The opinion of the court was delivered by: Bucklo, District Judge.
MEMORANDUM OPINION AND ORDER
This action is one of three essentially identical actions
brought by various Blue Cross and Blue Shield medical providers
against numerous tobacco companies and others, alleging
violations of federal RICO and antitrust laws, with pendent
claims alleging violations of state law. Defendants seek
dismissal under Rule 12(b)(6), Fed.R.Civ.P., for failure to
state a claim. Similar motions were brought in the other two
cases. The motion in the Western District of Washington was
granted by Judge Rothstein. The motions in the Eastern District
of New York case have been denied by Judge Weinstein.
The facts alleged in plaintiffs' amended complaint may be
summarized as follows: The plaintiffs are seven independent,
mainly not-for-profit Blue Cross or Blue Shield Plans ("Blue
Cross"). Blue Cross provides 68 million Americans with health
plan financing, including benefits for tobacco related
illnesses. Blue Cross has incurred billions of dollars in costs
attributable to illnesses related to the use of tobacco. Its
injury is economic. The defendant tobacco companies
intentionally caused its injury through a continuing conspiracy
that began in 1953. The conspiracy's purpose was to addict
millions of Americans, including members of Blue Cross plans,
to smoking cigarettes and other tobacco products. Their success
has resulted in lung, throat and other cancers, heart disease,
stroke, emphysema and other diseases. Smoking related illnesses
are the leading cause of premature death in the United States.
Non-smokers exposed to tobacco smoke are also affected. The
conspiracy involved intentional misrepresentations about the
safety of nicotine and its addictive properties, marketing
efforts targeting children, and agreements not to produce or
market safer cigarettes.
The basic argument made by defendants in these motions is
that any injury to plaintiffs is indirect and too remote in
terms of proximate cause to be legally redressable in this
action. This argument has been accepted by some courts. Thus,
in Regence Blueshield v. Philip Morris, Inc., et al.,
40 F. Supp.2d 1179, 1999 U.S. Dist. LEXIS 1820 (W.D.Wash. 1999),
the court concluded that plaintiffs' injuries were "derivative"
of personal injuries to smokers because it would be impossible
to separate the smokers' injuries from that of the insurers and
there would thus be a possibility of duplicative recovery. Id.
at 1184. That conclusion has been rejected by the Seventh
Circuit, however, which (in a somewhat different but still
applicable context) has held that Blue Cross has an interest
that is separate from that of its insureds for which it may
seek recovery in appropriate cases. Blue Cross & Blue Shield
United of Wisconsin v. Marshfield Clinic, 65 F.3d 1406 (7th
Cir. 1995). See also United States v. Aetna Casualty & Surety
Co., 338 U.S. 366, 379, 70 S.Ct. 207, 94 L.Ed. 171 (1949). The
Ninth Circuit has also reached the opposite conclusion in
holding that an insured could not sue under RICO for money paid
by his insurance company because only the insurance company has
suffered the economic loss. Steele v. Hospital Corp. of
America, 36 F.3d 69 (9th Cir. 1994). Indeed, as Judge Weinstein
noted in Blue Cross and Blue Shield of New Jersey, Inc. v.
Philip Morris, Inc., 36 F. Supp.2d 560 (E.D.N.Y. 1999) (slip
op.) ("Blue Cross and Blue Shield"), it is unlikely that
persons covered by Blue Cross plans could obtain reimbursement
from Blue Cross for any damages paid in this case because they
never paid the amounts that Blue Cross is seeking to recover.
Thus, the injury suffered by plaintiffs in this case is not
derivative. It is the plaintiffs' own economic injury.
Defendants' additional argument is that any wrong is not the
proximate cause of Blue Cross' injury. Whether a plaintiff has
sufficiently alleged facts from which proximate cause may be
found is governed by Holmes v. Securities Investor Protection
Corp., 503 U.S. 258, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992). In
that case the Supreme Court held that SIPC could not bring a
RICO action because it could not show that defendant's actions
were the proximate cause of its injuries. Judge Weinstein, in
the companion case to this one, has explained that under the
Holmes analysis, proximate cause is sufficiently alleged in the
complaints in these cases. First, the Holmes court was
concerned that if an injury were too indirect, it might be too
difficult to determine whether the plaintiff's injuries
are due to defendant's conduct or to intervening third causes.
Holmes, 503 U.S. at 269, 112 S.Ct. 1311. But in the present
tobacco cases, Judge Weinstein noted that plaintiffs may well
be able to bring reliable statistical and expert evidence to
show the percentage of damage caused by defendants' actions. In
addition, they will not have to be concerned with contributory
negligence because the torts alleged are intentional. Blue
Cross and Blue Shield, at 575-76. The Holmes court was also
concerned about the apportionment of damages among various
claimants. As noted above, however, and by Judge Weinstein, id.
at 576, the damages claimed in this case are separate from the
damages suffered by smokers. Plaintiffs "seek recovery only for
the economic burden of those medical claims and procedures
which they directly paid as a result of tobacco use." Id.
Finally, the Holmes court was concerned that the SIPC was not
the best plaintiff, and certainly not the only plaintiff, who
could vindicate defendant's wrongdoing. In contrast, in the
present cases Blue Cross is the best, and under some case law
perhaps the only, plaintiff who can bring this claim because no
other potential plaintiff can claim economic injury. It is the
only one who "can claim the 'injury to business or property'
required by the RICO statute." Id. at 576. See, e.g.,
Marshfield Clinic, supra; 65 F.3d at 1414.
Judge Weinstein in his very thoughtful opinion also addressed
the issue that somehow the injuries complained of in this suit
are too remote in the sense of foreseeability. To the contrary,
he found, if "as alleged, the defendants conducted a decades
long scheme to deceive the American public and its health
providers concerning the addictive characteristics and health
hazards of their tobacco products, and if they conspired to
deprive smokers of safer or less addictive tobacco products,
then their actions can properly be characterized as illegal and
deliberate criminal fraud." Blue Cross and Blue Shield at
580-81. "[T]he defendants would not have been in a position to
realize the enormous profits of its industry without the
compelled and unknowing subsidization by organizations such as
the Blues." Id. at 584. The amended complaint in this case
contains extensive and detailed allegations of specific
statements in defendants' internal memoranda that, if true,
indicate long term knowledge of the bad health effects of
smoking, of their attempts to keep that information from
smokers and the plaintiffs as well as others (including
legislative bodies), of alleged outright lies in marketing and
other statements regarding the safety of smoking, and of
attempts to increase the amount of nicotine (the addictive
ingredient in cigarettes) while denying the same. I agree that
if those were shown to be true, plaintiffs' injuries would have
been foreseeable and direct.
Judge Weinstein discussed other reasons, including the
relationship of common law and other kinds of actions to the
present one that support a finding of proximate cause in this
case. Id. at 582-84. He also discussed the important and unique
role of Blue Cross providers in the health care field in this
country. Individuals, he noted, cannot afford health care
anymore without insurance. Plaintiffs indeed "decide what
medical procedures will be offered, to whom they will be
offered and when and how they will be offered." Id. at 586-87.
Thus an economic injury such as alleged in these complaints "is
a direct threat to the availability of affordable health care
to Americans. . . ." Id. If, as alleged, plaintiffs had not had
to spend more than a billion dollars as a result of smoking
related illnesses, more would be available to cover health
procedures in other areas.
All of plaintiffs' claims are subject to proof of course. But
for the reasons stated in this opinion and the reasons stated
in Judge Weinstein's much more extensive analysis, I agree that
the allegations of the complaint are sufficient to withstand a
to dismiss under Rule 12(b)(6), Fed. R.Civ.P.
I have considered the recent Third Circuit opinion in
Steamfitters Local Union 420 Welfare Fund v. Philip Morris,
Inc., 171 F.3d 912 (3d Cir. 1999), in reaching my conclusion.
In that case the Third Circuit rejected various union health
and welfare fund suits against tobacco companies in which the
funds also alleged RICO and antitrust violations. Analyzing the
claims principally under the antitrust laws, the court agreed
with many of the arguments made by Blue Cross in this case:
that increased costs from treating tobacco related illnesses
were a cognizable injury, 171 F.3d at 921, n. 4; that
plaintiffs direct injury is "fundamentally different from a
traditional insurer-against-wrongdoer subrogation claim," id.
and were not duplicative of those suffered by smokers, id. at
930; that there may be a causal connection between plaintiffs'
injuries and defendants' conduct, id. at 926; that there might
be proved an antitrust violation from a conspiracy to keep a
safer product off the market, id. at 926; that the claims of
direct injury might meet the third and fourth factors discussed
in Associated General Contractors of California, Inc. v.
California State Council of Carpenters, 459 U.S. 519, 103 S.Ct.
897, 74 L.Ed.2d 723 (1983), id. at 927; and that plaintiffs'
damages were potentially calculable using statistical analysis,
id. at 929-930. The court nevertheless affirmed the district
court's dismissal of the case on the grounds that plaintiffs'
injury was not shown to be a necessary step in the success of
defendants' conspiracy, id. at 923, and, conversely, that
plaintiffs would have covered the costs of their insureds'
illnesses regardless of defendants' conspiracy, id. at 928. It
also thought plaintiffs' damages too speculative. Id. at
929-30. At least in the present case, however, Blue Cross has
alleged that its injury enabled defendants' conspiracy to
succeed. If defendants had not been able to reap the benefits
of the billions of dollars in payments made by Blue Cross,
smokers would have quit sooner, or died sooner or not smoked at
all, all of which would have reduced defendants' profits
presumably by great amounts. Under plaintiffs' theory, it was
thus important to the success of the conspiracy that Blue Cross
and the people it covered be misled about the dangers of
smoking for as long as possible. Although Blue Cross has
continued to cover the costs of smoking related illnesses,
there would have, according to it, been fewer illnesses related
to smoking. In addition, as discussed above, plaintiffs claim
injury from their inability to cover other diseases and
procedures because of the huge ongoing cost of paying for
smoking related illness. With regard to the court's conclusion
regarding speculative damages, in view of its other statements
agreeing that it might be possible to prove damages, I assume
that its affirmance of the lower court, while mentioning its
belief in the difficulty of proof in this area, did not depend
on this factor. At any rate, the Blue Cross plaintiffs, because
of their size, are possibly in a unique position to present the
kind of statistical proof that will be required to prove their
case. They may be unsuccessful but in the present case they
have alleged sufficient facts to go forward with discovery.
Judge Weinstein has set an early trial date in the case
before him. He also limited that trial to the RICO claims in
the interest of judicial economy. Discovery in the present case
has already begun. It makes sense, however, to defer trial
until after the trial in the Eastern District of New York. It
would also simplify matters, as Judge Weinstein concluded, to
conduct discovery and try only the RICO claim. I will, however,
give the parties 21 days to submit any argument against
limiting the case to the RICO claim.
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