OR. Lab. v. Phillip Morris Incorp.

• Decision Date: 14 July 1999
• Docket Number: EBA-PGE-IBEW,No. 98-36024,LABORERS-EMPLOYERS,98-36024
• Citation: 185 F.3d 957
• Parties: (9th Cir. 1999) OREGONHEALTH & WELFARE TRUST FUND; SCHOOL DISTRICT #1, HEALTH & WELFARE TRUST FUND; PLUMBERS, STEAMFITTERS, & SHIPFITTERS RETIREE HEALTH & WELFARE PLAN, UNITED ASSOCIATION UNION LOCAL 290; LOCAL 11 OFFICE & PROFESSIONAL EMPLOYEES INTERNATIONAL UNION, HEALTH & WELFARE PLAN; LOCAL 125 INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, LOCAL 125,LOCAL 125 HEALTH & WELFARE TRUST, Plaintiffs-Appellants, v. PHILIP MORRIS INCORPORATED; RJ REYNOLDS TOBACCO COMPANY; BROWN & WILLIAMSON TOBACCO CORPORATION; BRITISH AMERICAN TOBACCO COMPANY LTD; BAT INDUSTRIES PLC; LORILLARD TOBACCO COMPANY; LIGGETT GROUP INCORPORATED; AMERICAN TOBACCO COMPANY; UNITED STATES TOBACCO COMPANY; COUNCIL FOR TOBACCO RESEARCH USA INCORPORATED; TOBACCO INSTITUTE INCORPORATED; SMOKELESS TOBACCO COUNCIL INCORPORATED; HILL & KNOWLTON INCORPORATED, Defendants-Appellees
• Court: U.S. Court of Appeals — Ninth Circuit

Page 957

185 F.3d 957 (9th Cir. 1999)

OREGON LABORERS-EMPLOYERS HEALTH & WELFARE TRUST FUND; SCHOOL DISTRICT #1, HEALTH & WELFARE TRUST FUND; PLUMBERS, STEAMFITTERS, & SHIPFITTERS RETIREE HEALTH & WELFARE PLAN, UNITED ASSOCIATION UNION LOCAL 290; LOCAL 11 OFFICE & PROFESSIONAL EMPLOYEES INTERNATIONAL UNION, HEALTH & WELFARE

PLAN; LOCAL 125 INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, LOCAL 125, EBA-PGE-IBEW LOCAL 125 HEALTH & WELFARE TRUST, Plaintiffs-Appellants, v. PHILIP MORRIS INCORPORATED; RJ REYNOLDS TOBACCO COMPANY; BROWN & WILLIAMSON TOBACCO CORPORATION; BRITISH AMERICAN TOBACCO COMPANY LTD; BAT INDUSTRIES PLC; LORILLARD TOBACCO COMPANY; LIGGETT GROUP INCORPORATED; AMERICAN TOBACCO COMPANY; UNITED STATES TOBACCO COMPANY; COUNCIL FOR TOBACCO RESEARCH USA INCORPORATED; TOBACCO INSTITUTE INCORPORATED; SMOKELESS TOBACCO COUNCIL INCORPORATED; HILL & KNOWLTON INCORPORATED, Defendants-Appellees.

No. 98-36024

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted May 3, 1999

Decided July 14, 1999

[Copyrighted Material Omitted]

Steve D. Larson and Scott A. Shorr, Stoll Stoll Berne Lokting& Shlachter, Portland, Oregon, and Michael Spencer, Millberg, Weiss, Bershad, Hynes & Lerach, New York, New York, for the plaintiffs-appellants.

Herbert M. Wachtell, Wachtell, Lipton, Rosen & Katz, New York, New York, for the defendants-appellees.

Michael D. Reynolds, Assistant Attorney General, Salem, Oregon, for amicus curiae State of Oregon.

Carl R. Schenker, Jr., O'Melveny & Myers, Washington, D.C., for amicus curiae Product Liability Advisory Council.

Jan S. Amundson, National Association of Manufacturers, Washington, D.C., for

amicus curiae National Association of Manufacturers.

Appeal from the United States District Court for the District of Oregon Malcolm F. Marsh, District Judge, Presiding. D.C. No. CV-97-01051-MA.

Before: William C. Canby, Jr., Thomas G. Nelson, Circuit Judges, and Jeremy Fogel, District Judge.¹

OPINION

T.G. NELSON, Circuit Judge:

The plaintiffs in this action are six Oregon-based employee health and welfare benefit trust plans created to provide comprehensive health care benefits to their participants, who are thousands of union and public-sector workers employed under various collective bargaining agreements. Plaintiffs filed suit against defendants--eight tobacco companies, three nonprofit public relations/lobbying/research councils and one public relations firm--under federal RICO, Oregon RICO, federal and state antitrust laws, and other Oregon state laws. Plaintiffs seek to recover the costs they have incurred treating their participants' and beneficiaries' smoking-related illnesses. The district court granted judgment on the pleadings in favor of defendants, concluding that plaintiffs had failed to state a claim upon which relief could be granted. We have jurisdiction under 28 U.S.C. S 1291. We affirm.

I.

Plaintiffs are five health and welfare trust funds that provide health care benefits to their participants and beneficiaries. These funds are formed and operated as legal trusts with each trust's mission being to pay for health care benefits for participating workers, retirees and their families.

In their complaint, plaintiffs allege the following: In the early 1950's, scientific studies linking smoking to health risks surfaced. Defendants concluded that an awareness of the health risks associated with smoking could result in regulation of the tobacco industry and threaten the industry's profitability. To prevent this from happening, defendants began a public relations campaign to persuade the public that the industry would research the health risks from tobacco and make a candid disclosure of the results. Defendants, however, entered into a conspiracy to do just the opposite.

Plaintiffs' complaint cites many examples of this alleged public relations campaign that was being waged at the same time that defendants were allegedly engaged in a covert scheme to defraud the public (including plaintiffs) as to the health risks of smoking. Defendants allegedly sought to conceal the scientific evidence about smoking risks and to maintain the powerful "lie" that the link between smoking and disease was an "open controversy." Defendants' alleged misconduct covered not only the general smoking-disease link, but also the degree of the health risk, the addictiveness of smoking, the feasibility of safer cigarettes, the actual safety of low-tar and filtered cigarettes, and the suppression of comparative safety information about different product designs. Defendants also allegedly sought to impair the development and implementation of smoking cessation programs, and fought efforts to ban smoking in the workplace.

Plaintiffs also allege that defendants conspired to restrain intercompany competition in making and marketing safer cigarettes or alternative products. Defendants allegedly stopped advertising differences in product safety, fixed the quality level of products allowed in the market, suppressed product information, and policed their agreement not to let any manufacturer introduce and market tobacco products that were safer or less hazardous. Plaintiffs allege that this conduct presents a classic case of horizontal conspiracy to fix product quality and that, as a result, cigarettes are perhaps the only product that has not gotten any safer in the last forty-five years. Finally, plaintiffs allege that defendants targeted teen smokers to replace the adult smokers that died.

As to damages, plaintiffs allege that defendants' wrongdoing injured them in two causal chains. First, defendants' alleged manipulation of information and suppression of products prevented plaintiffs from obtaining accurate information and safer products in operating their health funds, which in turn prevented plaintiffs from taking action to reduce smoking rates among their participants. This reduction in smoking rates would have led to a reduction in smoking-related disease among the funds' participants which would have in turn led to lowering plaintiffs' expenditures. Second, plaintiffs allege that defendants' wrongful fraud and concealment of information, suppression of safer products, targeting of children and manipulation of nicotine resulted in more smoking, less quitting, and smoking of more hazardous cigarettes among the funds' participants, which in turn resulted in higher incidence of disease and higher expenditures for medical bills by plaintiffs.

Plaintiffs allege that, but for defendants' conduct, plaintiffs would have undertaken stronger anti-smoking measures. Plaintiffs further allege that they have borne the brunt of smoking-related health care costs and that plaintiffs simply seek to replenish trust assets by recovering from defendants the injuries that plaintiffs have suffered as a result of defendants' misconduct.

Plaintiffs have asserted the following claims for relief: federal RICO, Oregon RICO, federal and state antitrust, Oregon's Unfair Trade Practices Act ("UTPA"), fraudulent misrepresentation and concealment, unjust enrichment, negligent breach of a special assumed duty and civil conspiracy. Plaintiffs seek damages as well as equitable and injunctive relief.

Defendants moved the district court for judgment on the pleadings on each of plaintiffs' claims or, alternatively, for dismissal for failure to join necessary parties. The district court granted defendants' motion, finding plaintiffs failed to state a claim on which relief could be granted. See Oregon Laborers-Employers Health & Welfare Trust Fund v. Philip Morris, Inc., 17 F. Supp. 2d 1170 (D. Or. 1998).

The district court held (1) that plaintiffs did not meet the standing or proximate cause requirements necessary to maintain either a federal or state antitrust claim; (2) that plaintiffs' injuries were entirely dependent upon injuries sustained by their participants and were thus too far removed from the challenged harmful conduct to support either a federal or state RICO claim;² (3) that plaintiffs did not meet the standing requirement of Oregon UTPA because they were not "consumers of defendants' products"; (4) that plaintiffs did not meet the proximate cause requirements to maintain a claim for fraud; (5) that the theories of unjust enrichment and indemnity were inapplicable; (6) that plaintiffs failed to allege the elements necessary to maintain a claim for breach of an assumed duty;³ and (7) that plaintiffs' claim for civil conspiracy was entirely dependent on the underlying claims for fraud and UTPA violations and must therefore also fail.

II.

We review de novo a district court's grant of judgment on the pleadings for failure to state a claim. Nelson v. City of Irvine, 143 F.3d 1196, 1200 (9th Cir. 1998). "A judgment on the pleadings is properly granted when, taking all the allegations in the pleading as true, the moving party is entitled to judgment as a matter of law." Id.

III.

A. RICO and Antitrust Claims for Damages

The requirements for standing to maintain a civil action under RICO and the antitrust laws are similar.⁴ See Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 268 (1992). Both provide a private right of action for damages only to those individuals "injured in [their ] business or property by reason of" a violation of the law's substantive provisions. 18 U.S.C. S 1964(c) (RICO); 15 U.S.C.S 15(a) (antitrust). Both also require that the alleged violation of the law be a "proximate cause" of the injury suffered. See Holmes, 503 U.S. at 268 (RICO); Blue Shield v. McCready, 457 U.S. 465, 477 (1982) (antitrust). As the Court explained in Holmes:

Here we use "proximate cause" to label generi cally the judicial tools used to limit a person's responsibility for the consequences of that person's own acts. At bottom, the notion of proximate cause reflects ideas of what justice demands, or of what is administratively possible and convenient. Accord ingly, among the many shapes...