Atty Gen of Canada v. Rj Reynolds Tobacco Holdings
| Decision Date | 30 June 2000 |
| Docket Number | No. 99-CV-2194.,99-CV-2194. |
| Parties | The ATTORNEY GENERAL OF CANADA, Plaintiff, v. RJ REYNOLDS TOBACCO HOLDINGS, INC., RJ Reynolds Tobacco Company, RJ Reynolds Tobacco International, Inc., RJR-Macdonald, Inc., RJ Reynolds Tobacco Company Pr, Northern Brands International, Inc., and Canadian Tobacco Manufacturers Council, Defendants. |
| Court | U.S. District Court — Northern District of New York |
Hiscock, Barclay Law Firm, Syracuse, NY, Robert A. Barrer, of counsel, Bartlit, Beck Law Firm, Denver, CO, Fred H. Bartlit, Jr., Karma M. Giulianelli, of counsel, Bartlit, Beck Law Firm, Chicago, IL, Jason L. Peltz, of counsel, Notre Dame Law Firm, Notre Dame, IN, G. Robert Blakey, of counsel, for plaintiff.
Jones, Day, Reavis Firm, Washington, DC, Michael Peter Gurdak, Timothy John Finn, of counsel, for defendants RJ Reynolds Tobacco Holdings, Inc. and RJ Reynolds Tobacco Co.
Scolaro, Shulman, Cohen, Lawler & Burstein, P.C., Syracuse, NY, Alan S. Burstein, of counsel, for defendants RJ Reynolds Tobacco Holdings, Inc., and RJ Reynolds Tobacco Co.
Sullivan & Heard Law Firm, New York City, C. Stephen Heard, for defendants RJ Reynolds Tobacco International, Inc., RJR-MacDonald, Inc., RJ Reynolds Tobacco Company PR, and Northern Brands International, Inc.
King & Spalding Law Firm, Washington, DC, William C. Hendricks, III, of counsel, for defendant Canadian Tobacco Manufacturers Council.
King & Spalding Law Firm, New York City, Patricia A. Griffin, for defendant Canadian Tobacco Manufacturers Council.
King & Spalding, Atlanta, GA, Richard A. Schneider, of counsel, for defendant Canadian Tobacco Manufacturers Council.
The Attorney General of Canada ("Canada") commenced the instant action against Defendants alleging violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et. seq. arising out of an alleged smuggling scheme designed to avoid the payment of Canadian taxes. Presently before the Court are separate motions by all of the Defendants to dismiss the action pursuant to FED. R. CIV. P. 12.
Because this matter is before the Court on Defendants' motions to dismiss pursuant to FED. R. CIV. P. 12, the following facts elicited from the Complaint are assumed to be true. See Hartford Fire Ins. Co. v. California, 509 U.S. 764, 113 S.Ct. 2891, 2895, 125 L.Ed.2d 612 (1993).
Plaintiff is the Attorney General of Canada, who brought the instant action on behalf of the nation of Canada.
At all times relevant hereto, Defendants R.J. Reynolds Tobacco Holdings, Inc. ("RJR-Holdings") (a Delaware corporation with its principal place of business in New York) and R.J. Reynolds Tobacco Company ("RJR-US") (a New Jersey corporation with its principal place of business in North Carolina), were the corporate parents of the other four Defendant corporations herein: RJR-Macdonald, Inc. ("RJR-Macdonald") (a Canadian corporation), R.J. Reynolds Tobacco Company PR ("RJR-PR") (a Delaware corporation with its principal place of business in Puerto Rico), R.J. Reynolds International, Inc. ("RJR-Int.") (a Delaware corporation with its principal place of business in Switzerland), and Northern Brands International, Inc. ("NBI") (a Delaware corporation with its principal place of business in North Carolina), which four companies will collectively be referred to as the "RJR Subsidiaries." Defendant Canadian Tobacco Manufacturers Council ("CTMC") is a Canadian corporation that acts as a trade association for the three major tobacco manufacturers in Canada: Imperial Tobacco Limited; Rothmans, Benson & Hedges, Inc.; and RJR-Macdonald.
In the 1980s and 1990s, Canada imposed three types of levies, or taxes, on tobacco. The Excise Act imposed taxes at the point of manufacture. The Excise Tax Act imposed taxes on the sale or delivery of tobacco products. Finally, the goods and services tax ("GST") imposed taxes on the sale of tobacco at the wholesale and retail levels. In addition to these national taxes, each of the provincial governments imposed its own duties and taxes on tobacco products in an amount roughly equal to that of the national taxes. See Comp., ¶¶ 47-54.
Between 1982 and 1991, Canada increased the taxes on tobacco products by approximately 550 percent. See id., ¶ 55. Some of these tax increases are purported to have been imposed to reduce tobacco consumption. See id., ¶¶ 57, 59. In 1989, before the major tax increases, the average price per carton for cigarettes in Canada was under $26.00 (CDN). By 1991, the price per carton in Canada ranged from $42.00 to $60.00, the actual price depending upon the amount of taxes imposed by the provincial governments. See id., ¶ 61. The Canadian taxes represented approximately $35.00 of the cost per carton, see id., which created a large discrepancy between the price of tobacco in Canada and the United States. Id., ¶ 60.
Tobacco manufactured in Canada and moved "in bond," or in transit, was exempt from taxation provided that it was not intended for domestic consumption. See Comp., ¶ 51.1 Tobacco manufacturers seeking to move tobacco in bond had to prepare the proper export documentation, which included a representation of the amount of tobacco in each shipment that was to be consumed outside of Canada. See Comp., ¶ 51. Further, tobacco to be exported was required to be marked "Not For Sale in Canada." Id., ¶ 52. Thus, Canadian tobacco exported to the United States could be sold for an approximate average price of $22.00 (CDN) per carton, or approximately one-half the per-carton price in Canada. If tobacco products were imported into designated foreign trade zones ("FTZs") within the United States, United States duties and taxes could also be avoided. See id., ¶ 64. Tobacco goods that are legally imported into Canada are required to be declared. Upon import, the importer of record is obligated to pay any applicable Canadian taxes.
In 1992, in an attempt to reduce the incentive to smuggle exported products back into Canada, Canada imposed an export tax on cigarettes for export or sale through duty-free stores. See id., ¶ 95.
In 1994, in a further effort to combat tobacco smuggling, Canada "rolled back" the excise taxes on tobacco products, reimposed an export tax on Canadian tobacco products, and imposed a three year health promotion surtax on tobacco manufacturing companies' profits. See id., ¶¶ 129-33.
Canada alleges that prior to 1991, RJR Int. established the Special Markets Division in North Carolina ("Special Markets"), which sold tobacco products duty-free to Latin America, South America, the Caribbean, Mexico, and Canada. Canada further alleges that RJR-Macdonald exported Canadian tobacco to Special Markets, which then resold the tobacco products to certain customers. With RJR-Macdonald's and RJR-Int.'s participation, these customers then arranged to have the tobacco smuggled back into Canada for sale on the black market, thereby avoiding the payment of Canadian taxes. See id., ¶ 69-71.
According to the Complaint, in order to stave off declining profits, in 1991 and 1992, RJR-Macdonald devised a scheme to export Canadian tobacco to customers who would then ship the product to the St. Regis Mohawk Reservation (the "Reservation"). From the Reservation, which straddles the United States-Canadian border, the tobacco was smuggled back into Canada for sale on the black market, free of duties and taxes. See id., ¶¶ 72-94.
The Complaint alleges that RJR-Macdonald representatives met with Larry Miller and Robert and Lewis Tavano, who operated a company called LBL Importing, Inc. ("LBL"). LBL apparently represented that it was in the business of buying Canadian tobacco and selling it to Native Americans, who then smuggled the tobacco back into Canada for sale on the black market. RJR-Macdonald exported the tobacco from Canada (thereby avoiding any Canadian excise taxes) through FTZs in Buffalo, New York to LBL and other customers. LBL and the other customers then shipped the products to the Reservation to be smuggled back into Canada. See id.
The Complaint further alleges that, in 1992, after Canada imposed the new export tax, RJR-Macdonald moved two production lines for Canadian cigarettes from its plant in Montreal to RJR-PR (thereby avoiding the export tax). The tobacco manufactured at RJR-PR allegedly was packaged in RJR-Macdonald packaging, sold to Caribbean intermediaries, shipped through FTZs to customers in upstate New York, transferred by the customers at the FTZs to the Reservation, and then smuggled into Canada, thereby avoiding any import and sales taxes. See id., ¶¶ 95-105.
It is alleged that in 1993, Defendants established NBI. Under the alleged NBI scheme, RJR-Macdonald manufactured tobacco in Canada and exported it to FTZs in New York. LBL then placed an order with NBI for the tobacco and wired money for the tobacco from LBL's account in New York to NBI's account in North Carolina. NBI paid a portion of the proceeds from LBL to RJR-Macdonald and another portion of the payment to either RJR-Macdonald, RJR-PR, or RJR-Int. After receiving payment, RJR-Macdonald notified the FTZs to transfer title to the customer (such as LBL); the customer then shipped the product to the Reservation; the tobacco was then shipped to the Canadian black market; and the resulting Canadian currency was then used to purchase United States checks and money orders to buy more cigarettes. See id., ¶¶ 110-28.
In 1997, a grand jury indicted twenty-one individuals on various counts alleging that those criminal defendants smuggled tobacco and liquor products from the United States to Canada through the Reservation. See United States v. Miller, 26 F.Supp.2d 415, 419 (N.D.N.Y.1998). Similar to the Complaint herein, the indictment alleged that the smuggling scheme was...
To continue reading
Request your trial
-
City of New York v. Cyco.Net, Inc.
...RICO for violating the Jenkins Act by mail and wire fraud is another question. 17. Compare Attorney General of Canada v. R.J. Reynolds Tobacco Holdings, Inc., 103 F.Supp.2d 134, 154 (N.D.N.Y.2000) ("In short, Town of West Hartford requires injury to the government's commercial interests in ......
-
Republic of Colombia v. Diageo North America Inc.
...in Canada, 268 F.3d at 108, that, in turn, quoted the district court's decision in Canada, Attorney General of Canada v. RJ Reynolds Tobacco Holdings, Inc., 103 F.Supp.2d 134, 143 (N.D.N.Y.2000). As the claims in the European Community cases were essentially identical to the claims in Canad......
-
Canyon County v. Syngenta Seeds, Inc.
...has been characterized as dicta, lower courts have relied on it in several instances. See Attorney Gen. v. R.J. Reynolds Tobacco Holdings, Inc., 103 F.Supp.2d 134, 151-55 (N.D.N.Y.2000) (holding that "Town of West Hartford compels the Court to conclude that [increased law enforcement] costs......
-
Atty. Gen. Canada v. R.J. Reynolds Tobacco
...to dismiss the action under the act-of-state and political-question doctrines. See Attorney General of Canada v. RJ Reynolds Tobacco Holdings, Inc., 103 F. Supp. 2d 134, 144-50 (N.D.N.Y. 2000). Nonetheless, the district court granted the motion to dismiss because it held that Canada's lost ......