Amsterdam Tobacco Inc. v. Philip Morris Inc.

107 F.Supp.2d 210

AMSTERDAM TOBACCO INCORPORATED, et al., Plaintiffs, v. PHILIP MORRIS INCORPORATED, Defendant.

No. 98 Civ. 3934(RMB).

United States District Court, S.D. New York.

May 17, 2000.

Ira Sturm, Raab & Sturm, LLP, NY, NY, Alan Trachtman, Liz McKenna, Dealy & Trachtman, LLP, NY, NY, for plaintiffs.

Jerome I. Chapman, Angela M. Pelletier, Arnold & Porter, Washington, D.C., Kent A. Yalowitz, Arnold & Porter, NY, NY, for defendants.

ORDER

BERMAN, District Judge.

Amsterdam Tobacco Incorporated ("Amsterdam"), Boro Park Tobacco Company, Incorporated, The Koger Company, Incorporated, Queens Tobacco, Grocery & Candy Company, Incorporated, S/A Cigarette Company, Incorporated, and Sunrise Candy & Tobacco Corporation (collectively "Plaintiffs") filed this action on or about December 1, 1998, against Philip Morris Incorporated ("Philip Morris" or "Defendant") seeking $312,000,000.00 in damages for Philip Morris' alleged role in a cigarette smuggling enterprise operating from Virginia to New York. Amsterdam has brought this action under the Racketeering Influenced and Corrupt Organization Act of 1970 ("RICO"), 18 U.S.C. §§ 1961, 1962, 1964(a) and 1964(c); the Anti-Trust Procedural Improvements Act of 1980 ("Robinson-Patman Act"), 15 U.S.C. § 13, as well as under state law. Philip Morris now moves to dismiss the instant action, pursuant to Federal Rules of Civil Procedure ("Fed.R.Civ.P.") 12(b)(6) and 9(b), arguing that Plaintiffs fail to state any claims for which relief can be granted. For the reasons set forth below, Philip Morris' motion is granted.

I. Background

The following facts, which are set forth in Plaintiffs' Amended Complaint,¹ are taken to be true for the purposes of this motion. Amsterdam Tobacco Incorporated, Boro Park Tobacco Company, Incorporated, The Koger Company, Incorporated, Queens Tobacco, Grocery & Candy Company, Incorporated, S/A Cigarette Company, Incorporated, and Sunrise Candy &amp Tobacco Corporation, are all licensed wholesale dealers of cigarettes with their principal places of business in New York City. (Am.Compl.¶ 3a-3f, 7). Philip Morris is in the business of manufacturing and distributing cigarettes and tobacco products; its corporate headquarters are located in New York City. (Am.Compl.¶ 9, 10).

Philip Morris has created and maintained corporate programs known as the "Retail Masters Program" and the "Wholesale Masters Program," both of which are designed to increase sales of its products across the United States. (Am. Compl.¶ 22). In order for a wholesaler to participate in the Wholesale Masters Program, it must provide information as to the identity, location, and amount of sales of Philip Morris' products, including the names and addresses of retailers, to Philip Morris on a weekly basis. (Am. Compl.¶ 26).² In order for a retailer to participate in the Retail Masters Program, it must provide information as to the wholesaler from whom the cigarettes were purchased and the amount of Philip Morris' products that were sold during any particular period. (Am.Compl.¶ 28). Philip Morris requires its salespeople periodically to visit the retail locations and to promote sales of its products at retail locations. (Am.Compl.¶ 29).

In Virginia, Philip Morris sells cigarettes directly to large retailers and distributors such as, for example, the Price Club and Sam's Club. (Am.Compl.¶ 33). These large retailers, it is alleged, either sell to a "second tier Virginia middleman" or directly to "smugglers" who travel (back and forth) to Virginia from New York or New Jersey. (Id.). The Virginia middlemen sell to "smugglers" from New Jersey or New York. (Am.Compl.¶ 34). The smugglers transport contraband cigarettes³ to the New York City area where they distribute them to local retailers. (Am.Compl.¶ 35).

In or around December 1996, a Grand Jury in the Eastern District of Virginia handed down an indictment against six individual defendants and one corporate defendant ("Indictment"), alleging that these individuals and the corporation had engaged in a conspiracy willfully and unlawfully to ship, transport, receive, possess, distribute, sell, and purchase large quantities of contraband cigarettes in violation of 18 U.S.C. § 2342.⁴ (Am. Compl.¶ 38). These defendants were not charged with a criminal RICO violation, under 18 U.S.C. §§ 1962, 1963. (Am. Compl.¶ 38). Philip Morris was not among the indicted defendants in this cigarette smuggling case. (Id.).

Between October 1996 and December 1996, several of the indicted defendants transported contraband cigarettes to New York without paying the required New York cigarette taxes. (Am.Compl.¶ 139). Some of those cigarettes were purchased from the Price Club and Sam's Club in Virginia. (Am.Compl.¶ 139, 141, 150, 159). As a result of the efforts of a multi-state law enforcement task force, beginning in the Fall of 1994, many smugglers have been arrested and found to be in possession of contraband cigarettes. (Am. Compl.¶ 152-161). In connection with such arrests, Philip Morris brand cigarettes constituted a large portion of the contraband cigarettes recovered. (Am. Compl.¶ 162).⁵

Beginning in or about August 1994 and continuing through at least December 1996, statistically more cigarettes were sold in Virginia per capita "than could possibly have been consumed by the residents of Virginia," while statistically fewer cigarettes were sold lawfully in New York "than had been consumed by residents of New York State in the past." (Am. Compl.¶ 190).

The resellers of contraband cigarettes in New York were able to undercut the market price because they did not pay (and, therefore, did not have to absorb the cost of) the New York State and/or New York City cigarette taxes. (Am.Compl.¶ 199). As a result, Plaintiffs lost a significant amount of sales and profits. (Id.).

Philip Morris asserts here that none of Plaintiffs' legal theories supports Plaintiffs' central claim that Philip Morris was legally obligated to "police the marketplace" and enforce the laws against cigarettes smuggling. (Defendant's Moving Brief at 2). In the circumstances presented here, this Court agrees with Philip Morris.

II. Analysis

Motion to Dismiss Standard

In resolving a motion to dismiss under Fed.R.Civ.P. 12(b)(6), the Court must accept the factual allegations set forth in the complaint as true and draw all reasonable inferences in favor of the plaintiff. See Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir.1996). A complaint should not be dismissed for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). This standard also applies to RICO claims. See NOW v. Scheidler, 510 U.S. 249, 114 S.Ct. 798, 127 L.Ed.2d 99 (1994). However, the court is not required in a RICO case to accept as true "conclusions of law or unwarranted deductions." First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 771 (2d Cir.1994), cert. denied, 513 U.S. 1079, 115 S.Ct. 728, 130 L.Ed.2d 632 (1995).⁶

RICO Claim

Plaintiffs claim that Defendant violated 18 U.S.C. § 1962(c), which provides that:

It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.

Specifically, Plaintiffs claim that they have alleged facts sufficient to support a prima facie case that there was an (illegal) enterprise and that Philip Morris has "employed a pattern of racketeering activity by participating in the conduct of the ongoing, continuous activities of the enterprise" which "has been the proximate cause of injuries to Plaintiffs' businesses." (Plaintiffs' Opposition Brief at 4).

Philip Morris argues that: 1) Amsterdam has failed to allege facts sufficient to establish that a RICO "enterprise" existed (18 U.S.C. § 1961[4]); 2) Amsterdam has not alleged facts showing that Philip Morris "conducted or participated" in the alleged enterprise affairs (18 U.S.C. § 1962[c]); and 3) Plaintiffs were not injured "by reason of" of a RICO violation involving Defendant (18 U.S.C. § 1964[c]). (Defendant's Moving Brief at 2, 3).

(a) Enterprise

An enterprise means "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). The Supreme Court has defined a RICO enterprise as a "group of persons associated together for a common purpose of engaging in a common course of conduct ... proved by evidence of an ongoing organization, formal or informal, and by any evidence that the various associates function as a continuing unit." United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981). Importantly, "[t]he enterprise is not the `pattern of racketeering;' it is an entity separate and apart from the pattern of racketeering activity in which it engages." Id.; see also Schmidt v. Fleet Bank, 16 F.Supp.2d 340, 349 (S.D.N.Y.1998). The definition of "enterprise" is the same for both civil and criminal RICO violations. 18 U.S.C. §§ 1961(4), 1962.

The central allegations in the Indictment (in the United States District Court for the Eastern District of Virginia) are that the seven named defendants conspired to transport and sell contraband cigarettes in interstate commerce and conducted financial transactions involving the proceeds from unlawful cigarette trafficking. (Am. Compl.Ex. A, 2-3). Interestingly, the Indictment did not charge the defendants with a criminal RICO violation. (To be sure, that fact alone does not negate the possibility that the conspiracy charged also involved an unlawful "enterprise" pursuant to 18 U.S.C. § 1961(4).)

A RICO en...