Free Appendix - District Court of Delaware - Delaware

Case 1:07-cv-00248-SLR

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWAR
The American Legacy Foundation, )

v. )

Plaintif£ )
)

)

National Union Fire Insurance Company of )

Pittsburgh, Pennsylvania, ) Civil Action No. 07-248 (SLR)

Defendants. )

) ) )

APPENDIX TO THE FOUNDATION'S BRIEF

IN SUPPORT OF ITS MOTION FOR SUMMAY JUGMENT
VOLUME I OF III
GILBERT RADOLPH LLP
Richard Shore

Kami E. Quinn
York Avenue, NW 1100 New Suite 700 Washington, DC 20005

Telephone: (202) 772-2200

and

PACHULSKI STANG ZIEHL & JONES LLP Laura Davis Jones (Bar No. 2436) Timothy P. Cairns (Bar No. 4228) 919 North Market Street, 1 ih Floor P.O. Box 8705 Wilmington, DE 19899-8705 (Courier 19801)
Telephone: (302) 652-4100

Facsimile: (302) 652-4400
Counsel for Plaintiff American Legacy Foundation

Date: March 12,2008

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TABLE OF CONTENTS

Description

Pa2;e

Affidavit of Ellen Vargyas, General Counsel and Corporate Secretary for the American Legacy Foundation ....................................................... Al
Exhibit A: November 13,2001 Letter from Jim Phillps to John Payton.................................................... A5
Exhibit B:

January 18,2002 Letter from Ronald Milstein to Patrick Carone (sic)..................................... A8
Exhibit C:

Complaint Filed by American Legacy Foundation in Delaware Chancery Court, C.A. 19406- NC ............. ....... ............ ................. .................... ................................. ................. Al 0
Exhibit D:

Complaint fied by Lorilard Tobacco Company in Wake County General Court of Justice, Superior Court Division North Carolina, 02 CvS 02170...................................... A33
Exhibit E:

Answer and Counterclaims filed by Lorilard Tobacco Company in the Delaware Chancery Court, C.A. 19406-NC ........................................................................... A47
Exhibit F:

December 6,2002 Letter from Wayne Borgeest to Jane Greenburg....................................... A90
Exhibit G:

AprillO, 2003 Letter from John Haller to Ana Spriggs ...................................................... AlO1
Exhibit H:

the Delaware Chancery Court, C.A. 19406-NC inAm. Legacy Found. v. Lorilard Tobacco Co., 886 A.2d 1 (DeL. Ch. 2005) ............................................ Al15
Decision of

Exhibit I:
Decision of the Supreme Court of

Delaware, No. 579,2005 in Lorilard

Tobacco Co. v. Am. Legacy Found., 903 A.2d 728 (DeL. 2006)........................................... A162

Exhibit J:

Defendant Lorillard Tobacco Company to First Amended Complaint in the Delaware Chancery Court, C.A. 19406-NC............................. A181
Answer and Counterclaims of

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Exhibit K: National Union CGL Policies (Numbers BE 7402566 and BE 8716521)............................. A230
Exhibit L:

National Union D&O Policy Number 873-99-71.................................................................. A398
Exhibit M: Travelers CGL Policies (Numbers W-680-479H825-3-99, W-680-479H8253-00, and W -680-4 79H825-3-0 1) ........... ............. .......... ...... ....................... .......................... A445

Exhibit N:
Transcripts of Broadcasts....................................................................................................... A 7 4 7

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AFFIDAVIT OF ELLEN V ARGYAS
WASHINGTON

)

DISTRICT OF COLUMBIA

) )

SS. :

I, Ellen Vargyas, being duly sworn, do hereby depose and state as follows:
1. I currently am General Counsel and Corporate Secretary for the American

Legacy Foundation (the "Foundation"), located at 1724 Massachusetts Avenue, NW,

Washington, D.C. 20036. I make this affidavit based upon my personal knowledge.
2. The Foundation's business includes encouraging young people to reject tobacco

through, among other things, public education.
3. In November 2001, Lorillard Tobacco Company ("Lori

lIard") threatened to sue

the Foundation for defamation based on a truth(I radio broadcast spot known as "Dog

Walker." A true and correct copy ofthe letter, dated November 13,2001 is attached as
Exhibit A.

4. In Dog Walker, a telephone caller identifies himselfto a tobacco company
receptionist as a professional dog walker and offers to collect urine produced by the dogs he
walks and sell it to the tobacco company because "dog pee is full of

urea, one ofthe

chemicals that (tobacco companies) put in cigarettes."
5. In January 2002, Lorillard sent a further letter providing notice of

its intent to

fie suit against the Foundation in 30 days to enforce asserted prohibitions against vilification

and personal attack, allegedly violated by truth(I broadcast spots. A true and correct copy of
the letter, dated January 18,2002 is attached as Exhibit B.

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6. On February 13, 2002, seeking to avoid the possibility of a nationwide litigation

blitz and to avail itself of a Delaware forum, the Foundation filed a declaratory judgment

action in the Delaware Chancery Court, captioned American Legacy Foundation v. Lorilard
Tobacco Co., C.A. No. 19406-NC, DeL. Ch. (Feb. 13,2002) (the "Delaware Action"). A true

and correct copy of

the Foundation's complaint filed in the Delaware Action on February 13,

2002 is attached as Exhibit C.
7. Several days later, Lorillard filed its threatened suit against the Foundation in

North Carolina, in the Wake County Superior Court, captioned Lorilard Tobacco Co. v.

American Legacy Foundation, No. 02 CvS 02170 (Feb. 19,2002) (the "North Carolina
Action"). A true and correct copy of

the complaint fied on February 19,2002 in the North

Carolina Action is attached as Exhibit D. The North Carolina Action was later stayed to
allow the Delaware Action to proceed.
8. Lorillard also asserted varous counterclaims in the Delaware Action, seeking

damages and other relief (the "Counterclaims"). A true and correct copy of

Lorillard's

Counterclaims, filed on September 13, 2002, is attached as Exhibit E.
9. Lorillard's allegations in both the North Carolina Action, which was stayed to

allow the Delaware Action to proceed, and its Amended Counterclaims filed in the Delaware

Action on Januar 1,2005, are in material respects the same as the Counterclaims in the
Delaware Action. A true and correct copy of Lorilard' s Amended Counterclaims is
attached as Exhibit J.
10. The Foundation provided prompt notice to National Union of

the letter from Lorillard, the

November 13, 2001

letter from Lorillard, the January 18, 2002

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Delaware Action, the North Carolina Action, and the Counterclaims asserted by Lorillard. A
true and correct copy ofletters acknowledging such notice are attached as Exhibits F and G.
11. National Union flatly denied its obligation to defend the Foundation under the
CGL policies or to advance defense costs under the D&O Policy, leaving the Foundation to

fend for itself. See Exhibits F and G.
12. The Foundation successfully defended itself against Lorillard's allegations in
both the Delaware Chancery Court and the Delaware Supreme Court against Lorillard's, and

in so doing incurred approximately $17 milion in legal fees and expenses. A true and
correct copy ofthe courts' opinions, Am. Legacy Found. v. Lorilard Tobacco Co., 886 A.2d
1 (DeL. Ch. 2005) and Lorilard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728 (DeL.

2006) are attached as Exhibits H and I hereto.
13. To this day, National Union has not paid a single penny of

the Foundation's legal

fees and expenses.

14. The Foundation purchased umbrella CGL policies from National Union for
consecutive anual policy periods from April 24, 2001 through April 24, 2003 (the "National
Union CGL Policies"). True and correct copies of

the National Union CGL Policies are

attached as Exhbit K hereto.
15. In addition to the CGL policies, the Foundation also purchased a D&O liability

policy from National Union, which covers the period from August 26,2001 through August
26,2002 (the "National Union D&O Policy"). A true and correct copy of

the National Union

D&O Policy is attached as Exhibit L hereto.

16. The Travelers Indemnity Company of America ("Travelers") also was named as
a defendant in this action; the Foundation has dismissed Travelers with prejudice from the

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litigation. True and correct copies ofthe Travelers policies identified in the Foundation's
complaint in this action are attached as Exhibit M hereto.
17. In defending itself

in the Lorillard litigation described above, the Foundation

incurred nearly $17 millon dollars in legal fees and costs.

18. In the Lorillard litigation, Lorillard challenged several television and radio trth(I
broadcasts that were initially aired between April 24, 2001 and April 24, 2003.

19. Lorillard attached electronic copies of certain challenged truth(I broadcast spots

to its Counterclaims in the Delaware Action. True and correct transcripts of those broadcast
spots are attached hereto as Exhibit N.

20. I declare under penalty ofpeijury that the foregoing is true and correct to the best
of my knowledge, information and belief.

FURTHER AFFIAT SA YETH NOT.

Ellen Vargyas

~~ ÅJ Ov~
VIRGINIA CORNELL
NOTARY PUBLIC DISTRICT OF COLUMBIA

SUBSCRIBED AND SWORN
to before me this 11 th day

My Commission Expires May 14, 2012

of March, 2008.

Notar Public

h\Í- ~
A4

My Comission Expires: "5/ i tf / 2J /2.

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EXHIBIT A

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BROOKS, PIECE, MCLENDON, HUMHREY & LEÒN.A, L.L.P.
ATrRNE AN

RALEIGH OFFICE

CoUNSELLBS ATl.w
FOUNDED 1897
TEl£PHONE:: 1;J;J6) 37 ~e50
"ACSMILE: (336)378-1001

. 1600 FIRST UNION CAPITOL CENTER

'50 FAYETEVLLE STREET "'ALL (276011
POST OFFICE BOX leoo (27602)

2000 Rm.uCEPL
23 NORTH EuoSTH
POS OPPOE Box 2800

RALEIGH. NORTH CAROI.NA

WRITER'S DIRECT DIAL

lOllO) 83So;J00 FACSIMILE (919) 830.0304

(336) 271-313

GREORO, NORT.~0UN27420.

November 13, 2001

FOR SETTLEMENT PURPOSES ONLY
VI FACSIME 202-663-6363 AND OVERNIGHT MAIL John A. Payton, Esq. Wilmer, Cutler & Pickerig
2445 M Street, N. W.

Washington, DC 20037-1420
Dear Mr. Payton:

We represent Lorillard Tob;icco Company, .("Lorillard"). Lorillard previously has wrtten to the American Legacy Foundation (the "Foundation") and to Amold Worldwide concerng.the
dog urine radio advertsement which yöur client broadcast on more than i 00 radio nationwide dung the sprig and suer of

. .
(l) . Is the presence 0/ urea on

ths ye.

stations

The dog urne advertsement states directly or implies that Lorillard adds ur to its

and unsantar like dog ure and that Loriard adds dog urne or a component derved frm dog urne to its cigaette products. AI we have stated
cigarette products, that urea is uneathy

before, none of these sttements are tre.

So. that we can be ciytaclea about ths, we will resond to the questions raised in your

July 20,2001 letter to Steven Watson:
the list 0/ composite ingredients related solely to products of manufacturers other than Lorillard? Anwer: Yes.

(2) Is it in fact tre that the only urea that exists in Lorillard's cigarettes is that

which "naurally occurs in the tobacco leaF/rom which those cigarettes were
produced? Aner: Yes.
(3) Has Lorillard ever added urea to any of

its cigarettes?.. Aner: No.

(4) Does

Lorillard reintroduce urea into its cigarettes that ma be lost in the
manufacturing process? Answer: No.

(5) Does urea occur in difrent levels in diferent tyes of

tobacco? Ifso, does

AS

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John A. Payton, Esq.

November 13,2001
Page 2

Lorillard alter the tobacco blend in its cigarettes to afect urea levels? Answer
Lorillard does not measure the levels of

urea in tobac and does not alter its

tobacc blend for any reon having to do with urea.
(6) Does Lorillard add other compounds that contain urea? Aner: No.
The fact that the Foundation would ask these questions only afer the fact - afer the dog urine ad was broadcast and the han was done -- confrm to us that yoUr client had no bass for makg the false and dispargig statements in the ad and, in fact.knew that the statements were fale whenthe ad was created and

before it was broadçast. These .sttements constitute

defamation and unair business practices for which Lorillar is entitled to a remedy.
Despite the existence of these claims and Lorillard!s willingness to asser then in cour,

we are willng to reolve these maters short of litigation if the Foundation is willig to.
acknowledge the inaccuracies in the dog une ad. Put plaiy, in your letter to Mr. Watson, you

. stated that the Foundation is dedcated to conveying the trth to the public. Lorillard will provide the FoUndation one last chance to do just that.
Lorillard will agree to forego legal action if

the Foundation acknowledges in wrtig, that

(1) The dòg unne ad was false in its statement that Lorillard Tobacco Company adds
urea to its cigarette produëts.
(2) The implication in the ad that

Lorillard adds dog ure or a dervative of dog urie

to its cigarette products is false.
(3) The Foundation regrets the false statements contaed in its adverisement;
retracts the advertsement and will not broadcast or publish; or

broadcastig or publication, the advertsement in the futue, whether on rao, Internet, or otheiwse.
Finally, Lorillar's.agreement to forego legal action is conditioned on ageement by

are for

the

Foundation and its advertsing agencies not to make ard recrd or trcribe any fuer
telephone calls to company

employees for advertsing puioses or for broadcast or other

publication. .
We hope that in ths intace the Foundation will honor its commtment to publish the
trth. However, if business day we do not reeive a positive response to ths corrspndence. by the end of

the

on Monday, November 26, 200 I, Lorillard wil move forward with the filig of a complaint which will include at leat the clais set for in the enclosed dr and possibly others, including claims for breach of the Master Settlement Agreement's "vilification" provision.

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,,

John A. Payton, Esq. November 13, 2001
Page 3

Sincerely,

\
JWP:jw Enclosure
cc: Ronald S. Milstein, Esq.

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EXHIBIT B

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Ronald S. Milstein
Vice President.
General Counsel and Secretar

Januar 18, 2002

(336) 335-7718 Fax (336) 335-7707 E-Mail: rmilsteincglortobco.com

VIA FACSIMILE 202-663-6363 AN OVERNGHT

MAL

Patrck Carone, Esq.

Wilmer, Cutler & Pickerig 2445 M Street, N.W. Washington, DC 20037-1420
Re: Notice ofIDteDt to Initiate Enforcement Proceeding under MSA
Dear Mr. Carone:

Ths letter gives notice, pursuant to Section VT(c)(2) of (''MSA'), of Lori

the Maser Settlement Agreeent

Amercan Legacy Foundation (HALF') to enorce the tems of

lIard Tobacco Company's (''LorilIards') intent to intiate a proceeding agai the the MSA. Unless ALF's violations
the date of

of the provisions of the MSA that govern its actions, including Section VI(h), are addressed to
Lorillar's satisfaction with thrt (30) days of

ths notice, Lorillar intends to avail

itself of the remedial provisions set fort in the MSA.
As you know, Lorillard agreed in the MSA to parcipate in the fudig of a campaign with
tw ai: (1) educating the Amercan public as to the heath effects of smokig and as to the natu

of tobacco proucts genery and (2) counteratig the us of tobacco proucts by youth in Amerca; Lorillard's agreement to parcipate in ths effort repreents a signcant commtment on its par to:
support an important public policy component of the MSA. Under Secon VI of the MSA mions of dollar paid by Lorillard and the other parcipatig manufactu have bee eaared for the

National Public Education Fund ("Fund"). Ths fud is admstered by AL-wbich itself is

established by Section VI of the MSA-and has bee the genesis of AL's "trth" campaign
However, it has become abundatly clear tht ALF's '"tth" campaign is not about conveyig the

trth about tobacco products to the Amercan public, so much as vilifg and peronaly attkig

tobacco companes and their employees.

Ths fact comes as a mater of great disappointment to Lorillard, as the MSA sets fort in detail AL's pemissible fuctons and the maner in which AL may use Fund money. Even more
importantly, the MSA exprely prvides that the Fund may not be used "for any perona attk on,

or vilification of, any person (whether by name or business afliation), company, or goverenta

Coate Offic:
714 Green Valley Road Greensboro. NC 27408

Ma

10:

P.O. Box 1052

Greensboro. NC 2740-09

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Patrck Carone, Esq.

November 13, 2001
Page 2

agency, whether individualy or collectively. (ALp) shall work to enur that its acvities ar caned

out in a cultually and lingustically appropriate maner." The MSA requires that ALF incoiprate these limitations on its own actions into its organizational docuents, and its Aricles and Bylaws in fact do so.

Despite the presence of the limitations on ALF's activities, the message of the "trth" campaign has consistently strayed far afeld from the facts concerng tobacco products and their
effect on user. Rather than focus on the products themselves, in large par the message of the

"trth" campaign is that the parcipatig manufactuers and their executives ar dishones deceitf,

provisions governg the establishment and activities of ALF and the creation and use of

callous, malicious, or otheiwse unscrupulous. Ths is precisely what is forbidden by the MSA the Fund.

The cessation of ALF's current pattern of conduct is of the utmost importance not just simply
because it has failed to meet its obligations under the MSA, but even more fudaentally because it dishonors the good faith negotiations and negotiators who laboriously strgged to, and succeeded.
in, consuatig the most signficant public health agreement in our countr's history.

Lorillard firs alerted ALF to its concerns with the "trth" campaign in July of 2001. Lorillard made fier overes to ALF in the fal and winter of2001, again seekig to resolve its
concerns with ALF's conduct though informal chaiels, but these efforts proved to be frtless.
,:

Because of the seriousness with which Lorillar regards ALF's activities and the use of Fund money, Lorillar believes it is now left with no alterative but to pure enforcement under Section
VI(c) of

the MSA. Neverteless, Lorillar reai commtted to reolvig the matter rased in ths

notice inormally and is available to meet or to discuss these matters with AL, the Settg States, and the other parcipating manufactuers in an effort to' do so, as is requird by Section VT(c)(5) of the MSA. Lorillard hopes that in the end AL's actions will af an eaest commtment on
its par to honor its obligations under the MSA and in fact to stand as pureyors of

the trth.

Sincerel -- ~__
Ronald S. Milstein

~~

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EXHIBIT C

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r

IN THE COURT OF CHANCERY OF THE STATE OF DELA WAR
IN AND FOR NEW CASTLE COUNTY

\

AMERICAN LEGACY FOUNATION,
a Delaware non-profit coiporation,
Plaintiff,
v.

) )

)
)
) )

C.A. No. J q40~-,Jt,

)
)
)

LORILLAR TOBACCO COMPAN, a Delaware coiporation, .
Defendant.

)

)
)
)
~......:

COMPLAINT
Plaintiff American Legacy Foundation ("the Foundation"), by its undersrgied ....
attorneys, as and for its Complaint for declaratory and injunctive relief against Defendant
,.~

Lorillard Tobacco Company ("Lorillard"), alleges as follows:

NATURE OF THE ACTION
i. The American Legacy Founda(Îon is a national foundation, organized as a

Delaware non-profit corporation, dedicated to one of

the most critical public health

missions facing this country -- reducing youth smoking and preventing smoking-related
diseases. One of

the Foundation's major initiatives in support ofthis public health
the trthsm capaign -- an award-winning,

mission is its development and sponsorship of

nationwide grassroots and advertsing campaign designed to discourage youth smoking

by providing straightforward information about tobacco products, presented in a format

that connects with teens. The Foundation's novel and successful countenarketing
efforts have been credited publicly as par of

the reasn for the recent, shar decline in

cigarette smoking rates among children in the United States.

WP3:7J35S1.

99999.1001

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2. Establishment of the Foundation was one of the core remedial features of

the Master Settlement Agreement ("MSA''), the landmark agreement reached in 1998 to
resolve lawsuits fied by nearly all the Stat~s and certin other governent

instrumentalities (collectively, the "Settling States'') against the nation's largest tobacco

companies, including Lorillard. (A copy ofthe MSA is attached hereto as Exhibit A.)
The Settling States brought those lawsuits to seek far-reaching monetar and injunctive
relief against the tobacco companies for the enonnous injuries inflcted on the States and
their citizens br the companies' deadly and addictive products. One of

the Settling

States' principal objectives in bringing the lawsuits,and in entering into the MSA, was to
create mechanisms and programs to prevent America's children from becoming addicted

to tobacco products and suffering the attendant consequences to their health. The
'Foundation, which is funded in par by hundreds of millons of dollars in settlement
paymènts "made at the direction and

. i .

on behalf of Settling States," (Ex. A, MSA § VI(h)),

is the centerpiece of this effort.
3. The MSA included tenus that (a) described public health missions and
activities to be undertaken by the Foundation, (b) provided for the Foun'dation's initial
funding at the direction and on behalf of

the Settling States, and (c) specified the
selecting, the Foundation's Board of

composition of, and method of

Directors. The MSA

provided that the Settling States, acting through the National Association

of Attorneys

General ("NAAG"), would perfonn the tasks necessary to ronn the Foundation and
would cause the organizational documents of

the Foundation to incorporate the tenus of

the MSA relating to the Foundation. (See Ex. A, MSA § VI.) The Settling States,
through NAAG, in-fact fuWlled these obligations, and the Fowidation was established in
~.

WPJ:73358 i.

2

99.1001

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1999. As the MSA contemplates, the organational documents of

the Foundationthe

specifically. its bylaws and cerficate ofincoiporation -- incorporate the terms of

MSA reJating to .

the Foundation. (A copy of the Foundation's bylaws is attached hereto

as Exhibit B, and a copy of the Foundation's ceificate of incorporation is attached
hereto as Exhibit C.)
4. As contemplated by the MSAand as specified in the Foundation's bylaws.
the Foundation is governed by a Board of Directors. a majority of

whom are elected State

offcials selected by NAAG. the National Governors' Association, and the National
Conference of

State Legislators. (See Ex. B, Bylaws § 3.2.) Those elected State offcials
the Foundation's Board. (See id.) None of

select the remaining members of

the tobacco

companies was given any role in

the governance ofthe Foundation, either through the

appointment or selection of

its diretors or otherwise. because ofthe obvious and direct

confict between the Foundation's public heallh mission and the tobacco companies'
. economic self-interest.
5. The MSA provides no mechanism by which any tobacco company,

including Lorillard, may seek to enforce anytenn ofthe MSA against the Foundation.
The Foundation is not a pary to the MSA and, in fact, did not even exist when the MSA
was signed. Likewise; the Foundation was not a party to any of the lawsuits that were
settled by the MSA, and therefore it is not subject to any of

the 46 state court consent

decrees that were entered in accordance with the terms of the MSA. Indeed, the MSA
makes clear that only the Settling States, the tobacco companies. and certain other
specified persons and entities related to or associated with the tobacco companies - and
not the Foundation'~- ar to be considered beneficiaries of

the MSA. (See Ex. A, MSA

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9999.100\

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(

§ XV(p).) In entering into the MSA, the tobacco companies did not obtain any
provision requiring that the Foundation join the MSA or become subject to any of

the

consent decrees. Instead, the MSA provides only that the MSA's provisions relating to
the Foundation be incorporated into the Foundation's organizational documents. (See ¡d.

at § VI(d).) As a result, the restrctions on the Foundation's activities that are
contemplated in the MSA, while having the full force and legal effect that flows from
their presence in the Foundation's bylaws and certificate of

incorporation, are not

enforceable though any claim or suit brought by a tobaco company against the
Foundation for an alleged breach of

the MSA.

6. Notwithstanding the fact that Lorillard, as a matter of law, has no basis to

assert any claim or suit against the Foundation for an alleged breach ofthe MSA,

Lorilard has recently issued a .formal wrtten threat to do exactly that. Specifically, on January 18,2002, Lorillard sent the Foundation's counsel a letter purportng to invoke
the MSA's enforcement mechiwismsagainst the Foundation and providing thrty-days'
notice of

Lorillards "intent to initiate a proceeding against the American Legacy
Lonllard's letter is attached

Foundation to enforce the tenns ofthe MSA." (A copy of

hereto as Exhibit D.) This letter asserted in a general and conclusory fashion that the Foundation's national advertising campaign has failed to comply with a provision ofthe
MSA stating that a paricular fund from which the Foundation derives most of

its

financial support (namely, the "National Public Education Fund") shaH not be used to

comiit any "personal attack" on or "vilfication" of any person or company.
7. Lorillard has not taken any action to withdraw its theat to commence an

MSA enforcement action against the Foundation. To the contrar, in a subsequent

"
Wl3:133581.

4
999.1001

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communication between reresentatives ofthe Foundation and Lorillard on Februar 7,
2002, Lorillard reaffimed its intent to bring such an action. Lorinards representatives
have to date refused to identify the forum or fora in which LoriIlard intends to proceed

against the Fowidation, leaving the Foundation exposed to the possibilty that Lorillard is
about to sue it in any or all ofthe 46 state cours that have continuing

jurisdiction with

respect to the MSA and the related consent decrees.
8. Although the Foundation is confident that all of

its activities have ben in

full compliance with its bylaws and certificate of incorporation, including in particular its
bylaw that incorporates verbatim the MSA provision baning use of ,

the National Public

Education Fund for "personal attacks" or ''vilification'' (Ex. B, Bylaws § 12.2), the

Foundation does not wish to - and should not have to -~ operate under the specter that
,.

Lorilard or any other tobacco company may commence putative enforcement actions
against the Foundation in a multiplicity of

judicial fora every time anyone ofthem

:reaches the self-interested deteimination that the Foundation's advertsing is having a

detrimental effect upon their business and allegedly is "vilfying" them. Unless the
Foundation obtains a

judicial declaration that it is not subject to such putative

enforcement actions, the continuing threat of such actions wil have substantial and
deleterious effects on the Foundation's day-to-day operations, including its future
decisions regarding the content of

the anti-smoking advertisements it creates and

disseminates and its future decisions regarding which of

its funds it wil use to pay for

those advertisements. A judicial declaration also is necessar to minimize the prospects
that: (1) Lorillard and other tobacco companies, whose ecnomic self-interests ar in

direct conflct with-the basic public health mission of the Foundation, wil be able to

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subject the Foundation to vexatious, harssing, burdensome, and expensive litigation

. throughout the country and (2) the Foundation wil be subject to multiple and conflcting
court rulings regarding its basic legal rights and obligations.
9. For the foregoing reasons, the Foundation seeks a declaratory judgment,

pursuant to 10 Del. C. §§ 6501 - 6513, and 8 Del. C. § 111, that (1) Lorillard has no basis

to assert, in any court any claim or suit against the Foundation seeking to enforce any
term of

the MSA or seeking to establish any violation ofthe MSA, and (2) Lorillard has

no standing or basis to assert, in any court, any claim or suit against the Foundation
seeking to enforce any of

the Foundation's bylaws. The Foundation also seeks an .

injunction barring Lorillard from assertng any such claims under the MSA or the
Foundation's bylaws.

PARTIES
10. Plaintiff American Legacy Foundation is a non-profit corporation

organized under the laws of

the State of

Delaware, with its principal place of

business in

the District of

Columbia.

J 1. The Foundation is a national non-profit organization with.8 public health

mandate to create and implement a wide-ranging public education and research effórt

devoted to reducing youth smoking and preventing diseases associated with smoking.
12. To

furer its mission, the Foundation has developed the firt-ever,

nationwide, sustained public health campaign to educate the public, with a paricular

emphasis on youth, about the addictiveness, health effects, and social costs associated
with tobacco products.

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13. The Foundation's efforts to deter and decrease youth tobacco use include
its hallmark tnthml campaign, which encompasses an award-winng, multi-media
advertising campaign, grsroots promotional events across the nation,

and an interactive

website, providing teens with facts about the health and social consequences and
addictiveness of tobacco Use.

14. The Foundation's work in support of

youth tobacco prevention also

includes grt awards to states to foster statewide, youth-led efforts againt tobacco use, a
biannual, national, school-based survey on teen tobacco use, and a varety of

other

innovative research and education initiatives.
i 5. Because "tobacco use, particularly among children and adolescents, poses

perhaps

the single most significant threat to public 'health in the United States," FDA v.

Brown & Willamson Tobacco Corp., 529 U.S. 120,161 (2000), the Settlng States'
creation of the Foundation is one of

the most significant public health achievements

flowing from the MSA.
i 6. The Foundation is governed, according to its bylaws, by

a distinguished

Board of Directors. The 1 i Directors include two State Attorneys Ge~eral, selected by
NAAG, two State Legislators selected by the National Conference of

State Legislators,

ánd two Governors selected by the National Governors' Association. These six Directors
select five additional Directors, one of

whom must have public health expertise, and four

of

whom must have expertise in medical, child psychology, or public health disciplines.

(See Ex. B, Bylaws § 3.2.)
i 7. The current members of the Foundation's Board of

Directors are:

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( Chrstine Gregoire, Attorney General, Washington (Chair); StevenA. Schroeder, M.D.,.

President, The Robert Woo Johnon Foundation (Vice-Ch~ir); Àlma S. Adams, Ph.D.,

North Carolina State Representative (Treasrer); Pars N. Glendening, Governor,
Maryland; Ellen R. Gritz, Ph.D., Fra T. McGraw Memorial Chair in the Study of
Cancer, University of

Texas M.D. Anderson Cancer Center; Elmer E. Huerta, M.D.,

M.P.H., The Washington Cancer Institute; Michael a.Levitt, Governor, Utah; Jeiuy H.

Lee, Student, University ofMi~tmi; John J.H. Schwarz, M.D., Michigan State Senator;

Carla J. Stovall, Attorney General, Kansas; Kenneth E. Warner, Ph.D., Avedis
Donabedian Distinguished University Professor of

Public Health, University of

Michigan.
18. Defendant Lorillard is a corporation organized under the laws. of the State
of

Delaware, with a registered agent at: The Prentice Hall Corporation System, Inc., 2711

Centerville Road, Suite 400, Wilmington, Delaware 19808. Lorillard's principal place of
business is in Greensboro, North Carolina.
i 9. To settle the dozens of lawsuits brought against it by States seeking relief

for the huge physical, social, and financial costs of its lethal products, Lorillar agreed to
become one of the original signatories to the MSA in 1998.
20. Lorillard is the fourh largest manufacturer oftobacco products in the

United States. In 1999, Lorillard was the only one of

the major tobacco Companies to

increase the amount of

product it shipped in the United States. See Doug Campbell,
THE GREATER TRIAD

Lorilard Gains as RJR Sees Deciine, THE BUSINESS JOURNAL OF

ARA (ApnI3, 2000), at ww.bizjoumals.cowtrad/stories/00/0403/story.hhnl.

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21. Lonllard' s top-sellng cigarette brand, Newport is the second-most

popular brad among American teen smokers. A national survey of eighth-, tenth~, and

twelfth~grde students in the United States in 2000 showed that 18.7% of all smoking

teens said that they usually smoked Newport. bidee Newport was the brand of choice
for 23.4% of eighth-grde smokers. See Research Tnangle Institute Analysis ofL.D.
Johnston, P.M. O'Malley & J.G. Bacluan, Monitoring the Future National Survey
Results on Drug Use, J 975-2000, Vol. I: Secondary School Students (NIH Pub. No. 0 i.

4924), Bethesda, MD: National Institute on DnigAbuse (2001), nvailable at
-chttp://www.monitoringthefuture.org::. Loril1ard's Ncwport brand has even greater

popularity among African-American youth. Indeed, 70% of all Afrcan-American high
school smokers selected Newport as their brand of choice in 2000. See M.C. Farelly, M.
Vilsaint,D. Lindsey, K.Y. Thomas, P. Messeri, Legacy First Look Report 7, Cigarette
Smoking Among Youth: Resulis from the 2000 National Youth Tobacco Survey (August

2001).

GENERAL ALLEGATIONS
Resolution of

the Stales' Lawsuits Against Tobacco Companies:

Fonnation of the MSA .
22. In the i 9908, more than 40 States and other government instrumentalities

commenced lawsuits seeking to hold tobacco companies liable for the enonnous costs
their deadly products impose on the States and their citizens - smokers and non-smokers

alike. The States brought claims for equitable relief and damages under state laws ''in
order to further the Settling States' policies regarding public healtl1. including policjes

adopted to achieve a significant reduction smoking by Youth."(Ex. A. MSA § I.)

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23. With this avalanche of lawsuits, the tobacco companies faced the theat of

multi-bilion doJlar judgments and potential bantcy. To avoid these devastating
results and the burden, expense, and uncertainty of

protracted litigation, the tobacco

companies entered into lengthy negotiations with State Attorneys General to tr to reach

a settlement.
24. After nearly a year of

intense discussions, the negotiations culminated in

the MSA, which was signed by the four largest tobacco companies (including Lorillard)
and 46 States (including Delaware), the Distrct of

Columbia, the Commonwealth of

Puerto Rico, and four U.S. terrtories.
25. The nearly 150-page MSA is a complex, highly-negotiated agreement

oetween sophisticated, experienced parties.

26. Court in each of the Settlng States entered consent decrees to resolve the
lawsuits pending against the tobacco companies. The Foundation was not a pary to any
of these lawsuits, was not prescnt before any of the courts upon entry or any of

the

consent decrees, and is not bound by any ofthese consent decrees.

27. The MSA was presented to and approved by the court that entered the
consent decree in each Settling State.

28. The Foundation is not a party to the MSA. Indeed, the Foundation did not

even exist when the signatories entered into the MSA on November 23, 1998.
29. The Foundation is not a third-pary beneficiar of the MSA, which

specifically provides that "rn)o portion of

this Agreement shall provide any rights to, or

be enforceable by, any person or entity" other than the Settling States, the tobacco

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companies, and specified persons and entities related to or associated with the tobacco

companies. (Ex. A MSA § XVII (P).)
30. One ofthe principal public health aims ofthe MSA is reducing youth

smoking. The MSA was designed to "achieve for the Setting States and their citizens
significant funding for the advancement of public health, the implementation of

important

tobacco-related public health measures, including the enforcement of

the mandates and

restrictions related to such measres, as well asfundingfor a national Foundation
dedicated to signifcantly reducing the use of Tobacco Products by Youth." (Ex. A, MSA
§ I (emphasis added).) The Attorneys General of

the Setting States specificaIly

expressed their belief that "entry into ilis Agreement and unifonn consent decrees with
the tobacco industry is necessary in order to further the Settlng States' policies designed
to reduce Youth smoking, to promote the public health and to secure monetary payments

to the Settling States." (Id. (emphasis added).)
31. To that end, the

tobacco companies, including Lorillard, agreed to limit

their advertising and promotional activities, paricularly with respect to marketing
directed at youth. For example, tobacco companies that joined the MSA may not "take

any action, directly or indirectly, to target Youth withn any Settling State in the
advertising, promotion or marketing of

Tobacco Products, or take any action the primary
Youth smoking

purpose of

which is to initiate, maintain or increase the incidence of

within any Settling State:' (Ex. A, MSA § Il(a).) Likewise, the tobacco companies
agreed to a ban on the use of cartoons in cigarette advertising, significant limitations on

brand name sponsorship, and bans on free samples to youth. (See ¡d. at §§ ll(b), (c) &
(g).)

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Combating the Public Health Cris ofY Quth Smokinp;:
Creation of

the Amercan Legacy Foundation
the Foundation was the keystone of

32. The creation of

the MSA's goal of

preventing the tobacco companies from creating a new generation of addicted smokers

among America's children. In fact, the Settling States believed that the creation ofa
national foundation to develop and implement "a comprehensive, coordinated progr of

public education and study" was an essential element of

this effort. (See Ex. A, MSA §

VI(a).) The Foundation was intended "to support (1) the study orand programs to reduce
Youth Tobacco Product usage and Youth substance abuse in the States, and (2) the study
of and educational prograins to prevent diseases associated with the use of

Tobacco

Products in the States." (Id.; Ex. C, Certificate ofIncoiporation, Ar. II(A).)
33. Under the MSA, the Settling States, acting through NAAG, were

/

responsible for providing for the creation of the Foundation. The MSA furter provided
that the Foundation's "organizational documents. . . shall specificaJJy incorporate the
provisions of

this Agreement relating to the Foundation. . ." (Ex. A, MSA § VI(d).)

34. The Settling Stutes, acting through NAAG, fulfilled their responsibility
under the MSA by providing for the creation of

the American Legacy Foundation and by

causing the Foundation's organzational docwnents -- its bylaws and its cerificate of
incoiporation -- to specifically incorporate the provisions ofthe MSA relating to the
Foundation. (See Exs. B & C.)
35. The MSA provides that "as par of

the settlement of claims" the four,

original signatory tobacco companies are obligated to make payments to an escroW

account, from which funds are disbursed to fund the Foundation. (Ex. A, MSA § Vl(a).)

The MSA explicitly provides that the payment ofthese funds to the Foundation is "made

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at the direction and on behalf of Settling States:' (Id. at § VI(h).) The MSA also
provides that "ib)y making such payments in such manner, the (tobacco companies) do
not undertake and expressly disclaim any responsibility with respect to the creation,

operation,lìabilties, or tax status" ofUie Foundation. (Id.)
36. The MSA provides for two sets of these payments made at the direction
and on behalf of

the Settling States as initial funding for the Foundation. The smaller set

of

payments -- $250 millon over ten years -- are known as Base Foundation payments.

(See Ex. A, MSA § VI(b).)
37. The larger set of payments made at the direction imd on behalf of

the

Settling States - more than $1.4 billon over five years -- is directed to the National

Public Education Fund, which may also be funded though specially designated donations

from third paries made directly to the Foundation. (See id. at § VI(c).)
38. The Foundation's bylaws incorporates verbatim a provision from the MSA

that pertains to the Foundation's use ofthe National Public Education Fund. That Fund-unlike the Base Fund -- "shall be used only for public education and advertising
regarding the addictiveness, health effects, and social costs related to the use of

Tobacco

Products,

as defined in the Master Settlement Agreement, and shall not be used for any

personal attack on, or vilfication of, any person (whether by name or business
affliation), company, or goveriuental agency, whether individually or collectively."

(Ex. B, Bylaws § 12.2.)
39. The Foundation's Certificate ofIncolporation incolporates verbatim a
provision of the MSA, stating: "The Foundation shall not engage in, nor shall any of

the

Foundation's monéy be used to engage in, any political activities or lobbying, including,

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but not limited.to, support of or opposition to candidates, ballot initiatives, referenda or
other similar activities. The Foundation shall work to ensure that its activities are cared

out in a culturlly and linguistically appropriate maner. The Fowidation's activities
shall be cared out solely within the States." (Ex. C, Certificate of

Incorporation, Ar.

II(C).)
40. Provisions of

the MSA that have been incorpomted into the Foundation's

organizing documents have the full force and legal effect that ordinarly are accorded to
the bylaws and certificate ofincorporation of any Delaware non-profit corporation.
41. The MSA does not provide the tobacco companies who were paries to the

MSA with any basis to assert any claim or suit against the Foundation for an alleged
breach of the MSA. If

the parties to the MSA had intended such a result, they easily

could have provided for a mechanism to pennit the tobacco companies to seek
enforcement of

the MSA directly against the Foundation. For example, the parties could

have provided that the Foundation execute an instrument containing an agreement to

assume contractual obligations under the MSA. The partes' choice not to provide for
such a mechanism was deliberate, and it accords with the MSA's intent to pennit the
Foundation to pursue its mission free frm the theat of

harassing and vexatious lawsuits

by entities whose economic self-interest is inextricably opposed to the Foundation's

mission.
The Foundation's Acclaimed National Anti-Smoking Initiative: the truthsr campaign
42. One of

the Foundation's mandated functions is to "carry() out a

nationwide sustained adverising and education program to (A) counter the use by Youth
of

Tobacco Products, and (B) educate consumers about the cause and prevention of

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diseases associated with the use of

Tobacco Products." (Ex. C, Certificate of

Incorporation, Ar IV(I)

(incorporating MSA §§ VI(a), VI(f)(I)).)

43. To that end, the Foundation has developed, produced, and sponsored a

national, multi-media advertising campaign called the trMm, designed to provide

candid, strightforward infonnation to teens about tobacco products. Launched in
Febniar 2000; the tnithsm campaign's primary target audience consists of 12-to-17 -year-

oIds who are most likely to smoke -- an identifiable subset ofteens defined in the

professional literature as "sensation seeking."
44. In fiscal year 2001, the Foundation spent over $100 million on the truthsm
,

campaign. Since the Foundation's inception in 1999, some aspects ofthe campaign,
including some of the ads, have been funded entirely out of

the Base Fund, which is not

subject to the bylaws' restrlction on "personal attack" or "vilìfication."

(
45. A core premise of

the trth1m campaign is that children start smoking

because they believe smoking expresses independence, risk-taking, and rebellousness.
In light of

this. truthsm ads frequently feature teens who are learning the facts about

smoking and using their rebellousness in a positive way to reject the tobacco industry's

marketing efforts and to spread the anti-smoking message to their peers and others.
46. In order to maximize its effectiveness in coiiecting with youth, the

Foundation has developed ani~ honed a signature style, which includes cutting-edge

presentation of facts and hard.hitting messages that speak to teens in their own voice. As
par ofthe educational mission ofthe truthsm campaign, the ads sometimes focus on

tobacco industry actions and marketing practices -- a proven strategy for reaching the young people who.åre most likely to smoke and for changing their attitudes and behavior

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related to smoking. The Foundation '5 trthSl ads are edgy and use unconventional,
irreverent humor because that is the best way to capture and hold the attention of the

teens the Foundation is tryng to reach.

47. The Foundation's strategies have achieved concrete and critical success.
The "Monitoring the Future" survey, sponsore by, the NationaIlnstitute on Drug Abuse
of the u.s. Deparent of

Health and Human Services and conducted by the University

of

Michigan, recently concluded, based on responses by some 44,000 eighth-, tenth-, and

twelfth-grade students across the nation, that teen smoking has declined sharply. This

rapid reduction is particularly sigificant, according to the fortcoming report's authors,
,

in contrast to the dramatic increases in smoking rates in the early i 990s. The authors of
the study, which is the nation's

,leading study tracking youth behavior relating to health,

specifically cited the Foundation's countennarketing effort as one ofthe reasons for this
importnt public health achievement. See Press Release, L.D. Johnston, P.M. O'MalJey
& J.G. Bachman, CigaretJe Smoking Among American Teens Declines Sharply in 2001,

(December 19, 2001), available at .:http://www:monitoringthefuture.orglpress.html:;.In
addition, the Foundation's own evaluation data show that tlie trthsm campaign is highly

effective. The campaign has produced statistically significant reductions in intention to
smoke among teens who are nonsmokers.
48. The advertising community also has recognized the trthsm campaign as a

strategic breakthrough in social marketing, bestowing on the campaign major industry

awards including four Clio awards, the "Best Public Service Award" from Ad Age Magazine, the "Campaign of the Year," from Ad Week, and the top Public Service
Campaign at the London International Advertising A wards. The truthsm campaign has

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been hailed as one ofthe most effective anti-tobacco campaigns ever created, and as the most recognizable anti-tobacco campaign among youth reaching 77% confirmed youth
aWareness.

49. The Foundation has achieved this unprecedented success despite the fact
that it must counteract the messages ofthe tobacco industry in a market saturated with
tobacco adverising. The tobacco industry spends approximately $8.24 billon each year

to advertise and market its products. Although the MSA prohibits tobacco

companies

from directly or indirectly targeting youth in their advertising, the New England Joural
of Medicine reported that "The Master Settlement.

Agreement with the tobacco industry

appears to have had little effect on cigarette advertising in magazines and on the exposure
of

young people to these advertsements." C. King.& M. Siegel, ''Te Master Settement

Agreement with the Tobacco Industry and Cigarette Advertsing in Magazines," New
England Journal of

Medicine 345(7): 504-511, Aug. 16,2001. In fact, the Journal

reported that Lorillard had not "substantially changed its level of advertising in youthoriented magazines durng the first two years after the settement." ¡d.

50. The tobacco companies, including Lonllard, have a clear economic self-

interest in diminishing the effectiveness ofthe Foundation's anti-smoking campaign. It is
an indisputable economic reality that tobacco companies depend on enticing and
addicting new customers to replace the many customers their products kil. The

estimated tobacco industry revenue from teen smoking in 2001 was approximately $1.2
biIJon. It is paricularly important to the tobacco companies to attract smokers as early

as possible because individual smoking patterns are established before adulthood: nearly
90% of all adult smokers in the United States began smoking before the age of 18. See
(

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(

U.S. Departent of

Health and Human Services, Centers for Disease Control and

Prevention, Preventing Tobacco Use Among Young People: A Report of the Surgeon

General, at 65 Ib 1. 7 (i 994). Accordingly, like other tobacco companes, Lonllard has a

direct financial interest in thwartng the Foundation's efforts to inoculate America's
youth against the tobacco industry's concentrated efforts to addict new smokers.
Lorillard's Threat to Commence an Enforcement Action
Against the Foundation Under the MSA.
51. In a letter dated Januar 18,2002, directed to the Foundation's outside

counsel, Lonllard formalIy stated its "intent to initiate a proceeding against the American
Legacy Foundation to enforce the tenns of

the MSA." (Ex. D.) This letter accused the
the MSA, including the

Foundation of

violating provisions of

prohibition on using the

National Public Education Fund for personal attacks or vilfication. Lorillards
( representatives have since reiterated LoriJlar's intent to bring an MSA enforcement

action against the Foundation but have refused to identify the forum or fora in which

Lorillard intends to proceed, leaving the Foundation exposed to the possibilty that
Lorillard is about to sue it in any or all of

the 46 state courts (including this Court) that

have continuing jurisdiction with respect to the MSA and the related consent decrees.
52. Although the Foundation is confident that aII of

its activities have been in
incorporation -- including in paricular

full compliance with its bylaws and certificate of

its bylaw incorporating the MSA's restriction on using the National Public Education

Fund for "personal attacks" or "vilification"n the Foundation has a credible fear that

Lorilard wil attempt to bring an ilegitimate and baseless action seeking to enforce the
tenns of the MSA a.gainst the Foundation and that ths theat wil negatively effect the
Foundation's operations.

(
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CLAI i
(Declaratory Judgment Regarding MSA)
53. Plaintiff

hereby realleges and incorporates herein by reference Paragrphs

I-52 of this Complaint.
54. Plaintiff seeks a declaration that Lonllard has no basis to assert, in any

court, any claim or suit against the Foundation seeking to enforce any tenn ofthe MSA
or seeking to establish any violation of the MSA.
55. Lorillard has recently advised the Foundation that it intends to bring an

enforcement action against the Foundation under the MSA. The Foundation takes the

position that Lorillard has no basis on which to do so. Thus, this claim presents an actual
controversy, for which declaratory relief

pursuant to io Del. C. § 6501 is appropriate.

56. Plaintiff

has no adequate remedy at law.

CLAIM II
(Declaratory Judgment Regarding the Foundation's Bylaws)
57. Plaintiff

hereby realleges and incorporates herein by reference Paragraphs

I-56 of

this Complaint.
58. Plaintiff

seeks a declaration that Lorillard has no standing or basis to
the

assert, in any court, any claim or suit against the Foundation seeking to enforce any of

Foundation's bylaws or seeking to establish any violation of the bylaws.
59. This claim presents an actual controversy, for which declaratory relief

pursuant to 10 Del. C. § 6501 and 8 DeL. C. § i i i is appropnate.
60. Plaintif

has no adequate remedy at law.

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CLAIM III
(Injunctive Relief)

61. Plaintiff hereby realleges and incorporates herein by r-eference Paragrphs

1-60 of

this Complaint.

62. Plaintiff seeks an injunction barg Lorillard from assertg, in any court,
any claim or suit against the Foundation seeking to enforce any term of

the MSA or any
the MSA or bylaws.

ofthe Foundation's bylaws, or seeking to establish any violation of

63. Plaintiff seeks equitable relief and has no adequate remedy at Jaw.

CLAIM IV
(Alternn,tive Claim for Declaratory Relief)
64. Plaintiff

hereby realleges and incorporates herein by reference Paragrphs

1-63 of this Complaint.

65.

If(and only if) this Court denies the relief sought under Claims I and II,
the components of
the National
the

then Plaintiff seeks, in the alteinative, a declaration that (1) none of

the Foundation's tmthsm campaign that the Foundation has funded out of

Public Education Fund has constituted a "personal attack" or "vilfication" within

meaning of the MSA and the Foundation's bylaws, and (2) no component of

the

Foundation's tniMm campaign otherwse has violated any restriction applicable to the
Foundation under either the MSA or the Foundation's bylaws.

66. LoriHard has recently advised the Foundation that ii inlends to bring an

enforcement action against the Foundation under the MSA based on alIegations that the
Foundation has violated the provi~ions of

the MSA that restrct the use ofthe National
sought under

Public Education Fund. Thus, ¡f(and only if) this Court denies the relief

(
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Claims I and II, this claim presents an actual controversy, for which declartory relief
pursuant to lO Del. C. § 6501 is appropriate.
67. Plaintiff

has no adequate remedy at law.

PRAYER FOR RELIEF

68. WHEREORE, Plaintiff American Legacy Foundation respectfully
requests that this Court en1er judgment against Defendant LorilJard Tobacco Company as

follows:

A. Declaring and decreeing that Lorillard has no basis to assert, in any
court, any claim or suit against the Foundation seeking to enforce any ter of

the MSA,

or seeking to establish any violation of the MSA;

H. Declaring and decreeing that Lorillar has no standing or basis to
assert, in any court, any claim or suit against the Foundation seeking to enforce any tenn
of the Foundation's bylaws, or seeking to establish anyvIolation of

the bylaws;

C. Enjoining Lerillard from asserting, in any comt, any claim or suit
against the Foundation seeking to enforce any tenn of the MSA or the

Foundation's

bylaws, or seeking to establish any violation oftbeMSA or the bylaws;

D. Declaring and decreeing - in the alternative to the declarations
sought in Claims r and II -- that (1) none of the components of

the Foundation's truthsm

campaign that the Foundation has funded out of the National Public Education Fund has

constituted a "personal attack" or "vilfication" withn the meaning ofthe MSA and the
Foundation's bylaws, and (2) no component of

the Foundation'struthSm campaign

otherwise has violated any restrction applicable to th Foundation under either the MSA
or the Foundation' s 'bylaws;

r

\.

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E. Enjoining Lonllar from initiating or prosecuting any lawsuit in
any other fomm or fora involving the same or similar issues or operative facts as the
instant claims;
F. Awarding Plaintff

its costs an~ reasonable attorneys' fees

associated with this litigation;
G. Granting Plaintiff such other and further relief as the Court may

deem just and proper.

(

22
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Dated: Wilmington, Delaware
Februar 13, 2002

YOUNG CONAWAY STARGATT & TAYLOR, LLP

OfCounseJ:
Ellen Vargyas
General Counsel

David C. McBride
Richar H. Morse

O-// p

Martin S. Lessner The Brandywine Building, i 7th Floor
10ÖO West Street

American Legacy Foundation 1001 G Street, N.W., SuIte800 Washington, D.C. 20001 (202) 454-5555

P.O- Box 391
Wilmington, DE 19801

(302) 571-6600

Thomas P. McGonigle Jolm L. Reed DUANE MORRS, LLP

1100 Nort Maret Street, Suite 1200
Wilmington, DE 19801 (302) 657-4900
John Payton

Patrick J. Carome David W. Ogden WILMER. CUTLER & PICKERING 2445 M Street, N.W. Washington, D.C. 20037
(202) 663-6000
Attorneys for Plaintif

American Legacy Foundation

23
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EXHIBIT D

Case 1:07-cv-00248-SLR

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NORTH CAROLIA

i ' ¡ L ;.:: UIN THE GENERA COURT OF JUSTICE

t.... (!' ..- of,

WAK COUNY

'.i,"'~'- c-Z nJ.,i\ i. : ~,.': ~.,\.' -; j i'r v.v..i.. .. \., \.., f 't \l C' r..

¡Y) fED I 9 ~ _, . SUPERIOR COURT DMSION ~~- iJ t¡n II: 49 fI CýS 02\~

LORILA TOBACCO COMPAÍ ,.-_1_._

vs. )
)
)

Plaintiff, ))
Defendant. )
)

----COMPLAIT

AMRICAN LEGACY FOUNATION, )

PlaintiffLoril1ard Tobacco Company ("Lorillardn or ''Plaintiff''), complaining of

Defendant

Amencan Legacy Foundation ("American Legacy" or "Defendant"), alleges as follows:

SUMY OF CLAIS
1. In 1998, Lorillard signed a Master Settlement Agreeent (''MSA'') with other

tobacco

companes and fort-six states. A copy of the MSA, without exbits, is attched as Exhibit A.

Pursuant to the MSA, Plaitiff agreed to assist in fuding a non-profit org3lzation (Defendant
American Legacy Foundation) that would create a public education and advertisement program.
2. Defendant's advertising under the MSA is paid for, entirely or primarly, through the

National Public Education Fund ("NPEF''), which is fuded by Plaintiff and other tobacco
companies.
3. Under the MSA, Defendat's advertising activities are specifically authorized and
circumscribed as follows:

The National Public Education Fund shall be used only for public education and advertsing regarding the addictiveness, health effects, and social costs related to the use of tobacco products and shall not be used for any personal attack on, or vilification of, any person (whether by name or business afliation), company, or
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goverenta agency, whether individualy or collectively. The (Amerca Legacy)
Foundation shall work to enure that its activities are cared out in a culturally and lingustically appropriate maner.
Master Settlement Agreement ,¡ Vl(h).
4. Since its creation, Defendant has used the NPEF to publish or broadcat a number of

adversements that do not address the "addictiveness, health effects, or social costs" oftobacc use.
In addition, many of

Defendant's advertsements have included personal attks on companes and

individuals, and the vilfication ofPlaitiff, its employees, and tobacc companes collectively. Such
advertsements and attacks constitute breaches of the MSA. Examples of

Defendats rao and

television advertsements which violate the MSA are attached as Exhbits C and D, reectively.

5. In addition to its improper adverisements, Defendant AL has engaged in peronal

attacks upon Plaintiffs employees by sendig (and/or assistig other in sendig) numerus
harassing e-mails. Examples of such e-mails ar attached as Exhibit B hereto. Such e-mails

frequently conta vulgar and obscene language, and such e-mai1s evidence the malce that

Defendant bear toward Plaintiff
6. Many ofDefendant's harsig and vugar e-mails constitute cr ac that violat
Nort Carolina's CyberstalgAct, N.C.G.S. §14-196.3.

7. Plaintiff

has attempted to resolve its concer about varous adverseents thugh

informal discussions with Defendant and by sendig Defendat a th day notice letter as requi

by the MSA (Exhbit G). Defendat iiutiaUy responded to Plaitiffs notice leter by imedately
caning a press conference and makg misreresentations to the public and the media A copy of

the statement issued by Defendant's President is attched as Exhbit H. Among other thgs,
Defendant stated that Plaintiff

"is trng to stop the trth campaign" and that Lerillard's effort to
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resolve this matter wer a "smokescree to hide Lorillard's real goal, which is to cnih the trth
campaign because it is workig to stop kids from smoking." Such false statements are consistent
with Defendant's pattern of attacks upon, and vilification of, Plaitiff

8. Defendant took advantage of the thirt-day notice letter to fie a "declaratory

judgment" suit against Lorillard in Delaware state cour. In the Delaware suit, Defendant seeks, inter

alia. an injunction to prevent Lorillard from enforcing its legal rights under the MSA. The complait
in the Delaware suit contais numerous gratutous attacks on Lorillard, which is consistent with

Defendant's prior actions and public statements.
9. Plaintiff does not seek to destoy Amercan Legacy or to prevent Defendant frm

puruing its mission as set fort in the MSA. Lorillard, in fact, suport the goals ofthe advertsing

campaign described in the MSA. Unfortately, Amercan Legacy has misused the fuds that have

been entrsted to it by broadcasting and publishig advertsements that are not authorized by the

MSA and by creating and faciltating though its website vitrolic, hateful, and vulgar personal
attacks upon Loril1ard's employees.

10. By ths action, Plaintiffis seekig a determination that Defendat has repeatedy and
materially breached the MSA; Loril1ard is also seeking an order requiring Amercan Legacy to
comply with its obligations under the MSA. Ths action is brought only as a result ofDefendants

conduct in consistently ignorig its legal, contrtual, and ethcal obligations.

PARTIES
11. Lorillar is a corporation organzed and existig under the laws of the State of
ace of

Delaware and has its pricipal offce and pi

business in Greensboro, Guilford County, Nort

Carolina.
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12. American Legacy is a nonprofit corporation orgaed and existig under the laws
of the State of Delaware and has its pricipal offce and place of

business in Washigton, D.C.

Defendant's Arcles ofhicorporation are attched as Exhbit 1.
13. Amercan Legacy has had substantial contacts with the State of

Nort Carlina and

is subject to the jursdiction of

ths Cour.
the MSA, as well as N.C.

14. Venue is proper in ths Countypursuantto Section VI( a) of