McLaughlin v. American Tobacco Co.

• Citation: 522 F.3d 215
• Decision Date: 03 April 2008
• Docket Number: Docket No. 06-4666-cv.
• Parties: Karen McLAUGHLIN, Jane Amodeo, David Tuttleman, Susan Bailey, Barbara Bishop, Trevor Campbell, Fergal Furlong, David Rogers, Barbara Schwab, Patricia Scocozza, and Jim Sherman, Plaintiffs-Appellees, v. AMERICAN TOBACCO COMPANY, Altria Group, Inc., Philip Morris USA Inc., Lorillard Tobacqo Co, British American Tobacco Limited, Liggett Group, Inc., B.A.T. Industries P.L.C., and RJ. Reynolds Tobacco Co., Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

522 F.3d 215

Karen McLAUGHLIN, Jane Amodeo, David Tuttleman, Susan Bailey, Barbara Bishop, Trevor Campbell, Fergal Furlong, David Rogers, Barbara Schwab, Patricia Scocozza, and Jim Sherman, Plaintiffs-Appellees, v. AMERICAN TOBACCO COMPANY, Altria Group, Inc., Philip Morris USA Inc., Lorillard Tobacqo Co, British American Tobacco Limited, Liggett Group, Inc., B.A.T. Industries P.L.C., and RJ. Reynolds Tobacco Co., Defendants-Appellants.

Docket No. 06-4666-cv.

United States Court of Appeals, Second Circuit.

Argued: July 10, 2007.

Decided: April 3, 2008.

Theodore M. Grossman, Jones Day, Cleveland, OH (Robert H. Klonoff and Mark A. Belasic, Jones Day, Cleveland, OH, Todd R. Geremia, Jones Day, New York, N.Y., Murray R. Garnick, Judith Bernstein-Gaeta, and James M. Rosenthal, Arnold & Porter LLP, Washington, D.C., David M. Bernick, Kirkland & Ellis LLP, Chicago, IL, Guy Miller Struve, Frances E. Bivens, and Phineas E. Leahey, Davis Polk & Wardwell, New York, N.Y., Gregory M. Loss, Thomas E. Riley, and Joseph G. Falcone, Chadbourne & Parke LLP, New York, N.Y., Alan Mansfield and Stephen L. Saxl, Greenberg Traurig, LLP, New York, N.Y., William L. Minder, Shook, Hardy & Bacon LLP, Kansas City, MO, Aaron H. Marks, Leonard A. Feiwus, and Julie R. Fischer, Kasowitz, Benson, Torres & Friedman LLP, New York, N.Y., on the brief), for Defendants-Appellants.

Michael D. Hausfeld, Cohen, Milstein, Hausfeld & Toll, P.L.L.C., Washington, D.C. (Benjamin D. Brown, James J. Pizzirusbo, Brent W. Landau, Andrea L. Hertzfeld, Cohen, Milstein, Hausfeld & Toll, P.L.L.C., Washington, D.C, Burton H. Finkelstein and Richard M. Volin, Finkelstein, Thompson & Loughran, Washington, D.C, on the brief), for Plaintiffs-Appellees.

Harvey Kurzweil, Dewey & LeBoeuf LLP, New York, N.Y. (Matthew L. DiRisio and Emilie B. Cooper, Dewey & Le-Boeuf LLP, New York, N.Y., on the brief), for Amicus Curiae Citizens' Commission To Protect the Truth.

John H. Beisner, O'Melveny & Myers LLP, Washington, D.C. (Jessica Davidson Miller and Charles E. Borden, O'Melveny & Myers LLP, Washington, D.C, Hugh F. Young, Jr., Product Liability Advisory Council, Inc., Reston, VA, on the brief), for Amicus Curiae Product Liability Advisory Council, Inc.

Alan E. Untereiner, Robbins, Russell, Englert, Orseck & Untereiner LLP, Washington, D.C, (Matthew R. Segal, Russell, Englert, Orseck & Untereiner LLP, Washington, D.C, Robin S. Conrad and Amar D. Sarwal, National Chamber Litigation Center, Washington, D.C, on the brief), for Amicus Curiae Chamber of Commerce of the United States of America.

Richard A. Daynard, Northeastern University School of Law, Boston, MA (Christopher N. Banthin, Public Health Advocacy Institute, Inc., Boston, MA, on the brief), for Amici Curiae Tobacco Control Resource Center Division of the Public Health Institute, Inc., and the Tobacco Control Legal Consortium.

Before: WINTER, WALKER, and POOLER, Circuit Judges.

JOHN M. WALKER, JR., Circuit Judge:

While redressing injuries caused by the cigarette industry is "one of the most troubling ... problems facing our Nation today," FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 125, 120 S.Ct. 1291, 146 L.Ed.2d 121 (2000), not every wrong can have a legal remedy, cf. Pearl v. City of Long Beach, 296 F.3d 76, 89 (2d Cir.2002), at least not without causing collateral damage to the fabric of our laws. Plaintiffs' putative class action suffers from an insurmountable deficit of collective legal or factual questions. Their claims are brought as based in fraud under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968, but under RICO, each plaintiff must prove reliance, injury, and damages. Moreover, some undetermined number of plaintiffs' claims are timebarred. Rule 23 is not a one-way ratchet, empowering a judge to conform the law to the proof. We therefore reverse the order of the district court and decertify the class.

BACKGROUND¹

Plaintiffs, a group of smokers allegedly deceived — by defendants' marketing and branding — into believing that "light" cigarettes ("Lights") were healthier than "fullflavored" cigarettes, sought and were granted class certification. Schwab v. Philip Morris USA Inc., 449 F.Supp.2d 992 (E.D.N.Y.2006) (Jack B. Weinstein, Judge). Plaintiffs' suit is brought under RICO, with mail and wire fraud as the necessary predicate acts. See 18 U.S.C. § 1962(c) (forbidding "any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity"); see also id. § 1961(1) (providing that mail and wire fraud constitute racketeering activity); cf. id. § 1341 (mail fraud statute); id. § 1343 (wire fraud statute). The gravamen of plaintiffs' complaint is that defendants' implicit representation that Lights were healthier led them to buy Lights in greater quantity than they otherwise would have and at an artificially high price, resulting in plaintiffs' overpayment for cigarettes. Plaintiffs allege claims arising from their purchase of Lights from 1971, when defendants first introduced Lights, until the date on which trial commences.²

We pause in our narrative briefly to explain the history of Lights, as that history bears on plaintiffs' claims. In 1955, the Federal Trade Commission (FTC) adopted the "Cigarette Advertising Guides," which proscribed "any implicit or explicit health claims in cigarette advertising .... [except claims] that a cigarette was `low in nicotine or tars' provided it ha[d] `been established by competent scientific proof ... that the claim [wa]s true, and if true, that such difference or differences [we]re significant.'" United States v. Philip Morris USA Inc., 449 F.Supp.2d 1, 432 (D.D.C. 2006).

Several years later, in 1967, the FTC introduced the "Cambridge Filter Method" for calculating tar and nicotine yield. The Cambridge Filter Method, however, which relies upon a machine to test the tar and nicotine content of cigarettes, is quite unreliable. Most smokers who smoke Lights obtain just as much tar and nicotine as they would if they smoked full-flavored cigarettes, principally by "compensating" — that is, either by inhaling, more smoke per cigarette (e.g., by covering ventilation holes, drawing more deeply with each puff, etc.) or by buying more cigarettes, Schwab, 449 F.Supp.2d at 1094, neither of which a machine is capable of doing. Cigarette manufacturers have apparently been aware of this phenomenon for some time. See Philip Morris, 449 F.Supp.2d at 438; Aspinall v. Philip Morris Cos., 442 Mass. 381, 813 N.E.2d 476, 481 n. 9 (Mass.2004). But some smokers continued at least until 2000 to believe that Lights were healthier than full-flavored cigarettes. As the district court noted, citing a 1977 Brown & Williamson Internal Marketing Study, "[a]lmost all smokers agree that the primary reason for the increasing acceptance of [Lights] is based on the health reassurance they seem to offer." Schwab, 449 F.Supp.2d at 1095 (internal quotation marks and citation omitted).

In 2001, however, the National Cancer Institute published a report, "Monograph 13," that "review[ed] evidence on the FTC method for measuring tar and nicotine yields and the disease risks of machine-measured low-tar cigarettes." J.A. at 855. The stated objective of the report was "to determine whether the evidence taken as a whole shows that the cumulative effect of engineering changes in cigarette design over the last 50 years has reduced disease risks in smokers." Id. Monograph 13 discussed the introduction and marketing of low-yield cigarettes, the growing use of these cigarettes, and the practice of compensatory smoking. Ultimately, it concluded that there was "no convincing evidence that changes in cigarette design between 1950 and the mid 1980s have resulted in an important decrease in the disease burden caused by cigarette use either for smokers as a group or for the whole population." Id. at 992. The publication of Monograph 13 sparked both this suit, filed in May 2004, and a parallel civil RICO action brought by the federal government.³

Plaintiffs seek $800 billion in economic damages (trebled) stemming from their purchases of Lights. On September 25, 2006, the district court certified their proposed class of Lights smokers. On November 16, 2006, this court stayed the proceedings below and granted defendants leave to take an interlocutory appeal under Federal Rule of Civil Procedure 23(f). We now reverse the district court's class certification order and decertify the class.

DISCUSSION

We review the district court's certification order for abuse of discretion. See Moore v. PaineWebber, Inc., 306 F.3d 1247, 1252 (2d Cir.2002). We will "exercise even greater deference when the district court has certified a class than when it has declined to do so." Marisol A by Forbes v. Giuliani 126 F.3d 372, 375 (2d Cir.1997). However, as we recently made clear, "a district judge may not certify a class without making a ruling that each Rule 23 requirement is met ... [and] all ... evidence must be assessed as with any other threshold issue," whether or not any such assessment also bears on the merits of the case. Miles v. Merrill Lynch & Co. (In re Initial Pub. Offerings Sec. Litig.), 471 F.3d 24, 27 (2d Cir.2006) [hereinafter In re IPO] (emphasis added). Rule 23(a) requires that a class action possess four familiar features: (1) numerosity; (2) commonality; (3) typicality; and (4) adequacy of representation. If those criteria are met, the district court must next determine whether the class can be maintained under any one of the three subdivisions of Rule 23(b). With respect to class actions for money damages sought under Rule 23(b)(3), the district court must also find that "questions of law or fact common to class members predominate over any questions affecting...