Conn. Pipe Trades Health Fund v. Philip Morris

• Decision Date: 21 March 2001
• Docket Number: No. 397CV1305(JBA).,397CV1305(JBA).
• Citation: 153 F.Supp.2d 101
• Court: Connecticut Supreme Court
• Parties: CONNECTICUT PIPE TRADES HEALTH FUND, et al., v. PHILIP MORRIS, INC., et al.

Page 101

153 F.Supp.2d 101

CONNECTICUT PIPE TRADES HEALTH FUND, et al., v. PHILIP MORRIS, INC., et al.

No. 397CV1305(JBA).

United States District Court, D. Connecticut.

March 21, 2001.

Melvyn I. Weiss, Michael C. Spencer, Beth A. Kaswan, Milberg, Weiss, Bershad, Hynes & Lerach, New York City, Robert M. Cheverie, Cheverie & Associates, East Hartford, CT, Steven E. Fineman, Perry Weitz, Weitz & Luxenberg, New York City, for Health Fund and International Brotherhood of Elec. Workers, Local 90.

Michael M. Buchman, Milberg, Weiss, Bershad, Hynes & Lerach, New York City, for International Brotherhood of Workers.

Benjamin A. Solnit, William R. Murphy, Timothy P. Jensen, Tyler, Cooper & Alcorn, New Haven, CT, Glory Martyn Lena, Tyler Cooper & Alcorn, Hartford, CT, Antonio Ponvert, III, Koskoff, Koskoff & Bieder, P.C., Bridgeport, CT, Steven C. Bennett, Jones, Day, Reavis & Pogue, New York City, Peter C. Hein, Barbara Robbins, Ben M. Germana, Wachtell, Lipton, Rosen & Katz, for Philip Morris, Inc. and RJ Reynolds Tobacco Co.

David M. Bernick, Kirkland & Ellis, Chicago, IL, James H. Rotondo, Day, Berry & Howard, Hartford, CT, Marjorie Press Lindblom, Peter Bellacosa, Kirkland

& Ellis, New York City, for Brown & Williamson Tobacco Corp. and American Tobacco Co.

John C. Yavis, Jr., Murtha Cullina LLP, Hartford, CT, for Bat Indus. PLC.

James R. Fogarty, Lawrence F. Reilly, Epstein, Fogarty, Cohen & Selby, Greenwich, CT, Gael Mahony, Bruce Falby, Dylan Sanders, Hill & Barlow, Boston, MA, Andrew P. Nemiroff, Epstein, Fogarty, Cohen & Selby, Greenwich, CT, for Lorillard Tobacco Co.

Paul M. O'Connor, Jr., Greenwich, CT, for Liggett & Myers Inc.

William H. Narwold, Cummings & Lockwood, Hartford, CT, Heather Victoria Taylor, John P. McKinney, Cummings & Lockwood, Stamford, CT, Joshua van Hulst, Paul, Hastings, Janofsky & Walker, Stamford, CT, for US Tobacco Co.

David L. Belt, Jacobs, Grudberg, Belt & Dow, P.C., New Haven, CT, for Council for Tobacco Research-U.S.A., Inc.

David L. Belt, Jacobs, Grudberg, Belt & Dow, P.C., New Haven, CT, Bourke G. Spellacy, Robert Reginald Simpson, Updike, Kelly & Spellacy, P.C., Hartford, CT, Steven Bruce Malech, Axinn, Veltrop & Harkrider, Hartford, CT, for Tobacco Inst., Inc.

Edward V. O'Hanlan, Elizabeth T. Grove, Cummings & Lockwood, Stamford, CT, Michael K. Stanton, Jr., Curtis, Mallet-Prevost, Colt & Mosle, Stamford, CT, for Smokeless Tobacco Council, Inc.

Dorit S. Heimer, Levett Rockwood, P.C., Westport, CT, for Hill & Knowlton, Inc.

MEMORANDUM OF DECISION ON DEFENDANTS' MOTIONS TO DISMISS [Doc. ## 52, 55, 95, 97]

ARTERTON, District Judge.

Plaintiffs, trustees of the Connecticut Pipe Trades Health Fund and the International Brotherhood of Electrical Workers Local 90 Benefit Plan, two Connecticut labor-management health and welfare trust funds ("the Funds") filed this class action suit against defendants Philip Morris, Inc., R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp., B.A.T. Industries P.L.C., Lorillard Tobacco Co., Liggett & Myers, Inc., The American Tobacco Co., The Council for Tobacco Research, The Tobacco Institute and Hill & Knowlton, Inc. (collectively "the tobacco industry") seeking to recover for medical expenses paid by the Funds to cover smoking-related injuries suffered by members of the Funds' health plans. As discussed below, the legal theories under which the Funds argue they are entitled to prevail have shifted in the face of a rising tide of case law against benefits payor recovery suits.

All defendants have now moved to dismiss the complaint for failure to state a claim under Fed.R.Civ.P. 12(b)(6) [Doc. ## 52, 97] or, in the alternative, for failure to join indispensable parties under Rules 12(b)(7) and 19 [Doc. ## 55, 95]. For the reasons discussed below, defendants' joint motion to dismiss for failure to state a claim is granted. Accordingly, the joint motion to dismiss for failure to join necessary parties is denied as moot.

I. Background

A. Procedural background

Originally, this suit was brought by the Funds on behalf of a putative class of all similarly situated labor union health and welfare funds in Connecticut, alleging violations of RICO, the Sherman Act, and various state statutory and common law claims. See Doc. # 1. Following the Second Circuit's grant of interlocutory appeal in a factually identical case, the parties entered a joint stipulation of dismissal without prejudice pending the outcome of that case. See Doc. # 70. In 1999, the Second Circuit ruled that union funds did not have standing to pursue direct RICO or state common law fraud or special duty claims against the tobacco industry to recover for such payments. Laborers Local 17 Health and Benefit Fund v. Philip Morris, Inc., 191 F.3d 229, 239 (2d Cir. 1999). After the Supreme Court denied certiorari, the Funds filed a Second Amended Class Action Complaint [Doc. # 94] on behalf of the trustees of the Funds asserting claims solely under state consumer protection laws, the Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. § 42-110 ("CUTPA"), or, in the alternative, the New York General Business Law, §§ 349, 350 ("NYGBL"). That complaint is the subject of the current motion to dismiss.

B. Factual background

At the heart of plaintiffs' 110 page Second Amended complaint¹ are its allegations that for decades the tobacco industry has conspired to deceive the public about the harms of smoking, despite its knowledge that "cigarettes are both deadly and addictive." Second Amended Compl. at ¶¶ 1-4. According to plaintiffs, the tobacco industry has manipulated nicotine levels in cigarettes to encourage addiction, engaged in deceptive and manipulative advertising and marketing of cigarettes despite knowledge of the health risks associated with smoking, and fended off meritorious lawsuits brought by individual smokers by engaging in a "strategy of attrition and delay." Id. at ¶¶ 3, 5, 8. These actions by defendants have led to "a human tragedy practically beyond comprehension," including the deaths of over 400,000 Americans each year. Id. at ¶ 9. Plaintiffs also allege that defendants' conduct has led to vast health care expenditures, including millions of dollars annually spent by the Funds to cover the smoking-related medical costs of union health plan participants. Id. at ¶¶ 11-13.

All of the foregoing is taken as true for purposes of deciding this motion to dismiss. See Johnson v. Newburgh Enlarged Sch. Dist., 239 F.3d 246, 250 (2d Cir.2001).

II. Discussion

A. Impact of Laborers Local

In Laborers Local 17, a case involving the same allegations of wrongdoing by the tobacco industry and identical alleged damages, the Second Circuit held that labor union health and welfare trust funds, claiming that the tobacco industry conspired to deceive the public about the dangers of smoking, lacked standing to pursue direct RICO and common law fraud and special duty claims because the economic injuries allegedly suffered by the funds were "entirely derivative of the harm suffered by plan participants as a result of using tobacco products." Laborers Local 17 Health and Benefit Fund v. Philip Morris, Inc., 191 F.3d 229, 239 (2d Cir. 1999). The court held that common law principles of proximate causation required plaintiffs to show direct injury as an independent element of proximate causation, and concluded that in this case, the "chain of causation linking defendants' alleged wrongdoing to plaintiffs' alleged injuries is too remote to permit recovery as a matter of law," id. at 234, because the injuries to the Funds were derivative of the injuries to the plan participants, id. at 239-41.

Relying on Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 268-69, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992), the Circuit held that "where a plaintiff complains of injuries that are wholly derivative of harm to a third party, plaintiff's injuries are generally deemed indirect and as a consequence, too remote, as a matter of law, to permit recovery." The court noted that Holmes had laid out three factors, in lieu of a bright-line rule, to determine whether injuries are too indirect to afford standing under RICO:

First, the more indirect an injury is, the more difficult it becomes to determine the amount of plaintiff's damages attributable to the wrongdoing as opposed to other, independent factors. Second, recognizing claims by the indirectly injured would require courts to adopt complicated rules apportioning damages among plaintiffs removed at different levels of injury from the violative acts, in order to avoid the risk of multiple recoveries. Third, struggling with the first two problems is unnecessary where there are directly injured parties who can remedy the harm without these attendant problems.

Id. at 236-37 (citing Holmes, 503 U.S. at 269-70, 112 S.Ct. 1311).²

The Second Circuit held that "the critical question posed by the direct injury test is whether the damages a plaintiff sustains are derivative of an injury to a third party. If so, then the injury is indirect; if not, it is direct." Id. at 239-40. However, it also noted in a footnote that "indirect" could not be "defined with absolute precision," and thus "to the extent that our description of `indirect' or `derivative' injury might seem to encompass cases where recovery by the plaintiff would not run afoul of the policy concerns set forth above, the outer limits of the direct injury test are described more by those concerns than by any bright-line, verbal definition." Id. at 240 n. 4.

The court also considered and rejected the allegations of a direct "infrastructure harm" identical to that made by plaintiffs here:

Plaintiffs declare that their complaint alleges a direct injury brought about by defendants' misconduct towards the Funds themselves. Plaintiffs allege that defendants misrepresented the health risks of smoking and the addictiveness of nicotine, causing the Funds to fail to implement smoking...