Blue Cross & Blue Shield of N.J. v. Philip Morris

178 F.Supp.2d 198

BLUE CROSS AND BLUE SHIELD OF NEW JERSEY, INC., et al., Plaintiffs, v. PHILIP MORRIS, INCORPORATED, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, Liggett Group, Inc., Lorillard Tobacco Company, British American Tobacco, Ltd. Defendants.

No. 98 CV 3287(JBW).

United States District Court, E.D. New York.

October 19, 2001.

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Dewey Ballantine LLP, New York, NY, By Paul J. Bschorr, Esq., Vincent R. Fitz-Patrick, Jr., Esq., Michael Hefter, Esq., Heather K. McDevitt, Esq., Dewey Ballantine LLP, Washington, DC, By Martha J. Talley, Esq., for Plaintiffs Blue Cross, et al.

Arnold & Porter, Washington, DC, By Murray R. Garnick, Esq., Sedgwick, Detert, Moran & Arnold, San Francisco, CA, By Kevin J. Dunne, Esq., Sedgwick, Detert, Moran & Arnold, New York, By James T. Conlon, Esq., for Defendant Philip Morris, Incorporated.

Sedgwick, Detert, Moran & Arnold, New York, By David M. Covey, Esq., Kirkland & Ellis, Washington, DC, By Kenneth N. Bass, Esq., for Defendant Brown & Williamson Tobacco Corporation.

Greenberg Traurig, LLP, New York, By Alan Mansfield, Esq., Shook, Hardy & Bacon, LLP, Kansas City, MO, By Gary R. Long, Esq., for Defendants Lorillard Tobacco Company, Lorillard, Inc.

Debevoise & Plimpton, New York, By Steven Klugman, Esq., for Defendant Council for Tobacco Research, U.S.A., Inc.

Jacob, Medinger & Finnegan, LLP, New York, By Barry S. Schaevitz, Esq., for Defendant Smokeless Tobacco Council, Inc.

Womble, Carlyle, Sandridge, & Rice, PLLC, Atlanta, GA, By R. Dal Burton, Esq., Womble, Carlyle, Sandridge, & Rice, PLLC, Winston-Salem, North Carolina, By Thomas D. Schroeder, Esq., Ursula M. Henninger, Esq., Collier, Shannon, Rill, & Scott, PLLC., Washington D.C., By John B. Williams, Esq., for Defendants R.J. Reynolds Tobacco Co., and RJR Nabisco, Inc.

Chadbourne & Parke LLP, New York, By Thomas J. McCormack, Esq., for Defendant British American Tobacco (Investments) Limited (formerly known as British-American Tobacco Company Limited).

Simpson Thacher & Bartlett, New York, By Joseph McLaughlin, Esq., for Defendant BAT Industries P.L.C.

Davis & Gilbert, LLP, New York, By Bruce M. Ginsberg, Esq., for Defendant Hill & Knowlton, Inc.

Kasowitz, Benson, Torres & Friedman LLP, New York, By Leonard Feiwus, Esq., for Defendants Liggett Group Inc., Liggett & Myers, Inc., and Brooke Group Ltd Seward & Kissel, New York, By Anthony R. Mansfield, Esq., for Defendant The Tobacco Institute, Inc.

AMENDED MEMORANDUM & ORDER

WEINSTEIN, Senior District Judge.

                                  Table Of Contents
   I. Introduction ....................................................................... 206
  II. The Jury ........................................................................... 208
 III. Rule 50(b) Motion to Set Aside the Verdict ......................................... 209
  IV. Evidence ........................................................................... 210
      A. Evidence of Medical Causation ................................................... 210
         1. Smoking causes cancer and other disease ...................................... 210
         2. Smoking aggravates medical costs ............................................. 214
      B. Evidence of Deceptive Practices ................................................. 214
         1. Defendants denied causation despite contrary evidence in internal
             documents ................................................................... 215
            a. Public statements from the 1950s to the present ........................... 216
            b. Knowledge from the 1950s to the present ................................... 219
         2. Defendants funded scientific studies to discredit scholarship
             demonstrating causation ..................................................... 221
         3. Defendants suppressed the development of new safer products to
             intercept quitters and to dispel appearance that their products
             were unsafe ................................................................. 222
         4. Defendants covered-up ........................................................ 224
      C. Evidence that Deceptive Practices Caused Consumers and Plaintiff
          Damages ........................................................................ 224
         1. Evidence that defendants knew the public would act upon
            deceptive practices .......................................................... 225
         2. Evidence that defendants' misrepresentations caused consumers
            and plaintiff damages ........................................................ 225
            a. Expert testimony .......................................................... 226
                 i. Dr. Jon Krosnick ..................................................... 226
                ii. Dr. Jeffery Harris and others ........................................ 227
            b. Videotaped depositions .................................................... 228
            c. Surveys, medical and psychological literature, and other
                documents ................................................................ 230

   V. Remoteness Under New York's Consumer Protection Act ................................ 230
      A. Language ........................................................................ 230
      B. Legislative Design and History of New York General Business Law
          Section 349 .................................................................... 231
      C. General History of Consumer Protection Statutes ................................. 237
         1. Modern consumer protection acts .............................................. 239
         2. State consumer statutes permitting indirect injuries ......................... 240
      D. Application ..................................................................... 242
         1. "Remoteness" does not bar plaintiff's claims under section 349 ............... 243
         2. Plaintiff has standing to sue under section 349 .............................. 245
  VI. Subrogation Under Section 349 ...................................................... 245
 VII. Individualized Proof of Causation and Damages ...................................... 247
      A. Federal Rules of Civil Procedure and Evidence ................................... 249
      B. Appropriateness of Sampling and Survey Techniques ............................... 250
         1. Due process .................................................................. 253
         2. Seventh amendment jury trial rights .......................................... 255
         3. Erie ......................................................................... 259
VIII. Preemption ......................................................................... 262
      A. Preemption Under Federal Law .................................................... 262
      B. State Regulatory Compliance Defense ............................................. 265
  IX. Evidence Sufficient to Support Low Tar Fraud ....................................... 266
      A. Evidence Admissible to Support General Deception ................................ 267
      B. Evidence Admissible to Support Damages .......................................... 268
   X. Evidence of Post-1980 Deceptive Acts and Practices ................................. 268
      A. Law ............................................................................. 268
      B. Application ..................................................................... 269
  XI. Statute of Limitations ............................................................. 271
      A. Law ............................................................................. 271
      B. Application ..................................................................... 273
 XII. Sufficiency of Damages ............................................................. 273

      A. Law ............................................................................... 274
      B. Application ....................................................................... 274
XIII. Conclusion ...........................................................................275

I. Introduction

This is one of the many suits designed to make cigarette companies pay for the enormous medical problems created by their product. Plaintiff has developed a new road to recovery via New York's Consumer Protection statute. The primary question now posed is one of law: Does section 349 of New York's General Business Law, designed to protect consumers against fraud, support a recovery by a health insurer whose costs were increased by the fraud. For the reasons set out below, section 349:(1) makes defendants liable for frauds the jury has found they committed against smokers; and (2) permits plaintiff to recover for the extra medical costs that it absorbed on behalf of its clients caused by their fraud induced smoking.

A jury verdict found defendants liable for a violation of section 349 of New York's General Business Law, causing some $17,000,000 in damages to plaintiff. Plaintiff seeks a judgment for the jury award, post verdict interest, costs and disbursements under the Federal Rules of Civil Procedure and attorney's fees under section 349. Defendants move to dismiss on the ground that no cause of action was proved.

Plaintiff is entitled to retain its jury award and to obtain interest from the day of that award. Plaintiff's motion for statutory attorney's fees under section 349 and costs and disbursements under Rule 54(d) of the Federal Rules of Civil Procedure will be covered in a separate memorandum. Defendants' motion for judgment is denied.

The...