Falise v. American Tobacco Co.

94 F.Supp.2d 316

Robert A. FALISE; Louis Klein, Jr.; Frank Macchiarola; and Christian E. Markety, Jr. as Trustees, Plaintiffs, v. The AMERICAN TOBACCO COMPANY; R.J. Reynolds Tobacco Company; B.A.T. Industries, PLC; Brown & Williamson Tobacco Corporation; Philip Morris Incorporated; Liggett Group, Inc.; and Lorillard Tobacco Company, Defendants.

No. 99 CV 7392.

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

May 1, 2000.

COPYRIGHT MATERIAL OMITTED

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Orrick, Herrington & Sutcliffe, LLP, James L. Stengel, Peter Bicks, New York NY, Kazan, McClain, Edises, Simon & Abrams, Steven Kazan, Oakland, CA, Ness, Motley, Loadholt, Richardson & Poole, Ronald Motley, Mt. Pleasant, SC, for Plaintiffs.

Womble Carlyle Sandridge & Rice, PLLC, Thomas D. Schroeder, Bonnie Kay Donahue, Winston-Salem, NC, R. Dal Burton, Atlanta, GA, for Defendant R.J. Reynolds Tobacco Company.

Greenburg Traurig, Alan Mansfield, Stephen L. Saxl, New York, NY, for Defendants Lorillard Tobacco Company, Philip Morris Incorporated and R.J. Reynolds Tobacco Company and Liaison Counsel for Defendants.

Kirkland & Ellis, David M. Bernick, James Munson, Deirdre A. Fox, Chicago, IL, for Defendants The American Tobacco Company and Brown & Williamson Tobacco Corporation, individually as successor by merger to the American Tobacco Company.

Simpson Thacher & Bartlett, Joseph M. McLaughlin, Jr., Adam Stein, New York, NY, for Defendant B.A.T. Industries.

Shook, Hardy & Bacon LLP, Gary Long, Gay Tedder, Terrence Sexton, Andrew Carpenter, Kansas City, MO, for Defendants Lorillard Tobacco Company and Philip Morris Incorporated.

Winston & Strawn, Dan Webb, Jeffrey M. Wagner, Chicago, IL, for Defendant Philip Morris Incorporated.

Riker Danzig Scherer Hyland & Perretti, Alan Kraus, Keith Weingold, Morristown, NJ, for Defendant R.J. Reynolds Tobacco. Co., Inc.

MEMORANDUM and ORDER

WEINSTEIN, Senior District Judge.

                                   TABLE OF CONTENTS
   I INTRODUCTION ................................................................. 321
  II FACTS ........................................................................ 323
     A. Asbestos .................................................................. 323
        1. Uses and Production .................................................... 323
        2. Exposure ............................................................... 323
        3. Health Hazards ......................................................... 324
        4. Industry Coverup ....................................................... 324
        5. Litigation and Settlement .............................................. 325
     B. Tobacco ................................................................... 326
        1. Smoking ................................................................ 326
        2. Synergy ................................................................ 327
        3. Conspiracy ............................................................. 328
           a. Synergy Knowledge ................................................... 328
           b. Synergy Coverup ..................................................... 328
           c. Broader Tobacco Conspiracy .......................................... 329
           d. Tobacco's Enterprises ............................................... 332
 III SUMMARY JUDGMENT STANDARD .................................................... 333
  IV SECTION 1962(c)-RELATED CLAIMS ............................................... 333
     A. Causation ................................................................. 333
        1. Factual Causation: Reliance ............................................ 333
           a. Reliance Showing .................................................... 335
           b. Application to RICO Settlement and Litigation Actions ............... 335
           c. Application to RICO Direct Payment Action ........................... 337
        2. Proximate Causation: Remoteness ........................................ 338
           a. Incorporation of Proximate Causation into Civil RICO ................ 338
           b. Holmes .............................................................. 339
           c. Laborers Local 17 ................................................... 340
           d. Application to RICO Direct Payment Action ........................... 342
              i. Indirectness and Intervening Forces .............................. 342

             ii. Duplicative Recovery and Complex Damage Apportionment ............ 344
            iii. Ability of More Direct Victims to Remedy Violation ............... 345
             iv. Specific Intent .................................................. 346
     B. Statute of Limitations .................................................... 347
   V SECTION 1962(a)-RELATED CLAIM ................................................ 348
     A. "Re-investment" Injury .................................................... 348
     B. Other Investment Injuries ................................................. 349
        1. Maintenance of Public Relations Machine ................................ 350
        2. Maintenance of Litigation Machine ...................................... 350
           a. Noerr-Pennington Doctrine ........................................... 350
           b. Application of Noerr-Pennington Principles .......................... 351
  VI SECTION 1962(d)-RELATED CLAIMS ............................................... 353
 VII STATE FRAUD ACTION ........................................................... 353
     A. Choice of Law ............................................................. 353
     B. Fraud ..................................................................... 354
     C. Statute of Limitations .................................................... 355
     D. Certification ............................................................. 356
VIII PREEMPTION ................................................................... 356
  IX CONCLUSION ................................................................... 357

I INTRODUCTION

Defendants have moved for summary judgment. For the reasons indicated below, the cause will be tried.

In recent years, each branch of the federal government has addressed the sweeping allegations of the massive, sustained, and unprecedented fraud of the tobacco companies and their related entities (Tobacco) against the American public.

Congress has called the Chief Executives of the leading Cigarette manufacturers before it to testify. It has also subpoenaed thousands of documents. Releasing them on the internet has contributed much of the factual underpinning to the present case.

The Executive branch has responded by filing a multi-billion dollar civil-RICO action seeking recovery of monies spent on health costs for the indigent and the elderly because of tobacco use. Its attempt to exercise control over tobacco products by the Federal Food and Drug Administration on the ground that cigarettes were a device for delivering a deleterious drug— nicotine—was rejected by the Supreme Court on the ground that the FDA lacks statutory authority to regulate tobacco as a "drug." See FDA v. Brown & Williamson Tobacco Corp., ___ U.S. ___, 120 S.Ct. 1291, 1315-16, ___ L.Ed.2d ___, (2000).

All nine Justices of the Court recognized the enormous national health problems created by the use of cigarettes and other tobacco products. Id. at 1296 (majority: "This case involves one of the most troubling public health problems facing our Nation today: the thousands of premature deaths that occur each year because of tobacco use."); id. at 1321 (Breyer, J., dissenting: "[E]ven though the [Tobacco] companies refused to acknowledge publicly (until only very recently) that the nicotine in cigarettes has chemically induced, and habit-forming, effects, the FDA recently has gained access to solid, documentary evidence proving that cigarette manufacturers have long known tobacco produces these effects within the body through the metabolizing of chemicals, and that they have long wanted their products to produce those effects in this way." (internal citations omitted)); id. at 1329 (Breyer, J., dissenting: "[T]he FDA obtained evidence sufficient to prove the necessary `intent' .... This evidence, which first became available in the early 1990's, permitted the agency to demonstrate that the tobacco companies knew nicotine achieved ... habituating effects through chemical ... means, even at a time when the companies were publicly denying such knowledge.").

The case at hand is only one of the many tobacco litigations underway in the state and federal court systems.

Plaintiffs are trustees of a Trust established in 1988 as a result of the bankruptcy of the Johns-Manville Corporation. The Manville Corporation lacked assets to pay judgments which would have been rendered against it for injuries suffered by millions of people exposed to its asbestos products. The Trust's primary responsibility is to ensure that those suffering asbestos-related injuries that may have been caused by Manville's products (Claimants) receive appropriate compensation.

Plaintiffs seek money damages from the major tobacco product manufacturers and related entities for their alleged role in contributing to the Trust's Claimants asbestos-related injuries. The essence of their contentions is that defendants misled the public, including the Trust's beneficiaries, the asbestos industry, and the Trust, through a decades long campaign of misrepresentations, misinformation and intentional omissions.

The initial complaint, filed on December 31, 1997 ("Falise I"), was dismissed on November 2, 1999 for lack of subject matter jurisdiction. See Falise v. American Tobacco Co., 241 B.R. 48 (E.D.N.Y.1999). The present case (Falise II) was filed on November 11, 1999, predicated on...