Int'l Brotherhood of Teamsters v. Morris Incorp.

• Decision Date: 21 September 1999
• Docket Number: Nos. 99-1014,99-3396,99-1197,99-3397,s. 99-1014
• Citation: 196 F.3d 818
• Parties: (7th Cir. 1999) International Brotherhood of Teamsters, Local 734 Health and Welfare Trust Fund and Central States Joint Board Health and Welfare Trust Fund, Plaintiffs-Appellants, v. Philip Morris Incorporated, et al., Defendants-Appellees. Arkansas Blue Cross and Blue Shield, et al., Plaintiffs-Appellees, v. Philip Morris Incorporated, et al., Defendants-Appellants
• Court: U.S. Court of Appeals — Seventh Circuit

Page 818

196 F.3d 818 (7th Cir. 1999)

International Brotherhood of Teamsters, Local 734 Health and Welfare Trust Fund and Central States Joint Board Health and Welfare Trust Fund, Plaintiffs-Appellants, v. Philip Morris Incorporated, et al., Defendants-Appellees.

Arkansas Blue Cross and Blue Shield, et al., Plaintiffs-Appellees, v. Philip Morris Incorporated, et al., Defendants-Appellants.

Nos. 99-1014, 99-1197, 99-3396, 99-3397

United States Court of Appeals, Seventh Circuit

Argued September 21, 1999^*

Decided November 15, 1999

Rehearing and Rehearing En Banc Denied in Nos. 99-3396 and 99-3397 December 16, 1999^**

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. Nos. 97 C 8113 & 97 C 8114--Blanche M. Manning, Judge.

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 98 C 2612--Elaine E. Bucklo, Judge. [Copyrighted Material Omitted] Before Easterbrook, Kanne, and Evans, Circuit Judges.

Easterbrook, Circuit Judge.

States that sued tobacco companies have been promised more than $200 billion in settlement over a 25-year period. Awed by this success, health insurers (including ERISA welfare benefit funds) have filed me-too suits, contending that the tobacco producers must compensate the insurers for the costs of smokers' health care. Defendants have been unwilling to settle these suits, however, and insurers have lost all three cases that have reached appellate courts. See Steamfitters Local Union No. 420 Welfare Fund v. Philip Morris, Inc. 171 F.3d 912 (3d Cir. 1999); Oregon Laborers-Employers Health & Welfare Trust Fund v. Philip Morris Inc., 185 F.3d 957 (9th Cir. 1999); Laborers Local 17 Health & Benefit Fund v. Philip Morris, Inc., 1999 U.S. App. Lexis 19576 (2d Cir. Aug. 18, 1999). Each court held that the loss suffered by insurers is too remote from the activity of making and promoting cigarettes--for insurers do not buy cigarettes but are affected only indirectly, through reverberations from smokers' decisions. Insurers usually may elect to litigate tort claims on behalf of their insureds, using the proceeds first to cover medical costs, but they have disdained the option. They want to recover directly from tobacco producers precisely in order to bypass the elements of subrogation actions--principally, that the insurer demonstrate the existence of a tort and the lack of any defenses to liability. By suing directly, plaintiffs seek to recover even if none of their beneficiaries could prevail in tort litigation. The three appellate decisions disapprove this maneuver and hold that insurers may recover only to the extent that they can step into the shoes of their insureds. Plaintiffs in cases that we have consolidated for consideration want us to depart from these decisions.

Welfare benefit funds usually turn heaven and earth to ensure that litigation against them proceeds in federal court. Funds appear to believe that state judges are more liberal than federal judges with other people's money. Demonstrating consistency in this belief, the Teamsters Health and Welfare Trust Fund and the Central States Joint Board Health and Welfare Trust Fund filed suit against the cigarette manufacturers in an Illinois court. None of the tobacco manufacturers is incorporated or has a principal place of business in Illinois, so to forestall removal under the diversity jurisdiction the Funds named as defendants several local distributors. Defendants removed the suit anyway, contending that the distributors should be ignored because they are not realistically exposed to liability. See Poulos v. Naas Foods, Inc., 959 F.2d 69 (7th Cir. 1992). The Funds submit that the manufacturers collusively suppressed research into the health effects of tobacco, lied to the public about these effects, and conspired to suppress the output (and increase the price) of safer cigarettes. District Judge Manning concluded that the distributors' presence is an instance of fraudulent joinder, that the claim comes within the federal court's original jurisdiction, see 28 U.S.C. sec.1332(a), and therefore that it was properly removed under 28 U.S.C. sec.1441. 1998 U.S. Dist. Lexis 6831. She added that the complaint also alleges claims under federal law, so that sec.1331 likewise supplies original jurisdiction. Judge Manning then dismissed the complaint under Fed. R. Civ. P. 12(b)(6), ruling that all of the Funds' alleged injuries are too remote from the manufacturers' supposed wrongdoing.

While the Funds were trying to avoid federal court, several health insurers were eagerly seeking it out. The Blue Cross and Blue Shield associations of Arkansas, Connecticut, Illinois, Kentucky, Missouri, and North Dakota, joined by affiliated insurers (collectively "the Blues"), filed suit in the Northern District of Illinois under sec.1 of the Sherman Antitrust Act, 15 U.S.C. sec.1, and the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. sec.sec. 1961-68. Why federal court in Illinois as the venue for litigation against the tobacco industry? The answer appears to be Blue Cross & Blue Shield United of Wisconsin v. Marshfield Clinic, 65 F.3d 1406 (7th Cir. 1995), which the Blues read as holding that they are entitled to sue directly for wrongs done to their insureds. This suit was assigned to District Judge Bucklo, who shares the Blues' understanding of Marshfield Clinic and denied the cigarette manufacturers' motions to dismiss. 47 F. Supp. 2d 936. Judge Bucklo concluded that the issue is debatable, however, and certified the issue for interlocutory appeal under 28 U.S.C. sec.1292(b) so that we could resolve the question. 1999 U.S. Dist. Lexis 12096. A motions panel accepted the appeals and consolidated the Blues' suit with the Funds' for appellate resolution. Although the rationale for certification was the desirability of obtaining a prompt answer to the question whether Marshfield Clinic commits this circuit to a position at variance with the other courts of appeals, our authority extends beyond this subject: we review the order, not the issue. Yamaha Motor Corp. v. Calhoun, 516 U.S. 199, 204-05 (1996); Edwardsville National Bank & Trust Co. v. Marion Laboratories, Inc., 808 F.2d 648, 650-51 (7th Cir. 1987). Thus both sides have briefed the appeals on the assumption that we will decide whether the Blues' complaint should be dismissed outright for failure to state a claim on which relief may be granted.

Federal jurisdiction is the first order of business, but discussion does not take long. Because the Funds' complaint explicitly invokes federal law, their suit "arises under" federal law for purposes of sec.1331 and therefore was properly removed under sec.1441. For example, para.261 of the lengthy complaint asserts that "[u]nless enjoined from doing so, Defendants will continue to engage in a contract, combination, or conspiracy in violation of 15 U.S.C. sec.1". Paragraph 8 of the complaint asserts that the claim arises under "federal and state laws, including civil RICO". The reference to federal law and RICO is telling. So defendants were entitled to remove--and this without any need for us to consider either fraudulent joinder or the complex question whether a claim of this nature by an ERISA welfare benefit fund arises under ERISA itself. Cf. Health Cost Controls of Illinois, Inc. v. Washington, 187 F.3d 703 (7th Cir. 1999).

Because three other appellate courts have issued comprehensive opinions on the merits of plaintiffs' claims, we just hit the highlights, mentioning only our principal reasons for agreeing with these decisions.

For more than 100 years state and federal courts have adhered to the principle (under both state and federal law) that the victim of a tort is the proper plaintiff, and that insurers or other third-party providers of assistance and medical care to the victim may recover only to the extent their contracts subrogate them to the victim's rights. See, e.g., United States v. Standard Oil Co., 332 U.S. 301 (1947) (holding that only Congress can authorize a direct claim by the United States to recover the cost of medical care furnished to soldiers); Mobile Life Insurance Co. v. Brame, 95 U.S. 754 (1877) (federal common law); Rock Island Bank v. Aetna Casualty & Surety Co., 692 F.2d 1100, 1106-07 (7th Cir. 1982) (Illinois law); Anthony v. Slaid, 52 Mass. 290 (1846). But plaintiffs forswear subrogation, denouncing that mechanism as inadequate because smokers' suits against cigarette manufacturers usually are unsuccessful. Indeed they are; juries in these suits tend to believe that, although tobacco is an inherently dangerous product, the smokers knew and accepted the risks of their activity. See W. Kip Viscusi, Smoking: Making the Risky Decision 62-86 (1992) (finding that smokers overestimate the hazards); John Z. Ayanian & Paul D. Cleary, Perceived Risks of Heart Disease and Cancer Among Cigarette Smokers, 281 J. Am. Medical Ass'n 1019 (1999) (finding that smokers are substantially more likely than nonsmokers to predict health problems for themselves, but that a large portion of smokers view themselves as having an average likelihood of avoiding heart disease and cancer). The hazards of tobacco are today widely known, reflected in stern warnings on every package of cigarettes; the Surgeon General issued a public alert 35 years ago; many smokers who got into the habit before then were aware of tobacco's reputation as a dangerous product.

The outcome of smokers' suits is why the Funds and Blues want to sue in their own names; they choose antitrust and RICO because, in the Blues' words, "assumption of the risk, contributory negligence and similar defenses are not pertinent". This is exactly why plaintiffs must lose. A third-party payor has no claim if its insured did not suffer a tort; no rule of law requires persons whose acts cause harm to cover all of the costs, unless these acts were legal wrongs....