Small v. Lorillard Tobacco Co., Inc.

• Decision Date: 28 October 1997
• Citation: 672 N.Y.S.2d 601,176 Misc.2d 413
• Court: New York Supreme Court
• Parties: Phyllis SMALL et al., Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. LORILLARD TOBACCO COMPANY, INC., et al., Defendants. Mary A. HOSKINS, as Executrix of Edwin P. Hoskins, Deceased, et al., Plaintiffs, v. R.J. REYNOLDS TOBACCO COMPANY et al., Defendants. Sharlene HOBERMAN et al., Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. BROWN & WILLIAMSON TOBACCO CORPORATION et al., Defendants. Rose FROSINA et al., Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. PHILIP MORRIS, INC., et al., Defendants. Catherine ZITO, et al., Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. AMERICAN TOBACCO COMPANY, INC., et al., Defendants.

Page 601

672 N.Y.S.2d 601

176 Misc.2d 413

Phyllis SMALL et al., Individually and on Behalf of All

Others Similarly Situated, Plaintiffs, v. LORILLARD TOBACCO COMPANY, INC., et al., Defendants.

Mary A. HOSKINS, as Executrix of Edwin P. Hoskins, Deceased,

et al., Plaintiffs,

v.

R.J. REYNOLDS TOBACCO COMPANY et al., Defendants.

Sharlene HOBERMAN et al., Individually and on Behalf of All

Others Similarly Situated, Plaintiffs, v. BROWN & WILLIAMSON TOBACCO CORPORATION et al., Defendants.

Rose FROSINA et al., Individually and on Behalf of All

Others Similarly Situated, Plaintiffs, v. PHILIP MORRIS, INC., et al., Defendants.

Catherine ZITO, et al., Individually and on Behalf of All

Others Similarly Situated, Plaintiffs, v. AMERICAN TOBACCO COMPANY, INC., et al., Defendants.

Supreme Court, New York County.

Oct. 28, 1997.

Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel (Alan Mansfield, of counsel), and Shook, Hardy & Bacon, L.L.P. (Gary R. Long, of counsel), for Lorillard Tobacco Company, Inc., and another, defendants.

Debefoise & Plimpton (Harry Zirin, of counsel), for Council for Tobacco Research-USA, Inc., defendant.

Seward & Kissel (Anthony R. Mansfield, of counsel), for Tobacco Institute, Inc., defendant.

Jones, Day, Reavis & Pogue (Mark Belasic and Harold K. Gordon, of counsel), for R.J. Reynolds Tobacco Company and another, defendants.

King & Spalding (Stefan W. Engelhardt of counsel), and Chadbourne & Parke, L.L.P. (Daniel J. O'Neil and Gretchen N. Werwaiss, of counsel), for Brown & Williamson Tobacco Corporation and others, defendants.

Simpson, Thacher & Bartlett (John J. Kenney, of counsel), for B.A.T. Industries P.L.C., defendant.

Dechert, Price & Rhoads (Robert A. Cohen, of counsel), for Philip Morris, Inc., and another, defendants.

Goodkind, Labaton, Rudoff & Sucharow (Martis Ann Brachtl, Louis Gottlieb and Brian Stuart Campf, of counsel), for plaintiffs.

CHARLES EDWARD RAMOS, Justice.

The motions pending before this court are hereby consolidated for purposes of disposition ¹.

These are five (5) purported class actions brought by plaintiffs whom the defendants allegedly induced by fraudulent means to become cigarette smokers. They seek to recover monies spent to purchase cigarettes. In each action, defendants move to dismiss the complaint on all or one of the following grounds: lack of personal jurisdiction over certain parent and holding companies of the cigarette manufacturers; lack of subject matter jurisdiction over claims preempted by the Federal Cigarette Labeling and Advertising Act, 15 U.S.C. § 1331 et seq. ("Labeling Act"); and failure to state a claim and to plead fraud and deception with particularity required under CPLR § 3016(b).

I Introduction

Plaintiffs are residents of the State of New York who purchased cigarettes manufactured, promoted, and sold by the defendants. They sue the five major American cigarette manufacturers (collectively the "manufacturing defendants") which are Philip Morris, Inc. ("Philip Morris"), Brown & Williamson Tobacco Corp. ("Brown & Williamson"), The American Tobacco Co., Inc. ("American Tobacco"), R.J. Reynolds Tobacco Co. ("RJR"), and Lorillard Tobacco Co., Inc. ("Lorillard"); the respective parent holding companies of the manufacturing defendants (the "parent company defendants"); and two industry trade associations, the Council for Tobacco Research-USA, Inc. ("CTR"), which was formed by the manufacturing defendants to conduct research involving cigarettes, and the Tobacco Institute, Inc. ("TI"), to which the manufacturing defendants belong.

Essentially, the amended complaints are identical in that all five allege claims for fraud, fraudulent concealment, violation of New York's General Business Law ("GBL") §§ 349 and 350 (deceptive practices and advertisements), civil conspiracy, concerted action, and aiding and abetting. Plaintiffs contend that for decades defendants manipulated the levels and boosted the effects of nicotine by adding ammonia and other additives to cigarettes. With the intent of influencing consumer smoking patterns, defendants purportedly disseminated misleading information through CTR and TI, and created a false controversy to raise doubts about the cancer causing and the addictive effects of cigarettes. A combination of deceptive practices was allegedly employed by defendants to intentionally addict consumers, particularly adolescents, to cigarettes.

With the exception of B.A.T. Industries, Batus, Inc., and Batus Holding, Inc., defendants argue that this Court lacks subject matter jurisdiction because the Labeling Act preempts all of plaintiffs' claims which they contend are predicated upon breach of a duty to warn. Defendants also allege that missing from plaintiffs' fraud and GBL §§ 349 and 350 claims are facts demonstrating the element of reasonable reliance. They assert that the hazards of smoking and nicotine's addictive nature are matters of public knowledge. Thus, even if plaintiffs relied on the advertisements and other public statements, defendants contend that their reliance was unreasonable.

In deciding a motion to dismiss, the court must consider whether there can be fairly gathered from all of the factual allegations a legally cognizable cause of action (Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 275, 401 N.Y.S.2d 182, 372 N.E.2d 17; Ackerman v. 305 East 40th Owners Corp., 189 A.D.2d 665, 666, 592 N.Y.S.2d 365). All facts alleged in the pleading must be accepted as true, and the court must accord a plaintiff the benefit of every possible favorable inference. (Ackerman, supra at 666, 592 N.Y.S.2d 365). "The motion should be denied if 'from [the pleading's] four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law.' " (Id.). The Court's role is neither to determine the merits of the case, nor to express an opinion as to plaintiffs' ultimate likelihood of success on the causes of action alleged. (Khan v. Newsweek, Inc., 160 A.D.2d 425, 426, 554 N.Y.S.2d 119). Several of the defendants challenge whether personal jurisdiction exists over them. Therefore, before deciding the viability of plaintiffs' claims, this Court will first address the jurisdictional issues, then the remaining arguments in seriatim.

II Lack of Personal Jurisdiction

B.A.T. Industries ("B.A.T.") is a British holding company that owns Batus Holding, Inc. ("Batus Holding"), which in turn owns the shares of Brown & Williamson Tobacco Corporation ("Brown & Williamson"). Batus Inc. is a sister holding company of Batus Holding which was incorporated in Wisconsin and purportedly holds no ownership interest in Brown & Williamson. British-American Tobacco Company Limited ("BATCo") is a non-party subsidiary of B.A.T. and sister company of Brown & Williamson that B.A.T. admits engages in tobacco research and product development (collectively referred to as "B.A.T. defendants", unless otherwise indicated).

The B.A.T. defendants assert that because their contacts with the state of New York are insufficient, and they do not manufacture, market, or sell cigarettes, and do not control the activities of Brown & Williamson, personal jurisdiction over them under the long-arm jurisdiction statute is lacking. They further urge this Court to follow a number of courts in other jurisdictions which dismissed actions against the B.A.T. defendants based upon proof similar the proof offered in this case ². While these cases are instructive, this court must assess the question of jurisdiction based upon the record before it.

CPLR § 302 provides that a court may exercise jurisdiction over a nondomiciliary who in person or through an agent commits a tortious act within or without the state. Based upon the acts of a subsidiary within the state, jurisdiction over a parent company may exist under an alter-ego theory. However, a parent-subsidiary relationship alone cannot form the predicate for jurisdiction over the parent (H. Heller & Co. v. Novacor Chems. Ltd., 726 F.Supp. 49, 54 (S.D.N.Y.1988), affd., 875 F.2d 856 [2nd Cir.1969]; Porter v. LSB Indus., Inc., 192 A.D.2d 205, 213, 600 N.Y.S.2d 867). There must be some proof that the parent company dominates or controls the daily activities of the subsidiary. (Delagi v. Volkswagenwerk, 29 N.Y.2d 426, 328 N.Y.S.2d 653, 278 N.E.2d 895; Taca International Airlines, S.A. v. Rolls-Royce of England, Ltd., 15 N.Y.2d 97, 256 N.Y.S.2d 129, 204 N.E.2d 329; Billy v. Consolidated Machine Tool Corporation, 51 N.Y.2d 152, 432 N.Y.S.2d 879, 412 N.E.2d 934). Although here the record fails to demonstrate that Brown & Williamson's daily operations are controlled by the B.A.T. defendants, the facts do support allegations of a conspiracy connecting all of the defendants to the transactions occurring in New York.

A conspiracy-based theory of acquiring personal jurisdiction has been recognized as a basis for asserting personal jurisdiction over a nonresident defendant. (See, Travelers Indemnity Company v. Inoue, 111 A.D.2d 686, 490 N.Y.S.2d 506; American Broadcasting v. Hernreich, 40 A.D.2d 800, 338 N.Y.S.2d 146; Lamarr v. Klein, supra, 35 A.D.2d 248, 315 N.Y.S.2d 695, affd. 30 N.Y.2d 757, 333 N.Y.S.2d 421, 284 N.E.2d 576; Reeves v. Phillips, 54 A.D.2d 854, 388 N.Y.S.2d 294; Parke-Bernet Galleries v. Franklyn, 26 N.Y.2d 13, 308 N.Y.S.2d 337, 256 N.E.2d 506; De Nigris Assoc. v. Pacific Air Transport Intl., Inc., 38 A.D.2d 363, 329 N.Y.S.2d 939; also, Prudential Lines v. Firemen's Ins. Co., 91 A.D.2d 1, 457 N.Y.S.2d 272; Ghazoul v. International Mgt. Servs., 398 F.Supp. 307 [1975] [applying New York law] ). Courts have held that the tortious acts of a co-conspirator committed within the state may be attributed to a nondomiciliary defendant for purposes of obtaining personal jurisdiction. (Reeves v. Phillips, supra, 54 A.D.2d at 855, 388 N.Y.S.2d 294, citing, American Broadcasting v. Hernreich, supra 40 A.D.2d 800, 338 N.Y.S.2d 146). Where some evidentiary facts are produced to support a...