60(b)(5) only

to the extent that it has ‘prospective application.’” Twelve John

Does, 841 F.2d at 1138. The “standard we apply in determining

whether an order or judgment has prospective application within the

meaning of Rule 60(b)(5) is whether it is ‘executory’ and involves

‘the supervision of changing conduct or conditions.’” Id. at 1139.

     There is no question that the injunctive relief contained in

Order #1015 is “executory” and/or involves “the supervision of

changing conduct or conditions.” Id. at 1139. However, Order #1015

also requires Defendants to “pay the appropriate costs of the

prevailing party, which is the Government.” Order #1015, at ¶ 21.

Our Court of Appeals has ruled that money damages do not have

“prospective application.” Twelve John Does, 841 F.2d at 1138.

Although the requirement to pay costs does not constitute “money

damages,” neither does it involve “the supervision of changing

     7
       The Government has raised a number of arguments as to why
Morrison does not control. Parties can be assured that the Court
considered them in detail, but firmly believes that Morrison
dictates the outcome in this case.

                                12
conduct or conditions.” Id. at 1139. There is therefore no basis in

Rule 60(b)(5) to modify ¶ 21 of Order #1015. Accordingly, BATCo is

no longer subject to the provisions of Order #1015 with the

exception of ¶ 21. BATCo must contribute to the payment of the

Government’s costs.

IV.   CONCLUSION

      For the reasons set forth above, Plaintiff’s Motion to Compel

is granted in part8 and denied in part and Defendant BATCo’s Motion

for Reconsideration is granted in part and denied in part.9

      An Order will issue with this opinion.

                                /s/
March 28, 2011                 Gladys Kessler
                               United States District Judge

Copies to: counsel of record via ECF

      8
       The Court is referring to the requirement        that   BATCo
contribute to payment of the Government’s costs.
      9
          See supra note 8.

                                13