RJR Nabisco's complaint against ABC for allegedly making false and defamatory statements. ABC accused RJR of adding significant amounts of nicotine to cigarettes to "hook" tobacco users.

IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
95 CVS 1107

RJR NABISCO HOLDINGS CORP.
and
R. J. REYNOLDS TOBACCO COMPANY
Plaintiffs,

v.

AMERICAN BROADCASTING COMPANIES, INC.,
JOHN MARTIN,
and
WALT BOGDANICH,
Defendants.

Plaintiffs, complaining of defendants, allege and say:

COMPLAINT

PARTIES

1. Plaintiff RJR Nabisco Holdings Corp. ("Holdings") is a Delaware corporation with its principal place of business in New York, New York. Plaintiff R. J. Reynolds Tobacco Company ("Reynolds") is a New Jersey corporation with its principal place of business in Forsyth County, North Carolina and is an indirect wholly owned subsidiary of Holdings.

2. Holdings is a holding company which holds investments in various industries. Although Holdings is not engaged in the manufacture, sale or marketing of tobacco products, Holdings owns all of the common stock of Reynolds. Holdings is a publicly-owned corporation whose stock is traded on the New York Stock Exchange. The value of Holdings' stock and its overall market equity are directly affected by the market's assessment of the business performance, business prospects and assets and liabilities of Holding's investments, including Holdings' investments in Reynolds. Events perceived by the market as favorable to Reynolds can, and often do, have a positive impact on the market value of Holdings' market equity; conversely, events perceived as unfavorable to Reynolds, can and often do, have a negative impact on the market value of Holdings' market equity.

3. Reynolds is a corporation engaged in the manufacture, sale and marketing of tobacco products. The value of Reynolds' stock is directly affected by the market's assessment of the business performance, business prospects and assets and liabilities of Reynolds.

4. Defendant American Broadcasting Companies, Inc. ("ABC") is a corporation organized and existing under the laws of the State of Delaware, with its principal place of business in New York, New York. ABC, a wholly owned subsidiary of Capital Cities/ABC, Inc., operates the ABC Television Network, a major American broadcast network with seven owned and operated and over 200 affiliated stations reaching 99.9% of all United States television households. ABC's telecasts are, or were at the time of the false and defamatory statements complained of herein, regularly broadcast in and into the State of North Carolina by numerous stations, including, but not limited to, ABC affiliate stations WTVD in Raleigh-Durham, North Carolina; WLOS in Asheville, North Carolina; WGHP in High Point, Greensboro and Winston- Salem, North Carolina; WCTI in New Bern, North Carolina; WWAY in Wilmington, North Carolina; WSOC in Charlotte, North Carolina; WPDE in Florence, South Carolina and WATE, in Knoxville, Tennessee. ABC's telecasts are widely viewed in the State of North Carolina and throughout the United States, and ABC derives substantial revenue from its broadcasts and other activities in North Carolina.

5. Among programs produced by ABC News for broadcast on the ABC Television Network is the news magazine program "Day One" launched in 1993. Upon information and belief, prior to February 28, 1994, Day One had not been a successful program; its ratings had been deteriorating. With its program on Monday evening, February 14,1994, only two weeks before the first program complained of herein, Day One's ratings fell to an all-time low.

6. Defendant John Martin ("Martin"), a resident of Washington, D.C., is a Day One reporter, who was reported to have led Day One's "investigation" into nicotine in cigarettes, and appeared on the February 28 and March 7,1994 broadcast segments of Day One regarding cigarettes and nicotine.

7. Defendant Walt Bogdanich ("Bogdanich"), a resident of Port Washington, New York, is the producer of the February 28, and co-producer of the March 7, 1994, Day One segments on cigarettes and nicotine.

NATURE OF ACTION

February 24, 1994 - ABC Press Release

8. On February 24, 1994, the ABC Television Network issued, "for immediate release," a press release.

9. The press release states, among other things, that "An ABC News 'Day One' investigation airing Monday, February 28 (8- 9:00PM/ET) charges that the American tobacco industry has for years added nicotine to cigarette filler, enhancing the addictive quality of cigarettes." As they apply to Reynolds, the charges were and are false.

10. The press release then makes other false and defamatory statements about Reynolds, which statements directly concerned the business of Holdings as investor in 100% of the stock of Reynolds and were understood by the public to refer to Holdings as well as Reynolds.

February 25,1994 - World News Tonight and 20/20

11. On February 25,1994, the ABC Television Network aired the program "World News Tonight" from 6:30 p.m. to 7:00 p.m. (EST). That program previewed the "Day One" program to be aired February 28, 1994, which was introduced with the statement, "Tobacco companies are being charged with adding nicotine to their cigarettes..." As it applies to Reynolds, the charge was and is false.

12. Defendant Martin, during this broadcast, told the viewers that "tobacco companies are adding to cigarettes waste products fortified with an extract that contains nicotine." As it applies to Reynolds, the quoted language was and is false.

13. Defendant Martin then made numerous other false and defamatory statements about plaintiffs and led the viewers to believe that Reynolds as a tobacco company is "fortifying the product with nicotine", which allegation was and is false.

14. Later, on February 25, 1994, the ABC Television Network aired the program "20/20"from 10:00 - 11:00 p.m. (EST). On that program, co-host Hugh Downs introduced Forrest Sawyer, the host of ABC Television Network Program "Day One."

15. Sawyer stated, among other things, that "you'll be surprised when you learn what tobacco companies are doing with the nicotine in your cigarette."

16. During the course of this program, defendants made, or caused to be made, numerous other false and defamatory statements about Reynolds, which statements directly concerned the business of Holdings as investor in 100% of the stock of Reynolds and were understood by the public to refer to Holdings as well as Reynolds.

17. Sawyer then announced that a Day One investigation would be aired the following Monday night.

February 28,1994 - World News Tonight and Day One

18. On February 28, 1994, the ABC Television Network program "World News Tonight," which aired from 6:30 p.m. to 7:00 p.m. (EST), was once again used as a vehicle for attracting an audience to that evening's "Day One" program concerning the "investigation" into nicotine in cigarettes.

19. Anchor Peter Jennings introduced defendant Martin, who informed the viewers that, as a result of ABC's "investigation" and subsequent statements by the United States Food and Drug Administration, "[o]n Wall Street today, four major tobacco company stocks all lost value. R. J. Reynolds [Holdings] and Philip Morris were the two most heavily traded stocks of all those bought and sold."

20. Defendants made, or caused to be made, false and defamatory statements about Reynolds during the course of this program, which statements directly concerned the business of Holdings as investor in 100% of the stock of Reynolds and were understood by the public to refer to Holdings as well as Reynolds.

21. On February 28, 1994, the ABC Television Network "Day One" program aired from 8:00 p.m. to 9:00 p.m. (EST).

22. Anchor Forrest Sawyer opened the program, announcing: "There's something the tobacco companies don't want you to know." Defendant Martin then accused Reynolds as a tobacco company of "artificially spiking [its] cigarettes with nicotine." This accusation was and is false. Sawyer concluded his introduction to the program by announcing: "A Day One investigation that could change the tobacco industry forever."

23. Sawyer told the audience that his conclusions were based on an investigation conducted over the course of nearly one year.

24. John Martin, during the program stated that, "Now a Day One investigation has uncovered perhaps the tobacco industry's last best secret, how it artificially adds nicotine to cigarettes.

25. Defendants made, or caused to be made, numerous other false and defamatory statements about Reynolds during the course of this program, which statements directly concerned the business of Holdings as investor in 100% of the stock of Reynolds and were understood by the public to refer to Holdings as well as Reynolds.

26. These false statements of fact were intended to be understood, and were understood by members of ABC Television's audience, to mean that Reynolds spikes and fortifies its cigarettes by adding significant amounts of extraneous nicotine to its products through a "secret process," and that the seriousness of this offense is such that Day One's "revelation" "of this secret" "could change the tobacco industry forever" by bringing upon the industry regulatory, congressional and/or other action.

March 3,1994-Reynolds Protests

27. On March 3,1994, Wayne Juchatz, Senior Vice President General Counsel and Secretary of Reynolds mailed a letter to Richard C. Wald, Senior Vice President/ABC News. In that letter, Mr. Juchatz stated, with respect to the February 28,1994 broadcast, that the clear implication of this segment was that Reynolds "boosts" the nicotine content of its cigarettes by adding nicotine to reconstituted tobacco, and protested: "This couldn't be farther from the truth and should have been readily apparent to any conscientious reporter. The simple fact is that no nicotine is added and the reconstitution process actually results in tobacco with lower levels of nicotine than tobacco leaf." Mr. Juchatz also noted that (contrary to defendants' statements in the program) the method of producing reconstituted tobacco is widely known, having even been discussed in the 1979,1981 and 1989 Surgeon General's Reports as resulting in a reduction of nicotine. Mr. Juchatz further explained how and why defendants' accusation that Reynolds "artificially adds nicotine to cigarettes" and other statements made during the program were false.

March 7,1994 - Day One

28. On March 7, 1994, "Day One" again aired on the ABC Television Network from 8:00 p.m. to 9:00 p.m. (EST). Anchor Forrest Sawyer opened the show with the comment, "We begin tonight with our continuing investigation into cigarettes and what's inside them."

29. Defendants then proceeded to air, or cause to be aired, numerous false and defamatory statements about Reynolds, including, but not limited to: "We found manufacturers add nicotine in carefully calibrated doses to fortify the tobacco waste products they insert in cigarettes and to replenish nicotine lost in processing." As it applies to Reynolds, this statement was and is false.

March 9,1994 - Nightline

30. On March 9, 1994, on the ABC Television Network program "Nightline," hosted by Ted Koppel from 11:35 p.m. to 12:00 a.m. (EST), additional false and defamatory statements were made, caused to be made, and endorsed by defendants about Reynolds as a tobacco manufacturer. Those additional false and defamatory statements also directly concerned the business of Holdings as investor in 100% of the stock of Reynolds and were understood by the public to refer to Holdings as well as Reynolds.

31. Those false and defamatory statements included, but were not limited to, statements that "Our sister-program, Day One, a couple days ago, did a report on the tobacco industry and the revelation of that program -- and, I must say it astonished me- - and that is that you folks [meaning Reynolds as a tobacco manufacturer] have actually been adding nicotine to the product, to the tobacco. March 24, 1994

32. On March 24, 1994, Philip Morris Companies, Inc., a tobacco manufacturer similarly accused by the broadcasts listed in paragraphs 8-26 and 28-31 herein, expressly denied the truthfulness of ABC's reporting, and presented an ABC reporter with a videotape detailing its cigarette manufacturing process. Philip Morris Companies, Inc. also presented ABC with a copy of a Motion for Judgment (equivalent of a complaint) filed in the Circuit Court for the City of Richmond, Va. which denied the defamatory statements outlined above.

33. After receiving these items and Philip Morris Companies, Inc.'s denial of the defamatory statements, ABC issued a press release setting forth that "ABC News stands by its reporting on this issue." This same statement was broadcast by ABC on various programs of the ABC Television Network, including, but not limited to, the ABC Television Network Program World News Tonight, aired from 6:30 - 7:00 p.m. (EST) that night, Thursday, March 24, 1994. In that program, ABC reporter Jim Angle said, "The Philip Morris claim of libel focuses primarily on a statement in a Day One Broadcast that the tobacco industry artificially adds nicotine to cigarettes. . ." As it applies to Reynolds, the statement was and is false.

34. These statements by ABC were intended to be understood to mean, and were understood to mean, that the false and defamatory statements described in paragraphs 8-26 and 28-31 herein about Reynolds as a tobacco company were true.

35. The programs and press releases identified in paragraphs 8-26 and 28-34 herein were broadcast and published in and into the State of North Carolina and throughout the United States on the ABC Television network.

36. The false and defamatory statements published during the programs and in the press releases identified in paragraphs 8-26 and 28-34 herein were made with actual malice; i.e. with knowing and/or reckless disregard for the truth of those statements.

37. The false and defamatory statements published during these programs and in the press releases were intended to cause, and did cause, members of the American public to believe that, during the manufacturing process, Reynolds "fortified" its cigarettes by adding significant amounts of extraneous nicotine to its product, and that the seriousness of this offense was such that defendants' "revelation" of this "secret" would be "just the evidence [the FDA] needs to regulate cigarettes" and would subject the industry to regulatory, congressional and/or other action.

38. The false and defamatory statements made during these programs and in the press releases were made as a result of joint action on the part of all defendants. All acts, statements and omissions of ABC employees and agents, including but not limited to defendants Martin and Bogdanich, in connection with the preparation and broadcast of these programs and press releases, were in the course of, and within the scope of, their employment or agency with ABC.

39. The false and defamatory statements made during these programs and in the press releases were later reduced to writing by defendant ABC Television Network and made available to the general public in written form.

40. Transcripts of these programs were, in fact, advertised and published to members of the general public.

Harm Caused To Reynolds and Holdings

41. A substantial portion of the American population, including but not limited to the investment community, the government regulators, and members of Congress, understood defendants' statements referring to the "tobacco companies," the "tobacco industry," the "cigarette manufacturers," the "cigarette companies," or "R. J. Reynolds" to be statements of and concerning Reynolds and Holdings.

42. As a direct and proximate result of the publication of the knowingly and/or recklessly false and defamatory statements published during the programs and in the press releases identified in paragraphs 8-26 and 28-34 herein, Reynolds and Holdings have suffered substantial harm to their reputations, trades and businesses, and their goodwill has been damaged.

43. That harm is continuing.

44. These defamatory statements resulted in direct injury to Holdings through diminution in value of its investment in Reynolds, as well as indirect injury through the sharp fall in the value of its own stock and have otherwise damaged Reynolds and Holdings in the conduct of their trades or businesses, causing each of them separately to suffer injury.

45. These defamatory statements precipitated and fueled a climate of public and media adverse reaction against Holdings and Reynolds, as well as regulatory and congressional reaction against the tobacco companies, including Reynolds, which has embroiled Reynolds in regulatory and congressional inquiries. These defamatory statements also heightened the prospect of passage by Congress of major increases in tobacco taxes and other legislation or regulation detrimental to Reynolds' business, spawned additional litigation against both Reynolds and Holdings, undermined their goodwill, and otherwise damaged both Reynolds and Holdings in the conduct of their trades and businesses.

FIRST CLAIM FOR RELIEF

(Slander and Libel)

46. Plaintiffs incorporate by reference the allegations in paragraphs 1-45 above as fully as if set forth verbatim.

47. The false and defamatory statements made during the programs and in the press releases identified in paragraphs 8-26 and 28- 34 herein constitute publications made or caused to be made by defendants jointly.

48. These statements were spoken statements of and concerning Reynolds, and also directly concerned Holdings as investor in 100% of the stock of Reynolds and were understood by the public to refer to Holdings as well as Reynolds.

49. These statements were reduced to written transcripts and published to members of the general public and were therefore also written statements of and concerning the plaintiffs.

50. These statements, when considered alone and without innuendo, tend to impeach Reynolds and Holdings in their respective trades, businesses or professions, to disgrace and degrade Reynolds and Holdings, to hold Reynolds and Holdings up to public ridicule and contempt and to cause each of them to be avoided and shunned.

51. Alternatively, these statements, when considered in the context of the entirety of the programs and press releases identified in paragraphs 8-26 and 28-34 herein and in conjunction with the rest of the statements made in these programs and press releases, tend to impeach Reynolds and Holdings in their respective trades or professions, to disgrace and degrade both Reynolds and Holdings, to hold Reynolds and Holdings up to public ridicule and contempt and to cause each of them to be avoided and shunned.

52. As a proximate result of defendants' defamatory statements, Reynolds and Holdings have suffered the harm described in paragraphs 41-45 herein.

53. Reynolds and Holdings are each entitled to an award of compensatory damages against defendants ABC, Martin and Bogdanich, in an amount to be determined at trial, for the injury to Reynolds and Holdings's stock value, their business goodwill, their relations with their employees, their credit and the other monetary harm suffered by Reynolds or Holdings or both of them as a direct and proximate result of defendants' slanderous and libelous statements.

54. Defendants were given notice of the falsity of their statements and were given the opportunity to retract such statements. Rather than retract their statements, defendants, on March 24,1994,republished their statements and reaffirmed that the statements were supposedly true.

55. On February 14, 1995, Reynolds and Holdings provided defendants notice specifying the dates and times the false and defamatory statements were published, specifying which statements were false and defamatory, and demanding a full and fair correction, apology and retraction of these false and defamatory statements. To date, defendants have not offered a full and fair correction, apology or retraction of their false and defamatory statements.

56. Defendants have acted with actual malice, entitling Reynolds and Holdings to an award of punitive damages against defendants ABC, Martin and Bogdanich.

SECOND CLAIM FOR RELIEF

(Unfair and Deceptive Trade Practice)

57. Plaintiffs incorporate by reference the allegations in paragraphs 1-56 above as fully as if set forth verbatim.

58. The actions by defendants as alleged herein were in and affecting commerce.

59. The defamatory statements described in paragraphs 8-26 and 28-34 herein constitute slander and libel per se in a business setting, and constitute unfair and deceptive acts or practices within the State of North Carolina, in violation of North Carolina's Unfair and Deceptive Trade Practices Act, N.C. Gen. Stat. 75-1.1 et seq.

60. As a direct and proximate result of the unfair and deceptive acts or practices by defendants, Reynolds and Holdings have been damaged as described in paragraphs 41-45 herein and are entitled to recover from defendants ABC, Martin and Bogdanich compensatory damages in an amount in excess of $10,000.00.

61. Reynolds and Holdings are entitled to have the damages awarded hereunder trebled and to recover from defendants ABC, Martin and Bogdanich a reasonable attorney's fee pursuant to N.C. Gen. Stat. 75-16 and 75-16.1.

WHEREFORE, plaintiffs RJR Nabisco Holdings Corp. and R. J. Reynolds Tobacco Company respectfully pray the Court:

1. That each plaintiff have and recover of defendants ABC, Martin and Bogdanich an amount in excess of $10,000 as compensatory and punitive damages;

2. That each plaintiff be awarded treble damages against defendants ABC, Martin and Bogdanich pursuant to N.C. Gen. Stat. 75-A et seq.

3. That plaintiffs be awarded attorney fees against defendants ABC, Martin and Bogdanich;

4. That plaintiffs be awarded a trial by jury; and

5. For such other and further relief as the Court deems just and proper.

This the 22 day of February, 1995.

/s/Kieth W. Vaughan
N.C. State Bar No. 6895

/s/Hada V. Haulsee
N.C. State Bar No. 9846

/s/Kimberly Stevens
N.C. State Bar No. 20156

Attorneys for Plaintiffs

OF COUNSEL:

WOMBLE CARLYLE SANDRIDGE & RICE
A Professional Limited Liability Company
P.O. Drawer 84
Winston-Salem, NC 27102
(910) 721-3600