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

Decision Date30 March 1999
Docket NumberNo. 98 CV 3287.,98 CV 3287.
Citation36 F.Supp.2d 560
PartiesBLUE CROSS AND BLUE SHIELD OF NEW JERSEY, INC., and its subsidiary, Medigroup of New Jersey, Inc. (d/b/a HMO Blue); Associated Hospital Service of Maine (d/b/a Blue Cross and Blue Shield of Maine), and its subsidiaries, Machigonne, Inc. (d/b/a Benefit Management of Maine) and Benefit Management, Inc.; 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); Bluecross Blueshield of Georgia, Inc., and its affiliate, HMO Georgia, Inc.; Blue Cross and Blue Shield of Massachusetts, Inc.; Blue Cross Blue Shield of Michigan; Blue Cross & Blue Shield of Mississippi, a Mutual Insurance Company, and its affiliates, HMO of Mississippi, Inc., Employer Benefits Administrators, Inc., and Bluebonnet Life Insurance Company; Bluecross Blueshield of North Carolina; Blue Cross & Blue Shield of Rhode Island, and its subsidiary, Coordinated Health Partners, Inc.; Blue Cross and Blue Shield of South Carolina, and its subsidiaries, Companion HealthCare Corporation and Preferred Health Systems, Incorporated; Blue Cross and Blue Shield of Vermont; California Physicians' Service (d/b/a Blue Shield of California), and its affiliates, CareAmerica-Southern California, Inc., CPIC Life Insurance Company, and CareAmerica Life Insurance Company; Carefirst of Maryland, Inc.; Empire Blue Cross and Blue Shield; Group Hospitalization & Medical Services, Inc. (d/b/a Blue Cross Blue Shield of the National Capital Area); 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.; New York Care Plus Insurance Company, Inc., (d/b/a Blue Cross and Blue Shield of Western New York, Blue Shield of Northeastern 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., Trigon Administrators, Inc., and Mid-South Insurance Company; and 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, v. PHILIP MORRIS, INCORPORATED; R.J. Reynolds Tobacco Company; Brown & Williamson Tobacco Corporation; B.A.T. Industries P.L.C.; British American Tobacco Company, Ltd.; Lorillard Tobacco Company; Liggett Group, Inc.; Liggett & Myers Inc.; United States Tobacco Company; The Tobacco Institute, Inc.; The Council For Tobacco Research — U.S.A., Inc.; The Smokeless Tobacco Council, Inc.; Hill and Knowlton, Inc.; and Unknown Corporations A-Z, Defendants.
CourtU.S. District Court — Eastern District of New York

Dewey Ballantine LLP, New York, N.Y. by Paul J. Bschorr, Vincent R. Fitzpatrick, Jr. Michael C. Hefter, Heather K. McDevitt, for Plaintiffs.

Wachtell, Lipton, Rosen & Katz, New York, N.Y. by Steven M. Barna, Michael A. Charish, and Swidler Berlin Shereff Friedman, LLP, New York, N.Y. by Joseph F. Donley, for Defendant Philip Morris, Incorporated.

Sedgwick, Detert, Moran & Arnold, New York, N.Y. by David M. Covey, for Defendants Brown & Williamson Tobacco Corporation.

Greenberg Traurig, New York, N.Y. by Alan Mansfield, and Shook, Hardy & Bacon, L.L.P., Kansas City, MO by Shannon L. Spangler, Lisa A. Lukaszewski, for Defendants Lorillard Tobacco Company, Lorillard, Inc., and Loews Corp.

Debevoise & Plimpton, New York, N.Y. by Sean Morris, for Defendant Council for Tobacco Research, U.S.A., Inc.

Skadden, Arps, Slate, Meagher & Flom LLP, New York, N.Y. by Arthur Aizley, for Defendant United States Tobacco Company.

Jacob, Medinger & Finnegan, LLP, New York, N.Y. by David R. Crittenden, for Defendant Smokeless Tobacco Council, Inc.

Howard, Rice, Nemerovski, Canady, Falk & Rabkin, San Francisco, CA by Peter J. Busch, for Defendants R.J. Reynolds Tobacco Co., and RJR Nabisco, Inc.

Simpson Thacher & Bartlett by Steven R. Rosenblatt, for Defendant British American Tobacco (investments) limited (formerly known as British-American Tobacco Company Limited).

MEMORANDUM AND ORDER

WEINSTEIN, Senior District Judge.

                I.   INTRODUCTION ......................................................... 564
                II.  COMPLAINT ............................................................ 565
                     A. RICO .............................................................. 565
                     B. FEDERAL ANTITRUST ................................................. 566
                     C. STATE LAW CLAIMS .................................................. 566
                III. FACTS AND LAW ........................................................ 566
                     A. RICO............................................................... 566
                       1.  Racketeering Enterprise Affecting Interstate Commerce .......... 566
                       2.  Standing ....................................................... 568
                           a.  Injury to Business or Property ............................. 569
                               (1)  Plaintiffs' Business and Property Losses .............. 569
                               (2)  "Pass-Through" ........................................ 569
                               (3)  Purely Economic vs. Personal Injury Claims ............ 570
                           b.  Proximate Cause ............................................ 573
                               (1)  Holmes Standard ....................................... 573
                                    (a) Ascertainable damages ............................. 575
                                    (b) Apportioning Damages .............................. 576
                                    (c) Sufficient deterrence ............................. 576
                               (2)  Second Circuit Cases .................................. 577
                               (3)  "Rule" of Remoteness .................................. 579
                       3.  Subrogation .................................................... 585
                     B. ANTITRUST ......................................................... 588
                     C. STATE LAW ......................................................... 588
                     D. INDISPENSABLE PARTIES AND PLEADING FRAUD .......................... 588
                IV.  CONCLUSION............................................................ 589
                
I. INTRODUCTION

There is now presented another battle in the modern tobacco litigation war. The case pits major portions of the health care industry against the leading cigarette manufacturers.

This memorandum deals primarily with defendants' motion to dismiss on the pleadings. The motion is denied.

Because of its complexity, the litigation will be limited and closely supervised by the court pursuant to Rule 16 and by analogy to Rule 23. Subject to motions and a full opportunity to be heard, the case is scheduled for trial in January of 2000 solely on the theory that defendants violated the Racketeer Influenced and Corrupt Organizations Act (RICO). In view of the sums sought, and the treble recoveries and legal fees and costs recoverable by a successful plaintiff in a RICO suit, the stakes are substantial.

This suit is one of three nationwide brought by Blue Cross and Blue Shield medical providers ("The Blues") for the recovery of economic damages they incurred in the medical treatment of diseases caused by tobacco use. Before this court are Blues organizations from nineteen states and the District of Columbia. They allege violations of the federal RICO and the Clayton and Sherman Antitrust Acts. Pendent state law claims are also asserted under various statutes and under the common law on theories of fraudulent misrepresentation, fraudulent concealment, breach of special duty, unjust enrichment, and conspiracy.

Defendants are the major tobacco manufacturers and related entities. They have moved on the pleadings to dismiss various claims in the complaint for failure to state a claim (Fed.R.Civ. P. 12(b)(6)), failure to join an indispensable party (Fed.R.Civ. P.12(b)(7),19), and failure to plead fraud with particularity (Fed.R.Civ.P.9).

For purposes of this motion the propositions of fact in plaintiffs' pleadings must be assumed to be true. Nevertheless, in view of what medical professionals have long known about the addictive and deleterious effects of tobacco, some skepticism about the accuracy of the allegations is in order. Resolution on the facts can only take place after discovery, which will be expedited by the magistrate judge.

II. COMPLAINT
A. RICO

The first two counts in the complaint purport to state a cause of action under the federal RICO statute. Count one alleges that ten of the defendants conducted and conspired to conduct a pattern of racketeering activity through enterprises engaged in interstate commerce. See 18 U.S.C. §§ 1962(c) and 1962(d).

Count two alleges that all of the defendants invested and conspired to invest racketeering proceeds in the acquisition, establishment, and operation of enterprises engaged in interstate commerce. See 18 U.S.C. §§ 1962(a) and 1962(d).

According to the complaint, the defendants' pattern of racketeering dates back to 1953. Specifically, the plaintiffs trace inception to a meeting on December 15, 1953 at the Plaza Hotel in New York City. There R.J. Reynolds, Philip Morris, Lorillard, Brown & Williamson, U.S. Tobacco, Hill and Knowlton and others conspired to conduct a campaign of misinformation to deceive the American public concerning the health consequences and addictive qualities of...

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