Schwab v. Philip Morris USA, Inc.

Decision Date25 September 2006
Docket NumberNo. 04-CV-1945(JBW).,04-CV-1945(JBW).
Citation449 F.Supp.2d 992
PartiesBarbara SCHWAB et al., individually and on behalf of all others similarly situated, Plaintiffs, v. PHILIP MORRIS USA, INC., R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp., Lorillard Tobacco Co., Ligget Group, Inc., American Tobacco Co., Altria Group, Inc., British American Tobacco (Investments) Ltd., Defendants.
CourtU.S. District Court — Eastern District of New York

Cohen, Milstein, Hausfeld & Toll, Washington, DC by Benjamin D. Brown, Paul T. Gallagher, Michael D. Hausfeld, Andrea L. Hertzfeld, Brent W. Landau, Douglas J. McNamara, Linda P. Nussbaum, James J. Pizzirusso, Susan Rogers Schwaiger, Finkelstein, Thompson & Loughran, Washington, DC by William P. Butterfield, Hilary K. Ratway, Richard M. Volin, Smoger & Associates, P.C., Oakland, CA by Gerson H. Smoger, for Plaintiffs.

Arnold & Porter, Washington, DC by Judith Bernstein-Gaeta, Anthony D. Boccanfuso, Susan B. Cassidy, Brian Thomas Edmunds, Murray R. Garnick, Edward Gehres, Jennifer Ann Karmonick, Courtney E. Smothers, Kirkland & Ellis, Chicago, IL by David M. Bernick, Renee D. Honigberg, for Defendant Philip Morris USA, Inc.

Jones Day, Cleveland, OH and New York City, By Mark A. Belasic, Harold Keith Gordon, Theodore M. Grossman, Steven P. Harte, Womble, Carlyle, Sandridge & Rice, Winston-Salem, NC by Gusti W. Frankel, for Defendant R.J. Reynolds Tobacco Company.

Chadbourne & Parke, New York City by Joseph Gerard Falcone, Philip A. Pfeffer, for Defendant British American Tobacco Ltd.

Chadbourne & Parke, New York City by Thomas Edward Riley, for Defendant British American Tobacco, P.L.C.

Kasowitz, Benson, Torres & Friedman, New York City by Leonard A. Feiwus, Julie R. Fischer, Aaron H. Marks, for Defendant Liggett Group, Inc. Kirkland & Ellis, New York City, by Peter A. Bellacosa, for Defendant Brown & Williamson Tobacco Corp.

Greenberg Traurig, L.L.P., New York City by Alan Mansfield, Joanne M. McLaren, Stephen L. Saad, for Defendant Lorillard Tobacco Company.

MEMORANDUM & ORDER

WEINSTEIN, Senior District Judge.

                                                        TABLE OF CONTENTS
                I.    Introduction ................................................................. 1018
                II.   Allegations .................................................................. 1025
                      A. Burden of Proof ........................................................... 1025
                         1. Class Certification .................................................... 1025
                         2. Summary Judgment ....................................................... 1025
                      B. Sources of Proof........................................................... 1026
                      C. Overview of the Conspiracy and Fraud ...................................... 1028
                      D. Other "Light" Cigarette Fraud Actions ..................................... 1029
                III.  Racketeer Influenced and Corrupt Organizations Act ........................... 1031
                      A. Violation of Criminal RICO ................................................ 1032
                         1. Conduct of a Racketeering Enterprise (§ 1962(c)) .................. 1032
                            a. Enterprise .......................................................... 1032
                            b. Conduct ............................................................. 1033
                            c. Racketeering activity ............................................... 1033
                            d. Pattern ............................................................. 1034
                         2. Conspiracy (§ 1962(d)) ............................................ 1035
                            a. Cofacredit .......................................................... 1035
                            b. Supreme Court precedent ............................................. 1036
                            c. Subsequent decisions of the Second Circuit and district courts ...... 1038
                            d. Other circuits ...................................................... 1038
                            e. Conclusion on conspiracy requirements ............................... 1039
                      B. Injury to Property ........................................................ 1039
                         1. Law .................................................................... 1039
                         2. Defendants' Motion for Summary Judgment on Injury ...................... 1039
                            a. Proprietary injury .................................................. 1040
                            b. Personal injury ..................................................... 1042
                         3. Conclusion on Injury ................................................... 1043
                      C. Causation and Reliance .................................................... 1043
                         1. Law .................................................................... 1043
                            a. Factual causation ................................................... 1043
                            b. Proximate causation ................................................. 1043
                            c. Reliance ............................................................ 1044
                               i. Reliance is required ............................................. 1044
                              ii. Role of reliance ................................................. 1045
                                  (a) Direct reliance .............................................. 1045
                                  (b) Third-party reliance ......................................... 1045
                            d. Transaction causation and loss causation ............................ 1045
                         2. Defendants' Motion for Summary Judgment on Causation ................... 1046
                            a. Reliance ............................................................ 1046
                               i. Plaintiffs' claims of reliance ................................... 1046
                              ii. Reliance showing required in this case ........................... 1047
                             iii. Plaintiffs have demonstrated reliance ............................ 1048
                            b. Indirect purchaser rule ............................................. 1050
                               i. Illinois Brick ................................................... 1052
                              ii. Inapplicability of Illinois Brick rule ........................... 1053
                         3. Conclusion on Causation ................................................ 1056
                      D. Computation of Total Damages .............................................. 1056
                
                         1. Plaintiffs' Models ..................................................... 1057
                            a. "Loss of market" model .............................................. 1057
                            b. "Loss of value" model ............................................... 1057
                            c. "Price impact" model ................................................ 1058
                         2. Law .................................................................... 1058
                            a. Practice under common law ........................................... 1058
                            b. Practice under securities law ....................................... 1059
                               i. 1933 Act ......................................................... 1060
                              ii. 1934 Act ......................................................... 1060
                                  (a) Explicit rights of action .................................... 1060
                                  (b) Implied rights of action ..................................... 1060
                            c. Practice under antitrust law ........................................ 1061
                         3. Application of Law to Facts ............................................ 1063
                            a. Appropriate measure ................................................. 1063
                            b. Degree of precision required ........................................ 1065
                         4. Equitable Relief ....................................................... 1067
                         5. Conclusion on Computation of Total Damages ............................. 1067
                      E. Statute of Limitations .................................................... 1067
                         1. Law .................................................................... 1067
                            a. Accrual ............................................................. 1068
                            b. Equitable tolling ................................................... 1068
                         2. Procedural History ..................................................... 1068
                         3. Application of Law to Facts ............................................ 1070
                            a. Actual knowledge .................................................... 1070
                            b. Imputed knowledge ................................................... 1070
                               i. Class counsel's knowledge ........................................ 1071
                              ii. Class members' knowledge ......................................... 1072
                            c. Separate accrual .................................................... 1074
                            d. Equitable tolling ................................................... 1074
                         4. Conclusion on Statute of Limitations ................................... 1075
                IV.   Collateral Estoppel .......................................................... 1076
                      A. Law ....................................................................... 1076
                      B. Preclusive Effect in Possible Future Bodily Injury Cases .................. 1076
                      C. Claim Splitting ........................................................... 1077
                      D. Preclusive Effect of United States v. Philip Morris
...

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