278 F.3d 339 (4th Cir. 2002), 01-1502, Stare Scientific v. Beales

Docket Nº:01-1502
Citation:278 F.3d 339
Party Name:STAR SCIENTIFIC, INCORPORATED, a Delaware corporation, Plaintiff-Appellant, v. RANDOLPH A. BEALES, in his official capacity as Attorney General, Defendant-Appellee. DKT LIBERTY PROJECT; ALABAMA; ALASKA; ARIZONA; ARKANSAS; CALIFORNIA; CONNECTICUT; DELAWARE; THE DISTRICT OF COLUMBIA; GEORGIA; HAWAII; IDAHO; ILLINOIS; INDIANA; IOWA; KANSAS; KENTUCKY;
Case Date:January 22, 2002
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit
 
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Page 339

278 F.3d 339 (4th Cir. 2002)

STAR SCIENTIFIC, INCORPORATED, a Delaware corporation, Plaintiff-Appellant,

v.

RANDOLPH A. BEALES, in his official capacity as Attorney General, Defendant-Appellee. DKT LIBERTY PROJECT; ALABAMA; ALASKA; ARIZONA; ARKANSAS; CALIFORNIA; CONNECTICUT; DELAWARE; THE DISTRICT OF COLUMBIA; GEORGIA; HAWAII; IDAHO; ILLINOIS; INDIANA; IOWA; KANSAS; KENTUCKY; LOUISIANA; MAINE; MARYLAND; MASSACHUSETTS; MICHIGAN; MINNESOTA; MISSOURI; MONTANA; NEBRASKA; NEVADA; NEW HAMPSHIRE; NEW JERSEY; NEW MEXICO; NEW YORK; NORTH CAROLINA; NORTH DAKOTA; NORTHERN MARIANA ISLANDS; OHIO; OKLAHOMA; OREGON; PENNSYLVANIA; PUERTO RICO; SOUTH CAROLINA; SOUTH DAKOTA; TENNESSEE; UTAH; VERMONT; WASHINGTON; WEST VIRGINIA; WISCONSIN; WYOMING; AMERICAN LEGACY FOUNDATION; AMERICAN CANCER SOCIETY; AMERICAN HEART ASSOCIATION; AMERICAN LUNG ASSOCIATION; NATIONAL CENTER FOR TOBACCO-FREE KIDS, Amici Curiae.

No. 01-1502

United States Court of Appeals, Fourth Circuit

January 22, 2002

Argued: November 1, 2001

Appeal from the United States District Court for the Eastern District of Virginia, at Richmond. James R. Spencer, District Judge. (CA-00-835-3)

Before NIEMEYER, WILLIAMS, and GREGORY,[x] Circuit Judges.

Affirmed by published opinion. Judge Niemeyer wrote the opinion, in which Judge Williams joined.

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COUNSEL ARGUED: Charles Fried, Cambridge, Massachusetts, for Appellant. Gregory E. Lucyk, Senior Assistant Attorney General, OFFICE OF THE ATTORNEY GENERAL, Richmond, Virginia, for Appellee. ON BRIEF: Patrick M. McSweeney, Kathleen Moriarty Mueller, John L. Marshall, Jr., MCSWEENEY & CRUMP, P.C., Richmond, Virginia; James F. Neal, James G. Thomas, W. David Bridgers, NEAL & HARWELL, P.L.C., Nashville, Tennessee, for Appellant. Randolph A. Beales, Attorney General of Virginia, Francis S. Ferguson, Chief Deputy Attorney General, J. Steven Sheppard, III, Senior Assistant Attorney General, David B. Irvin, Senior Assistant Attorney General, Sydney E. Rab, Assistant Attorney General, OFFICE OF THE ATTORNEY GENERAL, Richmond, Virginia, for Appellee. William M. Hohengarten, Julie M. Carpenter, Janis C. Kestenbaum, JENNER & BLOCK, L.L.C., Washington, D.C., for Amicus Curiae DKT Liberty Project. Bill Lockyer, Attorney General of the State of California, Richard M. Frank, Chief Assistant Attorney General, Dennis Eckhart, Senior Assistant Attorney General, Karen Leaf, Deputy Attorney General, OFFICE OF THE ATTORNEY GENERAL, Sacramento, California, for Amici Curiae States. Ellen J. Vargyas, AMERICAN LEGACY FOUNDATION, Washington, D.C.; Jonathan E. Nuechterlein, Jonathan J. Frankel, Mary E. Kostel, C. Colin Rushing, WILMER, CUTLER & PICKERING, Washington, D.C., for Amici Curiae Foundation, et al.

OPINION

NIEMEYER, Circuit Judge:

Star Scientific, Inc., a cigarette manufacturer, challenges the constitutionality of the Master Settlement Agreement of November 16, 1998, between the Commonwealth of Virginia -as well as 45 other States -and the major tobacco manufacturers. It also challenges the constitutionality of legislation enacted by the Commonwealth of Virginia to qualify it to receive payments under the Master Settlement Agreement.

To settle the States' lawsuits against the major tobacco manufacturers arising from their development and marketing of cigarettes, Virginia and the 45 other States, as well as the District of Columbia and 5 territories, entered into a Master Settlement Agreement with Phillip Morris, Inc., R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, and Lorillard Tobacco Company. The Master Settlement Agreement calls for the tobacco manufacturers to pay the States, in exchange for releases from liability for past and future damages, approximately $200 billion over the next 25 years, including approximately $4.1 billion to the Commonwealth of Virginia.

Star Scientific, which contends that it has not engaged in the misconduct attributed to the major tobacco manufacturers and was not sued by any of the States, asserts that it will be unjustly burdened by the requirements of the Master Settlement Agreement and the legislation that Virginia enacted pursuant to the agreement. It therefore commenced this action to challenge the constitutionality of both the settlement agreement and the statute. The district court granted Virginia's motion to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6).

On appeal, Star Scientific contends that the statute enacted pursuant to the Master Page 344

Settlement Agreement, Va. Code Ann. SS 3.1-336.1 & 3.1-336.2, violates its rights under the Due Process, Equal Protection, and Commerce Clauses of the United States Constitution. It also contends that the Master Settlement Agreement itself violates the Compact Clause.

For the reasons that follow, we affirm.

I

In 1994, the Attorneys General of Mississippi, Minnesota, West Virginia, and Massachusetts filed lawsuits in their respective State courts against the major tobacco manufacturers, Phillip Morris, R.J. Reynolds, Brown & Williamson, and Lorillard, seeking reimbursement for healthcare expenditures made by those states on behalf of citizens suffering from tobacco-related diseases. By 1996, 15 additional states had filed similar suits. Although the States' respective complaints varied, they shared a common theme, alleging that the major tobacco companies (1) had misled and deceived the public by suppressing internal research about the risks and addictive properties of cigarettes, (2) had committed fraud and had engaged in racketeering activity through their efforts to disseminate false statements about the addictive nature of nicotine and the adverse health effects of smoking, and (3) had violated antitrust laws by, among other things, conspiring to suppress the development and marketing of safer cigarettes.

By 1997, after several more States had filed similar lawsuits, the major tobacco manufacturers negotiated with a group of State Attorneys General to reach a comprehensive nationwide settlement of the claims. The settlement, which was known as "the Tobacco Resolution," was contingent on congressional approval. Accordingly, federal legislation to implement the Tobacco Resolution was introduced in the Senate in November 1997. The major tobacco manufacturers, however, withdrew their support of this legislation when it appeared that the legislation would require them to pay more money and accept greater regulatory and marketing restrictions than they had agreed to in the Tobacco Resolution. Thus, the legislation was never enacted.

In the meantime, the major tobacco companies reached individual settlements with Mississippi, Florida, Texas, and Minnesota. And, upon failure of the Tobacco Resolution, several other State Attorneys General initiated negotiations with two of the tobacco companies on a new multi-state settlement. On November 16, 1998, a group of State Attorneys General and the major tobacco manufacturers reached an agreement called the "Master Settlement Agreement." This agreement permitted nonsettling States to participate if they acted within seven days.

The Commonwealth of Virginia, which had not participated in the original settlement discussions, decided to join the Master Settlement Agreement and, for that purpose, commenced an action in State court against Brown & Williamson, Liggett Group, Inc., Lorillard, Phillip Morris, R.J. Reynolds, and United States Tobacco Company on December 23, 1998. In its complaint, Virginia alleged that it spends millions of dollars each year to pay healthcare costs caused by tobacco-related diseases. It contended that the tobacco companies misrepresented the health effects of tobacco while simultaneously suppressing research revealing the dangers of tobacco products. The complaint also asserted that the defendants acted in concert to suppress research and preserve their markets. Finally, it alleged that the companies specifically targeted youth in their advertisements and marketing campaigns "to induce such persons to start using tobacco products and increase [the manufacturers'] Page 345

sales of tobacco products." The complaint alleged violations of the Virginia Antitrust Act, the Virginia Consumer Protection Act, and claims for unjust enrichment and restitution, and sought declaratory relief, injunctive relief, restitution, damages, costs, and attorneys fees.

After filing its complaint, Virginia, along with the other 45 states that had not already settled with the major tobacco companies, the District of Columbia, and 5 territories, agreed to sign on to the Master Settlement Agreement. Virginia's litigation in State court was accordingly terminated by a consent decree and final judgment, dated February 23, 1999, providing that "the [Master Settlement Agreement] set forth therein, and the establishment of the escrow provided for therein are hereby approved in all respects, and all claims are hereby dismissed with prejudice as provided therein." Star Scientific was not named a defendant in that action and did not participate in the Master Settlement Agreement.

Under the Master Settlement Agreement, the States released the participating tobacco manufacturers from all claims for past conduct based on the sale, use, and marketing of tobacco products. They also released future monetary claims arising out of exposure to tobacco products, including future claims for reimbursement of healthcare costs allegedly associated with the use of or exposure to tobacco products.

In return, the participating tobacco manufacturers agreed to conduct restrictions and to annual payments to the States. Among the conduct restrictions were...

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