Blue Cross and Blue Shield v. Philip Morris Usa

• Citation: 344 F.3d 211
• Decision Date: 16 September 2003
• Docket Number: Docket No. 02-7424(CON).,Docket No. 02-7276(L).,Docket No. 02-7394(CON).
• Parties: BLUE CROSS AND BLUE SHIELD OF NEW JERSEY, INC., now known as Horizon Healthcare Services, Inc, (d/b/a Blue Cross Blue Shield of New Jersey, Horizon Blue Cross Blue Shield, Horizon Blue Cross Blue Shield of New Jersey, and Horizon BCBSNJ), and its subsidiary, Horizon Health Care of New Jersey, Inc. (d/b/a Medigroup of New Jersey, HMO Blue and Horizon HMO); BCBSD, Inc., (d/b/a Blue Cross Blue Shield of Delaware); Blue Cross and Blue Shield of Florida, Inc., and its affiliates, Health Options, Inc. and Capital Group Health Services of Florida, Inc., (d/b/a Capital Health Plan); Blue Cross Blue Shield of Georgia, Inc., and it affiliates HMO Georgia, Inc.; Bluecross and Blueshields of Massachusetts, Inc.; Bluecross Blue Shield of Michigan, and its subsidiary, Blue Care Network of Michigan Incorporated; Blue Cross Blue Shield of Mississippi, A Mutual Insurance Company, and its affiliate HMO of Mississippi, Inc.; Blue Cross and Blue Shield of North Carolina, and its subsidiaries Personal Health Plan of North Carolina, Inc. and Health Maintenance Organization of North Carolina; Blue Cross and Blue Shield of Vermont; California Physicians' Services, (d/b/a Blue Shield of California) and its affiliate, CareAmerica Life Insurance Company; Carefirst of Maryland, Inc., and its subsidiary Free State Health Plan Inc.; Empire Blue Cross and Blue Shield; Group Hospitalization & Medical Services, Inc., d/b/a CareFirst BlueCross BlueShield and subsidiary; Louisiana Health Service & Indemnity Company, Inc., (d/b/a Blue Cross and Blue Shield of Louisiana); Mountain State Blue Cross & Blue Shield, Inc., and its subsidiary, Parker Benefits, Inc., (d/b/a Super Blue HMO); New Hampshire-Vermont Health Service, (d/b/a Blue Cross Blue Shield of New Hampshire) and its subsidiaries, Matthew Thornton Health Plan, Inc., Matthew Thornton Insurance, Inc. and Health Initiatives, Inc.; HealthNow New York, Inc., (d/b/a Blue Cross and Blue Shield of Western New York, Blue Shield of Northern New York); Trigon Insurance Company, (d/b/a Trigon Blue Cross Blue Shield) and its affiliates, Physicians Health Plan, Inc., Healthkeepers, Inc., Priority Health Care, Inc., Peninsula Health Care, Inc., and Trigon Administrators, Inc.; Excellus, Inc., and its subsidiaries, The Finger Lakes Companies, Inc., (and its subsidiaries, Finger Lakes Health Insurance Company, Inc. and Finger Lakes Medical Insurance Company, Inc.), Excellus of Central New York, Inc. (and its subsidiary Excellus Health Plan, Inc.) and Upstate Holding Company, Inc. (and its subsidiary, Utica-Watertown Health Insurance Co., Inc.), Plaintiffs-Appellees, v. PHILIP MORRIS USA INCORPORATED; R.J. Reynolds Tobacco Company; Brown & Williamson Tobacco Corporation; Lorillard Tobacco Company; Liggett Group, Inc. and Liggett & Myers, Inc., Defendants-Appellants, B.A.T. Industries P.L.C.; British American Tobacco Co.; UNITED STATES Tobacco; Tobacco Institute, Inc.; Counsel for Tobacco Research-USA, Inc. The Smokeless Tobacco Council, Inc.; Hill and Knowlton, Inc.; John Doe, Unknown Corporations A-Z, Defendants.
• Court: U.S. Court of Appeals — Second Circuit

344 F.3d 211

BLUE CROSS AND BLUE SHIELD OF NEW JERSEY, INC., now known as Horizon Healthcare Services, Inc, (d/b/a Blue Cross Blue Shield of New Jersey, Horizon Blue Cross Blue Shield, Horizon Blue Cross Blue Shield of New Jersey, and Horizon BCBSNJ), and its subsidiary, Horizon Health Care of New Jersey, Inc. (d/b/a Medigroup of New Jersey, HMO Blue and Horizon HMO); BCBSD, Inc., (d/b/a Blue Cross Blue Shield of Delaware); Blue Cross and Blue Shield of Florida, Inc., and its affiliates, Health Options, Inc. and Capital Group Health Services of Florida, Inc., (d/b/a Capital Health Plan); Blue Cross Blue Shield of Georgia, Inc., and it affiliates HMO Georgia, Inc.; Bluecross and Blueshields of Massachusetts, Inc.; Bluecross Blue Shield of Michigan, and its subsidiary, Blue Care Network of Michigan Incorporated; Blue Cross Blue Shield of Mississippi, A Mutual Insurance Company, and its affiliate HMO of Mississippi, Inc.; Blue Cross and Blue Shield of North Carolina, and its subsidiaries Personal Health Plan of North Carolina, Inc. and Health Maintenance Organization of North Carolina; Blue Cross and Blue Shield of Vermont; California Physicians' Services, (d/b/a Blue Shield of California) and its affiliate, CareAmerica Life Insurance Company; Carefirst of Maryland, Inc., and its subsidiary Free State Health Plan Inc.; Empire Blue Cross and Blue Shield; Group Hospitalization & Medical Services, Inc., d/b/a CareFirst BlueCross BlueShield and subsidiary; Louisiana Health Service & Indemnity Company, Inc., (d/b/a Blue Cross and Blue Shield of Louisiana); Mountain State Blue Cross & Blue Shield, Inc., and its subsidiary, Parker Benefits, Inc., (d/b/a Super Blue HMO); New Hampshire-Vermont Health Service, (d/b/a Blue Cross Blue Shield of New Hampshire) and its subsidiaries, Matthew Thornton Health Plan, Inc., Matthew Thornton Insurance, Inc. and Health Initiatives, Inc.; HealthNow New York, Inc., (d/b/a Blue Cross and Blue Shield of Western New York, Blue Shield of Northern New York); Trigon Insurance Company, (d/b/a Trigon Blue Cross Blue Shield) and its affiliates, Physicians Health Plan, Inc., Healthkeepers, Inc., Priority Health Care, Inc., Peninsula Health Care, Inc., and Trigon Administrators, Inc.; Excellus, Inc., and its subsidiaries, The Finger Lakes Companies, Inc., (and its subsidiaries, Finger Lakes Health Insurance Company, Inc. and Finger Lakes Medical Insurance Company, Inc.), Excellus of Central New York, Inc. (and its subsidiary Excellus Health Plan, Inc.) and Upstate Holding Company, Inc. (and its subsidiary, Utica-Watertown Health Insurance Co., Inc.), Plaintiffs-Appellees, v. PHILIP MORRIS USA INCORPORATED; R.J. Reynolds Tobacco Company; Brown & Williamson Tobacco Corporation; Lorillard Tobacco Company; Liggett Group, Inc. and Liggett & Myers, Inc., Defendants-Appellants, B.A.T. Industries P.L.C.; British American Tobacco Co.; UNITED STATES Tobacco; Tobacco Institute, Inc.; Counsel for Tobacco Research-USA, Inc. The Smokeless Tobacco Council, Inc.; Hill and Knowlton, Inc.; John Doe, Unknown Corporations A-Z, Defendants.

Docket No. 02-7276(L).

Docket No. 02-7394(CON).

Docket No. 02-7424(CON).

United States Court of Appeals, Second Circuit.

Argued: February 13, 2003.

Decided: September 16, 2003.

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Murray R. Garnick, Arnold & Porter, Washington, D.C. (Ursula Henniger, Womble Carlyle Sandridge & Rice, Winston-Salem, North Carolina; John B. Williams, Collier, Shannon & Scott LLP, Washington, D.C.; Kimberly S. Penner, Sedgwick, Detert, Moran & Arnold, New York, New York; William Allinder, Shook, Hardy & Bacon L.L.P., Kansas City, Missouri; Alan Mansfield and Stephen Saxl, Greenberg Traurig, New York, New York, on brief), for Appellants Philip Morris, Inc., R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, Lorillard Tobacco Company, Liggett Group, Inc.,

Leonard A. Feiwus, Kasowitz, Benson, Torres & Friedman LLP, New York, New York, on submission for Appellants Liggett Group, Inc, and Liggett Myers, Inc.

Paul J. Bschorr (Joseph Angland and Kathleen M. Kacsor, on brief), Dewey Ballantine LLP, New York, New York, for Appellee.

Before: VAN GRAAFEILAND, CABRANES, and F.I. PARKER,^* Circuit Judges.

F.I.PARKER, Circuit Judge.^**

Phillip Morris, Inc., R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, Lorillard Tobacco Company, Liggett Group, Inc. and Liggett & Myers, Inc. ("Appellants") appeal from a decision of the United States District Court for the Eastern District of New York (Jack B. Weinstein, Judge) denying them judgment as a matter of law following a jury verdict in favor of Empire Healthcare, Inc. (d/b/a Empire Blue Cross & Blue Shield) ("Empire").¹ Empire alleged that defendants² engaged in a scheme to distort public knowledge concerning the risks of smoking, knowing that the public would act on the misinformation, and that this behavior resulted in Empire paying increased costs for medical services provided to subscribers with medical conditions that were either causally related to, or exacerbated by, smoking. At trial, the jury found that all defendants except British American Tobacco Company, Ltd. were liable under New York's consumer protection statute, and awarded $17,782,702 in compensatory damages.³ The jury rejected Empire's other claims, and Empire has not appealed those decisions. The district court subsequently awarded attorneys' fees to Empire. Judgment was initially entered on November 7, 2001, and an amended judgment was entered on April 1, 2002. Appellants now appeal.

For the reasons set forth below, we reverse judgment on Empire's subrogation claim and will, in due course, remand the matter to the district court to enter judgment for Appellants on that claim. We reserve decision on the award of attorneys' fees, which may be affected by the outcome of the certification process. Finally, we certify two related questions to the New York Court of Appeals.

I. BACKGROUND

A. Underlying Facts

In April 1998, twenty Blue Cross/Blue Shield plans and their subsidiaries and affiliates (the "Plans") filed suit against defendant tobacco companies in the Eastern District of New York seeking to recover costs of providing health care to plan subscribers (a/k/a plan "members") as a result of medical conditions causally connected to, or exacerbated by, tobacco use. The Plans alleged that because of defendants' long-standing deception of the public as to the negative health consequences of cigarette smoking, the Plans' health care expenditures rose as a result of spending on subscribers who were harmed by defendants' products. The factual underpinings of these claims are set forth in great length in three underlying district court opinions. See Blue Cross & Blue Shield of New Jersey, Inc. v. Philip Morris, Inc., 113 F.Supp.2d 345 (E.D.N.Y. 2000) (granting in part, and denying in part, defendants' motion for summary judgment) ("Blue Cross I"); Blue Cross & Blue Shield of New Jersey, Inc. v. Philip Morris, Inc., 178 F.Supp.2d 198 (E.D.N.Y. 2001) (denying defendants' motion for judgment as a matter of law and granting plaintiffs' motion for judgment on the jury award) ("Blue Cross II"); Blue Cross & Blue Shield of New Jersey, Inc. v. Philip Morris, Inc., 190 F.Supp.2d 407 (E.D.N.Y. 2002) (awarding attorneys' fees) ("Blue Cross III"). We will therefore assume familiarity with the factual allegations and supporting evidence and not recount them here.

B. District Court Proceedings

In April 1998 when the Plans commenced this action, they sought recovery under federal law, including the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 et. seq.; common law; and state statutory law, including New York's consumer protection statute, N.Y. Gen. Bus. L. § 349 ("Section 349"). Defendants unsuccessfully moved for dismissal on the grounds that the claims were remote and therefore barred as a matter of law. Defendants then unsuccessfully renewed their motion after this Court found similar common law and RICO claims were too remote to permit suit in Laborers Local 17 Health & Benefit Fund v. Philip Morris Inc., 191 F.3d 229, 239-40 (2d Cir.1999). That motion was also denied. See National Asbestos Workers Med. Fund v. Philip Morris, Inc., 74 F.Supp.2d 221 (E.D.N.Y.1999) (distinguishing the Plans from the health care insurers involved in Laborers Local 17, and explaining that the Plans had amended their complaint to assert a subrogation claim as an alternative basis for recovery).

In September 2000, the district court ruled that Empire's claims would proceed to trial alone, and that the other Plans' claims would be stayed pending resolution of the Empire trial. See Blue Cross I, 113 F.Supp.2d at 353. A 44-day jury trial was then held during which the jury heard from 34 witnesses. Blue Cross II, 178 F.Supp.2d at 208. Empire put forth significant evidence that smoking causes cancer, that smoking increases medical costs, and that defendants engaged in deceptive practices, which included lying to the public about the link between cancer and smoking and misrepresenting their commitment to finding such a link, if any.

The jury found Empire's federal law and common law claims to be unsupported, but found that Empire's claims under Section 349 were supported by the evidence against all defendants except the British American Tobacco Company. The jury awarded Empire $17,782,702 on their direct claim under Section 349, and $11,829,784 on their subrogated claim under Section 349.

Appellants then moved for judgment as a matter of law. The district court denied the motion in an extensive opinion which explains both the underlying evidence and the district court's reasoning in great depth. We, therefore, will not recapitulate the district court's reasoning, choosing instead to refer the reader to the opinion: Blue Cross II, 178 F.Supp.2d 198. The district court subsequently awarded Empire nearly $38...