Mason v. American Tobacco Co., Docket No. 02-7923.

• Decision Date: 02 October 2003
• Docket Number: Docket No. 02-7923.
• Citation: 346 F.3d 36
• Parties: James MASON, Billie June Richie, and Glenn Bailey, individually and on behalf of a class of all others similarly situated, Plaintiffs-Appellants, v. The AMERICAN TOBACCO COMPANY, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corp., Philip Morris USA Incorporated, Lorillard Inc., United States Tobacco Company, Liggett Group Inc., Liggett & Myers, Inc., and Brooke Group Ltd., Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

Page 36

346 F.3d 36

James MASON, Billie June Richie, and Glenn Bailey, individually and on behalf of a class of all others similarly situated, Plaintiffs-Appellants, v. The AMERICAN TOBACCO COMPANY, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corp., Philip Morris USA Incorporated, Lorillard Inc., United States Tobacco Company, Liggett Group Inc., Liggett & Myers, Inc., and Brooke Group Ltd., Defendants-Appellees.

Docket No. 02-7923.

United States Court of Appeals, Second Circuit.

Argued: March 31, 2003.

Decided: October 2, 2003.

Robert J. Cynkar, Cooper & Kirk, PLLC (Charles J. Cooper and Victor J. Wolski, Cooper & Kirk, PLLC, on the brief), Washington, D.C., Mark B. Hutton, Derek S. Casey, Chan P. Townsley, Hutton & Hutton, Witchita, KS, Ronald D. Wells, Dallas, TX, Gary Richardson, Richardson, Stoops, Richardson & Ward, Tulsa, OK, Jonathan W. Cuneo, Charles J. LaDuca, The Cuneo Law Group, P.C., Washington, D.C., Attorneys for Plaintiffs-Appellants.

Alan Mansfield, Greenberg Traurig (Stephen L. Saxl, Greenberg Traurig, on the brief) New York, N.Y. for Lorillard Tobacco Co.

Harold K. Gordon, Bryon Stier, George Kostlolampros, Jones, Day, Reavis & Pogue, New York, N.Y. and Robert H. Klonoff, Michael S. Fried, Washington, D.C., for R.J. Reynolds Tobacco Company.

Murray R. Garnick, David S. Eggert, Sheila B. Scheuerman, J. Benjamin King, Arnold & Porter, Washington, D.C., for Philip Morris Incorporated.

Kenneth N. Bass, Kirkland & Ellis, Washington, D.C., for Brown & Williamson Tobacco Corporation (individually and as successor by merger to The American Tobacco Company).

Attorney for Amicus Curiae Senator Charles E. Grassley: Colin T. Roskey Washington, D.C., Attorneys for Defendants-Appellees.

Before: NEWMAN, POOLER, and KATZMANN, Circuit Judges.

POOLER, Circuit Judge.

The plaintiffs in this action seek to represent a class of "[i]ndividuals who have received or are receiving health care services for the treatment of tobacco-related illnesses ... which services have been paid for, or are being paid for, by Medicare." Mason v. American Tobacco Co., 212 F.Supp.2d 88, 90 (E.D.N.Y.2002) The defendants are major producers of tobacco products. The district court granted the defendants' motion to dismiss and denied the plaintiffs' motion for class certification. We affirm.

FACTS

Because the defendants' motion to dismiss rests upon a narrow issue of statutory construction, an extensive discussion of the facts is not required. According to the plaintiffs, "[t]his lawsuit advances essentially one claim: that, under the terms of the MSP statute, defendants should have been the primary payers for the health care services needed to treat certain tobacco-related illnesses of Medicare beneficiaries." Plaintiffs' Brief at 13. The referenced statute is the "Medicare as Secondary Payer" statute. 42 U.S.C. § 1395y(b). We have found the following description of the MSP statute to be particularly useful:

The Medicare Secondary Payer Program allows the United States to recover Medicare payments from third parties who are required or responsible to pay for medical costs. Congress enacted these provisions to give the United States a right, as a secondary insurer, to demand reimbursement from primary insurers who have a duty to pay for medical treatment. "The Medicare Secondary Payer Program is intended to help the Medicare Program identify situations where another health care plan should be, or should have been, the primary payer for a beneficiary's health services." H.R.Rep. No. 104-87(I), at 4 (1995); see also Blue Cross & Blue Shield of Tex., Inc. v. Shalala, 995 F.2d 70, 71-72 (5th Cir.1993) (stating that purpose of program is to prevent group health plans from providing that plan will be secondary payer if Medicare coverage exists).... In other words, the Program seeks to prevent primary insurers from refusing to pay medical expenses because those who are insured under their plans are also eligible for Medicare.

Hanoch Dagan and James J. White, Governments, Citizens, and Injurious Industries, 75 N.Y.U. L. Rev. 354, 402, n. 201 (2000).

Thus, the MSP statute "makes Medicare a `secondary' payer where another entity, a `primary payer' is required to pay under a `primary plan' for an individual's healthcare." In re Diet Drugs Prods. Liab. Litig., 2001 WL 283163 at *9 (E.D.Pa. March 21, 2001) (citing 42 U.S.C. § 1395y(b)(2)). The statute provides for the government to receive double damages in successful actions against primary payers. 42 U.S.C. § 1395y(b)(2)(B)(ii). It also provides for a private right of action, under which the plaintiffs proceed here, pursuant to which individuals may be awarded double damages against a primary plan that has wrongfully denied them payment for health care that has been paid for by Medicare. See 42 U.S.C. § 1395y(b)(3)(A).

The district court dismissed the plaintiffs' Fourth Amended Class Action Complaint, holding that, as a matter of law, plaintiffs cannot recover under the MSP statute because the "[d]efendants' status as accused tortfeasors, standing alone, does not convert them under the statute into primary plans or self-insured plans for Medicare beneficiaries injured by using their products." Mason v. American Tobacco Co., 212 F.Supp.2d at 92. That is, there is no basis for the argument "that the MSP statute was intended to apply to tortfeasors generally," as opposed to insurance entities that have wrongfully refused to pay for an individual's healthcare. Id. at 93.

DISCUSSION

We review the district court's grant of the defendants' motion to dismiss de novo, a standard pursuant to which we accept all of the plaintiffs' factual allegations as true and draw all reasonable inferences in favor of the plaintiffs. DeMuria v. Hawkes, 328 F.3d 704, 706 (2d Cir.2003). On the other hand, "`[l]egal conclusions, deductions or opinions couched as factual allegations are not given a presumption of truthfulness.'" U.S. v. Bonanno Organized Crime Family of La Cosa Nostra, 879 F.2d 20, 27 (2d Cir.1989) (quoting 2A J. Moore, Moore's Federal Practice, ¶ 12.07[2.-5] at 63-64 (2d ed. 1987)).

Amicus Senator Grassley characterizes this case as "the first major use of the MSP private right of action fashioned to encourage `private attorneys general' to assist in this critical initiative to preserve the financial integrity of Medicare." Grassley Brief at 4. Nevertheless, the most striking thing about this appeal is that it carries with it a terrific amount of precedential baggage. The federal government has already tried unsuccessfully to use the MSP statute to assert a claim against the proceeds of a settlement in an individual tort action, Thompson v. Goetzmann, 2001 WL 771012 (N.D.Tex. July 3, 2001) (Rule 12(b)(6) dismissal granted), aff'd., 315 F.3d 457 (5th Cir.2002), superceded, 337 F.3d 489 (5th Cir.2003) (per curiam), and to assert claims against settlement funds established in mass tort cases. In re Orthopedic Bone Screw Prods. Liab. Litig., 202 F.R.D. 154 (E.D.Pa.2001) (granting preliminary injunction against government's claims); In re Diet Drugs Prods. Liab. Litig., 2001 WL 283163 (E.D.Pa.2001) (motion to distribute settlement funds granted); but see U.S. v. Baxter Int'l, Inc., 345 F.3d 866 (11th Cir.2003) ("Baxter Int'l") (reversing district court's dismissal of federal government's motion to intervene in order to assert claims against settlement fund). The federal government has also failed in an attempt to use the statute as a basis to file proofs of claim against the bankruptcy estate of a manufacturer of silicone breast implants. See In re Dow Corning Corp., 250 B.R. 298 (Bkrtcy. E.D.Mich.2000) (summary judgment granted). Most important, the government has already attempted to bring essentially the same claim against tobacco companies that plaintiffs are bringing here and lost. See U.S. v. Philip Morris, Inc., 156 F.Supp.2d 1 (D.D.C.2001) ("Philip Morris II")(motion to dismiss amended complaint granted); U.S. v. Philip Morris, Inc., 116 F.Supp.2d 131 (D.D.C.2000) ("Philip Morris I") (motion to dismiss granted). As we now discuss, there are at least three reasons why these precedents convince us that the district court properly granted the defendants' motion to dismiss.

A. Are the Defendants a "Primary Plan?"

As already noted, the MSP statute allows Medicare to be reimbursed whenever a "primary payer" has wrongfully failed to provide healthcare coverage to an individual pursuant to a "primary plan." The statute defines "primary plan" as "a group health plan or large group health plan, ... a workmen's compensation law or plan, an automobile or liability insurance policy or plan (including a self-insured plan) or no fault insurance...." 42 U.S.C. § 1395y(b)(2)(A) (emphasis added). Regulations promulgated under the MSP statute define "self-insured plan" as an "arrangement, oral or written ... to provide health benefits or medical care or [to] assume legal liability for injury or illness" under which an entity "carries its own risk instead of taking out insurance with a carrier." 42 C.F.R. §§ 411.21, 411.50(b).

Plaintiffs argue that each defendant in this action "is a self-insured plan as a matter of law because the corporate structure through which each conducts its business has the purpose and legal effect, in part, to assume legal liability for injury." Plaintiffs' Brief at 15. That is, the corporate form in and of itself is a means of self-insurance because it allows individual directors and shareholders to shift liability from themselves to the corporation. Or, as the plaintiffs put it, "it is commonly recognized that liability insurance and the corporate structure accomplish the same ends, and are `substitutes' for each other." Plaintiffs' Brief at 41.

The obvious problem with this approach is that it turns every corporation into an insurance company subject to suit under the MSP statute. But courts have uniformly rejected similar readings of the statute as...