U.S. v. Philip Morris Inc.

• Decision Date: 27 July 2001
• Docket Number: No. CIV. A. 99-2496(GK).,CIV. A. 99-2496(GK).
• Parties: UNITED STATES of America, Plaintiff, v. PHILIP MORRIS INCORPORATED, et al., Defendants.
• Court: U.S. District Court — District of Columbia

Page 1

156 F.Supp.2d 1

UNITED STATES of America, Plaintiff, v. PHILIP MORRIS INCORPORATED, et al., Defendants.

No. CIV. A. 99-2496(GK).

United States District Court, District of Columbia.

July 27, 2001.

Sharon Y. Eubanks, U.S. Department of Justice, Washington, DC, for United States Department of Justice.

Peter Thomas Grossi, Jr., Jonathan Louis Stern, Arnold & Porter, Washington, DC, Cynthia S. Cecil, Hunton & Williams, Richmond, VA, Timothy M. Broas, Winston & Strawn, Washington, DC, Dan K. Webb, Bradley E. Lerman, Ricardo E. Ugarte, Kevin J. Narko, Luke A. Palese, Winston & Strawn, Chicago, IL, Herbert M. Wachtell, Ben M. Germana, Steven M. Barna, Jeffrey M. Wintner, Wachtell, Lipton, Rosen & Katz, New York City, C. Ian Anderson, Davis, Polk & Wardwell, New York City, Robert M. Rader, Debevoise & Plimpton, New York City, for Philip Morris Inc.

Robert Francis McDermott, Jr., Jonathan M. Redgrave, Jones, Day Reavis & Pogue, Washington, DC, Robert C. Weber, Paul Crist, Jones, Day, Reavis & Pogue, Cleveland, OH, Nicholas N. Nierengarten, Gray, Plant, Mooty, Mooty & Bennett, PA, Minneapolis, MN, Robert M. Rader, Debevoise & Plimpton, New York City, Ivan C. Smith, Jone, Day, Reavis & Pogue, Columbus, OH, for R.J. Reynolds Tobacco Co.

William Charles Hendricks, III, Andrew McCormack, King & Spalding, Washington, DC, David M. Bernick, Kirkland & Ellis, Chicago, IL, Kenneth N. Bass, Jason Beckerman, David Mendelson, David Sullivan, Kirkland & Ellis, Washington, DC, Stephen R. Patton, Kirkland & Ellis, Chicago, IL, Douglas G. Smith, Michelle H. Browdy, Chicago, IL, for Brown & Williamson Tobacco Corp.

MEMORANDUM OPINION-ORDER # 72

KESSLER, District Judge.

I. Introduction

The United States of America ("Plaintiff" or "the Government") brought suit against nine tobacco companies and two related entities (collectively "Defendants")¹ to recover health care expenditures the Government has paid for or will pay for to treat tobacco-related injuries allegedly caused by Defendants' tortious conduct, and to disgorge the proceeds of that unlawful conduct.

The Court previously dismissed Count One (the Medical Care Recovery Act or "MCRA" Count) and Count Two (the Medicare Secondary Payer provisions or "MSP" Count) of the Government's original complaint, United States v. Philip Morris, 116 F.Supp.2d 131 (D.D.C.2000) ("Philip Morris" or the "Memorandum Opinion"); dismissed Defendant B.A.T. Industries p.l.c. ("BAT Ind.") for lack of personal jurisdiction, United States v. Philip Morris, 116 F.Supp.2d 116 (D.D.C.2000); and denied the Government's request to reconsider the dismissal of BAT Ind. United States v. Philip Morris, 130 F.Supp.2d 96 (D.D.C.2001).

The Government subsequently filed an amended complaint, which added a revised Count Two (the MSP Count).² Defendants moved to dismiss that Count pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim.³ Upon consideration of Defendants' Motion, the Opposition, the Reply, and the entire record herein, Defendants' Motion to Dismiss Count Two of the Amended Complaint [# 272] is granted. The Government shall not be permitted to further amend its complaint with respect to the MSP Count.

Neither this ruling nor the companion ruling on Defendants' Motion to Amend changes the current posture of the case. The parties are proceeding with extensive discovery and are preparing for trial.

II. Standard of Review

The legal standard for judging the adequacy of a complaint is well established. A "complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); see also Davis v. Monroe County Bd. of Educ., 526 U.S. 629, 654, 119 S.Ct. 1661, 143 L.Ed.2d 839 (1999). At the motion to dismiss stage, "the only relevant factual allegations are the plaintiffs'," and they must be presumed to be true. Ramirez de Arellano v. Weinberger, 745 F.2d 1500, 1506 (D.C.Cir.1984), vacated on other grounds, 471 U.S. 1113, 105 S.Ct. 2353, 86 L.Ed.2d 255 (1985); Shear v. National Rifle Ass'n of Am., 606 F.2d 1251, 1253 (D.C.Cir.1979).

However, a court may not "accept legal conclusions cast in the form of factual allegations" or "inferences drawn by plaintiffs if such inferences are unsupported by the facts set out in the complaint." Western Assocs. Ltd. Partnership v. Market Square Assocs., 235 F.3d 629, 634 (D.C.Cir.2001) (citing Kowal v. MCI Communications Corp., 16 F.3d 1271, 1276 (D.C.Cir.1994)) (internal quotations omitted); see also Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986) (holding that courts "are not bound to accept as true a legal conclusion couched as a factual allegation").

III. Analysis

A. Overview of the Medicare Secondary Payer Provisions

The Medicare Secondary Payer provisions ("MSP"), a series of amendments to Medicare enacted in 1980 and further amended thereafter,⁴ provide the Government with statutory authority to obtain reimbursement for certain Medicare expenditures. MSP essentially makes Medicare a "secondary" payer where another entity is required to pay under a "primary plan" for an individual's health care. See 42 U.S.C. § 1395y(b)(2).

Under certain circumstances, the Government may make a conditional payment "with respect to [an] item or service" provided for an injured Medicare recipient and then, if not reimbursed, may "bring an action against [the] entity which is required or responsible (directly, as a third-party administrator, or otherwise) to make payment with respect to such item or service (or any portion thereof) under a primary plan ..." 42 U.S.C. § 1395y(b)(2)(A) and (B)(ii) (emphasis added).⁵

A "primary plan" is defined in the statute as "a group health plan or large group health plan, ... a workmen's compensation law or plan, an automobile or liability insurance policy or plan (including a self-insured plan) ..." 42 U.S.C. § 1395y(b)(2)(A) (emphasis added). As stated in the Memorandum Opinion, it is this last phrase ("self-insured plan") from which the Government draws its legal support for the MSP Count.

B. Whether the Amended MSP Count States a Claim

In dismissing the MSP Count as alleged in the original complaint, the Court explained that "[a]lthough MSP ... allows the Government to bring suit against non-insurance entities required to pay for health care costs under a `self-insured plan,' the Government's complaint contains no allegation that Defendants have at any time maintained a `self-insured plan,' as that term is defined by MSP and the relevant regulations." Philip Morris, 116 F.Supp.2d at 135.⁶ The Court also determined that the Government was attempting to improperly use the MSP statute as "an across-the-board procedural vehicle for suing tortfeasors." Id.

In response, and with the intention of revitalizing its MSP claim, the Government amended Count Two of its complaint, adding four paragraphs and nine pages thereto. The amended complaint contains a number of new allegations, including that:

• "[i]n the first half of the 1900's, Defendants apparently chose a plan of insurance under which they were entirely self-insured against liability arising from their manufacture, sale, and promotion of tobacco products." Am. Compl. ¶ 167a.

• certain research reports on the dangers of tobacco use published in the 1940's and 1950's "prompted Defendants to explore the possibility of obtaining liability insurance coverage for the harms caused by tobacco products." Am. Compl. ¶ 167b.

• in 1957, an individual with "Corporate Insurance Services, Inc." "predicted" that the tobacco industry would need "catastrophe protection" "in the next ten year period." Am. Compl. ¶ 167c, e.

• "at least some Defendants resisted purchasing insurance coverage through the early 1960's," and one Defendant (R.J. Reynolds Tobacco Co.) wrote to a shareholder in 1963 that it has "never carried [products liability] insurance but [has] chosen to be self-insurers in this field." Am. Compl. ¶ 167f.

• "in the mid-1960's, Defendants obtained, in earnest, insurance policies that explicitly insured against the risks of injury from their tobacco products." Am. Compl. ¶ 167h.

• Defendants discussed "[d]eveloping a plan of insurance and self-insurance" and at some point in the past "had considered an industry insurance company" but "declined to go that route." Am. Compl. ¶ 167k.

Relying on these new allegations, the Government concludes in its amended complaint that Defendants "recognized the risks associated with their manufacture, sale, and promotion of tobacco products," "considered the possibility of insuring against such risks through contract, agreement, or arrangement with one another, and[/]or, third party insurers," and "made the business decision" to "obtain partial third party insurance" and/or to "self-insure, in whole or in part," against those risks. Am. Compl. ¶ 167l.

In contrast to the original MSP Count, the amended count does assert that Defendants have maintained "plans of self-insurance"—an allegation which is necessary, at a bare minimum, to state an MSP claim.⁷ See Philip Morris, 116 F.Supp.2d at 145-46 (stating that original complaint "[did] not allege, in even the most conclusory fashion, the existence of any `primary plan' under which Defendants pay health care costs" and that even if it had, "it fail[ed] to allege, or even suggest, that Defendants specifically maintain any form of self-insured plan") (emphasis in original). Defendants, however, argue that the Government is once again attempting to use MSP as a means of proceeding against them as tortfeasors, rather than as insurers, and that the allegations contained in the amended complaint are still insufficient to state a claim.

MSP liability attaches only to an entity that is "required or responsible" to pay under a "primary plan." See 42 U.S.C. § 1395y(b)(2)....