State v. Philip Morris, Inc.

• Decision Date: 23 December 1998
• Parties: , 1999 N.Y. Slip Op. 99,038 STATE of New York et al., Plaintiffs, v. PHILIP MORRIS, INCORPORATED et al., Defendants.
• Court: New York Supreme Court

Page 564

686 N.Y.S.2d 564

179 Misc.2d 435, 1999 N.Y. Slip Op. 99,038

STATE of New York et al., Plaintiffs, v. PHILIP MORRIS, INCORPORATED et al., Defendants.

Supreme Court, New York County.

Dec. 23, 1998.

Wachtell, Lipton, Rosen & Katz, New York City (Douglas S. Liebhafsky, Peter C. Hein, David Gruenstein and Barbara Robbins of counsel), for Philip Morris, Incorporated, defendant.

Skadden, Arps, Slate, Meagher & Flom L.L.P., New York City (Peter J. McKenna and Eric S. Sarner of counsel), for United States Tobacco Company, defendant.

Schneider, Kleinick, Weitz, Damashek & Shoot, New York City (Philip M. Damashek, Brian J. Shoot and Diane Welch Bando of counsel), for State of New York, plaintiff.

STEPHEN G. CRANE, J.

An order staying all proceedings in this action was entered on November 24, 1998, in order to obtain from the court approval of a Master Settlement Agreement ("MSA"), in accordance with Section II(ss) thereof, and of a Smokeless Tobacco Master Settlement Agreement ("STMSA") as contemplated by its Section II(mm). At the same time the court granted provisional class certification of a class consisting of the State of New York and all of its counties including New York City and Erie County ("the counties") with respect to the sixth cause of action of the amended complaint asserting claims under General Business Law § 342-b. The counties were afforded until December 4, 1998, to object to the settlement or to opt out of the class.

A hearing was held on December 9, 1998, at which briefs amicus curiae ¹ were to be submitted and responses by the parties were heard. Pending this hearing, the court appointed a special master, Richard M. Weinberg, Esq. to evaluate the proposed settlement, except for the class action portion thereof stemming from the sixth cause of action, and to report to the court on or before December 16, 1998, with his recommendations as to whether or not the settlement should be approved. His report was received on December 16, 1998 and filed the next day.

On December 8, 1998, the City of New York, after some appellate skirmishing, submitted objections that became the subject of negotiation between the Attorney General and the Corporation Counsel of the City of New York. As a consequence, on December 10, 1998 a new notice went out to the members of the class of counties and the City of New York with a new allocation among them. A further hearing was scheduled at the discretion of the court if any objections were received by December 17. Erie and Westchester Counties interposed substantive and procedural objections. The court held a hearing on the following day. After hearing all interested parties and receiving a letter from Counsel to the Governor, James McGuire, Esq., objecting to the new allocation, the court accepted the withdrawal of the new allocation and solicited a reinstatement of the first or any other version the parties chose to submit.

The court accepted the original allocation for renewed filing on December 18 and directed notice to the class members to opt out or object by December 22 with a hearing to be held on December 23, 1998.

On December 22, 1998, the City of New York and Counties of Erie and Westchester interposed objections to the allocation to which the City of New York alone previously objected on December 8, 1998.

Scope and Standard of Review

The Ad-Hoc Coalition and the parties agree that the standard of review of this settlement is whether it is fair, reasonable and adequate. Weinberger v. Kendrick, 698 F.2d 61 (2d Cir.1982), cert. denied, 464 U.S. 818, 104 S.Ct. 77, 78 L.Ed.2d 89 (1983); Officers for Justice v. Civil Serv. Comm'n, 688 F.2d 615, 625 (9th Cir.1982), cert. denied, 459 U.S. 1217, 103 S.Ct. 1219, 75 L.Ed.2d 456 (1983); cf., Rosenfeld v. Bear Stearns & Co., 237 A.D.2d 199, 655 N.Y.S.2d 473 (1st Dept.), appeal dismissed 90 N.Y.2d 888, 661 N.Y.S.2d 832, 684 N.E.2d 282 (1997). Moreover, the case at bar presents the additional circumstance of arms-length negotiations extending over five months. This factor militates in favor of the settlement as does the involvement--indeed, the personal participation--of the Attorney General of the State of New York in these negotiations. In re Union Carbide Corp. Consumer Prods. Bus. Sec. Litig., 718 F.Supp. 1099, 1103 (S.D.N.Y.1989). While the sponsorship of this settlement by the Attorney General might not merit review under the arbitrary and capricious standard of CPLR § 7803(3), ² it does invest the settlement with a presumption of validity. See, City of New York v. Exxon Corp., 697 F.Supp. 677, 692 (S.D.N.Y.1988); Wellman v. Dickinson, 497 F.Supp. 824, 830 (S.D.N.Y.1980), aff'd, 682 F.2d 355 (1982), cert. denied 460 U.S. 1069, 103 S.Ct. 1522, 75 L.Ed.2d 946 (1983).

The amici curiae seem to misconceive the court's role in applying the standard of review. They imply that the court can change the terms of the settlement. Many of the anti-smoking and public health goals that they lament the settlement has not In applying the standard of fair, adequate and reasonable to the M.S.A. and STMSA, the court must assess the risks in the ongoing litigation or the likelihood of plaintiffs' ultimate success. Furthermore, the nature of the bargaining including its good faith plays not only the role of supporting a presumption in favor of the settlement, it is also an independent factor in deciding its status as fair, adequate and reasonable. The court looks to the degree of support for the settlement from the parties themselves and the judgment of counsel. Matter of Colt Indus. Shareholder Litig., 155 A.D.2d 154, 160, 553 N.Y.S.2d 138 (1st Dept. 1990), mod. on other grounds, 77 N.Y.2d 185, 565 N.Y.S.2d 755, 566 N.E.2d 1160 (1991). Finally, in a case such as this, infused with public issues, the court will, as did the Special Master (Report, pp. 20-23), assess the impact of this settlement on the public interest. United States v. Hooker Chemical & Plastics, 607 F.Supp. 1052 (W.D.N.Y.), aff'd, 776 F.2d 410 (2d Cir.1985).

                achieved, as laudable as they are, cannot be inserted by the court.  After all, this is a consent settlement and decree that the parties are presenting, and any change in their terms would permit one or another of the parties to withdraw, to say nothing about what this would do to the approvals already achieved in every other state participating in this settlement. 3  Quite the contrary, the court is confronted with a take-it-or-leave-it proposition.  I must decide to approve or reject what the parties have placed before the court
                

Likelihood of Success and Risks of Ongoing Litigation

At the time the M.S.A. and STMSA were reached, the court had before it pending undecided two far-reaching motions. It also decided at least one other motion that related to broad aspects of the fraud claims in the amended complaint. One motion sought dismissal of the amended complaint as barred in whole or in part by the statute of limitations. Another attacked the pleading for failure to state a cause of action. In a third motion the court ruled that the plaintiffs did not have the right to assert the work product, attorney-client and deliberative process privileges to blockade disclosure relating to their discovery of the facts on which they base their fraud claims. State of New York v. Philip Morris, New York Law Journal, December 10, 1998, p. 29, c. 1.

More specifically, and without being exhaustive of the intensely litigated issues in these motions: The court was asked to decide whether the State could assert claims directly for economic injuries flowing from tortious conduct directed at others, namely, the recipients of Medicaid or State employees who contracted tobacco-related illnesses. This issue affected the eleventh through sixteenth causes of action to the extent of common law claims seeking recovery of Medicaid costs and insurance premiums; and there was precedent elsewhere barring recovery for such remote injuries in Maryland v. Philip Morris, 1997 WL 540913 (Md.Cir.Ct., May 21, 1997); City of Birmingham v. American Tobacco Co., 10 F.Supp.2d 1257 (N.D.Ala.1998); Minnesota v. Philip Morris, 551 NW 2d 490, 495 (Minn. 1996); Washington v. American Tobacco Co., 1996 WL 931316 (Wash.Super.Ct., Nov. 19, 1996); Iowa v. R.J. Reynolds Tobacco Co., No. CL 71048 slip op (Dist Ct., Polk County Iowa, Aug. 26, 1997); County of Los Angeles v. R.J. Reynolds Tobacco Co., No. 707651, slip op (CalSuperCt., San Diego County, Dec. 23, 1997); Florida v. American Tobacco Co., No. CL 95-1466 AH, slip op (FlaCirCt., Sept. 16, 1996); McGraw v. American Tobacco Co., No. 94-C-1707, slip op (W.Va.Cir.Ct., Feb. 13, 1997); and Coyne v. American Tobacco Co., No. 1:96 CV 2247 (N.D.Ohio Feb. 12, 1998).

Other serious challenges were raised to the State's claims for indemnification (on the ground the State breached no duty to Medicaid recipients and insured employees); for restitution (because the State paid Medicaid benefits and increased insurance premiums Defendants also attacked some claims dealing with failure to advise consumers of the harmful nature of tobacco through advertising, labeling or promotion as preempted by the Federal Cigarette Labeling and Advertising Act, 15 USC §§ 1331-1340 (1994). See, Cipollone v. Liggett Group, 505 U.S. 504, 112 S.Ct. 2608, 120 L.Ed.2d 407 (1992); Small v. Lorillard Tobacco Co., 252 A.D.2d 1, 679 N.Y.S.2d 593 (1st Dept.), lv. to appeal granted --- A.D.2d ----, 681 N.Y.S.2d 748, 1998 WL 801831 (1998). Additional questions were raised concerning the recoverability of the State's own damages in its claims under Executive Law § 63(12), General Business Law ("GBL") § 349(b) and GBL § 350-e and whether under the fifth and sixth causes of action the State has antitrust standing and has suffered an injury of the type the antitrust laws were intended to prevent.

                without a specific intent to recoup these from the tobacco industry);  and for public nuisance (because the manufacture and sale of

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