Kentucky Laborers Dist. Council v. Hill & Knowlton

• Decision Date: 30 September 1998
• Docket Number: Civil Action No. 3:97-CV-394-H.
• Citation: 24 F.Supp.2d 755
• Parties: KENTUCKY LABORERS DISTRICT COUNCIL HEALTH AND WELFARE TRUST FUND, et al., Plaintiffs, v. HILL & KNOWLTON, INC., et al., Defendants.
• Court: U.S. District Court — Western District of Kentucky

24 F.Supp.2d 755

KENTUCKY LABORERS DISTRICT COUNCIL HEALTH AND WELFARE TRUST FUND, et al., Plaintiffs, v. HILL & KNOWLTON, INC., et al., Defendants.

Civil Action No. 3:97-CV-394-H.

United States District Court, W.D. Kentucky, Louisville Division.

September 30, 1998.

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Linda J. Wallbaum, Charles Robert Isenberg, Herbert L. Segal, Irwin H. Cutler, Jr., Segal, Isenberg, Sales, Stewart, Cutler & Tillman, Louisville, KY, Kenneth J. Vianale, Beth A. Kaswan, Michael C. Spencer, Joan T. Brown, Milberg, Weiss, Bershad, Hynes & Lerach, New York City, Robert J. Connerton, John Broadus, James S. Ray, Connerton & Ray, Washington, D.C., G. Robert Blakey, South Bend, IN, Einer Elhauge, Cambridge, MA, Mitchell M. Breit, Weitz & Luxenburg, New York City, for Plaintiffs.

Bruce M. Ginsberg, Davis & Gilbert, New York City, for Hill & Knowlton, Inc.

William D. Grubbs, Woodward, Hobson & Fulton, Louisville, KY, Matthew J. Calvert, Hunton & Williams, Atlanta, GA, Jack E. McClard, Brian V. Otero, Hunton & Williams, Richmond, VA, for Philip Morris.

Charles S. Cassis, Robert Y. Gwin, Brown, Todd & Heyburn, Louisville, KY, Jeffrey J. Jones, Matthew A. Kairis, Jones, Day, Reavis & Pogue, Columbus, OH, for R.J. Reynolds Tobacco.

David S. Bernick, Kirkland & Ellis, Chicago, IL, Charles S. Cassis, Brown, Todd &amp Heyburn, Louisville, KY, Kenneth N. Bass, Paul R. Taylor, Karen McCartan DeSantis, Kirkland & Ellis, Washington, D.C., William C. Boone, Jr., Louisville, KY, for Brown & Williams Tobacco.

John J. McLaughlin, Charles H. Cassis, Goldberg & Simpson, Louisville, KY, Mary Elizabeth McGarry, Adam I. Stein, Kathy McFarland, Simpson, Thacher & Bartlett, New York City, for B.A.T. Industries.

Edward H. Stopher, Boehl, Stopher & Graves, Louisville, KY, Bruce Tepekian, Shook, Hardy & Bacon, Kansas City, MO, for Lorillard Tobacco.

Maria Santacroce, Michael M. Fay, Kasowitz, Benson, Torres & Friedman, New York City, Darryl William Durham, Louisville, KY, for Liggett Group.

Thomas J. Collins, David J. Hooker, Thompson, Hine & Flory, Cleveland, OH, Jack F. Fuchs, David A. Eberly, Thompson, Hine & Flory, Cincinnati, OH, Steve Klugman, Harry Zirlin, Steve Michaels, Debevoise & Plimpton, New York City, for Council for Tobacco Research.

John T. Ballantine, Jr., Ogden, Newell & Welch, Louisville, KY, for The Tobacco Institute.

Eric L. Ison, Margaret E. Keane, Gregory S. Metzger, Greenebaum Doll & McDonald, Louisville, KY, for Smokeless Tobacco Council.

MEMORANDUM OPINION

HEYBURN, District Judge.

Plaintiffs and the proposed class members in this action are non-profit union multi-employer health and welfare trust funds (the "Funds") that pay medical expenses incurred by those employed under various collective bargaining agreements and their dependents (the "Participants"). Defendants are the eight major tobacco companies and certain tobacco-affiliated research and public relations firms. The Funds allege that Defendants have engaged in a conspiracy to deceive the general public, including the Funds, about the health risks of smoking.

The Amended Complaint details a lengthy pattern of tobacco industry deception. It says that Defendants concealed information about the ill effects of smoking and its addictive consequences; lied to the public and public health officials about tobacco's health hazards; and actively conspired to delay any plans to make tobacco use safer or less addictive. As a consequence, many of the Participants began smoking or continued to do so. Many of them developed smoking-related diseases or medical problems. The similarity of these allegations to those in numerous other lawsuits filed by health and welfare plans around the country does not detract from their seriousness. Though tobacco was and is a legal product, the allegations against the industry would constitute a civil conspiracy of a scope and duration unparalleled in American history. The consequences of that conspiracy would be immense, affecting the entire fabric of American society.

As public officials have learned more about the health impact of smoking, the way that the tobacco industry marketed its products, and the extent to which it may have concealed its own research, a lively debate has ensued about the tobacco industry's responsibility for the many individual and societal costs related to tobacco use. Those concerned will continue to debate these issues in a variety of legislative and political arenas. The broad social ramifications of that debate are far outside the scope of this lawsuit. No doubt the political, economic, moral, and legal complexities of this issue may well require a legislative solution.

Our inquiry is much more limited. It is not to pass upon the evils of tobacco use nor to consider the moral corruptness of the tobacco industry. It is to determine whether the Funds have stated any legal claims in this forum. On a motion pursuant to Rule 12(b)(6), dismissal of the complaint is proper only if it is clear that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. See Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir.1993). Therefore, the Court's task is to determine whether, assuming all their allegations are true, the Funds may assert the causes of action stated and to pursue the damages described. Counsel have greatly assisted the Court in its task by providing comprehensive briefs and superb oral argument during a lengthy hearing.

I.

The Funds assert a variety of different statutory and common law claims. They allege causes of action under RICO, the Sherman and Clayton Acts, and the Kentucky Consumer Protection Act, and common law theories including intentional misrepresentation, intentional breach of a special duty, and unjust enrichment. They have withdrawn their claims of negligence, breach of express/implied warranty, and strict liability. The Funds seek various forms of relief including: (1) damages measured by their health care expenditures for medical treatment to Participants who suffered from smoking-related illnesses; (2) treble damages for any antitrust and RICO injuries; (3) punitive damages; and (4) a host of injunctive remedies, including disclosure of suppressed information and funding of smoking cessation and public education programs.

A careful review of the Amended Complaint, the Funds' memoranda, and the transcript of oral argument, reveals two distinct theories of conduct and injury. For each theory, the mechanism of injury and the measure of damages differ in subtle but important ways. In the first and broader category, the Funds claim that Defendants misled the Participants about the dangers of smoking causing them to develop smoking-related illnesses. As a consequence, the Funds paid for the Participants' medical treatment. In this category, Defendants' alleged wrongdoing is directed toward the Participants; the Funds' injuries are their Participants' medical expenses. The Court will refer to these allegations as "Category One Claims."

In the second category, the Funds contend that Defendants' conspiracies, misrepresentations, and deceptions prevented the Funds from pursuing proactive measures such as smoking cessation programs and other educational efforts to reduce smoking among the Participants. According to this theory, if Defendants had fully disclosed their research into the health consequences of tobacco, the Funds would also have altered their coverages, deductibles, or co-payments to deter Participants from smoking. Because of Defendants' misconduct, the Funds were prevented from reducing expenditures for smoking-related illnesses. In this category, Defendants' misrepresentations were made directly to the Funds; the Funds' injuries are only that portion of their Participants' medical expenses which, but for Defendants' wrongdoing, the Funds could have prevented. The Court will refer to these allegations as the "Category Two Claims."

Reviewing the Amended Complaint reveals that the Funds may have asserted Category One Claims in their virtually all of their counts under both federal and state law. In oral and written arguments, the Funds have shown considerably less confidence that their Category One Claims can withstand judicial scrutiny. Therefore, the Court will consider first this broad category of claims. The Court will next consider a more interesting and debatable question of whether the Funds have standing to assert their Category Two Claims under any of their other theories, in particular under antitrust and RICO.

II.

Over the past one hundred years, state and federal courts have developed sound reasons to disfavor claims by remote plaintiffs for derivative injuries. To the extent the Funds assert Category One Claims in any cause of action in the Amended Complaint, the Court concludes that they must be dismissed because the Funds are remote complainants and their alleged damages are solely derivative of the Participants' injuries. These remote injury claims are barred whether the specific cause of action arises under statute or common law.

At common law, "a plaintiff who complained of harm flowing merely from the misfortunes visited upon a third person by the defendant's acts was generally said to stand at too remote a distance to recover." Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 112 S.Ct. 1311, 1318, 117 L.Ed.2d 532 (1992) (incorporating remoteness jurisprudence into the test for RICO standing). This concept is thoroughly ingrained in American law. Kentucky is no exception to the general rule. See Shields v. Booles, 238 Ky. 673, 38 S.W.2d 677, 679 (1931). Over the past century, the practice of precluding recovery for remote injuries has appeared in many forms, including "foreseeability and proximate cause, directness of injury, certainty of damages, and privity of contract." Associated General Contractors of California v. California State...