Historic Lawsuit Against Philip Morris USA on Behalf of U.S.
Government Charges Violations of the False Claims Act in Military
Dealings; Pending Court Ruling
Alleged Overcharges by Philip Morris Diminish Funding for Programs
Benefitting Military Families
WASHINGTON, DC -- (Marketwire) -- 11/13/12 -- Citing "knowing
violations" and "wanton, willful and reckless disregard" of
contractual agreements with the U.S. military that ultimately
deprived millions of dollars in funding for programs for active duty
and retired military personnel and their families, a lawsuit filed
against Philip Morris USA Inc. (PM USA) by Anthony Oliver on behalf
of the U.S. government is currently pending a ruling by the U.S.
District Court, District of Columbia. The complaint was filed under
the False Claims Act that allows individuals to effect legal action
on behalf of the government ("writ of qui tam") and is the first
known lawsuit of its type ever filed against PM.
The complaint states that PM USA has been selling its cigarettes to
the military at prices significantly higher than what civilian
distributors are charged. A particularly disturbing effect of PM
USA's behavior is the significant reduction of funding for programs
sponsored by the military services' Morale, Welfare and Recreation
(MWR) Fund. MWR funding derives in part from tobacco profits from the
military exchanges. Consequently, the victims of these False Claims
are not the smoker, but all servicemen and women and their families
who benefit from MWR-funded services.
According to the complaint, PM USA charged the higher prices to the
military despite most favorable customer warranties stipulated in PM
USA's long standing agreements with the Navy Exchange Service Command
(NEXCOM) and the Army and Air Forces Exchange Services (AAFES). These
entities, two components of the U.S. Department of Defense Supply
Systems Command, provide goods and services to active duty and
retired soldiers, sailors, airmen and marines.
As a result, the complaint maintains that PM USA has "charged NEXCOM
and AAFES millions of dollars more, annually, for its cigarette
products than has been paid by either defendant's affiliates
purchasing such products or foreign purchasers buying such
products..." The complaint also contends that PM USA "falsely
arranted" that it was in compliance with price warranties as part of
its agreements with NEXCOM and AAFES.
While the lawsuit seeks unspecified damages, the False Claims Act
provides six years of retroactively applied recovery for the
government of three times the cumulative overcharge plus up to
$10,000 per occurrence. The suit estimates that, for Marlboro
cigarettes alone, AAFES and NEXCOM purchased approximately 1.8
million cartons annually overseas "...at improperly inflated prices
pursuant to defendant's false claims and false statements."
In its July 27, 2012 response attempting to get the legal action
dismissed, PM USA called the complaint a "strike suit" by a
"disgruntled competitor." PM USA then proffered a labyrinth of
often-contradictory reasons to explain how its pricing structure to
the military does not violate the False Claims Act.
"I will not remark on PM's preposterous personal attack on me today,"
Oliver stated, "but our opposition memo to the court efficiently
unravels their obfuscations and absurd explanations. For example, in
its motion to dismiss, PM USA maintains 'managing the Surgeon
General's Warning' is justification for a higher price to the
military compared to civilian market distributors. How exactly is
that so when civilian market distributors purchase the very same
product with the identical warning at a much lower price?"
Responding to another meritless argument from PM USA that boasts the
government continues to contract with Philip Morris, Oliver again
cited his Opposition Memo to the Motion to Dismiss: "...the existence
of continuing contracts between Philip Morris and the military
exchanges can be explained by Philip Morris's policy of restricting
its civilian market distributors from selling to the military."
International distributors will not defy Philip Morris' instructions
and jeopardize their lucrative direct purchase privileges with Philip
Morris or Philip Morris affiliates. This fact, the Oliver opposition
memo explains, "leaves the government with only two options -- to
either buy Philip Morris cigarettes directly from it [at any price]
or to abandon the world's top-selling cigarette brands."
"In other words, Philip Morris has engineered both a price and supply
chain chokehold on the United States military. This lawsuit is a
civic duty intended to stop a charade -- a charade that has reduced
funding by millions of dollars to the military's Morale, Welfare &
Recreation programs," Oliver stated.
Mr. Oliver filed the complaint in 2008 which resulted in a four-year
Department of Justice investigation. The Department of Justice has
reserved its right to intervene.
Mr. Oliver and the interests of the U.S. government are represented
by Zuckerman Spaeder LLP of Washington, D.C., Silver Golub and
Teitell LLP of Stamford, Connecticut and John F. Murphy of Hartford,
Connecticut. Anthony Oliver is President and CEO of Kick Cigarettes,
an independent cigarette manufacturer and supplier to the U.S.
government, and is CEO of HONCHO Brands, which markets e-cigars.
The complaint filed is Case # 08 0034 (CKK).
(310) 472-7632 / (310) 200-4310
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