State ex rel. Miller v. Philip Morris Inc., 97-1683

• Decision Date: 22 April 1998
• Docket Number: No. 97-1683,97-1683
• Parties: STATE of Iowa ex rel. Thomas J. MILLER, in His Capacity as Attorney General of Iowa, Appellant, v. PHILIP MORRIS INC. (Philip Morris U.S.A.); Philip Morris Companies, Inc.; R.J. Reynolds Tobacco Co.; Brown & Williamson Tobacco Corporation, Individually and as Successor by Merger to the American Tobacco Co.; Lorillard Tobacco Co.; Lorillard Inc.; United States Tobacco Co.; UST, Inc.; The Council For Tobacco Research--U.S.A., Inc.; Hill & Knowlton, Inc.; The Brooke Group, Ltd.; Liggett & Myers, Inc.; Liggett Group, Inc.; and British American Tobacco Company, Ltd., Appellees, RJR Nabisco, Inc.; American Brands, Inc.; B.A.T. Industries, PLC; Batus Holdings, Inc.; British-American (Holdings) Ltd.; Loews Corporation; and The Tobacco Institute, Inc., Defendants.
• Court: Iowa Supreme Court

Page 401

577 N.W.2d 401

STATE of Iowa ex rel. Thomas J. MILLER, in His Capacity as Attorney General of Iowa, Appellant, v. PHILIP MORRIS INC. (Philip Morris U.S.A.); Philip Morris Companies, Inc.; R.J. Reynolds Tobacco Co.; Brown & Williamson Tobacco Corporation, Individually and as Successor by Merger to the American Tobacco Co.; Lorillard Tobacco Co.; Lorillard Inc.; United States Tobacco Co.; UST, Inc.; The Council For Tobacco Research--U.S.A., Inc.; Hill & Knowlton, Inc.; The Brooke Group, Ltd.; Liggett & Myers, Inc.; Liggett Group, Inc.; and British American Tobacco Company, Ltd., Appellees, RJR Nabisco, Inc.; American Brands, Inc.; B.A.T. Industries, PLC; Batus Holdings, Inc.; British-American (Holdings) Ltd.; Loews Corporation; and The Tobacco Institute, Inc., Defendants.

No. 97-1683.

Supreme Court of Iowa.

April 22, 1998.

Thomas J. Miller, Attorney General, E. Ralph Walker of the Walker Law Firm, P.C., Des Moines, Steven P. Wandro of Wandro & Gibson, P.C., Des Moines, Roger W. Stone of Simmons, Perrine, Albright & Ellwood, P.L.C., Cedar Rapids, Brent R. Appel of Dickinson, Mackaman, Tyler & Hagen, P.C., Des Moines, and Glenn Norris of Hawkins & Norris, Des Moines, for appellant.

Robert A. Van Vooren and Thomas D. Waterman of Lane & Waterman, Davenport, and Dan K. Webb, Thomas J. Frederick, Kurt L. Schultz, and Kevin J. Narko of Wintson & Strawn, Chicago, Illinois, for appellees Philip Morris Incorporated and Philip Morris Companies, Inc. Steven L. Nelson of Davis, Brown, Koehn, Shors & Roberts, P.C., Des Moines, and Thomas F. Gardner of Jones, Day, Reavis & Pogue, Chicago, Illinois, for appellee R.J. Reynolds Tobacco Company.

Roger T. Stetson of Belin Lamson McCormick Zumbach Flynn, P.C., Des Moines, and Andrew R. McGaan and Michelle H. Browdy of Kirkland & Ellis, Chicago, Illinois, for appellees Brown & Williamson Tobacco Corporation and The American Tobacco Company.

Ross H. Sidney and Henry A. Harmon of Grefe & Sidney, Des Moines, and John C. Monica, Craig E. Proctor, and Catherine M. Castelluccio of Shook, Hardy & Bacon, L.L.P., Kansas City, Missouri, for appellees Lorillard Tobacco Company and Lorillard Incorporated.

J. Michael Weston and Brenda K. Werner of Moyer & Bergman, P.L.C., Cedar Rapids, and Bruce G. Merritt and Eric Falkenstein of Debevoise & Plimpton, New York, New York, for appellee The Council for Tobacco Research.

Brent B. Green and Gregory R. Brown of Duncan, Green, Brown, Langeness & Eckley, P.C., Des Moines, for appellees United States Tobacco Company and UST, Inc.

Joseph R. Gunderson of Dreher, Simpson & Jensen, Des Moines, and Fred M. Weiler and Yvonne Look of Davis & Gilbert, New York, New York, for appellee Hill & Knowlton, Inc.

John A. McClintock, Chester C. Woodburn III, and David L. Brown of Hansen, McClintock & Riley, Des Moines, and John Nyhan, Jay Henneberry, and Suzanne Cate Jones of Chadbourne & Parke, LLP, Los Angeles, CA, for appellee British American Tobacco Co., Ltd.

Considered by LARSON, P.J., and CARTER, LAVORATO, ANDREASEN, and TERNUS, JJ.

ANDREASEN, Justice.

The Attorney General of the State of Iowa filed a ninety-nine page petition in district court against twenty-two defendants collectively identified as the tobacco industry. The State claims it has been damaged because it incurred, and continues to incur, substantial costs providing health care and other services to citizens and employees of the state who have suffered or will suffer from tobacco-related injuries, diseases, and illness. The petition identified nine separate counts.

Certain defendants filed a motion to dismiss the petition. Following hearing on the motion, the district court dismissed four of the nine counts. We granted the State's application for interlocutory appeal. See Iowa R.App. P. 2. On appeal, the State challenges the dismissal of count II (civil liability for deception), count III (voluntary assumption of a special duty), and count VII (indemnity). The State does not contest the dismissal of count IV (unjust enrichment/restitution) and has waived its right to challenge the court's ruling on this count. See Iowa R.App. P. 14(a)(3); Smith v. CRST Int'l, Inc., 553 N.W.2d 890, 895 (Iowa 1996).

I. Scope of Review.

On an appeal from the dismissal of claims under Iowa Rule of Civil Procedure 104(b), our review is closely circumscribed. We assess the petition in the light most favorable to the plaintiff and resolve all doubts and ambiguities in plaintiff's favor. Below v. Skarr, 569 N.W.2d 510, 511 (Iowa 1997). "To sustain such a motion, the movant must show no state of facts is conceivable under which the plaintiffs might show a right of recovery." Id.

II. Background.

A brief summary of the allegations contained in the petition as described in the State's reply brief, shows:

The petition alleges a long and detailed history of the defendants' misrepresentations and concealment of the truth about the health hazards of tobacco. The defendants have known since the 1930's of the health hazards of cancer, coronary heart disease, emphysema, and stroke due to smoking. Beginning forty years ago, defendants conspired to suppress and made every effort to hide scientific evidence of the deadly health consequences of tobacco and nicotine. Following the initial "Big Scare" about tobacco causing cancer in 1953, the defendants created the Tobacco Industry Research Committee to manipulate information about tobacco-related research. The defendants' "Frank Statement" of 1954, published in several newspapers in Iowa, misrepresented the knowledge available about tobacco's effects and promised to conduct valid research and report honestly the results. The defendants breached those promises virtually immediately and have continued to do so for over forty years. The defendants continued to deny and attack the evidence that smoking caused cancer, falsely represented their own research, and suppressed information that would have shown the actual consequences of smoking. The defendants agreed not to conduct individual research and to rely on their captive Council for Tobacco Research to promote "favorable" research and suppress negative research. Specific wrongful acts included making false testimony to Congress, reporting false information to the surgeon general, publishing false reports, making a "gentleman's agreement" to suppress research, using lawyers and attorney-client privilege to hide the results of research projects, firing scientists, closing laboratories, threatening legal action against scientists, and concealing studies if the results were unfavorable, cancelling research on safer cigarettes, deceiving the public about the addictiveness and health effects of nicotine, and manipulating the level of nicotine to enhance addiction. The defendants have targeted slogans, magazines, glamorous images, and sexual themes at children to addict them and ensure their future markets.

Defendants directed their acts at and intended to have an impact on the State. The defendants acted purposefully knowing that when consumers use cigarettes as intended, Iowans would be certain to suffer tobacco-related diseases and the State itself would be injured. As a result the State was obligated to pay and has paid hundreds of millions of dollars to provide medical care for tobacco-related illnesses.

In their motion to dismiss, the defendants argue (a) the State's exclusive remedy to recoup Medicaid costs is under Iowa Code section 249A.6 (1997), and (b) the State's claim to recover damages is for remote and derivative injuries that are nonrecoverable. The trial court found at common law the State had no right to recover Medicaid costs from the recipient or third parties and therefore the State's exclusive remedy for recovery of Medicaid costs was under section 249A.6. The court also found the alleged torts were committed against the Medicaid recipients and State employees, not the State. Because the injuries are derivative and remote, the court concluded the State could not bring a direct action against the defendants.

We will first consider if section 249A.6 provides an exclusive remedy to the State to recover medical costs thus prohibiting a common law indemnity claim (count VII). We will then consider if the damages claimed by the State in counts II, III, and VII are remote and derivative and thus prohibited.

III. Section 249A.6.

Iowa Code section 249A.6 provides in part:

1. When payment is made by the department for medical care or expenses through the medical assistance program on behalf of a recipient, the department shall have a lien, to the extent of those payments, upon all monetary claims which the recipient may have against third parties. A lien under this section is not effective unless the department files a notice of lien with the clerk of the district court in the county where the recipient resides and with the recipient's attorney....

....

5. For purposes of this section the term "third party" includes an attorney, individual, institution, corporation, or public or private agency which is or may be liable to pay part or all of the medical costs incurred as the result of injury, disease or disability by or on behalf of an applicant for or recipient of assistance under the medical assistance program.

6. The department may enforce its lien by a civil action against any liable third party.

Section 249A.6 was enacted in 1979 to permit the State to enforce its right of subrogation against persons who were legally liable to a recipient for medical expenses incurred under the provisions of the Medical Assistance Act, a joint federal and state program. See 42 U.S.C. § 1396a(a)(25). Under this statutory scheme, the State can proceed

down one of two avenues for the recovery of medical assistance benefits paid for an individual when the legal liability for injury rests with another individual: (1) action directly against the tort-feasor; or (2) claim against the settlement or judgment...