U.S. v. Philip Morris Usa, Inc.

• Decision Date: 04 February 2005
• Docket Number: No. 04-5252.,04-5252.
• Citation: 396 F.3d 1190
• Parties: UNITED STATES of America, Appellee v. PHILIP MORRIS USA INC., et al., f/k/a Philip Morris Incorporated, Appellants
• Court: U.S. Court of Appeals — District of Columbia Circuit

396 F.3d 1190

UNITED STATES of America, Appellee v. PHILIP MORRIS USA INC., et al., f/k/a Philip Morris Incorporated, Appellants

No. 04-5252.

United States Court of Appeals, District of Columbia Circuit.

Argued November 17, 2004.

Decided February 4, 2005.

Appeal from the United States District Court for the District of Columbia (No. 99cv02496).

Michael A. Carvin argued the cause for appellants. With him on the briefs were Robert F. McDermott, Jr., Peter J. Biersteker, Jonathan M. Redgrave, Allyson N. Ho, Edward W. Warren, John C. O'Quinn, Timothy M. Broas, Dan K. Webb, Kenneth N. Bass, Edward C. Schmidt, Matthew D. Schwartz, Gene E. Voigts, Richard L. Gray, Bruce G. Sheffler, James A. Goold, Theodore V. Wells, Jr., Murray Garnick, David Eggert, David M. Bernick, J. William Newbold, Michael B. Minton, Richard P. Cassetta, Steven Klugman, and Leonard A. Feiwus.

Robin S. Conrad, Jan S. Amundson, Quentin Riegel, and Beth S. Brinkmann were on the brief for amici curiae Chamber of Commerce of the United States of America, et al. in support of appellant.

Michael R. Dreeben, Attorney, U.S. Department of Justice, argued the cause for appellee. On the brief were Peter D. Keisler, Assistant Attorney General, Mark B. Stern and Alisa B. Klein, Attorneys, Sharon Y. Eubanks, Director, Stephen D. Brody, Deputy Director, and Frank J. Marine, Senior Litigation Counsel.

Before: SENTELLE and TATEL, Circuit Judges, and WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge SENTELLE.

Concurring opinion filed by Senior Circuit Judge WILLIAMS.

Dissenting opinion filed by Circuit Judge TATEL.

SENTELLE, Circuit Judge.

A group of cigarette manufacturers and related entities ("Appellants") appeal from a decision of the District Court denying summary judgment as to the Government's claim for disgorgement under the Racketeer Influenced and Corrupt Organizations Act ("RICO" or "the Act"), 18 U.S.C. §§ 1961-68. The relevant section of RICO, 18 U.S.C. § 1964(a), provides the District Courts jurisdiction only for forward-looking remedies that prevent and restrain violations of the Act. Because disgorgement, a remedy aimed at past violations, does not so prevent or restrain, we reverse the decision below and grant partial summary judgment for the Appellants.

I. Background

In 1999 the United States brought this claim against appellant cigarette manufacturers and research organizations, claiming that they engaged in a fraudulent pattern of covering up the dangers of tobacco use and marketing to minors. The Government sought damages under the Medical Care Recovery Act ("MCRA"), 42 U.S.C. §§ 2651-53, and the Medicare Secondary Payer ("MSP") provisions of the Social Security Act, 42 U.S.C. § 1395y to recover health-care related costs Appellants allegedly caused. The United States also claimed that Appellants engaged in a criminal enterprise to effect this cover-up, and sought equitable relief under RICO, including injunctive relief and disgorgement of proceeds from Appellants' allegedly unlawful activities. The Government sought this relief under 18 U.S.C. § 1964(a), which gives the District Court jurisdiction

to prevent and restrain violations of [RICO] by issuing appropriate orders, including, but not limited to: ordering any person to divest himself of any interest, direct or indirect, in any enterprise; imposing reasonable restrictions on the future activities or investments of any person, including, but not limited to, prohibiting any person from engaging in the same type of endeavor as the enterprise engaged in, the activities of which affect interstate or foreign commerce; or ordering dissolution or reorganization of any enterprise....

18 U.S.C. § 1964(a).

Appellants moved to dismiss the complaint in 2000. The District Court did dismiss the MCRA and MSP claims, but allowed the RICO claim to stand. United States v. Philip Morris, Inc., 116 F.Supp.2d 131, 134 (D.D.C.2000).

Section 1964(a) conferred jurisdiction on the District Court only to enter orders "to prevent and restrain violations of the statute." In considering wither disgorgement came within this jurisdictional grant, the court relied on a decision of the Second Circuit, the only circuit then to have considered "whether ... disgorgements ... are designed to `prevent and restrain' future conduct rather than to punish past conduct." United States v. Carson, 52 F.3d 1173, 1182 (2d Cir.1995) (emphasis in original). After noting that "RICO has a broad purpose [and] the legislative history of § 1964 indicates that the equitable relief available under RICO is intended to be `broad enough to do all that is necessary,'" id. at 1181, the Carson court went on to observe that it did not see how it could "serve[ ] any civil RICO purpose to order disgorgement of gains ill-gotten long ago...." Id. at 1882. The portion of Carson relied upon by the District Court in the present controversy suggested that disgorgement might "serve the goal of `preventing and restraining' future violations," but flatly held that the remedy would not do so "unless there is a finding that the gains are being used to fund or promote the illegal conduct, or constitute capital available for that purpose."¹ Id. at 1182. The Second Circuit went on to caution that disgorgement would be better justified under this analysis where the "gains [were] ill-gotten relatively recently." Id. The District Court accepted the Second Circuit's suggested holding that the appropriateness of disgorgement depends on whether the proceeds are available for the continuing of the criminal enterprise, but ruled that the question was premature, and denied the motion for dismissal on the RICO-disgorgement claim. Philip Morris, 116 F.Supp.2d at 151-52. Neither party sought leave to file an interlocutory appeal of that ruling.

The case proceeded, and the Government sought disgorgement of $280 billion that it traced to proceeds from Appellants' cigarette sales to the "youth addicted population" between 1971 and 2001. This population includes all smokers who became addicted before the age of 21, as measured by those who were smoking at least 5 cigarettes a day at that age.

After discovery, Appellants moved for summary judgment on the disgorgement claim arguing that (1) disgorgement is not an available remedy under § 1964(a), (2) even if disgorgement were available, the Government's model fails the Carson test for permissible disgorgement that will "prevent and restrain" future violations, and (3) even if disgorgement were available, the Government's proposed model is impermissible because it includes both legally and illegally obtained profits in violation of SEC v. First City Financial Corp., 890 F.2d 1215 (D.C.Cir.1989). The District Court denied this motion in a memorandum order designated "# 550." United States v. Philip Morris USA, Inc., 321 F.Supp.2d 72 (D.D.C.2004). On motion of the defendants, the District Court certified Order # 550 for interlocutory appeal pursuant to 28 U.S.C. § 1292(b). That section provides for interlocutory appeal where a district judge has certified that "an order not otherwise appealable ... involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of litigation...." Under § 1292(b), the Court of Appeals may then decide whether to permit the appeal to be taken from such order. In the present case, we allowed the appeal.

II. Analysis

A. Scope of Review

At the outset, the Government urges that our review should be limited to the narrow question of whether the disgorgement it seeks is consistent with the standards of Carson, not whether disgorgement vel non is an available remedy under civil RICO. The Government bases this argument on the theory that the order on appeal-that is the memorandum order denying "defendants' motion for partial summary judgment dismissing the Government's disgorgement claim"-was reiterating a prior order on the general question of availability of disgorgement Further, the Government argues, the order spoke anew only to the measure of disgorgement, assuming such disgorgement to be otherwise available. In support of its proposed limitation of our review, the Government relies upon Yamaha Motor Corp., USA v. Calhoun, 516 U.S. 199, 116 S.Ct. 619, 133 L.Ed.2d 578 (1996). In Yamaha, the Supreme Court dealt with the breadth of review properly conducted by a court of appeals under 28 U.S.C. § 1292(b). Id. at 204, 116 S.Ct. 619. The Government selectively quotes from Yamaha the sentence that, "The court of appeals may not reach beyond the certified order to address others made in the case." Id. at 205, 116 S.Ct. 619. Based on this sentence, the Government then argues that because the first order denying a motion to dismiss had dealt with the question of the availability of disgorgement, this certified interlocutory review of the subsequent summary judgment order is restricted to the new theory considered by the court on that occasion-that the disgorgement the Government pursued exceeded the standard available for such disgorgement as set by the Second Circuit in Carson.

Unfortunately for the Government's position, the Yamaha opinion did not end with the sentence upon which the Government relies. The Supreme Court went on to say in the same paragraph: "But the appellate court may address any issue fairly included within the certified order because `it is the order that is appealable, and not the controlling question identified by the district court.'" Id. (emphasis in original) (quoting 9 J. MOORE & B. WARD, MOORE'S FEDERAL PRACTICE § 110.25[1] at 300 (2d ed.1995) and citing 16 C. Wright, A. Miller, E. Cooper, & E. Greshman, Federal Practice & Procedure § 3929 at 144-45 (1977)). Appellants' motion below was for "Summary Judgment Dismissing the Government's Disgorgement Claim," and granting this motion would have resulted in...