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On September 28, 2009, the tobacco Defendants asked the US Court of Appeals, DC Circuit to stay issuance of its mandate for the Defendants to adhere to Judge Kessler's order, pending their filing and disposition of a petition for a writ of certiorari to the Supreme Court.
Defendants' motion briefly delineates the arguments they will undoubtedly present in their petition to SCOTUS, mainly, in the words of their motion:
- whether a court of appeals is required to undertake de novo review of factual findings in a case that squarely implicates a defendant's First Amendment rights;
- whether corporations can be part of an "association in fact" RICO enterprise; and
- whether jurisdiction over this case was extinguished by the enactment of new federal legislation [ie, the FDA bill] that imposes comprehensive regulation on every aspect of Defendants' business. . . .
- The balance of equities also weighs strongly in favor of a stay because, in the absence of a stay, Defendants would be required to incur substantial, unrecoverable expenses to comply with the district court's injunctions during the pendency of their petitions for certiorari. . . .
-whether the fraud statutes and First Amendment permit allowing a corporation's specific intent to defraud to be proven through the collective knowledge of various employees, instead of the actual specific intent of one or more particular employees;
-and whether the district court's injunctions are impermissibly vague and overbroad.
This paragraph is particularly intriguing:
The [Appeals Court] Panel held that Defendants had formed an "association in fact" RICO enterprise, and concluded that Defendants were likely to commit future RICO violations-even though they had entered into the MSA with the States in 1998, which categorically prohibited Defendants from engaging in the racketeering activity alleged by the Government.2 In reviewing the district court's findings on this (and every other) issue, the Panel applied the clearly erroneous standard of review (slip op. 45), rather than undertaking an independent review of the district court's factual findings. The Panel applied this "highly deferential" standard (id.) despite the fact that the Government's RICO allegations were premised on Defendants' constitutionally protected speech, including statements that Defendants had made in legislative and regulatory forums as part of the public-health debate about smoking.
The FDA argument was to be expected:
Shortly after the Panel issued its opinion, Congress enacted the Family Smoking Prevention and Tobacco Control Act ("FDA Act"), Pub. L. No. 111-31, 123 Stat. 1776 (June 22, 2009), which subjects every aspect of Defendants' business to comprehensive oversight by the Food and Drug Administration ("FDA"). On July 31, 2009, Defendants petitioned for rehearing or rehearing en banc on the grounds that both the Panel and the full Court should consider the effect of that intervening legislation and reconsider several aspects of the Panel's decision.
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Summary
A win in the U.S. Supreme Court would bring at least temporary relief to cigarette makers. But the odds are against the Court taking the case, and even if Philip Morris did win in Court, the FDA might use its newly expanded powers to regulate them anyway.
Cigarette manufacturers have engaged in legal "attrition" since the first lawsuits against them were brought in the 1950s. The federal court that found members of the industry liable for RICO violations unearthed documents showing that advisors recommended litigation to the nth degree, sometimes only in order to drain the opposing side of their resources
The litigate-to-the-end strategy kept the cigarette industry healthy for many years, but there is evidence to suggest that this strategy is not as successful a bulwark as it once was. . . .
the chances of the U.S. Supreme Court hearing Philip Morris' case are against them
Pursuant to FED. R. APP. P. 41(d)(2) and D.C. Circuit Rule 41(a)(2), Defendants respectfully move this Court to stay issuance of its mandate pending the filling and disposition of timely petitions for writs of certiorari. This Court recognized the substantial nature of the arguments raised by Defendants—and the risk of irreparable harm confronting Defendants—when it issued a stay pending appeal. For similar reasons, a stay is also warranted pending the filing and disposition of Defendants’ petitions for certiorari.
A stay is appropriate because the Panel’s opinion raises substantial questions for certiorari, including: (1) whether a court of appeals is required to undertake de novo review of factual findings in a case that squarely implicates a defendant’s First Amendment rights; (2) whether corporations can be part of an “association in fact” RICO enterprise; and (3) whether jurisdiction over this case was extinguished by the enactment of new federal legislation that imposes comprehensive regulation on every aspect of Defendants’ business. The balance of equities also weighs strongly in favor of a stay because, in the absence of a stay, Defendants would be required to incur substantial, unrecoverable expenses to comply with the district court’s injunctions during the pendency of their petitions for certiorari. No other party would be prejudiced by the issuance of a stay because Defendants’ business will continue to be subject to stringent government oversight by the States and the federal Government while their petitions for certiorari are pending.
GENERAL KAGAN: Well, all I was suggesting, Mr. Chief Justice, is that corporations have actually a fiduciary obligation to their shareholders to increase value. That's their single purpose, their goal.
CHIEF JUSTICE ROBERTS: So if a candidate - take a tobacco company, and a candidate is running on the platform that they ought to make tobacco illegal, presumably that company would maximize its shareholders' interests by opposing the election of that individual.
GENERAL KAGAN: But everything is geared through the corporation's self-interest in order to maximize profits, in order to maximize revenue, in order to maximize value. Individuals are more complicated than that. So that when corporations engage the political process, they do it with that set of you know, blinders -- I don't mean it to be pejorative, because that's what we want corporations to do, is to -
Corporate spending limits in U.S. political campaigns may be too broad and silence free-speech rights of small businesses like a local hairdresser, Supreme Court conservatives said on Wednesday.
But the court's four liberals, including new Justice Sonia Sotomayor, said more harm than good could be done by overturning precedents upholding the restrictions on corporations and labor unions.
The comments came during arguments in a special session to consider ending long-standing limits on corporate and union spending in political campaigns. . . .
During the arguments, Roberts said a tobacco company might want to run an ad opposing a candidate who wanted to make tobacco illegal. The law restricts broadcast ads by companies and unions right before elections.
Judge Sonia Sotomayor struck a pro- business chord in U.S. Senate testimony yesterday on her Supreme Court nomination.
“In business, the predictability of law may be the most necessary,” Sotomayor said, pointing to her eight years representing companies in private practice. . . .
As a federal trial judge in 1999, Sotomayor upheld a $1.25 million punitive award to the victim of on-the-job sex discrimination and retaliation.
At the same time, she voted with business in other cases, including a 2004 ruling throwing out a European Community lawsuit accusing the tobacco industry of cigarette smuggling.
O'CONNOR, J., delivered the opinion of the Court, in which REHNQUIST, C. J., and SCALIA, KENNEDY, and THOMAS, JJ., joined. BREYER, J., filed a dissenting opinion, in which STEVENS, SOUTER, and GINSBURG, JJ., joined, post, p. 161. . . .
(c) The history of tobacco-specific legislation also demonstrates that Congress has spoken directly to the FDA's authority to regulate tobacco products. Since 1965, Congress has enacted six separate statutes addressing the problem of tobacco use and human health. Those statutes, among other things, require that health warnings appear on all packaging and in all print and outdoor advertisements . . .
it is evident that Congress has ratified the FDA's previous, long-held position that it lacks jurisdiction to regulate tobacco products as customarily marketed. Congress has created a distinct scheme for addressing the subject, and that scheme excludes any role for FDA regulation.
[Page 192]
nothing more than an intent not to change the jurisdictional status quo.
The upshot is that the Court today holds that a regulatory statute aimed at unsafe drugs and devices does not authorize regulation of a drug (nicotine) and a device (a cigarette) that the Court itself finds unsafe. Far more than most, this particular drug and device risks the life-threatening harms that administrative regulation seeks to rectify. The majority's conclusion is counterintuitive. And, for the reasons set forth, I believe that the law does not require it.
Consequently, I dissent.
Former New York police detective Chris Montanino remembers his frustration nearly three decades ago, when he was ready to go after child-porn distributors but couldn't find a prosecutor who would take his case seriously.
Then he returned a call from a young woman at the local district attorney's office -- an intense, chain-smoking prosecutor known for working into the night, fueled by the caffeine buzz from a string of Tab diet sodas. . . .
The prosecutors were expected to juggle 80 to 100 cases at a time, and in her years there Sotomayor tried perhaps 20 cases before juries. She survived by becoming, in the words of her friend Dawn Cardi, a "caffeine addict" who started her day with a Tab, one of maybe 20 she threw back on an average day, along with a pack and a half of cigarettes.
Judge Sonia Sotomayor was an intense, no-nonsense prosecutor during five years spent at the Manhattan District Attorney’s office . . .
Sotomayor joined the office fresh out of Yale Law School in 1979, spurning big law firms because she hoped to get quick experience trying cases, the Washington Post reports. She got her wish, winning an early promotion to a felony unit after spending six months prosecuting offenses such as disorderly conduct, public urination and graffiti. Colleagues and friends described her as driven, competitive and focused on the details of her cases.
Former New York police detective Chris Montanino told the newspaper about his encounter with the Supreme Court nominee.
Montanino said he wanted to go after child-porn distributors but he couldn’t find a prosecutor who would take his case seriously. “Then he returned a call from a young woman at the local district attorney's office,” the Post writes, “an intense, chain-smoking prosecutor known for working into the night, fueled by the caffeine buzz from a string of Tab diet sodas.”
The City of New York's brief in opposition fails to confront the central issue presented by the divided court of appeals decision in this case: Whether government has standing under the Racketeer Influenced and Corrupt Organizations Act to seek recovery for non commercial injury. Unable to deny that a split in the circuits exists on this important issue, and ignoring this Court's interpretation of "business or property" under the Clayton Act (from which Congress adopted the term in the RICO statute), the City instead distorts the pertinent case law in an attempt to show that the Second Circuit panel's decision does not conflict with decisions in other circuits. The City does not contest that a uniform, national answer to this question is of vital importance, and instead merely argues that a writ of certiorari should not issue because of the City's desire to collect taxes (trebled under RICO) from parties who never owed the taxes to begin with.
REASONS FOR GRANTING THE PETITION
Petitioners respectfully submit that there are two reasons why this Court should grant their petition for writ of certiorari and review the Second Circuit Court of Appeal's decision. First, as the Second Circuit and other courts have recognized, there is a distinct split of opinion among the circuit courts of appeal as to whether state and local governments can use RICO in federal district courts to collect taxes and similar non commercial losses. Second, the ruling by the Second Circuit Court of Appeal's conflicts with this Court's precedent requiring a party to suffer a direct injury to have RICO standing.
I. THE CIRCUITS ARE SPLIT.
Standing to bring a civil RICO claim is specifically limited to "[a]ny person injured in his business or property" 18 U.S.C. ¤ 1964(c) (App. E, 179a-180a); Sedima v. Imrex Co., 473 U.S. 479, 496 (1985)("the plaintiff only has standing if, and can only recover to the extent that, he has been injured in his business or property"); Canyon County v. Syngenta Seeds, Inc., 519 F.3d 969 (9th Cir. 2008) (same), cert. denied, 129 S.Ct. 458 (2008). In determining whether this standing requirement is met, there is an acknowledged split among the Circuits on whether losses suffered by government acting in its sovereign capacity are injuries to "business or property." . . .
II. THE SECOND CIRCUIT COURT OF APPEAL'S DECISION CONFLICTS WITH SUPREME COURT PRECEDENT.
A. Supreme Court Precedent Limits RICO Standing To Directly Injured Parties.
QUESTION PRESENTED
Does State government and its subdivisions have standing under RICO because lost tax revenue may constitute an injury to "business or property" in accord with the statute and relevant authority? . . .
Respondent, the City of New York ("the City"), brought four civil actions under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. ¤ 1961 et seq. ('RICO"), against various defendant out-of-state cigarette retailers, including the instant petitioners, the Hemi Group and Kai Gachupin ("petitioners"). The City alleges that petitioners actively schemed to defraud the City of tax revenues through the sale of cigarettes to City residents over the Internet. By refusing to report purchases by City residents as required under the Jenkins Act, see 15 U.S.C. ¤ 375 et seq., and advertising that concealment and representing the cigarettes as "tax-free," petitioners commit mail and wire fraud, see 18 U.S.C. ¤ 1341, 1343. As a result, the City is unable to collect use taxes owed on the sales and petitioners have thus injured the City of New York through lost tax revenues. . . .
The City alleges that petitioners: (1) advertise their cigarettes over the Internet to City residents, (2) ship the orders by common carrier or the United States Postal Service into New York City, and (3) refuse to comply with the Jenkins Act registration or reporting requirements (10a). The City further alleges that petitioners' failure to comply with the Jenkins Act is an essential part of their business model because the savings that customers obtain from buying the cigarettes online are almost entirely attributable to the fact that the New York State and City taxes are not included in the cigarettes' sales price (lOa).
The U.S. Supreme Court agreed to scrutinize lawsuits by New York City that accuse discount cigarette retailers of using Internet sales to evade taxes totaling potentially hundreds of millions of dollars a year.
The nation’s highest court today said it will review a lower court ruling that said the city could press ahead with federal racketeering claims in lawsuits filed in 2003 and 2004.
Two of the defendants, Hemi Group LLC and Kai Gachupin, appealed to the Supreme Court, saying the city couldn’t invoke the U.S. Racketeer Influenced and Corrupt Organizations Act.
More than 400 Web sites sell cigarettes over the Internet with many falsely advertising their sales as “tax free,” according to a complaint filed by the city in 2003
~~~Date~~~ ~~~~~~~Proceedings and Orders~~~~~~~~~~~~~~~~~~~~~
Jan 27 2009 Petition for a writ of certiorari filed. (Response due March 4, 2009)
Feb 18 2009 Order extending time to file response to petition to and including April 3, 2009.
Apr 3 2009 Brief of respondent City of New York in opposition filed.
Apr 13 2009 Reply of petitioners Hemi Group, LLC and Kai Gachupin filed. (Distributed)
Apr 15 2009 DISTRIBUTED for Conference of May 1, 2009.
May 4 2009 Petition GRANTED.
The U.S. Supreme Court Monday said it will decide whether New York can sue online cigarette sellers for not paying city taxes on tobacco products shipped to purchasers living there.
New York has the highest cigarette excise taxes in the country at $4.25 a pack, counting both state and city excise taxes. It sued several online tobacco sellers in 2003, claiming they were violating federal racketeering laws and seeking millions of dollars in excise taxes it says the companies must pay to ship tobacco products into the city.
Several of the lawsuits were consolidated into one legal proceeding. . . .
The high court will hear the case in the fall of 2009. The case is Hemi Group v. New York.