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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 warranted" 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 " 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).


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