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Index of Pleadings / Discovery Case Name: State of South Carolina Case Number: 97-Cp-40-1686 Court: Court of Common Pleas, County of Richland

Date: 26 Jan 1999 (est.)
Length: 360 pages
86301686-86302044
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OUTL, OUTLINE
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LEGAL DEPT. FILE/BASEMENT GMP
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R1-027
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07 Jan 2002
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86301685/86302045/State of South Carolina V. B&W Court Papers - Volume III Opened 980206
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Court Common Pleas County Richland
Loews
SC
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86301686/2044

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, lk 689bQ98
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Jan-26-99 16:39 Prpm-y(19746 WI#,~ 1426 ~ 7-6d4 P.10/23 P-I61
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3sa-28-49 1&:3© Fram-HMT431 W!~ 1426 i T-&d4 P11/23 F-701 Page 1 :itation Search Result Rank 1 of 3 Database _997 SC H.B. 4700 t5N3 SC-BILLTXT Page 1215 72.91. A£LETSD 72.92. DELETED 72.93. DELETED 72.94. (Gg. Allocation of Victim Services Fuads) Revenues distributed an i monthly basis, to fund existing state programs ander SC Code Secrions :5-1-2a6{Ci{1} through fC)(7) ; 14-1-207(C) 111 through tC}{7}; and t4-1-248(C)(1) through {C}t$} masc be equal to what was received under these >ubsections in fY 1996-97 before atstrzDution can be made under SC Code ;ectzons 19-1-205{8}; 14-1-207(H); and 14-1-2QSt5i fflr the period of 3uly 1, t998 through April 30, 1999. 72_95. (GP: Tobacco Settlemenc Funds) Any funds received by this State from the settlement of the lawsuit filed on behalf af the State against rarious tobacco companies must be deposited into the General Fund of the State -o be appropriated by the General Assembly. 72.96. {Gp: Aid to Subdivisions Withholding to Recover Charges) Any local 3 overnment entity which demands payment of rent or lease payments fro€a a state Copyright 0 1998 Info- for Public Affairs
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3an-2&-8® 16.'80 frw-NIM7UH Rlt~ 1428 # T-B44 P.739/2& F-7i11 `l'w moving parties fa&d to meec the standards for jcsinttler or intervenriQn because they do not have a direcs imerest in this litigazion. sly denied dse mori and the moving parcies havz advanced no reason to reconsider itrat decerm;na~ion. [Zespeci.fully submztred. y+~ & I~EsL~~Sjtg)N~, hy ~1~1/J~I-.dL+Ui33;},~.IN~S~,#~RI~.BY ~~..f131i3~¢Ys F-+-i BY: SfltYK-L, TODD, i.AFFTTTE> BEARD & WATSON, LLC
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.E;M-28-99 18s28 142E ~ T-64d P.U8t23 F-701 STATE OF SOUTH CAR()LiNA ) IN THE COURT OF COMMON PLEAS } COUNTY OF RICHLAND } 97-CP-40-1686 State erf South Carolina, By Charles M. ) Condon, Attorney General, } ) Ftainiitf, ) vs. ) j 3 Brown & Williamson Tobacco Corporation as ) successor by merger to The American Tobacco } Cornpany, American Brands, Inc., Browu & ) Williamson Tobacco Carparauott, Rri€ish ) American Tobacco Corapany T W., $rzrish- ) American Holdings Lui-, 33-A,T. Industries, } PLC, Baw Holdings Inc., Philip Morris } Incorparated (Philip Morris i7.S_A.), i'Iiilip ) Morris Companies Iuc., R.I- Reynolds Tobacco } Ccmpany, RIR Nabisco Inc., Liggeu & Myers } Inc., The Rrno7ic Group Litnired, Liggett Group } Fnc., Larillard Incorporated, Larillard Tobacco } Campany, Loews Corporation, United Siates } Tobacco Company, TJST )nc_, The Council for } Tobacco Research - U.S.A. Inc. (s=essor an } interest to the Tobacco InIusC[y ResC3rcl! ) Couuniaee), Tobacco FnsticuSe inc., Hill & } Knowlton Inc., ShQCak, Hardy & Bacon, a Iizni[ed 1 liability partnerstup. Iacob, Med3ttger & } fuuregau, a parmers2ug incLucltng professonal } coxparetions, Clsadl>ourtte & Pacl~e, a limited 3 liability partnership, and 3oiut Doe Tobacco } Corporations "A" zhraugh "Z,' ) ) 33efesfdatts. } MEWQRANDUM IN tlPl'C}SITIQN TO MOTION TO RECONSIDER
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',aa-26-fl8 I8;81 342E T-Hd•€ P.17f23 F-701 AmuAGS*S fOL'2tw. SuLG OfSwoh CRi4lWfl !aa€avy21, i998
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6-99 18c2P Fraa-H1NTON NI1O 1426 A T-8d4 P.¢Bl23 F-701 The rtght tcw participate in Ii[igaut~A is gremised ugQndezr~ansttazion of a cognizable interest therein. Rules 24, 19 and 20, SCRCP, govern inrerv provides thsz a party "sitall be persnirted to iruerve si relating to tlie property or stansaetian, whicls is the . , when the applicattz claims imerest Osa[ zs 3uvoIred tuay nat be one that is "cQIlazeral to the action or co ~ -M enz upcr#z the future occurrence of a sequence a events," but must be yuantlFiable. 5lames Win. Ntoczre, et s.I., Moore's Federal Pracrice I 24.()3[2]3 {3d F•t3. 2997}_ Ati 13iteresi that would ept5ile a pan}' to intervene is a"direct, suIssTamial, legally proieciabla interest in the proceedings." Rejchjyn v_ S-C_ penc. of alrh and nvirarNrte~eaI Cosurai, 310 S_C. 495, 499, 427 S.8.2d 661, 664 (1993). Without an interest of this type, a gazry cazuwe intervene_ #iL The Court need nar consider any other eTements of Rule 24' if the party caatwz establish a sufficient interest. L Similarly, )oiatc€er utKier Rule 19(a), SCRCP, requires that the party have an Interesz itz the . unless the party can dernonsuare titaz cntnpleze relief cannot be affordez- among the party asserts a right to relief e SCIZ.CP_ See also Va eine v. Davis, 319 S.C_ 169, 273, 460 S.E.24 218, 220 (Ct. App. 1995)[Pe)e faila lhe ac[zcz g ]4r patties seekfng to join did not arise out of the impede its ability to protect the interest without intervention; and 4) its interest is not adequately a represented by other partisg_ Re"c v 310 S_C- ai SQQ, 427 S.E.2
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1ah-26 Sg t8:3t3 Frcea-MATQti SY(~ 1425 a T-Bd$ P.t3I23 F-TGt POSI f)fflZC BQX 2343 .{`rrCCR4lf, SC 29602 EM JIileLVen,gFs Iohn A. Iia$izss, 3r. C4 V `gjjgj¢I3, P$iT", J. David Flowers, Egquire Post Office Box 10842 Greenville, SC 29603-0842
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~ _ ~lan-Z6-9p 18.~F Pro- 25 1" " 3:R3 P#'t SRi . , H83 ~s'r 9Z{2611393 l5_21 STATE OF SOT3YS GA1:t}T.N'A ) r. _ a f ~ COMM nP RICHLAND ~ ~ l~~y~.~.~ iTii ~~ irYiV~~`~4! ~~~. ~. .pqf~ ii3 ~ ~ f+~f+f~~a~i+~.,.s,~e:~ i.+iW~~.~P+ ~ 1sAiWR~ s~YS°'*+..7 ,+*'ii+wM1! ~ KAvnm, t ~ v CmpmicmA# rAe .amet$~A1L ~.'~#'~e t~,.. ) J~+a`~..MSbr-rDwo dt ~ WWWOM Taw= Carpmdtln, Bdd* A=mm Trlm= C~~~ ~ i~ °'m{q~e".J.~ ~ ~wWef~-~~YfR.€ ~ $.A.T. buotrim. PLCr $a{lA Rambp ) t~ 1 W-, Pb4 t,mb bmpuzw Mania t1.S.11.), M4 I+ads ~ ~ Ctuqacix~,.iL 7. RVA" Tabam compow'.~~.~,,. R~!XY ~j ) . ~~~at~~~yA,~fo=, ~ T4 ~t~~~ ~ ~ Uspu IK °t~~,E iitisiiiMSTiR ~WYMs ~ "N'wj.~illl{a+1Nj•; ~ p~.~~~.t, ~~ ~~t, V e ~tlrsi€~y ~_4aw..rwjw'Si~3iRf!^~,~psFYsrcQ 3 C=WUyV i1b'1` #w,'fbe Cagacli for ~ Rzdsscea Rmach -• i7-$.A. Iae. } (swztsw faiaw= mft Tatacaa 3 udamq RUM& ). ~ Tobam buiam 7ng., ma 3 Knswlnsa 1 ) 3AC-, &Ock, aarl.y & 8oa, a T3mitd uww ~, i~aa~t, -`~s } pmam~ cow=dMF, magams Je ) Aalm. a wftd U901W . osd1 } TQbA DW TatrR=n C4rpndM "40V 3 ) f f 7 .ayw: +••----. T-843 p.03194
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Jat~-26-85 15:28 1420 = T-64d P.B5123 F-7fl1 MSA was beiug presented to The Court. At oral argument, ft moving garcies arguedd fOr the first rime ftr they should be perissi.fted to intervene bssed on two Medicaid statutes, S.C. Code Assit. § 43 7-430 {Supp. 1998) aand 42 U.S,C_ § 1396k. The moving parries claimed that these sFaiu€es vested them with an interesa iu the seiriemeat grncecdse i=+m fedeial statute ciced by Tlte moving garties is a portion of the Medicaid Act. The for medical care from any rhird party." 42 ILS.C. § 1396k{a}. if the state collects any money under such an nssig[unesi[, cfie state retains the reimbursement amount "and r#e rem"er of such amount collected [once rhe federal gove ucdt inc3ividuaL" 42 LI_S_C. § I346b:(b)- The siare statuie cited by the moving parties, S.C. Code § 43-7-43[} (Supp. 1998), stappties the ussigmnteue d in the federal scheme, but does not set forth an indeV-su€eni right of the ciaimani to recover any mosey. f: State of Sou reconsider; therefore, this is ehe only i , claim the rigtu w 5 billion dol3ars froAe the sesrlewx= that othcrnuise wau}d be paid w the This issue is fhe only basis €ie moving pat[ies assart fbr the motion w memorandum addresses. The Court sF€ould deny tbe motioA because r?te moving parties do nor meet the ress for control the disposszi !es govarniag inieFveuLiou azsd jofnder. Izt addition, this Court cannot OT Eliat UIIrposB is II'eauStlglCSs-
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(2) Medicaid statute preemption ...................................._.,...,..........-.--.-.-...-.. 47 VII. DUE PROCESS .......... ........ ...._............. ... ............ ------.-........ .-.. 49 VIII. SEPARATION OF POWERS ............................................................................. 51 IX. COMMERCE CLAUSE ..... ............ ---- .......... ....... ....................... ........ ..-...... ---- 53 .........._ 55 EXISTENCE OF DUTY ...................................................................................... 57 a. Unjust Enrichment/Restitution ................................................................. 57 b. Negligence....................................................................................-°--. ..--- 58 XII. BENEFIT CONFERRED OF DEFENDANT...................................................... 59 XIII. CHARACTER OF PLAINTIFF'S PARTICIPATION IN MEDICAID PROGRAM (VOLUNTARY PARTICIPATIOI.) ............................................... 61 The State's payment of the costs of medical care of the indigent is not a voluntary act in any realistic sense ........ ........_.--............ ..............-...°...... 61 B. Payments by the State were not made with full knowledge of all the facts ....................... ° ........,.......................... ...-.............. ---...... .,...---- 63 C. The voluntary payment rule should not apply to states in any ecent --...... 65 XIV. FAILURE TO PLEAD TORT LIABILITY OF DEFENDANTS TO MEDICAID RECIPIENTS ..... ................................................. ............... ..... .......... ................. ... 65 XV- DEFENDANTS' "•LAWFUL" PROFITS ON SALES ......................................... 66 XVI. EXISTENCE OF SPECIAL RELATIONSHIP .................................................... 67 e fndemnity .................................................................................. 68 b. Voluntary Undertaking ............................................................................. 69 XVII. ECONOMIC LOSS RULE ............ ......... ......... ................ ......... ....................... .--- 71 XVIII. LiNFAIR'I'RADEPItACTICES ACT ................................................................. 72 A. Damage Claims ...... ........ ........... ......... ........... ............. ....... ...._.-_.... ....... .. 72
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frariv aUEC. 4. 1993 ~ ::',(. ~ a~e, 3~B r m:,Bfl3:83 9 NFSS. MOTLEY, LOADHOLT, RICHARDSON & POOLE t
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9.0DAI bLG'$4 ~'0.tKriiT bKHT & ~tcrr ~.3_.r Medinger & Finnegan, LLP. Chadbaurna & Parke F.I,P, and 5nha Doe Tobatfiv C4rporatirms "A" through "Z," who sze Released Pardes herein an stayad. * TT. Any applicable time schedule slsoli be toiled far the d.me 4so stay is in dfscs. III. The Stay sba3l remain tiI the earlier of the faitowing: (A) the Settlement has se3aieved "Siaie Specific ~~"maliry" (as defined in Saxion 11 (ss) of c!e puxsuaffi to subseation XtrlTt'(u)(1) of the M3A_ IV. P p Parrir3patueg ia Pra050tirsgs 2--'ein for tbe pmpase of pffi:r~~ the Sertlerrtant cmistanx w9Sh the trrrus of the MSA. IT IS SO ORDERED.
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dan-26-&6 18:29 F€m-Hi8}TOt{ W} South C=i9na 1426 M ";-644 P.88t23 F-T81 ola.[2 the a 8(1895). The court must presume that tAe General Assemb€y's acteA for a°copsiinzuotsal putgose." Pawelt v- 'I"hom , 214 S.C. 376, 387, 52 S.E.2d 782, 786 (3949). Absent a specific coAStiassiaaal challenge of a stauue, "de judiciary is limited to the intetgretaiiou aitd eouusttPtction :,f tbat statute. ° Barnwell v~~cr Cal~ Ca_, 301 S.C_ 534, 537. 393 SX-2c! 162, 163 ,1989}. The Iegisiature can repeal a statute, but the court cannot. See Rus6y v- Sotl~arm Mutual AV€omatule Ins. Co-, 280 S.C. 330, 337, 312 S.I=.2d 716. 720 (Ct. AF,F- 1984). °It is perhaps unnecessary to say that Coazrts have no legislative powers, and in The interpretation and consuucciau of staaates their sole fusscuou is to dete, ircteation of the Legislature." artiwe 1, e 393 S.B.2d at 163. The Court lacics the power to red.istr'sbute the funds as moving partiEs suggest. 8ecause The Ccai.trt 3acks jtui ag may not ultimately be prapecly allocated is not The ry ies shoe=Id not be allowed best, tliisgerceived t:'areatis aeollatezal orzangezztiai inrexesttbatdoes s3orperu:ittIxemoving parties ames Wuz. Moore, et at., t++Icore's Fecjeral Practice 12+k.03 ('1]a (3d Ed. 1997). Moreover, sinre the setrletrsent proceeds will not be paid to The State itc a dtozsp Win, but rather over 25 years or more, the ituereSt irt those proceeds that The moviug parties c(aittt as not rige even if the Court #tad auii3omp over the dispCSsitiatz ef'the settlement gmcezds.
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South Caroli; 289 F.2d 143 {4~ Cir. 1961) .......................................................... .............................................112 Southern Packaging and Storage Comparry, Inc. v. United States ofAmerica, 588 F.Supp. 532 (D.S.C. I984) ...........................°.--.-..................................-..-°°................,--94, 95 State of Georgia u Tennessee Cooper Co., 206 U.S. 230 (1907) ..... ---- .................... ........................ ........................ .................................. I5 Toole v. Brown & Williamson Tobacco Corp., 1997 U.S. Dist. LEXIS 15759 {N.D. AIa- Oct- 8, 1997} ............................................-°..............36 Tousley v. North American F'an Lines, Inc., 752 F.2d 96 (4' Cir. 1983)............................................................................................... ....... .....82 United States v- Consolidated Edison Co., 680 F.2d 1122 {2d Cir. 1978) .....°.°°° ..........................................................................................60 United States I3ept. of Labor v. Bethlehem Mines Corporation, 669 F-2d 187 (4h Cir. 1982) ...... ............. ............................................................ ............ -°--........ 22 United States v. Harteyrvfdte Mutual Casually Co., 150 F.Supp. 326 (D.Md. 1957) .................................................................................................... .19 United States v. Standar d Oil Co., 332 U.S. 301 (1947) ---- ...---- ...... ...........-................... ...-..-......... .............. -......... .-.-...... -----...-19 United States v. Trammel, 899 F.2d 1483 (6~' Cir. 1990) ............. ................... .......... ............................................ ...--19 West Lynn Creamery, Inc. v. Healy, 512 U,S, 186 {1994} ......................................._....,.,..,..,,.,.,..,...,..,...,...,..,...,..,..,..,........ .,...,,,.........53 Wingard, et at. v. Exxon Co., U-,S A., 819 F. Supp. 497 (D. S. C. I 992).......................................................................................--------- ----36 Young v_ Federal Deposit Insurance Corporation, 103 F.3d 1180 (4' Cir. 1997) .................................................................................................... ..109
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B. Negligent Misrepresentation, Concealment and itiondiscIosure..... ........... 100 (1) Pecuniary Relationship ........... .......•............. ....................... .......... 100 (2) Duty of Care .......• ..... ....... ......._....,......................... ......•.............,.. 101 XXIII- STIiICT LIABII,ITY......•• ............. ---- ...... ...........•......... ............ _...........,......... 102 A. Use and Consumption by Third Parties .............. ~ ............•......,-•----..•---...... 102 B. "Sellers" of Products ....... .._ ... 103 XkIV. CIVIL CONSPIRACY ......,..• .......... ........................_........... ................................. 104 XXV. AII?INfiiAND ABETTING ....._.........._ ...............-.-..................._....•.................. 106 XXVI. VICARIOUS LIABILI"I'Y OF PHILIP ASC?A.KIS CQMPA2+tIES. INC. AND LCIRILLAP.I}> Il•IC. •,..........•........• ................ •.•..-........ ........... ....-.•................. ....... 108 ?u£VII. CLAIMS AGAINST HILL AND KNQWI,Tt}N-.,• ............................................ 110 A Acts and Omissions Aleged -..•.--• .................•••......................,,................. 110 B. Duty ............ .................................................••........••......-........................... I 11 C. Acts and Omissions of Clients ......... ..... ....•.............. .....................,_......... 112 =X. PRAYER FOR RELIE.F....................................................................................•.. 113 XXX. PUNITIVE DAMAGES ..................................._...............•.-....•......-•.••......••...-..-. 113
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aafl-26-29 16s0 T-844 P.12I23 P-701 i I do hereby certify thai I have caused to be served a copy nf the A3emarandim i Opposition to MatiaA to Recansicler on courrsei of record, as reflected below, by havirtg placed in the United Slaiss mail, F°stagr preg:dd, this 22nd day of Ianuary, 1999. FOR er i;tbert Turner, Padgeir, 1901 main Street, Post Office Box 1473 ColatAbia, SC 29202 FQR Bri€i. American finbacca Cg. Lrci. Wade H. Logan, ili, Esquire Holmes & Thomson 200 Meeting Street, Suite 202 .Post {}ffice Box 858 Charlestort, SC 294(}2-E)858 F'OR Brown & Wi1 iamsorl Corpnralign. FQ ne13MnAs flkta Americaa SranIs. Inc. _ HaM HoIcjytg, kc.: aRTR sahiscfl Ine. Carl B.1'dpps, i€I, Esquire t'_hristogher 7. Daniel, Esquire Nelson, Mullins, Riley & Scarbttraugh 1330 Lady Street, Thirr3 Pltxx Post Office Box 31i}X} Columbia, SC 29211 WiFburn Nessek Pruet 1441 Main Street, Post Office Drawer 2426 Columbia, SC 29202 Mlt 7acoh. Medm= & Fi~teg~g Henry B. Smythe, Jr., Esquire Buist, )uio4re, Stnythe & iu1cC=, P.A. 5 Exchange Street Post Office Box 999 Char(esta€i, SC 2W2 FOR &a Haadu & Barnn Joel C411ius. Esquire Gray Cul6reath, Esquire CoII1Jt5 & Lacy 1330 i,ady Sireet, Suite 601 Post Office Box 12487 Columbia, SC 29211 FOR Liegeu & Myers = The $rooke GMim're Aaron H. Marl:s, i sqaire Kas4witz, Benson, Tarres & Friedmau, LLP 1301 Avenue of the Americas New York, NY 10019-6022
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Rv'DEX OF PLEADItvGSlDTSCOVERS CASE 'MTVPE: CASE N[IIVZBER: COURT: STATE OF SOUTH CAROLINA 97-CP-40-1686 COL}RT OF COMMON PLEAS, COUNTY OF RICWANZJ ~ NO PARTY DOCfIIkiENT NAbiE SIGiVFA 4'ILF:D SE3LVFd1 VOLUMEZ 1. PZA7N'P1PF ' COMPLAINT 5-12-97 2. PLAINTIFF SERVICE AGAINST LORId.LARD. INC. 5-16-97 3. PLAINTIFF SERVICE AGAINST LOEWS CORPORATION 5-16-97 4. PLAINTIFF SERVICE AGAINST LORILLARD TOBACCO COMPANY 5-16-47 5. DEFENDANT CONSENT ORDER FOR EXTENSION OF TIME 6-16-97 6. PLAINTIFF AMENDED COMPLAINT 8-1-97 7. LTC SERVICE OF AMENDED COMPLAINT &5}J7 S. LOEWS SERVICE OF AMENDED COMPLAINT 8-4-97 9. PLAINTIFF MOTION FOR ENTRY OF CASE MANAGEMENT ORDER 11-25-97 14. , INTffitVENORS MOTION TO INTERVBNE 12-5-97 il. PLAINTIEF MEMO IN OPPOSITION TO THE I+dOTION'TO DISMISS FOR LACK OF PERSONAL SURISBICfION FILED BY LOfiW3 1-21-98 VOLUME II 12. LOEWS MEMO OF LAW IN SUPZ'ORT OF MOTION TO DIS2~ffSS PL'S AMENDED COMPLAINT FOR LACK OF PERSONAL JFR2ISDICCION 1-23-98 13- INTERVF.NORS MEMO IN SUPPORT QF MOTION TO INTERVENE 2-26-98 19. DEFENDANT MEMO IN SUPPORT OF MOTION TO DISMISS RULE 12 (B 6' AND EXIIIB7TS 1-26-9R VOLUME IZI 15. PLAINTIFF MEMORANDUtvSINRESISTANCETOMOTION'COIN'fE.RVENE 2-5-98 16. DEFENDANT MEMORANDUM IN OPPOSITION TO MOTION TO INTERVENE 2-5-" 17- PLAINTIFF MEMORANDUM IN OPPOSiTION TO DEFS' h3OTiON'FO DISMISS PURSUANT TO RULE 12(B){ 2-5-93 LS. JOINT MOTION POR STAY OF PROCEEDINGS AND ORDER GRAN'fB3G MOTION 12-3A8 19. COURT ORDER GRANTING STAY OF PROCEEDINGS I23-9S I?. TERVERORS MOTION 7Y112ECONSIDER ORDER DENYING INTERVENORS' MOTION TO INTERVENE 1-11-99 DEFENDANT MEMO IN OPPOSITION TO MOTION TO REfANSlDER 1-22-99 L2 CY}IIRT . ORDER RECONSIDERATION MOTION IS DEI4IED 1<6-99
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F. The statute of limitations does not apply to the State's eqni*ab2e claims such as unjust enrichment (restitution), equitable indemnity and injunctive re4ief .................................................................................. 30 IV. PROXIMATE CAUSE ........................................ ............. ° 30 V. PRE-EhrfPTIQ1q...................................................................................... ..... 2 A. Defendants have Mischaracterized the Narrow Pre-emptive Effect of the Labeling Act and C'ipollone ...................................................................... 32 B. The State of South Carolina's Causes of Action Against the Cigarette Industry are Not Pre-emgted ................. ...........°.°°..---................... ...... .. 37 Causes of Action One, Two, Eight and Nine-The State's Equitable Causes of Action of Unjust Enrichment/Restitution, Indemnity, Nuisance, and Injunctive Relief - are not Pre-empted .................................... 8 2. Cause of Action Three-Voluntary Assumption of Special Undertaking-is not Pre-empted.................°-...............,..........-.... 38 3. Causes of Action Four, Five, Six and Seven - Unfair Trade Practices Act and Anti-Trust-are not Pre-empted ........................ 39 4. Cause of Action Ten-Negligent Misrepresentation, Concealment and Nondiscios ure-is not Pre-empted .......................................... 39 Cause of Action Eleven-Fraudu(ent Misrepresentation, Concealment and Nondisclosure-is not Pre-empted .................... 40 6. Cause of Action Twelve- Negligence-is not Pre-empted ........... 42 Cause of Action Thirteen - Strict Liability - is not Pre-enpted .. 42 Cause of Action Focn2een- Civil Conspiracy - is not Pre-empted.................................................................................... 44 The State's Prayer for Relief is not Pre-empted ........................... C. Packaae-Based Claims are not Pre-empted Under The Federal Cigarette c.t .................................................................. 44 VI. FEDERAL PREEMPTION BY THE MEDICAID ACT OF 1965,42 U.S.C. § 1396 .................................................................................................... ................... 47
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STATE CASES Addy ti. Bolton et a1., 257 S-C- 28,183 S.E.2d 708 (S.C. 1971) ............................ ....................... .............. _...-............ - 68 Agency for Health Care Administration v. Associated Industries, 678 So.2d 1239 (Fla. 1996) .................................................................................................... ......19 AMA Management Corp. v. Sfrasburger, 309 S.C. 213,420 S.E.2d 868 (Ct. App. 1992) .......................... ........... ................................. ..°.1{31 Anderson v. Short, 476 S.E.2d 475 {199b} ............................................................. ...................................................27 fltlas Food systems v. Crane National Ifendors, 319 S.C. 556,462 S-E.2d 858 (1995) ..... ................ .............. _............................ ..................... ...--24 &aker v. Sterling, 39 N.Y.2d 397, 348 N.E.2d 584 (1976) ................... ................. ........ ---- .............. ....._.........«...19 Barker v. Sauls, 289 S.C. 121, 345 S.E.2d 244 (1986) .............. .............................. ................ ............ ........... 58. 112 Belk v. Nationwide Mutual Insurance Co., 271 S.C. 24,244 S.E.2d 744 (1978) ..............................................................................°°°°------52 Benson v. United Guar. Residential Ins, of Iowa, 445 S.E2d 647,315 S.C. 504 (Ct- App. 1994) ...............................................................................7 Blackwell v. Ryan, 21 S.C. 112 (1884) .............................................._.. ................. ................._............ 3C1 Bocook Outdoor Media v- Sutnusey Outdoor Advertising, 294 S.C. 196,363 S.E.2d 394 { 1987) ........._._ ............... ..................... ....................... ..... ..81-82, 76 Bowlin v. George, 239 S.C. 429,123 S.E.2d 528 (1962) ....... .......................................................... ........ .................. 89 Brown v. Petnson, 483 S-E.2d 477 (S.C. App. 1997) .................................................................................................24
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Defendants assert that Plaintiff lacks standing because a UTPA ught in a representative capacity under . Code Ann. § 39-5-140(a) ...................................................... 72 Defendants assert that Plaintiff is not a"person" within the definition of 39-5-IQ{a} S.C. Code Ann. and cannot bring a claim under §39-5-140(a) S.C. Code Ammn. ................................... 73 Defendants assert that the attorney general is limited to the pursuit of injunctive relief or statutory penalties under UTPA and cannot recover treble damages ............................................... 75 4. Defendants assert that since the manufacture, distribution, marketing and sale of cigarettes is permitted that those acts cannot constitute an unfair or deceptive act or practice in violation of UTPA ........................................................................ 75 Defendants assert that Plaintiff failed to allege conduct that would support a finding that Defendants "willfully" violated the UTPA ............................................................................................ 77 Defendant asserts that Plaintiff lacks standing because it is not a customer or competitor of defendants ........................................... 78 Defendants assert that the fourth and fifth cause of action failed because plaintiff did not "rely" on any conduct of defendants ..... 79 Defendants assert the cause of action fails as to all defendants that have not engaged in trade or commerce in South Carolina within the meaning of UTPA ...........°.- ................°°°°......--.--............... 79 Defendants assert the fourth and fifth causes of action fail to the extent that exemptions set forth at § 39-5-40(a)(d) apply............. 80 B. Statutory Penalties .........................................---°--....................... 82 XIX. ANTITRUST CLAIMS ........... ...._.... ................. .................. ......,.................,....... 85 dant asserts Plaintiff has failed to allege that moving Defendants ompetition or to control prices for products sold in this State" .............................................................................................. 85 B. Defendant asserts that Plaintiff is not a person who may sue under S.C. Code Ann. § 39-3-34 ........ ............................_................................. ... 86
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i TABLE OF CONTENTS Page TABLE OF AUTHC?RITIES..................................................................................._.... ... i INTRODUCTION .................................................................................................... ........ 1 SUMMARY OF THE AMENDED C{)ivil'LAINT......................................................... 3 SCOPE OF MOTit)N ......................................................-•-----.--°-----..........._._............. 6 L STANDING OF ATTORNEY GENERAL TO PURSUE THIS ACT7ON,...,.... 9 A. The State of South Carolina has authority to bring this action................. 10 B. The Attorney General has the power to bring this action ......................... 12 II. EXCLUSIVE REMEDY ..... ...................................._........ ._.................. ............. 13 A. Legislative Grant of New Right Does not Preclude other Non-statutory Rights ................................................................................................. °... 14 B. Defendant's Argument is not Supported by the Federal Medicaid Scheme .................................................................................................... 16 C. Recent Case Law Does Not Support Defendants' Arguments ................ 17 D. 13efendants' Arguments do not Justify Dismissal of the Amended Complaint as a Whole .............................................................. ............. 20 111, BAR BY STATUTE OF LIMITATIONS OR LACHES .................................... 23 A. Estoppel to raise time-bar defenses .................._..................................... 24 B. For causes of action not based on fraud, the discovery rule applies........ 26 The issues concerning fraud, equitable estoppel, and the discovery rule preseni questions of fact which cannot be resolved on a motion to dismiss.........................................._....................,............................. ....... 27 i_ The State's claims are not time-barred, because Defendants continue to commit the wrongful acts which form the basis of such claims..... .......... 27 E. The State's equitable claims are not barred by laches.............................. 29
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Gist v. Catteld's Heirs, 2 DeSaus, Eq. 53 (18a1) .•-•-• .......................................................................................... 29 Graham v. Whitaker, 282 S.C. 393, 321 S.E.2d 44 (1984) ..........._...........-• ................... .................................... ........... •3€i Greenville Memori 301 S.C. 242,391 S.E-2d 546 (1990).................................................................._.............•....-..-•31 Haley Nursery Compan}-, Inc. v. Forrest, 298 S.C. 520,381 S.E.2d 906 (1989)........................................................................................•-.7b Harper v, Etlvidge. 290 S.C. 112,348 S.E.2d 374 (1986) ..... .............................. ..•........ ............................. .......... ••.-.-57 Hedgebeth v. Aiedford, 378 A.2d 226 (N-3. 1977) ..................... .............. ................ ....................... .......................••-..-.17. 18 Henderson v. Gould, Irrc., 341 S.E.2d 806 (S.C. App. 1986) ...... .......•...... .....«...................... ........,...,................ ................. 103 Hite v.ThonFas and Howard Compan;~ ofFlorence, Inc., 409 S.E.2d 340 (S.C. 1991) ......... ..................... ............. •................. -.•...-........ ........... -......... ._...-•...6 Hoogenboom v. City of Beauf rt, 315 S.C. 306,433 3.E.2d 875 (Ct- App. 1992) .............. ...°--......_.--...........-..-............................. 14 Inman v. Ken Hyatt Chrysler-Plymouth. 294 S.C. 240,363 S-E.2d 691 (1988)........................................................_.............-...----_..........79 Jackson v. Atlantic Soft Drink Co., 286 S.C. 577,336 S.E.2d 13 (1985) ................__.................. ............................ ••............. ............ 32 Jefferson Pilot Life Ins. Co. v. Gum, 302 S.C. 8, 393 S.E.2d 18t1(199fl) ................................................ ...............................29 Johnston v. Bowen, 313 S.C. 61, 437 S.E.2d 45 (1993) ...... ....................... ......... ........•............ .---..................... --......27 Johnson v. Phillips, 315 S.C. 407, 433 S.E.2d 895 (Ct.App. 1994) ..............................................................................89
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Brown v. ,Sandwood Development Corporation, 277 S.C. 581, 291 S.E-2d 375 (1982) .............. ...... .......... .......... °°.°........... °.................--------.2fi Brown v. Leverette, 353 S.E.2d 697 {S.C- 1987) ........ .......... ----....... .° ............................... ........ ........... It}4 Bryant v. Cz~v ofldorth Charleston, 304 S-C- 123,403 S-E.2d 159 (CE. App- I991 )......................._...............................................,....71 Burbach v. Investors Management Corp., 484 S.E.2d 119 (Ct. App.) .... ................. ............. ........_......... ............ ..................,.,,............. ........ 80 Capital View Fire Dist. v. County ofRichland, 297 S.C. 359, 377 S.E.2d 122 (Ct. App. 1989) .............................................................................I 1 Citizens and Southern National Bank v. Modern Homes Construction Company, 248 S.C. 130,149 S.E.2d 326 (11966) ..................................................................................... I4, 15 City of New York v. Keene Corp., 505 N.Y.S.2d 782 (Sup.C#. 1986) ---........ . ........ .......... ....... ............... .................. ..6tJ Comm. OfMsassachusetts v. United North and South Development Co., 160 S. W.2d 563 (Tex- Civ. App. 1942) .......................................... .......... ......... .......... ........ .........I I Conestee Nltlls v. City ofGreerrnille, 160 S.C. 10, 158 S.E. 113 (1931) ............................. ........ ............................ ......... ......_.............. 27 Cootey r. S.C. Tax Commission, 204 S.C. 10, 25,28 S.E.2d 445 (1943) _ .......................................................................................12 Crowder v. CarroZl. 251 S.C. 192,161 S.E 2d 235 (1968) ...........................................................................................14 Crucible Chemical Co., Inv. v. Burlington Industries, Inc., 423 S.Ead 121, 3 10 S.C. 243 (1992) ---- ............ ......................... ........._.............. .......... ..-.----_.{ Department ofSocial Se. 302 S.C. 199, 394, S.E.2d 721 {Ct- App- 1990) ............................................................................52 Dillon County School Dfstrict No. 2 v. Lewis Sheet A1eta7 Works, Inc., 286 S.C. 207, 332, S.E.2d 555 {Ct, App. 1985) ............................................................................24 I
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9 F'lagsttrff"v. Atchison, Topeka and Santa Fe Railway Co., 719 F.2d 322, 324 (9' Or. 1983)............................................................................................... ...19 Fudge v. Penthouse International Ltd, 84 F.2d 1[712 (IS' Cir. 1988) ..................................... ..................... .......... ---- .......................... ......8 Gasner v. County of Dinwiddie, 162 F.R.D. 28£1(E.D. Va. 1995) .................................................................................................... .8 Great American Insurance Co. v. United States, 575 F.2d 1031 (2' Cir. 1978) .... ............ ................. ........................................ _........... ......-....... ...2f1 Halberstam v. Welch, 705 F.2d 472 (D.C. Cir. 1983) .............._................ ...,,.................. .........,,.........,...... ............. .....107 Hatfield v. Patles, 537 F.2d 1245 (4~' Cir. 1976) .................................................................................................... ....14 Haven's Realty Company v. Coleman, 455 U.S. 377 (2982) ........... ............... ...._......... ...... ......... .....,....... ......................28 Health Ins. ttss'rr, ofAmer 23 F.3d 412 (D.C. Cir, 1994) .................................................................................................... ....18 Hflao v. Estate oftLiarcos, 103 F.3d 767 (9"` Cir- 1996) ....................................................... ....----....... -............. -.......... -.-...... .50 Hiltsborough County, Florida v. Automated Medical Laboratories, Inc., 471 U.S. 707,105 S.Ct. 2371 (1985) ........................................ .................._.,................... ..,.-....,.48 Holbrook v. Anderson Corp., 996 F.2d 1339 (1' Cir. 1493) ...........................°.°..........._......-.......................................,,........ ..-18 Iru7ustrial Risk Insurers v. Creole Production Servtce, 746 F.2d 526 (9h Car. 1984) .................................................................................................... ......2Q In Re Chevron, 109 F.3d 1016 (5" Cir. 1437) ............................_.........._-...-........-..........................................50, 51 In Re Daniel, 137 B.R 884 {1992} .................................................................................................... ..................8Q
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TABLE OF AUTHORITIES FEDERAL CASES Page rlf,fredL. Snapp and Son, Inc. u. Puerto Rico, 458 U.S. 592 (1982).............................................................................................. ........°--......11, 15 Blue Shield oj'irrginia v- McCready, 457, U.S. 465 (1982) - ........................................................................._......................° Burton v. R. J. Reynolds Tobacco Co., 884 F. Snpp- 1515 (D. Kan. 1995) ............. ............... ........._...._.......................... 37,39,40,41,43 Camps NewfoundlOwatonna, Incc v. Town of Harrison, _ U.S- , 117 S. Ct. 1540 {1997} ....................................................................................53 Castano v. American Tobacco Co., 870 F.Supp. 1425 (E.D. La. I994) .......................................................°°............,..... 28, 36, 40, 42 Chambers 52 F.2d 125 of S C.. Inc, v. Bryant, ...... ................................ ............... ................. S 3. 54 Chicago Title Ins. Co. v. Resolution Trust Co., 868 F- Supp. 135 (D.S.C. 1494)...................................................................................°.......... .....41 CipottonQ r. Liggett Group, 505 U.S. 504 (1942) ........................................32, 33, 34, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46 City and County of San Francisco v. Philip Morris, Inc.. 957 F.Supp. 1130 (N.D. Cal. 1997) ..............................................................................................17 City ofPhiZadeZphia v. New Jersey=, 437 U.S. 617 (1978) .................................................................................... . ........ 53 . ....................-_ Cornrnonwealth of Massachusetts x Philip Morris, Inc., 942 F. Supp. 690 (B- Mass- 1996) ..........................................................................................24, 47 Cone ess of Racial Equalitv v. Douglas, 318 F:?d 95 (5'h Cir. 1963) .............-°°.°-°.°....-.....-..... .............. -.. 95 --°..-------- ........................... Federal AMarine Terminals v. Burnside Shipping Con¢pany, 394 U.S. 371 (1969) .......................................................................................... .--.....14, 22
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STATE OF SOUTH OAROLINA } ) COiJNTY OF RICIiLANI? ) IN THE COURT OF COMMON PLEAS STATE OF SOUTH CAROLINA, } C.A. No. 4'7-t'P-4[I-I68b by CHARLES M. CONDON, ) ATTORNEY GENERAL, } } } Plaintiff, } Ys. }y f BROWN & WILLIAMSON TOBACCO ) CORPORATION as successor by merger } to THE AMERICAN TOBACCO } COMPANY, et al. } } } Defendants. ) PLAINTIFF'S MEMORANDIIM IN OPPOSITION TO DEFENDANTS' MOTION TO DISMISS PURSUANT TO RULE 12(b)(6) t
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I3ax=d i~ Imperial Chrysler-Plymouth, Inc., 298 S.C. 439, 381 S.E.2d 212 (Ct. App. 1989) .......... ---- .........................................................79 Duncan v. G'afne}=Mfg. Ca., 214 S.C. 502,53 Sd3.2d 396 (1949) ................. ............................ ..................... ............... --..........24 Dye v. Gaine}~ 463 S_E2d 97,320 S.C. 65 (Ct.App. 1995) ° ..................................................................................7 Elders v. Parker, 286 S.C. 228, 332 S.E.2d 563 {Ct App. 1985) .............................................................................99 Ellis v. Smith Grading and Pcnring, Inc., 294 S.C. 470,366 S.E.2d 12 {CtApp. t988} ......----.--..-..._........°..° ....................................58, 65 Evans v. Rite Aid Corp., 452 S.E.2d 9(S.C. App. 1994) ................... .......... ...°...... .......... °......... ......... .....................,...58 Fanning v. Bogacki, I 2I S.C. 376,98 S.E. 137 {19I9} ............ ............. .............. ...................... ............ ....................... 34 First General,Sersnces of Charleston, Inc_ v. Miller uu Servicemaster, Inc., 314 S.C. 439,445 S.E.2d 446 (S.C. 1994) ................... ....................................»................ .......... 68 Folkens v. Hunt, 290 S.C. 194, 348 S.E.2d 839 (Ct. App. 1985)..............................._............................................31 Future Group, II v. Nationsbank 478 S.E.2d 45 (1996) .................................................................................................... ......I€16.. Gamble v. ,Stet-enson, 1€}7 305 S.C. 104,406 S.E.2d 350 (199I) .........................................................................1{}9, I34, 1 I5 Garner v. R•farr 318 S.C. 223, 456 S.E.2d 907 (1995) ........................................................... -........................32 Gaymon v. Richland Memorial Ilaspftal, 1997 WL 40955 (S.C. 1997) ................................................................................ .....27 Gilbert v. Mid-South Machinery Co., Inc., 227 S.E.2d 189,267 S.C. 211 (1976} .........................................................................................112
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-1 ® ~ ~ s. ~ Turner v.14$C Jalousie Co. 4f IV. C, 160 S.E.2d 528,251 S-C. 92 (1968) ...............................................................................................5 Upjohn Co. v. Freeman, 885 S.W.2d 538 (Tex. Civ. App. 1994) ........................................................................................28 Ward v Dick Dyer and,4ssoc., 304 S.C. 152,403 S.E.2d 310 (1991) .....• ...... ................. ............................. ................... ........ ••....81 Webb v. First Federal Savings and Loan Ass'n. ofAnderson, 300 S.C. 507,388 S.E.2d 823 (Ct. App. 1989)........• ....................................................................58 White v. Harvey, 179 S.E. 671,176 S.C. 36 (1935) .......................................................................................6 Winburn v. Insurance Co., 287 S.C. 435, 339 S.E.2d 142 (Ct. App. 1985) ...°.--.°..-.°°.-°° .................................................101 Winnsboro v. Wiedeman-Singleton, 303 S.C. 52, 398 S.E.2d 500 (C. App. 1990), affirmed 307 S.C. 128, 414 S.E.2d 118 (1992) ...................................................................................... . ......... . . .68, 69 . ........ Young v. Century Lincoln-Merczrrv, 302 S.C. 320, 396 S.E.2d 105 (1990) .....................................................................................74, 76 DOCKETED CASES Dunn v. RJR Rlnbisco Holdings Corp., No. 18Dfl I-93Q5-CT-tt6 ..... ...------- ...... ............................ ............ ....... ............. ....... ........46 Michigan 3 c Philip Morris, Inc., Slip Op. No. 96-84281-CZ, at 4(Aeiich, Cir. Ct, Ivtay 27, 1997) ........................... ....•.•..--•.-.......-17 State of Maryland v. Plziflip Morris, Inc., Case No. 961 220 1 71CL211487 (filed May 21, 1997) ..................................................................66 Texas v. The American Tobacco Co., Slip t}p. No. 5-96CV-91 (E.D. Tex., Sept. 8, 1997)...............................................•.......-.......17, 50 Texas v. The American Tobacco Co., Slip Op. No. 5-96CV-91, Order at 2(E.D. Tex. Dec. 9, 1997) .... ............................... ............... .•..9 ~
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Order flverrnling Defendants' Exception to Special Master's July 28, 1947, Report and Recommendation F rt and Recommendation Findings of Fact, Conclusions of Law and Judgment as to Defendants' Motion for Summary Judgment (Delaware County Super. Ct., Dec. 30, 1997) Order Entering Temporary Order Ratifying and MISCELLANEOUS Hubbard, F. Patrick and Felix, Robert L., The South Carolina L,aw of TQrts at 337 (1997) ........---- ........... .............-...-.-....-......-.....-..-•.......................... 99,102 BLACK'S LAW DICTIONARY (3` Ed-) --- .... ....... ................... ............._•-°-........ ....... -.•.-..-...74 BLACK'S LAW DICTIONARY 1286 (5`1 ed. 1990) ............................................................•.....54 The Comment to Restatement of Torts 2d, §&67(b) .................................. ........... ....... 107 Restatement, Restitution, § I (cmt.b) {I463} ...-...°--°......_._......._ ........... ............ .........._......-.-...54 Restatement, Restitution, § 112 (I437) • ........................................................................................63 66 Am. Jur. 2d Restitution and 1mpZied Contracts § 4•_.......... _......._...-....._.......... ...-•• .............bi 66 fiun. Jur• 2d Restitution and Implied Contract § 116 .... .........................°............. -..----...........,64 $IA C•7.S. States § 34& ................................._.-.........•......•,-.....-•..-.•............•.....-......-.. ---°°...Ifi, 87
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Jenkins v. Home Ins. Co., 635 E`.2d 314 (4' Cir. 1980) .................................................................................................... ......28 Luckenbach S. S' Ca., Inc., et at. v. W. R. Grace & Co., 276 F. 676 (792#}) ....... .............. .....149 Mack v. Great Atlantic and Paci fic Tea Co., 871 F.2d 179 (IS` Cir. 1989) .................................................................................................... ......28 1vfeTeer v. Provident Life Ins., 712 F. Supp. 512 (I3.S.C. 1984) .................................................................................................... 80 Rfedtronic v. Lohr. 116 S. Ct. 2240 (1996) .................................................................................................... ..............3s New York v. United States, 505 U.S. 144,112 S.Ct. 2408 (1992) ............................................................................................65 Oregon Waste Sys., Inc. v. Dep 2 of Envtl QuAlitys 511 U.S. 93 (1994) .................................................................................................... ....................53 553 F.2d 830 (2d Cir.1997} ....... ....... ............... ---- ..... ....... ................... .................. ............-.....b4 Penn Vistron Cor p., 876 F.2d 414 {54° Cir. 1989) .................................................................................................... ......43 Fenns>tvania v. West t• zrgiraia, 262 U.S. 553 (1923) ..... ..................._......_............_.-.................................... ......... .......................Il Pension Benefit Guarantv Corp, v. White Consol. Indus.. 998 P.2d 1192,1196 (3d Cir. 1993) ................................................................................................8 Philip Morris et aL L'. Harshbarger et a7., 1997 U.S. App. LEXIS 21751 (? Cir. August 18. 1997)............................................................35 Republican Party of North Carolina v. Martin, 980 F.2d 943 (4' Cir. 1992) .................................................................................................... ........7 Romani v. Seharson Lehman ffutton, 929 F.2d 875 {1" Cir. 1991) .................................................................................................... ........8 0 i ~ ~
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. F-v RDEt,. 4. 1999= 6:58Ah1• 0 traea:a7P+esttme:1s:+4an a N0.7,"f19 "P. 8/15 . CERTIFICATE OF SERVICE Zdo oPPrueeedings and proPosed Order GrantngStay of Proceedings (without Exhibit A attached) on all counsel of record, as reflected below, by haviug same glaced in the United State.s mail, postage pzegasd, ttsis 3rd day of Deeem6er. 1998, Amen'aan Ho ings Ltd Elbert S. I?ora, Esquire `Purnet, Paidgetx, Osatsam Sc Z,aM 1901 Maia Street, 17th Floor Post Office Box 1473 Cotuan.bia, SC 29202 FOR British Americaa Tobasco Co. 71r3. Wsde H. Lflgan, lli, Esquire Holmes & T4romson 200 Meeting Street, Suite 202 Post Offtca Box 858 Charleston, SC 29402-0858 NeLsou, Mulli L.L.i>. 1330 ?Ady Street, Third Floor Post Office BOX 11070 Columbia, SC 29211 Nsxsen 1441 Main S Post Office Drawer Cattumhia, SC 29M , M Iacob_ M inur & F' negan Henry B. Smythe. Jr., Ssquire Buist. Moore, Smythe & McGee, P.A. 5 Exchange Siree[ Post Office Box 999 Cbarleston, SC 29402 FOR Shook Harc)y & Bacvn ,Toel Collins, Esquire Gray Cu3breath. Esquire CoTtins & Lacy 133{7 Lad.y Street, SuiFe 601 Post Office Box 12487 Cokumbia, SC 29211 FOR Liggett & Mvets inc - 1"he Arooke ~~Iiiuzt Azron H, Marks, Esquire K2sowiTL, Benson, Torres & F€iedmau, LLP 1301 Avenue of the Americas New York, NY 1ti019-6022
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tobacco-related Medicaid and other publicly-funded health care costs, as well as, without limitation, the imposition of civil penalties and entry of injunctive relief. The State's Amended Complaint alleges an on-going course of serious wrongdoing by the tobacco industry -- i.e, the tobacco industry manufacturing companies, the tobacco industry trade associations, the tobacc a tobacco industry law firms -- which spans more than four decades and which has caused unprecedented injury to the State and its residents. The State contends that the tobacco industry has ignored and suppressed the truth about the addictive, care market cigarettes to mino ;a status, purpose out its in or tne knowledge about the health hazards of smokin g parent corporations and certain of the bout the control by tobacco industry lawyers of the affairs of the tobacco industry. As a result of this mis publicly-funded health care re ic~s of ategy and efforts to ation of pharmacologically-active nicoti ci etn obacco Research; about the state of scientific olina have contracted scnok e care of these Medicaid and other publicly-funded health care recipients has not only t This burden should rightly be borne by the tobacco industry, which has been able to priv created a health crisis in the State, but also placed a staggering fnsancial burden on the State. profits while socializing the costs of its misconduct. The misconduct of the tobacco industry is set 2C eat detail in the State's Amended e State asserts that defendants are liable in unjust enrichment / restitution; voluntarily assumed special undertaking; public nuisance; negligence; nt misrepresentation,concealrnent and nondisclosure; negligent ? I
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dan-Y8-99 i8c2fl Fram-H" W(LS 1426 a T-fi44 P.fl7f23 i-7©1 same Cra37S8CCfoA or oC'C11rrenCe}_ JSCCa#.ts8 Ii1e mov}I3& ] litigation, their motion rca intrrveste was properly denied denied as welt. II. Althoet9h the a Assembly has already acted ut appropriate rYe money_ Pursuant to S.C. Code Ann. § 1-7-150 {Supp. 1998), all monies "awarded to the State of South Carolina by judgment or seccteiuem in ar claims bfouglu by Fhe Atrortey Genez'al on b"f of We Srare ... must be depos9ze.d in the geAerat fund of €1w Stare." In tht 199S Approprialict affumacively allocated [hese secclemeut proceeds to ft Sm's general fund and dierared that the funds were "w be apprapriaEedd by rhe Gener~al Asseinbly ." 1997 SC H.B. 47t3f}> 112'Sess., parc 72.95 (exceipr attached as Ex. A). Tke ttzoving parties have no inzerest us assen in i=venOon because the momy has already been appropriaed by the General Assembly. As pzn of the general fund, me se[clement proceeds are "public funds." Shill9u} u. CiTy af Snarranb~g, 214 S.C. 11, 32-33, 51 S.E.2d 95, lt}4 (1948). As long as the funds axe used for a public purpose, rltare are no constitutional tessriccitsus on ihe way [ta' Iegislaure expends thenx- Afims v. McNa~, 252 S.C. 64, 80, 165 S.E-2d 355, 363 (1469)(citing Grand v. Wal ,~e t 214 S. C. 4.51, 53 S.E.2d 314 (1949)). The court cannot kuerfere wich the manner in whia [t3e Iegislarure distributes money from the general fund excepc ia "exceptionaT cases" because The appropriation of public funds "is a legislative fincuon." Contral Soa.rd, 310 S.C. 214, 215, 423 S.E.2d 101, 105 (1992).
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Dmw ,2P-Mg T"mea8:3A:$5 ND,7319 Tn__ritlazd FOR Lcews Co€ffaation and IU9909rate6 Monteith P. Todd, Esquire Sowell, Todd, LaftfiYfe, Beard & W2ason, L.L.C. 1301 Gervais Street, Suite 901 Post Office Box 11449 Columbia, SC 29211 Pt3R Phil`sfl Morris Canies. Inc. itotxrt E. 3tepp, Esquire - Glenn Murphy Gray & Stepp, LLP 1901 AAssembly Street, Suite 390 Post Office Bog 1550 Colutwbra, SC 29207 FOR The Council for-Tobacco R.e_search_ - USA . Daniel $. 4Vbitc,l.?sqttira Gibb", Gallivan, White & Hoyd, P.A. 330 East Coffee Stroet PastOffua Hox 10589 Greenville, SC 2,46[l3 FOR The Tobacco Inadste. Iva, Juliatna Farnstvozth, Esqtuze McNair Law Fyrm., P.A. NaEionsBank Tower, Ie Floor Post Office Box 11390 Columbia, SC 29211 L. 177 Meeting Sdzee.t, Saite 310 Post Office Box 1W8 Charleston, SC 294(}2 FQR iR and Knowlcon Thomas R. fsottslalt, Esquire Sfnkler & Boyd, P.A. 1426 Main 5lreet, Suite 1200 Post Qffice Box 11889 Columbia, 8C 29211=1$8$ ' FOR Iutervenors John AI Hagins, Jr., Esquire Covingron, Patciook, Hagius & Post Office Box 2343 Greenville, SC 29602 Columbia, South Carolina December 3, 1998 ~ ~ • #~s 0 ~ ~ N ttis
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,tourdan v. I3oggs/Yaughn Contracting, Inc•, 324 S.C. 3ts9, 476 S,E.2d 708 (Ct. App- 1996} ...............°.•-......---,-...•-...•••..••.............-.............•-.,69 Kennedy v. Columbia Lumber & MJ~g. Co., 299 S.C, 335,384 S,E-2d 730 (1986) .•.... • ...............................................................................71 Kennedy, u Henderson, 289 S.C. 393, 346 S.E2d 526 (1986) ..... ........................ ..._..-............ .... °..................... .--....•.32 Kincaid v. Landing Development Corporation, 289 S.C. 89, 344 S.E.2d 869 (Ct- App. 1996) ....._ ...... .•,.,--•,-.1{}9 Kirk v. Clarke, er aL , 191 S.C, 205,4 S.E.2d 13 (1939),••.......• ........ .............. .................... ......... ...••.......... -..•............ ....9=1 Koester v. Carotina Rental Center, Inc., 313 S.C• 490,443 S.E.2d 392 (1994) .... ...................................... .......... •........ ..,.,.............. -...... .._30 LaMotte u. Punch Line of Columbia, Inc., 370 S.E.2d 711 (S.C. 1988) ,..........• ................... ..................................... .•..••...... ,..,...,........ 1fl4. 106 Lawlor v. Scheper, 232 S.C. 94, 101 S.E.2d 269 (1957) .............. .................... ...•-....•...... ........ .•,.••............ •,......... --,.112 Medical Park CI131GEN, P.A. v. Mike Rogin, et al., 467 S.E.2d 261 (S.C. App. 1996) .................................................................................................36 Mills v. Killian, 273 S.C. 66,254 S•E-2d 556 (1979)............................................................................................:Z 6 Aloody v. Stem, 214 S.C, 45, 51 S.E.2d 163 (1948) ....... ........................ ............... ....._.......... ..,,,,................. -„••-.•64 Moore-Hudson L?ttlsmobilefGMC, Inc. v. Waterman, 298 S.C- 107, 378 S•E-2d 279 (Ct• App- 1989) ......--• ....................... .............. ....._-........... ,....... .••65 Morrow Crane Co., Inc. v. T. R. Tucker Const. Co., Inc., 373 S.E.2d 741. 296 S.C. 427 (Ct. App. 1988) ............. ...... ..•...... .................. .......... ......... .........7 NigQel.4ssoc#ates, Inc. v . Polo's ofJ'4orth Myrtle Beach, Inc., 296 S.C- 530,374 S.E,2d 507 (Ct. App. 1988) ...•-,• ........ .............................. ....................... -....... 66
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om.:IustgeTk~ r6ss:m Ask Ni.7319 ~P. 6/1Fi successor by merger to The i MoTrS3 IIICoZpoY'6tedi I..f. Reynolds Tobacco Co111pa11.y: and Liggett Group h1c., lSy and through tl3eir respective couo,sel, aruld jointly move this Ccrurt for entry of the anne7ced proposed €Srdej Gtaxxtizsg Stay of Prcceedings~ Datcd thls e-_day of UCGernbet , 1948. . Epps, ttozneys for R.3. Rayaold$ Tobacco Comgany NELSON 6, RILEY & SCAItBO1tt3T3GH, LLP BY: Cari B. Egps, Attorneys fot Brown & 'FeTii t3arpaop Tobacco Corporation (individuslly and as successor by merger to The American Tobacco Company) SOWELL, TODD, LAX-FITTE, BFARD WATSON, ZLC BY: ~~ Monteith P. odd A
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! Attorney General lacks standing or authority to pursue the claims se n behalf of the State of South Car As far as Plaintiff can tell, this defense is an attempt to challenge both the authority of the IF State to bring this action, and the power of the Attorney General to initiate the action on behalf of the State. Neither claim by the Defendants is meritorio A. The State of South Carolina has authority to bring this action Insofar as this is an action to recover money, whether characterized as damages or as equitable relief such as restitution, the State's ability to bring an action such as this is so clear as to be beyond question. To hold otherwise would be to hold that the State is powerless to obtain relief when the public treasury has been wrongfully damaged. Plaintiff is aware of no case in South Carolina in which this power of the State has ever been challenged.5 In other jurisdictions, the power of a state to recover monetary relief has been consistently held to exist- The rule is summarized in 81A C.J.S. States §308: In order to enforce its rights or redress its wrongs, as a political corporation, the state may avail itself of any remedy or farm of action which would be open to a itor under similar cireumstances. I [Emphasis added]. This power of the State, which is clearly necessary to protect the State's sovereign interests, has long been recognized in South Carolina. See, e.g., State v. Pacrfec Guanrr courts to assert a right of property"); see also, e.g., State v. F:T3'. Fitch Co., 17 N.W.2d 380, 383 Co., 22 S.C. 50, 74 (1884)(discussing rules applicable "[w]hen the state comes int n deals only with the issue of the power of the State and the Attorney General to bring issue of whether the action can be brought by the State, as opposed to one of its sed in Section III, page 13. 5 As a result, there is no South Carolina case which directly addresses the issue. 10 I
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misrepresentation, concealment and nondisclosure; civil conspiracy; aiding and abetting; and violations of the South Carolina Unfair Trade Practices Act and South Carolina Antitrust Act, The same disregard for fundamental fairness that enables defendants to create a public health crisis in the State and place a staggering financial burden on the State's treasury now leads defendants to maintain that the State cannot directly seek redress for their wrongs, and that, therefore, this action should be dismissed. Defendants' arguments in support ofdismissaI are replete with erroneous representations of governing law and mischaracterizations of the A mended Complaint. There is, however, no basis whatsoever in law for dismissing this action. The case is similar to cases filed by forty other state attorneys general. Not one has been dismissed in its ent ut their Motion and Brief, defendants reveal their fundamental (and willful) misunderstanding of what this case is all about. It is unequivocally not It is an action to redress the massive injury the State irselfhas suffered. Si1MNLARY OF THE AMENDED COMPLAINT Defendants have engaged in a conspiracy to deceive the public about smoking and health. The deception continues to this day, even though smoking kills 400,000 Americans each year and more than 3,000 young people begin to smoke each day. ~ 41 . As a result, the State faces the burden of caring for Medicaid and other publicly funded health care recipients who suffer the consequences of smoking related diseases. 141 The origins of the conspiracy date back more than four decades. In 1952 and 1953, two studies linking smoking and cancer were widely reported, causing what tobacco officials later called the "Big Scare." ¶ 49. The tobacco industry responded quickly. On December 15, 1953, the Chief Executive Officers of the leading cigarette ~
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19985 8.58AMf Daza: i3P3t88 Trwr: §8:12;?€F !02-,3 ~ N0. 7319 "P. 5/15 STATE OP SOUTH CAROLINA } IN THE COURT OF COMMON ) 97-CP40-1686 C{3i7rfry OF i2ICFiL.AND ' } State of South Carolina, By Charles M. ) ) C.ondon, Attorney General, ) PlainrifY, ? } v8. ) ) Brown & Williamson Tobacca Corporation as } successor by merger to The Americals,'Fobacco } Company, American Brands, Inc., Brown & } Willian3.son Tobacco Cozporation, British } American Tobacco Company Lcd..~Hx"tcish- 3 Americarf Hoidings Ltd.. B.A.T. Iudusrries, ) PLC, Batus Holdings Inc., Philip Morris ? Incorporated (Philip Morris U.S_A,.}, Philip } } Morrss.Coinpanies Inc., R.7. Reynolds Tobacco Company, RE'Ii. Nabisco Ine., Liggett & Myers 3 } Zna-, The BrQoke Group Limited, Liggett Group Inc., Zarillard Incorporated, L.orillar3 Tobaccio ) ) Company, Loews Corporation, United States Tobacco Company, UST inc., The Council for } Tobacco Research - U.S.A_ Inc. (successor'ta } } interest to the Tobacco Industry Research Committee), Tobacco Institute IIC., Hill & } Knowlton Inc., Shook, Hardy & Baecm, a Iimiitel. } liability partnership, Jacob, Medinger & } Pinnegan. a partnership including professional ) aorpOxations, CIradbourne & Paike, a limited `} ~} liability partnership, and John Doc Tobacco Corporations "A" through "Z," ) AGREED MOTION FOR STAY OF PROCEEDINGS {CQMH NOW the State of South Carolina, by and through its Attorney General, Char M. Condon, and Defendants Brown & Williamson Tobacco Corporation (individually and as
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srEPP L.L.F Ze 42 09 STATE OF SOUTH CA7.tULTNt+. CC)TIRT`TY OF RICHLAND State of South Carolina, By Cbarles M. Condon, A€rornty CSnerai, M Brown & WilSiaassou Tobacco successor by merger to The American Tob 5 } IN TTiE.QpU*T OF COMMON PIIBAS } 97-C ) Compauy, Aiuerican Brands, I=., Brown & Wgliamsost Tobacco Cosptsrai€on, British American Tobacco Comgsqy Ltd., British- American 2'io7dings Iad., B,A.T. Tudustr.ies, PLC, Batss i3oldutgs Tnc„ I'hiijp Morris Incorporated (Philip Morrs`s U.S.A.}, Philip Morris CoMP~y~a~}it ni~eTs Tn;c., ~~t.~7. Reynolds & ~T~o,(bacro Company, iV A\dV}s{:g 13L., ~p[g~t i~r F~ty@[$ Inc., The BI44iCL Group Li~{ed, UlgPd[ Group Inc., Lorillard Iw4rporated, L{3rlI18r#3. TotS3cnfl Comgaay, Loews Corp4radiM Ilnited States Tobacco CQmpauy, LTST Inc., Tle Cou=ij for Tobacco Resesanh - U.S.A, Inc. (successor in iuxeLrscto the Tobacco Industry Research Committee), Tobacco Instituie Inc., Hill & K:wwiton Inc., Shook, Hardy & Bacon, a limited liability parfnersbig, Jacob, Medinger & FiAA8g04, 2 pSnaftihijS including profESSioo3( cOrOuraticros, Chsdbotune & Parke, a limited li2bitity partmrsb9p, 2ud. John Doe TobaaCSs CoiPor9.LI4II8 aAe 4Gll$h hZ,n I3efendan26. cc C3D- ~ l } D t W } ~ ) ~n C"; N ~ } -~£ c.~ G } ) ~ ) } ) ~ ORDER GItANMING STAY OF PROCEEDINGS VVHEREAS, Plaigiiff State of South Carolina by Charles AO. General, and Brown & Wittiamson Tobacco CgrpoFation (izdividnaity and as succassor by I
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age twenty-one and about fifty percent started before age eighteen. 141, t, I I SCOPE OF MOTION The Defendants purport to have a served a Motion pursuant to Rule 12 (b)(6) of the South Carolina Rule of Civil Procedure by which they assert that certain of Flaintiff's Causes of Action should fail on the face of the pleadings. The standard by which the Court must consider a Motion to Dismiss is well estabiished. The Court is reluctant to dismiss any cause of action without giving the parties their right of trial. F37rite v. Harvet=, 179 S.E. 671, 176 S.C. 36 (1935). A Motion to Dismiss must be based solely on allegations set forth in the Complaint. Hite v. T7aomas and Howard Compaky of Florence, Inc., 409 S.E.2d 340, 305 S.C. 358 (S.C. 1991). See also, Stiles v. Onorato, 457 S.E:2d 6C}1, 318 S.C 297 (1995); Cnacible C'Isenzical Co., Inc. v. Burlington Industries, Inc., 423 S,E.2d 121, 310 S.C. 243 (1992); Toussaint v. h°ant, 357 S.E.2d 8, 292 S.C. 415 (1987). far-reaching wrongdoing ever suffered by South C relief to which it is legally and equitably entitled. The industry is aware of the importance of children to its market. In the words of R.J. Reynolds, "realisticatly, if our company is to survive and prosper over the long term, we must get our share of the youth market." ¶ 83. Indeed, the industry devotes considerable effort to creating and marketing brands to attract new youthful smokers. ~$5. Through the Tobacco Institute, the industry also was engaged in a campaign that under the guise of discouraging youth smoking is actually a pro-smoking subterfnge. ¶ 89, Thus, taken in its entirety, the Amended Complaint alleges some of the most serious and Furthermore, the Complaint must be liberally co Jalousie Co, oj'Ff.C`., 160 S.E.2d 528, 251 S.C. 92 (1968); Springfield v. Williams Plumbing I
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S.C. Codetlnn. § 39-5-i40 .................... .........°°.......••...............-- ...... •_.•...,.•.••,..75, 78, 79 S,C. Code Ann. § 39-5-140(a) ........ ................ ............................ •................. ............ ....................73 SOUTH CAROLINA RULES OF CIVIL PROCEDURE Rule 8 SCRCP..... ............ ............................................................ ..•..•................. .......... •....... 56,110 Rule 12(b)(6) SCRCP .......... ........ .................................... ............. .....•....... ---°............... 6, 7, 48, 69 Rule 18 SCRCP .... ............................................................... .................. .................-°°°°.._........ 56 UNITED STATES CONSTITUTION U.S. CONST. Art. 11 § 7......°...... ................. .................. ....................... ....49 U.S. Ct3NST. Art. I, § 8, cl. 3 .......... ............... ....... .....•.•........ ........... ---- ................ ...................53 SOUTH CAROLINA CONSTITUTION S.C. CONST. Art. I§ 3 ............................ •...... ,........................ .......................... ........ ....... .•..•....... 49 S.C. CONST. Art. I § 8....... ------.....•.......... ••.• ............................................. .....................51, 53 S•C• CONST. Art. XLI § 1(1868) ....... ........................-.......°................. ....... -•......................... •..62 S.C. CONST. Art. XII § 3(I868)..................... .............. .............. ---- ......... .............°--_•..... 63 ORDERS Order Overruling Exceptions Taken to Reports of Special Master (Apri128, 1997 Report and May 30, 1997 Report); Order Ratifying, Affimun and Requiring Compliance with Reports and Recommendations of Special Master; Order Granting Stay with Directions to Counsel and Notification of case Status to Court of Appeal, June 26,1997, Florida et al. (No. CL 95-1-1466 AH) Order Denying Petition for Common Law Certiorari, July 23, 2 977, Florida et al. (No. CL 95- 1466 AH) xv I
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Supply Ca., 153 S.E.2d 184, 249 S.C. 130 (1967). See also, Benson v. United Guar. Residential In.s, oflotoa, 445 S.E.2d 647, 315 S.C. 504 (Ct. App. 1994}. A Motion to Dismiss cannot be sustained if facts alleged in the Complaint and inferences reasonably deducible therefrom would entitle the Plaintiff to any relief on any theory of the case. Morrow Crane Co., Inc. v. T. R. Tucker CQnst. Co., Inr.., 373 S.E.2d 701, 296 S.C. 427 (Ct. App. 1988). As the Court makes its threshold decision, every doubt "is resolved on behalf of the pleader and a Complaint should not be dismissed even if the Court doubts the Plaintiff will ultimately prevail in the action." I~,e v. Gainey, 463 S.E.2d 97, 98, 320 S.C. 65 (Ct.App. I995}. In addition, Defendants have improperly burdened the Court with a host of exhibits under the suggestion that they show facts that are not reasonably in dispute. The Court should exclude the host of Exhibits on the ground that Defendants have not sought and apparently do not seek to have their Motion considered a Motion for Summary Judgment pursuant to Rule 56. -.J The twenty-six exhibit oftbe dangers of smoking n the State's knowledge ealth. However, a I2(b)(6) motion "tests the sufficiency of a complaint; importantly, it does not resolve contests surrounding the facts, the merits of a claim, or the appZicabilfty ofdejenses." Republican Part}, of,Vorth Carolina v. Martin, 980 F.2d 943, 952 (4E° Cir. 1992){emphasis added}. Defendants have attempted to justify these documents by way of a footnote, noting that the Court may take judicial notice of facts not subject to reasonable dispute. Although claiming to proffer the documents "only to prove notice and the fact of publication;" Def. Br. at 27, n.26, the real purpose of introducing the docnmentsis evident. First, the documents are introduced to support Defendants' assertion in their brief that the "fflhe State cannot cI ras ignorant of the federal government pronouncements regarding sm4king " Br. at 27. However, the State 7
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! I STATE OF SOUTH CAROLINA } ) COUNTY OF RICHLAND ) IN THE COURT OF COMMON PLEAS STATE OF SOUTH CAROLINA, } C.A. No. 97-CP-40-26&6 by CHARLES M. CONDON, ) ATTORNEY GENERAL, ) vs. } ) Plaintiff, ) PLAIi!'TIFF'S MEMORANDUM } IN OPPOSITION TO DEFENDANT'S } MOTION TO DISMISS PURSUANT BROWN & WILLIAMSON TOBACCO } TO RULE 12(b)(6) CORPORATION as successor by merger ) } to THE AMERICAN TOBACCO COMPANY, et al. 3 } Defendants, INTRODUCTION' io d numerous other medical autho cigarette consumption causes or contributes to more disease and death than any I I I I Cigarettes are the most lethal consumer products ever manufactured. According to the of the other marketed product. More than 400,000 Americans die prematurely every year fmm tobacco-related illnesses, and millions more become sicl:.` This action by the State of South Carolina (the "State") seeks recoupment from the tobacco industry defendants of the State's of Exhibits submitted in support of what purports to be a Motion to Dismiss under Rule 1 of the South Carolina Rules of Civil Procedure. ' As a matter of initial response the Plaintiff submits that the Court should disregard the host 2 Public Health Service, U.S. Department of Health & Human Services, pub, no. 89-8411, Reducing the Health Consequences of Smoking: 25 Years of Progress: A report of the Surgeon General 122 (1989). States, the Centers for Disease Control, the World Health I
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manufacturers met at the Plaza Hotel in New York City. 1 50. As a result of this meeting, five of the defendant cigarette manufacturers agreed to create the Tobacco Industry Research Committee On January 4, 1954, the five defendant cigarette manufacturers publicly announced the a full-page newspaper advertisement entitled "A Frank Statement to Cigarette Smokers." The statement appeared in 448 newspapers across the nation, reaching a of over forty-three million individua2s in 258 cities. The advertisement ran in daily newspapers across the country and in South Carolina. T 54. The Frank Statement stated in part: [T]here is no proof that cigarette smoking is one of the causes [of lung caneer]. .. We accept an interest in people's health as a basic responsibility, paramount to every other consideration in our business. We believe the products we make are not injurious to health ... We are pledging aid and assistance to the research effort in all phases of tobacco use and health.... For this purpose we are establishing a joint industry group consisting initially of the undersigned. This group will be known as TOBACCO INDUSTRY RESEARCH Ct?IvIMI1°LEE. dus eople's health as a basic responsibility that smoking is not injurious to health, paramount to every other consideration in its business and that tlre toba and forthright about research lnt a issues -- has been restated publicly by the industry on numerous occ The tobacco industry's internal documents show that the its public assertions about smoking and health and about its int bjective research were a deception that masked a coordinated campaign to mislead the public. Industry documents show that members of the industry misled the public about the addictive nature of nicotine, about whether they manipulate 4
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# a magazine article that "was not merely referred to in plaintiff's complaint but was absolutely central to it"). The context of the State's information on smoking and health, the tobacco industry's manipulation of that information, and the extent of the industry's internal knowledge are factual matters that will be argued extensively in this litigation. As recently stated in s Texas: The Court recognizes that the jury must determine whether the public's knowledge is sufficient to warrant imposition of [the common knowledge] defense. Based on the allegations of the plaintift's complaint and the representations of counsel the question of whether the health risks of tobacco consumption are generally known will be debated ly during trial. Texas u 772e r#meric 5-96CV-91, Order at 2(E.D. Tex. Dec. 9, 1997). Indeed, there are strong arguments to be made that there is no "common knowledge defense" even applicable in this case. The Defendants' exhibits are, thus, especially inappropriate in the context of this Motion to Dismiss. I. STAi\'DIi!'G OF ATTORNEY GENERAI. TO PURSUE THIS ACTION' This action was brought by the State through its Attorney General. The State seeks restitution, damages (including punitive damages) and various forms of equitable relief against the Defendants based on their past and ongoing activities i eting tobacco products. In form s and equitable relief brought by the State 0 or who injured the State. Nevertheless, in Defendants' first ground for their Dismiss directed at the Amended Complaint as awhole, Defendants assert that "the 'This section of this Memorandum responds to ff 1 and l le. of the Motion to Dismiss of Brown and Williamson, et al. 9
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i it and, most treubling of all, that they market cigarettes in a manner that they know is attractive to children. 1179-92. The industry's own documents also convincingly demonstrate that the industry's professed interest in supporting and circulating independent research was a ruse. A 1974 report to the CEO of Lorillard from a research executive described the sc esearch (thee successor to TIRC), as: hav[ing] not been selected against specific scien purposes such as public relations, political relations, T 68. Similarly, another industry document admits CTR "was set up as an industry shie ncil The tobacco industry went to great lengths and used a variety of tactics to prevent adverse research from surfacing. Particular defendants blanketed unfavorable research results under legal privilege; kept secret research on hatmful constituents in cigarette smoke; and undermined efforts to develop a safer cigarette. 1172-78. These actions are wholly inc with the industry's repeated public promises to pursue objective research regarding smoking and health. Meanwhile, internal documents reveal that the industry knew and acknowledged the veracity of scientific evidence that smoking was in fact hazardous to heaith. 57-5 Furthermore, the tobacco defendants withheld information from the Surgeon General, or gave information inconsistent with their internal knowledge. 159. The tobacco industry's conspiracy to mislead the public about smoking and health has had grave consequences for our nation's children. Every day more than 3,000 American children begin smoking. ¶ 83. A person who does not begin smoking in childhood or adolescence is unlikely to ever begin. About ninety percent of smokers born since 1935 started smoking before 5
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ent... to the extent of such legal liability" 42 U.S.C. § I33fia(a)(25)(B). Plaintiff's case is in no way at odds with the language in the federal and state statutes that edicaid party. See, e.g., 42 U.S.C. § 134bk and § 139b(a)(45); § 43-7-420 ,S C. Coa'etlnn. (1997 Supp.) Simply because a statute requires that Medicaid recipients assign their rights to the State does not mean that the state has no avenue of recovery other than subrogation/assignment. Indeed, nothing in this requirement should properly be viewed as mandating or proscribing the manner of recovery by the State, C. Recent Case Law Does Not Support Defendants' Arguments. An ever-lengthening string of decisions in tobacco lawsuits of this sort reflects the for medical support and payments from any third f Defendants' contention that subrogation is a state's exclusive remedy. See, e.g., City and County afSan Francisco v. Philip Morris, Inc., 957 F.Supp. 1130, 1141 {iL.D. Cal 1997) (rejecting defendants' argument that subrogation action provided for in the California Code operates "to supplant common law fraud and negligence claims, rather than to provide a mere alternative to such claims."); Michigan v. Philip Morris, Irac., Slip Op. No. 46-8428I-CZ, at 4(Mich. Cir.Ct., May 27, 1997) {("The subrogation right found at MCL 4tp0.I46(I)(B) is not an exclusive remedy, but is a cumulative remedy'~ [attached as Exhibit B]; Texas v The Ammerican Tobacco Co., Slip Op. No. 5-95CV-91, at 5-I I{H.D. Tex., Sept. 8, 1997) (finding quasi- sovereign interests under Snapp and further finding that a subrogation statute did not provide the state's exclusive remedy) [attached as Exhibit C]. Particularly illuminating on the exclusivity issue is Hedgebeth v. Medford, 378 A.2d 226 (N.J. 1977). Rev io icaid statute (which contained an express statement that in cases of third party liability, the department "shall be subrogated to the rights of 17
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0 (Iowa 1945)(state may institute suit "whether required by its pecuniary interest or the general public welfare"); People v. West Englewood Trust and Savings Bank, 187 ME. 525 (III. 1933); Comm. o, f'Massachusetts v. United North and South Development Co., 160 S.W:2d 563 (Tex. Civ. App. 1942). Likewise, to the extent that a case involves equitable relief of a nonnzonetary nature, it i: well within the recognized powers of states to sue as parens patriae on behalf of their citizens. The nonpecuniary relief sought by the State is generally directed at protecting the health and safety of its citizens; for example, this action seeks an injunction against deceptive acts and practices, as well as an injunct cigarettes to minors. endants' activities which promote the sale of An example of the longstanding rule that states have parenr patriae standing to bring cases such as this is Pennsylvania % West Virginia, 262 U:S. 553 (1923). When West Virginia sought to withdraw natural gas from interstate commerce, Pennsylvania action. The Supreme Court held that Pennsylvania could maintain tt e action, even though the interests affected were those of a multitude of individuals rather than the interests of the State as corporate body: The private consumers in each State ... constitute a substantial portion of the State's population. Their health, comfort and welfare are seriously jeopardized by the threatened withdrawal of the gas from the interstate strearn. This is a matter of grave public concern in which the State, as representative of the public, has an interest apart from that of the individuals affected. It is not merely a remote or ethical interest but one which is immediate and recognized by law. IrL at 592. This rule was affirmed in the more recent case offllfredL. Snapp and Son, Inc. v. Pueno Rico, 458 U.S. 592 (1982), and has not been questioned since then. In South Carolina, this power of the State was recognized in Capital IVZex- Fire Dist. v. CountY QfRic7stanrl, 297 II
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would have the Court to believe that the PIaintiffs action is nothing more than a Medicaid subrogation suit and that if this Court finds § 43-7-440 to be an exclusive remedy that the entire e dismissed. Defendants' attempt to cast the Plaintiffs Amended Complaint strictly as a Medicaid subrogation suit is inaccurate and misleading. Plaintiff brought the present action in its own right to e aggregate by the State of South Carolina for medical assistance to Medicaid and to other pufrliclv funrled health care recipients (Amended Complaint, " 2 and 33). There can ce a nt that § 43-7-440 limits the recovery of the State for "other publicly fanded health care" paytnents.t2 Iear on the face of the ,Atnended Complaint that Plaintiffs suit is much more than a Medicaid subrogation action. The State seeks recovery for Defendants' breach of duties owed directly to the State and for injuries accruing to the State. Section 43-7-440 has no application to much of the relief sought and, as to the Medicaid related costs, does not supersede the remedies and claims stated in the Amended Complaint. 'I'herefore, the Defendants' assertion in $ 2 of the Motion to Dismiss that the Complaint as a whole should be dismissed must be denied. Defendanis appear to argue (see Defendant's Memorandum fn. 16) that the principal of statutory construction known as "expressio unius est exclusio altetius" supports their assertion res for smoking related health care costs have been made by the South Carolina Depaziment of Mental Health, the State Health Plan, and thsough South Carolina Department of Health and Environmental Control programs, as examples. `a Meaning the enumeration of one thing implies the exclusion of all others. 21
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,#ar-26-99 18:31 L 1428 I* T'Sd4 ?.f4128 F-70i } IhT fiHE COTITfT ~'• COMMON PI-EAS } {:CSf3NTI Y t}F RICAT.AN€1 ) 97-CF-40-1596 S1'A'PE OF St}iTIR CAR(3F.ZiA, by CHARLES M. } CC3NAi}Ni, A1TOMNMYeENMAL. ~ ~ Plsiz~ ~ } ) } 81toWN,& WIdAMSON Tt)BACCt) ) f9flRI'ORATtQN as ===asbYmesx to TW } .AfitFERTCAN TOBACCO 'c.C1WAN'Y, at al-, ~ ) D*f=d4at& } The State uf gautb Csssalina's Response to "Iutovmuss' Motion to iiec9uai+tar Order Urayiag IatssvwRara' Mvuau to iRtervene" The State nf Somb Caro1iaa (tbc "Smte"} =W=My mquom this Coun ta deay in its uai J1s She 9ntmd f€u *eir ztsOdafl. Lit Z~ P ft 40nial of applicAbiliiy of § 43 7-43t} Swuh Comliu3 Coda Aunotated and I ssr 42 TS,S.C. 113 uas enzstied ur iausvease ia titis 3asvsuit soasx atly 7raws plead -fred cr wgwd' tzder, at 3 (=pUsis aidGd). The mctv$zam v4p=iy argued ax thc DeeeZStber 29, 1998 beaung the qpp3i~'sticy af#3um siaaaes, aasi the CactT's l}ecember 31,1998 t}Fder veie,Lus3 ihis atg== AS soc#, iha ~~va~tcr.d hytt~ t~vaats ~:acci~on is faci~lyw~tbnucmeritladee4, ft mwvanas - iaudividua# pftscna} iajmy etaiaiauts •- whoW mmmdcrstaazl ttie uawre of tlsc 9Ws uetiou and w}= the MaSter Savlemeut Apccmmu seuics. e3ace this
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0 allowed to proceed. The Court stated: The fact that the betterment statute affords no remedy is not conclusive, for it was not vide the only remedy by which the rights of one improving the land of t be protected. The statute does not preclude suits not within its terms and ed to affect the jurisdiction of equity in other cases. hfodern Homes, at 328. The South Carolina Legislature has historically stated its unequivocal intent that a statutory remedy be the exclusive remedy by specific language to that effect. For example, the South Carolina Tort Claians Act {§ 15-78-10 er seq.) is intended as an exclusive remedy and the Legislature manifested that intent in the clear language of the Act. § 15-78-20(b) S. C. Code,4nn. reads in part: The remedy provided by this chapter is the exclusive civil reJnedy available for any tort committed by a governmental entity, its employees, or its agents except as provided in § 15-78-70(b)." [Emphasis added]. Another statute wherein the Legislature established an exclusive remedy is found a 44-5Q4(e): This section provides the exclusive remedy by which a,judgrnent creditor of a member or a transferee may satisfy a judgment out of the judgment debtor's distributional interest in a limited liability company. C7ther examples whereby the South Carolina Legislature clearly stated that a statutory remedy was the "exclusive remedy" are found at §§ 1-11-710(C), 11-35-4210{I}, 31-15-7Q, and 31-15-370. States have inherent authority to bring actions where the health and well-being of their residents are at stake. See fllfred L. Snapp & Son Inc. v. Puerto Rico, 458 U.S. 592, 600-02, 607 (1982) and State of Georgia t=.Tennessee Cooper Co., 206 U.S. 230, 237 (1907). T1tey possess 0o ~ ~ ts 15 ~ ~
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.Ias-2S-PP 18a8 Frtps-HUNTNV Wi 1428 M T-fidd P.s4123 F-T03 ider the decision to deny intervention should be denied for €he following reasons: I} the mcrving parties have no di they cannot claim an in in the litiga[ion and ilAis no right pravidethe moving parties with the relief they sftk and therefore After tuotuhs of rtegopation, the State and cercain Ileferulanis entered into a comprehensive seTSlement of all of the Sta[e's claims relatiTtg to te health effects of sm¢1ciTtg. No individual claims for personal injury were asserted by ihe $t<tte, = Amended Complaiut, and no privaTa elaims to recover for itutividaal personal injuries have been seitte~d by the State and the I3efendants. Master 3eulemem Agreement ("MSA") at 15. The comprehensive setFiesnea[ the MSAA provides for paymetus tcs the State and broadly regsslates certain payment ua the 3TaTe of billians of dollars ovr.r a period of years. The State #ras dere rm'sned best interest of rhe State of South Caroliru'sa and the Court, after hearing arguments from all parties and based on the reptesetuaciotts of the Attorney General, has agreed_ S= Consent Decree and Final Judgment dated December 33, 1999 at 8_ Tlris determination is eniitled to substantial The moving p8rLiBs under Rules 24, 19 ani 20, by inwxvenirsg or joining in this actk initially sought W join tttis suit based an their conter,tlon ThaT the proposed nat.ional resoltuioa that was later suhtnitted w Congress last year Qepriveci rhens of rights in their personal injury lawsuit rltas is pending in federal court_ Aicsamit v. Brown & Vdi ' on Topa= Corpop-iwn et. al., Civil Action No. 6:97-363f+-21. The prior settleut.enz having failed, the moving parries changed their Tileory nf joznder jtsi as the
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.fae-13-88 ISaB 1428 0 T-$87 P.D51D5 F'88C §43-7-~{3tS SQu;Et CacsJiaa L'a&- AnwWr4aadtur 42 tT.B,C. §139&w the dbburs=m of fttrs}s ptusu= to the sattlemeat althis wwn. By 4=ymg mwv=au, #ba Cmus £&d to address or7a€= tlse T*is xmrl inusc;,7s af*e hs,Wbea iT apptasrac} ste Masw SetcIO~ AVec=nt eateted =o bnrwm Tbe pwes. Wf3'ER£FORP, Tbo Ixerueam respect£* Pcs3'the Ccrm fns an flrier =cnnsideraug its earites ra9ng lmd ahe=g its easlier ratng by hokting iba rhe IWasveam ue graatod lew4c m r'zaaw= ekter pm=ssi~ er aa ammer of ntbt, and are 9==ftd to take suek acaians as are sl~ceasasyto prt3Mcr The tights sd MD== of she pamve r.lass n=bess; 4= ou- aSareu=ticrned sra=rs m wlraWe ui ecsnuM2 ft disbuss=uc nftbc settkmma &Mds ud fsx =h atba =d fttbcrrdef as ft Cours =3* &=Isz 7aba & Ha&s, 7r. Cnvingtos~ Psuick, Hag= & Lewis, P.A- P.{}, fcm2343 Gre=v!U,t, SC 296#}2 ($64) 2k2-M Dick Iaaxcs The Usc3c I=es S.a.w Fum 611 N"sh maiu S= Cr=viile, SC 29601 (864) 298-Q0{t4 WHH9mA 3eT4rt Mi= li. 3cusien, Ltfi 667 YtiTarTh A€»ducy b'amct Gre~ SC 1J6t#i {964} 23s-0t4'€ Attamps f tr Iwarvemxs 7ummy 111 1999 2
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& STEPP L.L.P 0 "4P;O. 7320 "p. 6!7 rnerger to The Americarc Tobacco Company), Inriltard Tobaccis Campsn,y, Phi7ip Morria Incorporated {sametisaes xe£arred to in the Ccrmplamt as Philip Morris U.3.A,), R.3. Reynolds Tobacco Company and I,iggett Group Snc, are siguawsfes to a Master Settlement Agreement ("MSA') (a copy of which is attached 1lereto), providing far, among other tlungs, the Settlcmeest of all claims pending in th°ss action (the "8ettleraentff); ti for or consented to a stay of proceedings herein to pezmit the parties to seek to effectnate the Settlement; NOW, `I'HEIt$FflltB, IT i,SHInMY ORiDER8i3 AS FOLLOWS: 1. This ao[ion and all claims and proceediugs between and among the State of . South Carolina by Charles M. Condon, Attazs3ey General; and T)efeadants Brawn ot Williamson TaLva= Corporatfea {indiviciuatty and as successor by merger to The Amancaxs Tobacco Company), Fazame Brands, tffc_ (ffkla Ameriean Bzancls, Iue.), British American Tobacco (Invesaaents) Limitad, {fuzmsrly known as 13ruish-Ameriean Tobacco Company Limited), Britisla-Americsn Tobacco (Floldiags} Limited (referred to in the Complaint as F Bridsl~American Haldittgs T.,,td.), B.A.T. Industrlss, p.l.c., B3Abs Hokliug's, inc., Phifilr Morris Incorporated (sometimes referred to in the Complaint as Philip Morris L7.S.A.), Philip Morris Companies Inc., it.7. Reynolds Tobacco Company, I27R. Nabisco, 7nc., Liggeti & Myers Inc., Broatte Group Ltd., L:Wett Group Inc., Lasillard, Inc., Lorillard Tobacco . Company, Loews Ctrrpcaratitm, The Council forTobaeco Itosearctt - '(T.9.A_, Inc., The Tobacco Instittare, Inc., Hill and Knowlton, Inc., Shook, Hard.y & Bacaq L.L.P„ 7aeaa, ~
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makes no such clai deceptive information intended to be relied upon by the public and regulators. Amended aint In 65-66. Second, Defendants go beyond federal and state publications and attempt to introduce a set of documents to demonstrate "the commonly accepted belief that smoking has a detrimental impact on health." Br. at 30, n.37. The consideration of the De Defendants are att es mat tsetenttants iss ants' exhibits at this stage should not be permitted. o abuse a rule that in certain circumstances allows courts to consider matters outside the pleadings on a Motion to Dismiss. Typically, the rule allows courts to consider documents that are the very basis of the suit, or are incorporated by reference in Plaintiff's Complaint. For example, in Grrsner v. Coztntv of nrnwiddie, 162 F.R.D. 280 {E.I3. Va. 1995), cited by Defendants to support their argument that matters outside the pleading may be considered without converting the motion to one for summary judgment, the court noted: [Tjhe question is whether the Court may consider documents not attached to, but referenced in the PIaintiff's Amended Complaint, when testing the legal sufficiency of that pleading .... [T]his Court holds that when a plaintiff fails to introduce a pertinent document as part of his complaint, the defendant may attach the document to a motion to dismiss the . complaint ... t t 1. Id. at 2$2 (emphasis added); See also Pension Benefit Gaiaranty Corp. v. F3Thtte ConsoL Indus., Penthouse International Ltd., 84 F.2d 10 l2, 1014-15 (1 " Cir. I 998 F.2d 1192, 1196 (3d Cir. 1993) ("[A] court may consider an undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintif)"s claims are based on the document"} (emphasis added), cert. denied, 114 S. Ct. 6&7 (1994); ftoraanf v. Seharson Lehman Hutton, 929 F.2d 875, 879 n.3 (tst Cir. I991) (atlowing the defendant to introduce a copy of the securities offering that was the basis of the plaintiff s lawsuit.); Fudge v. I
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t I H rule set forth in the foregoing statutes clearly applies to the present case § 1-7-100, S: C Code tfnn. (197b)). The Attorney General's control over litigation is reiterated in § 1-7-80(1), which provides that he "shall conduct all litigation which may be necessary for any department of the state government or any of the boards connected therewith...." The same section prohibits the employment of outside counsel by State boards and agencies unless approved by the Attorney General; provisions similar to § 1-7-8{} have for many years appeared in each year's Appropriations Act as a part of the section which makes appropriations for the Attorney General's Office. See, e.g., Act No. 155 of 1997, Proviso 11.3 [attached as Exhibit A]. The unnristakable import of §§ 1-7-80 and 1-7-100 could not be more clear: where the State or one of its agencies is a party to a lawsuit, the Attorney General shall "conduct" such litigation (§ 1-7-80) and "shall have direction and management" of such suits (§ I-7-100).6 The General just as clearly has standing to bring this action on behalf of the State. II. EXCLUSIVE I2Ei4iEDY' The Defendants assert that the Plaintifi's action must fail because the provisions set forth in S. C: Code Ann, § 43-7-440(A) (1997 Supp.), of the South Carolina Medicaid Act relating to subrogationlassiQrament rights provide the exclusive remedy available to the Plaintiff with respect to the issues raised in the Amended Complaint. This argument is without merit. Neither 6 This unreserved statutory grant of the power to conduct litigation makes it unnecessary to consider the extent of the common law powers of the Attoney General of South Carolina. The Supreme Court has, however, suggested that such common law powers exist. See, e.g., State v. Broad River Power Co., 157 S.C. l, 153 S.E. 537 (1929); State u Beach C'o., 271 S.C_ 425, 248 S.E.2d 115, 118 (1978). ' This section of this Memorandum responds to ¶ 2 of the Motion to Dismiss of Brown and Williamson, et al. 13
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556 (1979), C. The issues concerning fraud, equitable estoppel, and the discovery rule present questions of fact which cannot be resolved on a motion to dismiss. There is no question that issues as to whether the statute should be equitably tolled, or issues as to when the p on a motion to dis t. Gcrvmon v. Richland Rfensorial Hospital, 1997 W.L. 40955 {S.C,1997}, and cases cited therein; Johnston v. Bowen, 313 S.C. 61, 43? S.E.2d 45 (1993). Time-bar defenses may be raised by motion only when the 0 Complaint. Defendants cannot reasonably so contend, and their Motion to Dismiss based on time-bar defenses should be denied. ll. The State's claims are not time-barred, because Defendants continue to commit the wrongful acts which form the basis o[such claims. An additional reason for holding that the statute of limitations does not apply is the tinuing wrong" doctrina" At the very mi this doctrine pemlits recovery for the most recent three years of the injury, as well to the injunctive and other equitable parEs o€the case. Conesteehlidts v. Citv of'Greern-idle, 160 S.C. 10, 158 S.E. 113 {1932}, On the larger issue of whether all of Defendants' activities constitute a continuing tort, which the statute does not start to run unless and until the wrongdoing ends, the courts of this state have not yet had the opportunity to address this issne. See Anderson v. Short, 476 S.E.2d 475 (S.C. 1996); Preer v. Minis, 476 S.E.2d 472 (S.C. 1996)(both involving continuous treatment issues in medical malpractice cases). CO $ This doctrine could apply to the entire case, or to the most recent several years, or to the ~ ~ equitable parts of the case. 3 ~ ~ 27 C,~ tiff reasonably should have known of the existence of a cause of
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• S.C. 359,377 S.E.2d I22, 124 (C't. App. 1989)("doctaine ofpareixs patriae applies only to sovereigns asserting at least quasi-sovereign interests apart from the interests of particular priva ot all other isdictions which have considered the issue, the parens paariae e to bring cases such as this has been upheld. See, e.g., State v. First National Bank ofAnchorage, 660 P.2d 406, 421 (.AIaska 1982)(restitution for defrauded land purchasers); State ex rel. Burgum v. Hooker, 87 N.t}J.2d 337, 340-341 (N.D. 1957)(injunctive relief where required by public interest); State v. F.3Y. Fitch Co,, 17 N. W.2d 380, 383 (Iowa 1945); Stead v. Fortner, 99 N.E. 680 (I€l. 1912)(nuisance). B. The Attorney General has the power to bring this action. Just as there can be no question as to the power of the State to bring this action, there likewise can be no question about the power of the Attorney General to initiate it on behalf of the State. This case is clearly distinguishable from situat General may be subj s e Attorney simply a case where the Attorney General, to protect both State's pecuniary interests and to protect the public interest at large, has filed suit of the client, which it is his duty to represent. The statutes pertaining to the role ofthe:Attorney General in litigati leave no questio Attorney General`s authority over lit for the conduct of litigati State e responsibility cited the statutory basis of the He is given the power to be present at the trial of any cause in which the State is a party or interested "and, when so present, shall have the direction and management of such prosecutions and suits." I Coole} v. S. C Tax Conzmission, 204 S.C. 10, 25, 28 S.E.2d 445, 450 {1943} (quoting present e State's chief counsel vests in him the ulti 12
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that § 43-7-440 provides the State's exclusive remedy for Medicaid reimbursement. However, this principal is only applied by courts with great caution. United,States Dept. ofLubar v. Bethlehem Mines Corp., 669 F.2d 187, 197 (4th Cir.1982) (rule considered to be unreliable indicator of legislative intent). In similar circumstances, rather than relying upon the maxim "expressio unius est ned rule of statutory construction that "a legislative grant of a new right does not ordinarily cut off or preclude non-statutory nghts in the absence of clear language to that atfect." Federal Marine Terminals v . Burnside Shipping Co., 394 U.S. 404 (1969). In Federal Marine Te-rrFinals v. Burnside Shipping Co., the United States Supreme Court granted certiorari to consider whether the right of subrogation specified in the Longshoreman's and Harbour Workers' Compensation Act provided a stevedoring contractor's exclusive remedy e subrogation remedy was not exclusive, s Nothing on the face of § 33 of the Act purports to limit the employer's remedy against third persons to subrogation to the rights of the deceased employee's representative. The provision of § 33 that the employer's payment of compensation `shall operate as an assignment to the employer of all right of the legal representative of the deceased...to recover damages against such third person contains no words of limitation ... the legislative grant of a new right does not ordinarily cut off or preclude other nonstatutory rights in the absence of clear language to that effect ... Id., 394 U.S. at 412 - 413. In this case, it is the relati not Defendant's liability to presenting claims for d Defendants owed to it and it is the harm to the. State resulting from the Defendants' decades long conspiracy for which the State seeks a recovery. Defendants rely on flawed logic in arguing that because the State could have pursued recovery of Medicaid costs by bringing a I
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t the individual for whom medical assistance was made available"), the New Jersey Supreme Court held that "the state has two avenues by which it may seek Medicaid payments: it may either institute an action directly against the tort feasor who is liable for the medical expense, or seek recovery by way of the Medicaid recipient through a right of subrogation." Hedgebeth, 378 A.2d at 228. Compare former S. C: Code }tnn. § 43-7-30, (State "shall be automatically subrogated ... to the rights an applicant or recipient may have ..."). Thus, even though the state Medicaid statute expressly conferred the right of subrogation and did not mention the existence of any independent or direct cause of action, the New Jersey Supreme Court held that the reference to subrogation was intended to expand the state's options by creating an additional remedy, not restrict the state to any one form of proceeding.'T Hedgebeth, of course, comports with the overall scheme ofreIated federal statutes. For example, the Medical Care Recovery Act (MCRA), 42 U.S,C. § 2651, explicitly gives an independent right to recover medical expenditures from third party tortfeasors in addition to and apart from subrogation and assigtment rights to such recovery. See, e.g., Health Ins. Ass'n, of .4nmrica, Inc, v. Shatala, 23 F.3d 412, 419 (D.C. Cir. 1994) {(noting that the "government's independent right of action entitles it to full recovery even where [the] tort victim's right would be limited by comparative negligence"}; Holbrook v. Andersen Corp., 996 F.2d 1339, 1341 (lst Cir. 1993) {(government has an "independent right of recovery against the tortfeasor" and is not defeated even by certain restri s recovery"). The cases cited b}=Defendants purportedly for the proposition that generally there is no 's Hedgebetk was also relied on in Texas r=. TheAmeracan Tobacco Co., Slip Op. at 5-10 gdgebeth decision is consistent with and furthers the purpose of the Medicaid t provisions") [attached as Exhibit C]. 18
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§ 43-7-440 nor any of the statutes in Article 5 of Title 43, describe the su to the State as "exclusi g ad A. Legislative Grant of New Right Does not Preclude other Non-statutory Rights. One basic rule of statutory construction provides that a legislative grant of a new right does not ordinarily cut off or preclude other nonstatutory rights in the absence of clear language to that effect. Federal Marine Terminals vs. Burnsirde S7sipping Conspavq, 394 U.S. 371 (1969); see also, State v. Carson, 274 S.C. 316, 262 S.E.2d 918, 920 {198C1}; Hatfield v. Paldes, 537 F.2d 1245 (4th Cir. 1976) ((only by clear and unambiguous enactment wi21 tlte well settled rules of common law be eroded). The Legislature is presumed to enact legislation with reference to existing law and there is a presumption that it does not intend by statute to change common law rules. See generallt=, Hoogenboom v, CYty ofBeaufort, 315 S.C. 306, 433 S.E.2d 875 {Ct, App. 1992). Statutes in derogation of common law rights are to be strictly construed and not extended in the application thereofbeyond the clear legislative intent, Crowder v. Carroil. 251 S.C. 192, 161 S.E.2d 235, 238 {1968}(wife's acceptance of workers' compensation benefits was held not to preclude her husband's common law rights for loss of consortium). For example, in Cztieens and 5'outJ<erri National Bank v. Modern Homes t.'onstruction Conzprfn}, 248 S.C. 130, 149 S.E.2d 326 (1966), the South Carolina Supreme Court ruled that a statute providing for a remedy to landowners improving property under a mistaken belief of ownership did not provide an exclusive remedy, In the Modern Homes case where the prerecl »x e e had not been met, the acti & The very language used by Defendants in their Memorandum to describe the Medicaid statute is revealing. Defendants state ". . . Congress prescribed a means by which participating states could recover Medicaid pavrnent..." Defendant's Memorandurn at p. 7[emphasis added] 14 1-
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i defective product, the duty not to deceive, the duty to follow the e and the duty not to conspire for the purpose of causing injury. The fact that Defendants' "advertising" may be tangentially "involved" with plaintiffs cause of action clearly does not eviscerate the State's cta defendants appear to argue, e law 1. Causes of Action t}ne,'two, Eight and Nine-The State's Equitable Causes of Action of Unjust Enrichment(testitution, Indemnity, Nuisance, and Injunctive Relief- are not Pre-empted. The equitable causes of action contained within the Amended Complaint are simply not based on a duty to warn of health hazards through advertising or promotion and thus pre-emption does not apply. Cipotlone, 505 U:S, at 523-24. None o€the equitable claims articulated are predicated on a "requirement or prohibition based on smoking and health." Each are predicated in long-standing equitable theories. Therefore, defendants' motion to dismiss these causes of action on this basis is meritless. 2. Cause of Action Three -- ti oluntary Assumption of Special Undertaking-is not Pre-empted. Cause of Action Three alleges the defendants voluntarily undertook duties (i.e., to inform and protect) the State of South Carolina and its residents, which it has consistently breached. Contrary to defendants' assertion, this cause of action is predicated on a duty that was not "imposed under State law," but was imposed by the defendants. Thus, claims based on this duty are not subject to pre-emption. See Cipollone, 505 U.S. at 526 ("[A] common-law remedy for a contractual commitment voluntarily undertaken should not be regarded as a`requirement ... imposed under State tarr' within the meaning of § 5(b).") (emphasis and ellips 38
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thorough that some of the evidence necessary to rebut it could only be obtained through discovery afaer the filing of an action. Defendants' claims of long public knowledge of the hazards of smokin of the well-publicized statements of defendants` chief executi a Congressional committee in 1994 whereby they oking causes lung cancer and other diseases. IM 47- rs before or denied knowledge that This approach by the CEO's in the 1994 hearings was merely the repetition of the ' approach used 40 years earli advertisement, quoted in the Amended Corn ent to Cigarette Smokers" The "Frank Statement" said that °[t]here is no proof that cigarette smoking is one of the causes" [of lung cancer]. Thus, for over 40 years, despite having a good deal of secret knowledge to the contrary, the Defendants infused the debate with an false aura of thoughtfulness and responsibility, as if a reasonable person with full knowledge of all the facts could still reasonably decide that cigarette smoking was unlikely to harm his or her health. At the same time, the Defendants were doing all they could to make sure that the addiction of smokers occurred before the individuals were old enough to base the decision to smoke on weighing the evidence pro and con on the health issues. This they did by assiduously atiraeting under-18 individuals to cigarettes, addicting them to the product before they had a chance to make an informed choice even in the muddied atmosphere created by the Defendants' false statements, Tj 83-42. Returning to the 1994 hearings, the defendants were not satisfied merely to deny in effect e state that nicoti 0 e- 1147-48& ecutive officers went on to 25
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suhrogationlassignment claim, then subrogationlassignment is the sole avenue that the State has by which to seek recovery. Defendants simply ignore the basic legal tenet that it is the Plaintiff that, as the master of its case, has the prerogative of deciding which among the available legal theories to pursue. Here, subrogationlassignment is but one of many available legal theories that the State could have pursued, and most importantly, is the one which the State has distinctly chosen not to pursue. III. BAR BY STATUTE OF LIMITATIONS OR LACI-IESS° The fundamental basis of the State's Amended Complaint is that the Defendants maintained a flourishing business in the sale of cigarettes only through a plethora of fraudulent practices. At the heart of these practices is misrepresentation and suppression of scientific data showing the addictive, carcin pathologic qualities of cigarettes. The Motion to Dismiss on grounds that the State's action is barred by statute of es should be denied for six distinct reasons: conduct in misrepresenting and suppressing facts estops them from on time-bar defenses. Where a case involves estoppel to assert time-bar defenses, the issue is usually one for the trier of fact and cannot be raised in a m Even in the absence ofestoppeI, the applicable statute of limitations is subject to the "discovery rule," which means that a motion to dismiss cannot be granted unless the complaint clearly reveals that the action was filed too late; such is not the case here. L' The Amended Complaint alleges continuin do not apply. e-bar defenses 23
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0 1- r t Commonwealth of Massachusetts v. Philip Morris, Inc., 942 F.Supp. at 690 (D.hiass. 1996) (Medicaid recoupment remedies a matter of state law.) Nor can the State's case be analogized to conventional insurance company cases. Whether an insurer is entitled to an as indenuaity, as opposed to the more from contract or by operation of law. If insurance is provided by contract where risk is assumed for a fee, the insurer may be entitled only to the claims of the insured. The remedy is entirely different, however, when the insurer's obligation is imposed by law or statute. In that case, the insurer may be entitled to remedies similar to those asserted by plaintiff, remedies much broader than subrogation. Industrial Risk Insurers v Creole Production Services, Inc., 746 F.2d 526, 528 (9th Cir. 1984); see, also, Greattlmericmt Insurance Co, v. fJnitedSta€es, 575 F.2d 1031, 1034- limited remedy afforded by subrogation, depends on whether the obligation of the insured subrogation with an implied action for indemnification -- which is completely disti 35 (2d Cir. 1978) (` :Appe(tant here has confused the principle of inde .. The insurance carrier's relationship with hi red is not one imposed by operati law or statute; it is a contractual relationship in which the carrier has deliberately accepted a risk for a fee"). Much of the Defendant's argument regarding "subrogation" (Defendant's Memorandum at pp. 7-18) relates to damages and affirmative defenses. These are not proper issues at this procedural juncture and ca.nnot provide support for the Motion presently before the Court. D. Defendants' arguments do not justify dismissal of the Amended Complaint as a whole. The Defendants also seek dismissal of the Amended Complaint rrs a x>hole based on the purported exclusivity of § 43-7-440 regarding Medicaid subrogationlassignment. Defendants 20
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The Labeling Act does not pre-empt all common-law failure-to-warn actions. Only those failure-to-warn claims that "require a showing that [the defendants'] post-1969 advertising or promotions should have included additional, or more clearly stated, warnin Cipollone, 505 U.S. at 524. Howe e forced to disclose anything to any body through any form defendants'] testing or research practices or other actions unrelated to advertising or prornotion" are not pre-empted. Cipod2one, 505 U.S. at 524-25 (emphasis added). The Cipollone Court did not hold that claims were pre-empted merely because they may put pressure on the tobacco industry to better inform the public or because they may affect advertising or promotion. The defendants' posit ised "solely on [the S eral warnings on their products, they can wash their hands of all obligations to the citizens of the State of South . However, Congress never said this, the Supreme Court never held that Congress said it, and the Court never authorized abrogation of state law based on this theory. The defendants' absurd pos of communication, except perhaps--and they concede this because the Cipollone Court happened --if the State creates a specific duty to let an administrative agency know what their products contain. I£the defendants' view is co the public are virtually helpless to protect themselves ag hen the states and members of ntly identified in other jurisdictions.d4 If the Labeling Act and Cipollone are to be 19 Courts in ot}ser,jurisdictions which have considered the tobacco industry's allegedly privileged documents hat e found that there exists a prima facie case for applicability of the crime-fraud exception. For example, in State of F7arirla v. American Tobacco Company, where the crime-fraud issue was tenaciously litigated, the court found that the crime-fraud exception applied to numerous groupings of documents. Sn response to one grouping, 27 Brown & Williamson documents, the court stated the following: [I]t is hereby determined that the burden ... in establishing the crime fraud exception [as to these 27 documeuts] has been met and that there is sufficient evidence which, if believed by the trier of fact, would support Plaintiffs' theory of fraud. Plaintiffs' theory of ffiaud ... can be summarized 34
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pre-empted because they "are predicated not on a duty 'based on smoking and health' but rather on a more general obligation--the duty not to deceive." Cipollone, 505 U.S. at 528-29; see also Castano, 870 F. 3 ccc e are not pre-empted"); Burton v. R.J. Co., 884 F. Supp. 1515, 1521 (I7. 1995) (holding piaintiff's misrepresentation and fraudulent concealment claims were not pre- empted under Cipollone). Similarly, the CipoTtone Court held that claims of conspiracy to misrepresent or to conceal material facts are not pre-empted. See 505 U.S. at 530 ("The predicate duty underlying this claim is a duty not to conspire to commit fraud."}; see also Burton, 884 F. Supp. at 152 under G'ipolZone}, laintifl's conspi t as not pre-empted The Cipollone Court's summary to proceed: I The 1965 Act did not pre-empt state law damage actions; the 1969 Ac pre-empts petitioner's claims based on a failure to warn and the neutralization of ings to the extent that those claims rely on omissions or sions in respondents' advertising or promotion; the 1969 Act does not pre- r's claims based on express warranty, intentional fraud and misrepresentation or conspiracy. 505 U.S, at 530-31. B. The State of South Carolina Industr,y are Not Pre-empted. Defendants challenge the propriety of all the State's theories ofrecovery. The State's theories of recovery rely upon duties independent of the duty to warn or disclose about the health risks of cigarette smoking in labeling or advertising, and, therefore, are clearly outside the narrow scope of pre-emption. These duties include, but are not limited to, the duty of due care in researching, testing, and manufacturing a product, the duty not to manufacture and sell a 37
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0 (emphasis added). While the 1969 Amendments expanded the Labeling Act's preemptive scope, the expansion did not encompass all common-law claims. See Cipollone, 505 U.S. at 523 n.22 C"Congress was neither pre-empting nor saving common law as a whole--it was simply pre- empting particular common-Iaw claims, while saving others."). The pre-emptive effect of the Labeling Act is limited to state-imposed burdens specifically identified in the statute. The text of the Labeling Act's pre-emption provision sets forth the coniunctive criteria for those burdens. ent or prohibition based on smoking and health shall be imposed ith respect to the advertising or promotion of any cigarettes the packages of which are labeled in conformity with the provisions of this Act. 15 U.S.C. § 1334(b) (1996). In other words, only claims that would result in n or prohibition based on smoking and health," (2) "with respect to advertising or promotion," (3) "imposed under State law" are pre-empted by § 1334(b). The Cipollone Court recognized the Act's limited pre-emptive effect and required it to be read narrowly: The central inquiry in each case is straight forward: we ask whether the legal duty that is the predicate of the common-law damages action constitutes a "requirement or prohibition based on smoking and health . . . imposed under State law with respect to ... advertising or promotion," giving that clause a fair but narrow reading. As discussed below, each phrase within that clause limits the univwrse of eom»ton-Iraw claims pre-empted by the statute. Cipollone, 505 U.S. 523-24. This is the "predicate test." Proper execution of the "predicate test" requires point-by-point analysis of the impact of each of the above phrases on an allegation.t$ t$ 17ae "predicate test" focuses on the underlying duty the alleged behavior violates. see Cipollone, 505 U.B, at 523-24 ("(Sk,'ie ask whether the legal duty that is the predicate of the common-law damages action constituted a `reqairernem or prohibition based on smoking and health... imposed under State 3aw xith respect to ... advertising and promolion,' giving that clause a fair but narrow reading."). In other wocds, if the classxy albeit implicating advertising and promotion, is based on a generat obligation, then it is not pre-empted. 1 33
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material fact - even if they arose in context of advertisements or promotion - are not pre-eznpted, empted because it is "predicated not on a duty 'based on smoking and health' but rather on a more general obligation--the duty not to deeeive," Cipollone, 505 U.S. at 528-29 (emphasis added); see also Castano, 870 F. Supp. at 1432-33 (holding that "claims based on affirmative (emphasis added). Under the Court's reaso concerning the warning necessary to render a product 'reasonably safe,' state-Fawproscriptioirs on intexliorFaZ fraud rely osalv on a single, uniform sdandArd: , falsit}r." Cipollone, 505 U.S. at 529 The Cipollone court explained the distinc esentations are not pre-empted"); Burton v. R.J Reynolds Tobacco Co., 884 F. Supp. t 1515, 1521 (D. Kan. 1995) ((holding plaintiff's misrepresentation and fraudulent concealment claims were not gre-empted under Cipollone). 5. Cause of Action Eleven--Fraudulent Misrepresentation, Concealment and Nondisclosure--is not Pre-empted. The State's claim that defendants fraudulently p ted, concealed and failed to disclose information regarding the health effects of smoking, see generally Amend. Comp. 1 169-76, is not pre-empted by the Labeling Act. The language of Cipotlone supports preservation of this claim: er's claims that respondents concealed material facts are therefore not pre- enpted insofar as those claims rely on state-law duty to disclose such facts through channels of communication other than advertising and promotion. . Moreover, petitioner's fraudulent-misrepresentation claims that do arise wit] respect to advertising and promotion (most notably claims based on allegedl false statements of material fact made in advertisements) are not pre-empted 5(b). Such claims are predicated not on a duty "based on smoking and healt rather on a more general obligation--the duty not to deceive. but 505 U.S. at 528; see also id. ("The predicate of this claim is a state-law duty not to conceal ... 40
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This pattern of conduct could hardly be more reprehensible: first, addict the young, and personal image, while clai neither harmfiil nor addictive; then create an atmosphere wherein it appears that there is some reasonable ground for not quitting, because perhaps cigarettes are not harmful after all. This offers about all the reason the addict needs not to quit his babit. Finally, when sued, claim that smoking was all a matter of personal choice, that anyone should have known all along that smoking was harmful to health, and that because of that knowledge, it is begins to run, it is still well settled in South Carolina that the statute of limitations does not begin to run until the injured party knew or reasonably should have known that he had a cause of action. 5.L' Code Anr:. § 15-3-535 (1997Supp). This "discovery rule" has been explicit in the statute itself since 1977, but even in cases to which the pre-1977 statute applied, the Supreme Court held that the discovery rule was part of the statute. Brown v. Sandwood Development L`orporatiQre, 277 S.C. 581, 291 S.E.2d 375 (1982); Alitls v. Kifliarr, 273 S.C. 66,254 S.E.2d forego litigation. B. For causes of action not based on fraud, the discovery rule applies. Even if Defendants' conduct is not a factor in deternining when tl e statute of Ii 0 For these reasons, which will be greatly amplified at trial, it is clear that defendants should not be able to claim the protection of the statute of limitations, and thereby profit from their fraudulent conduct. Moreover, regardless of.vhether I3efendants' conduct is strictly characterized as constituting actual fraud (which itself tolls the statute under the statute's own terms), it certainly forms the basis for equitable estoppel, precluding the defendants from relying on the statute of limitations. The Defendants' long pattern of poisoning the public debate with deceitful statements may well have caused the State (as well as others similarly situated) to 26
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common law right for a sovereign to recover medical expenses from third parties are readily distinguishable and irrelevant. See United States v. Trammel, 899 F.2d 1483, 1489 (b`s Cir. 1990) (recognizing the government's right of recovery when there is tort liability, but finding liability limited by Kentucky no-fault law); Flagstaffv. rttchison, Topeka and Santa Fe Railway Co., 719 F.2d 322, 324 {9' Cir. 1983) (denying the city's attempt to collect costs for an iled tank cars, but also observing: "This is not to say that a 11 governmental enti av never recover s services...I2ecovexy has been allowed where the acts of a private party create a public nuisance which the government seeks to relevant to the present discussion. The Standard Oil dec federal courts to make federal common law. abate...,")(citations omitted); United States v. Harleysville Mutual Casualty Co., 150 F.Supp. 326, 331 (D.Md. I957)(no federal common law right to recover government medical expenses from tortfeasor); Baker u Sterling, 39 N.Y.2d 397, 348 N.E.2d 584, 587 (1976) (recipient of public assistance not obliged to repay at common law); State oflolva, exrel., Department of Human Services v. Brooks, 412 N. W.2d 613, 617 (Iowa 1987)(same); Agency for Health Care Administration v. rlssociatedIndustries, 678 So.2d 1239 (Fla. 1996)(interpretation of a Florida statute which was later amended). Defendants also cite United States v. Standard Oil C'o., 332 U.S. 301 (1947) which is not We would not deny the Government's basic that it must include the creative work of judges... But in the federal scheme our part in that work and the part of other federal c.ourts... is more modest than that of the state courts, particularly in the freedom to create new common law liabilities. 332 U.S. at 313. Thus, while representing a restriction to federal courts making federal common law, Standard Oil provides no basis for restricting state law causes of actions. See 19
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F. The statute of limitations does not apply to the State's equitable claims such as unjust enrichment (restitution), equitable indemnity and injunctive relief. L Inc., 313 S.C. 490, 443 S.E.2d 392, 394 (1994). In this case, the purchase and use of cigarettes by individuals in South Carolina was not only foreseeable but also precisely intended by Defendants. The resulting harm, nicotine dependency, disease and death, and the attendant Motion to Dismiss, 15. The touchstone of proximate cause is foreseeability. Koester v. Defendants tacitly acknowledge that the statute of limitations does not apply to equitable causes of action. Def. Br. at 24, This acknowledgment reflects the longstanding rule that where the action is one in equity, the statute of limitations is inapplicable. Parr v. Parr, 268 S.C. 58, 231 S.E.2d 695, 699 {1977}{citang Parrott v. Dickson, 151 S.C. 114,148 S.E. 704 (1929); Fanning v. Bagcxcla', l l l S.C. 376, 98 S.E. 137 (1919); 81ack-vell v. Ryan, 21 S.C. 112 (1884)}. IV. PROXIMATE CAUSE'~ Defendants have moved to dismiss on the ground that neither the injury claimed nor the damages sought were "proximately caused by any act or omission of the Moving Defendants.," health care expendit seeable. The so-called intervening event of smoking is not an independent phenomenon at all since the consumption of tobacco by South Carolinians was the very object of Defendants' wrongful conduct. The development of illness and disease was known by Defendants' to be an inevitable by-product of that goal. Accordingly, the health care costs i te orincidentalconseqnences;they are known and entirely foreseeable effects. See GrahAm v. T3'hitaker, 2S2 S.C. 393, 321 S.E.2d 4€3, section of this Memorandum responds to ¶f 5, 11 i_, 12 e.,13 c, and 22 6_ o€the Motion to f Brown and Williamson, et al. 30
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. 181 (3d Cir. 1986), cert. denied, 479 U-S. 1043 (1987); see also Fenninfl on v. Vistron Corp-, 876 F.2d 414,423 (5th Cir. 1989) (holding that plaintiff's "claim that cigarettes are unreasonable dangerous per se... is not preempted"); ef. Burton, 884 F. Supp. at 1521-22 (holding strict liability claim based on defective condition of addictiveness was not barred by Restatement (Second) of Torts § 402A, emt. i). For these reasons, the State's Thirteenth Cause of Action is not pre-empted. The language of Cipollone supports preservation of this claim: v. Liggett Group, Inc., 649 F. S[€pp. 664, 671-73 (D.IY.J.), uyrd in part, rev °tl in part, 7 Petitioner's claims that respondents concealed material facts are therefore not preempted insofar as those claims rely on state-law duty to disclose such facts through channels of communication other than advertising and promotion. ... Moreover, petitioner's fraudulent-misrepresentation claims that do not arise with respect to advertising and promotion (most notably claims based on allegedly false statements of material fact made in advertisements) are not preempted by § S(b). Such claims are predicated not on a duty "based on smoking and health" but rather on a more general obligation-the duty not to deceive. 505 I7.S& at 528; see also id. ("The predicate of this claim is a state-law duty not to conceal ... [material] facts."); Burton, 884 F. Supp. at 1521 (holding that plaintiffs fraudulent concealment as not pre-empted). I ,- Several of the State's causes of action, premised in part on the fact that defendants fraudulently concealed data on the extent of the hazardous to the health of consumers, are predicated on this duty not to deceive. Those same fraudulent actions underlie the State's strict liability causes of action, that defendants conspired to deprive the public of important information regarding the health consequences and addictive potential and to engage in tortious conduct designed to mislead the public. As a result, the State's strict liability cause of action is not pre-empted. 43
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A continuing tort is one inflicted over a period of a wrongful conduct that is repeated until desisted, and each day creates a separate cause of action, See, e.g., Upjohn Co, v. Freeman, 885 S.W.2d 538 (Tex. Civ. App. 1994). A contin the Defendant's tortious act ceases. Id, at 542. It involves no 1•t does not accrue until conduct, but continuing injury as well. Id. The continuing nature of the tort is determined by the complained-of injury; if the injury of which the Plaintiff complains is a continuing injury, it constitutes a continuing tort; if, however, the injury is single and distinct, it does not constitute a continuing tort. See, Mack v. Great Atlantic an Cir. 1989) {"jIjfboth discrimination and injury are ongoing, the limit 8 ns clock does not begin to tick until the invidious conduct ends."); Jenkins v. Home Ins. Co., 635 F.2d 310, 312 (4th Cir. 198Q)(fmding claim of continuing di ot time-barred). As the United States Supreme Court has noted, statutes of limitations "are intended to keep stale claims out of the courts. When the challenged violation is a continuing one, the stal Haven's Realty Comarrv v. Ca7eman, 455 U.S. 377, 380 (I9&Z), s In the context of tobacco litigation, a federal district court in Louisiana has held that the tobacco industry's conduct constitutes a continuing wrong within the meaning of the limitations doctrine. Castano v. American Tobacco Co., 870 F.Supp. 1425, 1431 (E.D. La. 1994), ret'tl on the issue of class certification , 84 F.3d 734 (5th Cir. 1946}. In arguing that the limitations period begins running at the time a person has knowledge of the injury, the Defendants mischaracterize the State's lawsuit. The injury complained of is not the tobacco-related disease in the individual Medicaid recipie It is the resultant injury to the State caused by the Defendant's ongoing tortious behavior. The State suffers each time payments are made, thus not only is the Defendants' conduct ongoing, but so is the State's 28
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o pursue o me same exten bring this suit is rooted in the common law and specific remedial legislation and this authority has not been supplanted by § 43-7-440, which contains no Ianguage evidencing any intent on t part of South Carolina Legislature to cut off these other avenues of relie£ B. Defendant's Argument is not Supported by the Federal Medicaid Scheme. Also, an examination of the Federal Medicaid scheme demonstrates the utter lack of foundation ofIlefendant's content edicaid program mus by which the State can recoup its tobacco-reiated Medicaid costs. Title XIX of the Social Security Act, 42 U.S.C. § 1396, et seq., authorizes federal grants to States to aid in financin programs to provide medical assistance and related services to needy individuals. " A State participating in g rovides the exclusive remedy all reasonable measures to ollection of sufficient information ... to enable the State to pursue claims against such third parties..," 42 U.S.C. § 1396a{a}(25){A}. States are also required to "seek to pursue th 7° The legislative history surroundin profound interest in expanding not limiti K. Mahoney, Coughing up the Cash: ,Sltot Against Thir i Par t} T rtfeasors Such as th ustry? 24 B.L. Envtl. L. Rev, 233 (1996). 42 U.S.C. § 1396k was enacted as part of the Medicare-Medicaid Anti-Fraud and Abuse Amendments of 1977, which sought to combat abuse of Medicaid by health care providers. Id. Physicians had been reassigning their Medicare and Medicaid receivables for percentages of their value, submitting claims and then receiving inflated payments from the government. (a practice called "factoring"). Id. Congress enacted 42 U,S•C. § 1396k to ensure that only Medicaid, and not the providers, received rights recipients may have against third parties. Id. (citing I-LR. Rep. No. 393, 95th Cong., lst Sess. 49 (1977)). This clearly demonstrates that by granting states subrogation rights Congress sought not to limit the states' enforcement powers, but rather to expand them. Id. ' il}ustrates Congress's tates' avenues offinaneial recovery." Michael 'edicaid Prowde j'or Independent State Recovery 16
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Clearly the actions of the tobacco companies have continued from a period starting many years ago through the present. Likewis to the State has never ceased, but continues daily. As a result, this doctrine should prevent the Defendants from availing themsel statute of li E. The State's equitable claims are not barred by laches. The Defendants' hSotion to Dismiss based on laches should be denied for most of the same reasons applicable to their statute of limitations arguments. From the earliest reported fln e the statute outh Carolina have held that in the absence of special e lapse of time as a bar to a claim which is not barred by e.g., Gist v. C'a€te11's Heirs, 2 DeSaus. Eq. 53 (1801). In Jefferson Pilot Life Ins. Co, v. Gurn, 302 S.C. 8, 393 S.E.2d 180, 181-82 (1990), the Supreme Court discussed the doctrine of laches as follows: Laches is the neglect for an unreasonable and unexplained length of time, under circumstances permitting diligence, to do what in law should have been done. 19eI trine v. DeLnine, 2I I S.C. 223, 44 S.E.2d 442 (1947). To be charged with laehes, a party must have knowledge of the facts upon which he bases his claim. .4rceneaux v. Arrington, 284 S.C. 500,327 S.E.2d 357 (Ct.App.1985). Delay alone in the assertion of a right does not constitute laches. Bonney v. Granger, 292 S.C. 3fl8, 356 S.E.2d 138 (Ct.App.3987). Whether a plaintiff is barred by laches is to be determined in light of the circumstances of each particular case. Rabon v. Mali, 289 S.C. 37,344 S.E.2d 608 (1986). As the above case demonstrates, the doctrine of laches uses principles similar to those used in applying the discovery rule in statute of limitations cases. As with the statute of limitations, the ation of these principles to the case at hand is a question for the trier of fact. Accordingly, the Defendants' Motion to Dismiss based on 3aches should be denied. 29 Ln
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5. The statute of limitations does not apply to the State's equitable claims such as unjust enrichment (restitution), equitable indemnity injunctive retief. To the extent that the Motion asserts Iaches as a defense, it should be denied fo the same reasons which apply to Defendants' statute of limitations arguments. Each of these bases for denying the ismiss will be briefly discussed below. A. Estoppel to raise time-bar defenses. In their third ground for moving to dismiss the Amended Complaint as a whole, Defendants assert that "each count set out therein icable statute of limitations or by the doctrine of laches." The main thrust of Defendants' argument appears to be that however freely the Defendants portrayed reality, the State was duty bound to know the falsehood of defendants' assertions. The Supreme Court has long held that a party who commits fraud is estopped from raisinz the statute of limitations as a defense until the fraud is uncovered. In applying the ordinary statute of limitations, the weight of authority is to the effect that where a party in favor of whom a cause of action has accrued has been induced by fraud on the part oft.he other party to defer commencement of the action, the statute begins to run upon discovery of the fraud, or of such facts as would have lead to the knowledge thereof, if pursued with reasonable diligence. Kibler v, Mcllwain, 16 S.C. 550; Smith u Linder, 77 S.C. 535, 58 S.E. 62f}; 34 Am.Jur., page 186. Duncan v. Graffne} hffS. Ca., 214 S.C. j£t2, 53 S.E.2d 396, 399 (1949). See also, e.g., Brown v. Pearson, 483 S.E.2d 477,482 (S.C. App. 1997); Dillon County School Dtstrict No. 2 v. Lewis Sheet Metal Works, Inc., 286 S.C. 207,332 S.E.2d 555, 561 (Ct, App. 1985), overruledon other grounds, Atlas Food Systems v. Crane National Y'endors, 319 S.C. 556, 462 S.E.2d 858 (1995). The statute of limitations provides that where the cause of action itself is one for fraud, such cause of action is deented not to have accrued until "the discovery by the aggrieved party of the facts constituting the fraud. ..." S.C. Code Ann. § 15-3-530(7). In this case, the fraud was so 24
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!an-13-99 18.35 1d28 M T-R87 P.Ud145 f-8B6 STATE CIr 90UTH L'.A.Rt3LiNA IN TTiE COURT Of COMMON PLEAS COUN'i'Y OF RICHLAND 97-CP-40-15M STATE OF SOL73TICAAOLINA, BY CTLWES } INTERVENt)RB' MtQ'1'tt)l+t' AQ. CONDON, ATTORNEY GENERAL, } TO ~,`L`13N&71}RR Q$UR PlaFtrtijf, } I l EtEN'YT2VG 7NTERVEI+IQRS' 9OTSCZN TO RaEBYjNE } ) BROWN & V7773.IAMSt}N TOBACCO CGiRPOF.t11Tt3N ) as sssecessaz by mesg.r tn TTiE AMERtC.9i+3` TOBACCO } COR9PANY, AMEIt?C.BN BRANDS INC, BROWN &} WFLLIAMSCQN TOBACCO CORPORATION, BItiTISH ) A.14F.RICAIN TOBACCO COMPANY LTD., BRI1ISFi- l AMERICAN Yst2i.AIZNGS LTA., B.A.T. INA[ISTfttES, ? PLC, Sa1'i75 Ht3L73Ii+tG9 INC, PFM.'#P MORRIS ) INCORPORATED {Yga-ir IcORRISU.S.A.). 2'HILZ ) t3:° t ~ ~t IS ~.'t3 ~ P A . S 1''~2~ 3 . R E ~ 'P I L DS } MO R ., It . ~ } ' ~ ~ y ~ ~ ~~}y ~}fj y {~ / y ~ ~ ~ (~~ y '$'~ T /~L 2' 1 1 iSaLl3 3Ly V I~SC ~ ~ {,p 1 ~ . j1i3T j vrAJilKiil 4 13 k _'l LIeGF~TT & MyFRS TNC.,'ISE $ROC!$E GRO[JP 7 LIMITED u0IMrr GROUP Ivc., LORILLARD ~ IIaCOR$QR1;.TED, LORIL.LAltD TaBACCt} } cc ~ M P 1~y , t i £i~ ~ E Is O R A.T t CORPORATION, Lt 3 a [ ~ N A ~' J ~'~ p ~ / { '~y~~+ '( ~ } (R' ` (~~ ~ ' ~ j `~ '}( ~ / ~ ('{~ ~ ~ ~ ~ ~ C 3'./; .IS7 'LT L AA '~ ri i M u {W Z ~ ., J ;.~iJi» Ii 'K } ' 3 ~ ~ ~ ~ D ~ ~ T ~~ } w ~ ~ ~~ ~ j 1~ S i. lA f ..ti~~~ iE i w fii ~~ i W Si i ~ + ~ + ' ~ " + ~ ~ l ~. jy ~ ~ ~ . ~'F . ~s(~'~]~JY}~~ ~tt Np 6 ~ (.~{ • ~ q ~ f ~ w q f ~f . . ~'{~[~~~S~-S~/Il ~ ~ ; ~S-~. ~a2~T~'#~~1 Zi ~IYC~#e ( ~'y~1~'''~-Ie.MF~ in w t~'TM/'~'~~19si to O CCO } ~{ii'~j"jJ{.~T~S..~.+~~J~Tk~t~.1~G~.~~[.~ y~ .~1.(~~R~~ BA '~3~ ~1 f`/ T /.~~ ~ +l~f iF~i.-', ~1 i~i~f~.T ~l+ij~3 1 'i[~q~ii~i~'R{ rya S(~iiyi..L{[(f~i(y3~1~iY4~ ~nF.i~Lj KNOWLTON ~ .31S~+~fl.at ii~liG~li}+'~~1. piL ~i~~t3~L~i~/1~~f11~ 11E ~i~11ii.~i ~?~~~ jy ~y ~ ~ , , Jtat•uR, 2~1.L=ffKE V ;.nil. & Vrii\. T } a paStr=Sb3 ~ *~iO~eFi3l cvLpC3atkAS, C`T~AT}Hl} & PP.1tTiB. a lirmC~1 babilizy } pumarsbp, AtECtIt1A,NAAE ) TOBACCO CORPORATIONS "a" iftaugh `Z", } ~ ~ P3rty Aks=dT,a eL $3., 2a *eR 3t1~ capacity and nu'6ehslfufsll n€iyr:29 ivOlarly s~ss~d ) ~ .~ttletve7N779, ) 3 aa lvt)w CONIF ft iaxesvenazs. Pai'su= to Asde 59 SCRCF, moving This Caurt for f }PdPS Co reCRl=&.L, E3Sc'I uWlUI $~d It5 v$TlieT Order, dRCd Demrba 31,1998. w11Ch *3ACd II#ItR4m1]= as a dSBFCtT fl{rj& t1TpamisdV81ntClvem= SRd did tit3S SddCESS the Qpplic0bw*Y Cf
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i Causes of Action Fourteen - Civil Conspiracy-is not Pre-empted. t "The predicate duty underlying [a conspirac) is the duty not to conspire to commit fraud." Cipollone, 505 U.S. at 530. Accordingly, the Court found that, similar to the State's fraud and misrepresentation clai y not to conspire to commit fraud was not a prohibition "based on smoking and health" as that phrase is properly construed. See Cipollone, 505 U.S. at civil conspiracy claim is no 530. Therefore, the Labeling Act does not pre-empt a conspiracy c Any argument by defendants that the State's civi without merit. The language of Ccpc llane is in direct oppo ..conceal I material facts con underlying this cG that phrase is properly construed. preempted by § 5(b) for it is not stated in our analysis o • edieat e State's Qmnut jrazdl For the reasons I fraud claim, this duty is not ased on smoking and health" and 505 U.S. at 530 (emphasis added) (citations omitted). 9. The State's Prayer for Relief is not Pre-ernpted. Defendants, perhaps most absurdly, posit that the State's prayer for relief is pre-empted, presumably because it may effect their explain and should be denied. 44 C. Package-Based Claims are not Pre-empted Under The Federal Cigarette Labeling and Advertising Act. To the extent any of the State's cl challenge the adequacy of warnin or marketing strategies, goals, or policies. As to bar
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Finally, the courts of this state have repeatedly held that novel issues should not be resolved by summary procedures such as by a motion to dismiss. Garner v. Morrison Knudsen Corp., 318 S.C. 223, 456 S.E.2d 907, 909 (1995); Kennedy v. Henderson, 289 S.C. 393, 346 S.E.2d 526, 528 (1986); Jackson v. tltlantic Soft Drink Co., 286 S.C. 577, 336 S.E.2d 13, 14 (1985); .Sprinezeid v. Williams Plumbing SuppZy Co., 249 S.C. 130, 153 S.E.2d 184, 188 (1967). Clearly, the liability of tobacco companies and other Defendants to the State is an issue which has never been addressed in this state. As the above cases indicate, the need to develop the factual record warrants a denial of Defendants' effort to have the issues in this case decided summarily. Since sumniary adjudication is inappropriate for the deternunation of issues relating to proximate cause, and since on the face of the matter proximate cause is apparent in this case, the State submits that this ground for the Motion to Dismiss must be denied. V. PRE-EMPTION. A. Defendants have Mischaracterized the Narrow Pre-emptive Effect of the Labeling Act and Cfpollone. Defendants argue that all of the causes of action of the Amended Complaint are pre- empted by the Federal Cigarette Labeling and Advertising Act ("Labeling Act"). Their argument is premised on an overly-broad reading of the Supreme Court's decision in Cipollone 1~ Liggett Group, 505 U.S. 504 (1992), In Cipollone, the United States Supreme Court held that pre-1969 common-law tort claims were not pre-empted by the Labeling Act. See Cipoldone, 505 U.S. at 519-20 ("[Aqe conclude that § 5 of the 1965 Act only pre-empted state and federal rulemaking bodies from ary statements and did not pre-empi state-Iawr damages actions.") 32 ~
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6. Cause of Action Twelve - Negligence-is not Pre-exnpted. The State's negligence claim is not subject to federal pre-emption for the reasons and authority articulated above. An action based on the negligent failure to provide research and testing information is not pre-empted by the Labeling Act; the provision or concealment of such information is not "advertising or promotion" and thus, not within the pre-emptive scope of § 1334(b). See, 15 IJ.S.C. § 1334(b) (1996). Negligence claims premised on the defendants' "testing or research practices or other actions unrelated to advertising or promotion" are likewise te e Labeling Act. As noted in Cipollone: Petitioner's claims are preempted to the extent that they rely on a state-law "requirement or prohibition . .. with respect to ... advertising or promo#ion." Thus, insofar as claims under either failure-to-warn theory [(negligent testing or health consequences)] require a showing that respondents' post-I969 advertising or pron fltioszr should have included additional, or more clearly siated, warnings, those claims are preempted. The Act does not, however, preempt petitioner's claims that rely solely on respondents' testing or research practices or other actions unrelated to advertising or promotion. 1- promotion." Castano, 870 F. Supp. at 1434; accord L'ipol7one, 505 U.S. 524-25. Therefore, it is not pre-empted. Although the Supreme Court in Cfpotlone did not address the question of whether strict liability claims are pre-empted, the District Court addressed the issue and held that such claims were not pre-empted by either the 1965 Act or its 1969 amendments, See Ciprllone connected to defendants' testing and research and to other actions unrelated to adve products such as cigarettes with highly addictive and dangerous 505 U.S. at 524 (emphasis added). 7. Cause o€Acfion Thirteen - Strict Liability-is nnt Pre-empted. Cause of Action Thirteen is predicated, in part, on the duty to avoid marketing defe 42 I
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Iaa-3C-o0 ie.si T-6qd P.15/23 E-i01 xnisudemuuding ia c3szifi4 i1heeomts jud"s1Y apparswi* dw the suuovalts have no iAtarest ia te 3tate's a4iaa or iss saslesnout. As sueb, thew sze uc gm=ds for =Menon, and the Cosut's Aece~ssber 31, 1999 Ordet 53oti1d ssand. 'I9tc S='s Au=ded Cc:mglaint dssaals i1~e usWe csfthe SW's scfs= Mbo 5tats of Sou* C'azal9na, by its Amracy Gasesal. Cluuies 1sQ. CandaR, luinSs this actietn FA%sWt tu its crmotnnam2, M=04y, amuusm 1aw, leol adfor eguitable mWwtiiy fat tho pmptt= at *Aer u4 obtsittiU s=btsssamcar nf ali saaAtos p4id by the Stais uf Suath Cara?laa farmedici assissancc to Wd3.caid md aaltat pibicly Amed hmhh caro =ip=ts whn suft, cuv4m lsave suftsd, fr= tmb=ea-zrlased dismaa as a re5ult of the actim of I3t *aciauts, Ycu sut~tazy pena)aEes, as w4I as ss=h attwrslief as wiu affordaiull arsd cozp1aa rentedy. Cnmglaiat, 12. TzSe Stsese`s ac.tissn was a r~'ireu wdca basecl xqm its own injusy aad tttnugbs to 's SC;302t was aAtCAdM To aft= $R iAftdS2a /}"amdsmages. the raavvam have utrt in drsr paptn or av=ass aaiaAmr1 a valid ea.p,4wwu as to how rhe State'sacttar3aft= = uuIxve$uai pcsmal srjwy cl8iatastt's Abi3iiy to seek scdzess ft hu 1 ker awR. Nt7a, the IYIuYCC SEttUm= Ag=uuAC SCm At}I7St dCuuI who dw I"~S2* p== STC RII4 ~y W~I$t Cj811SS.. #I~ ~!€tA$ Yt~C$SCt~+ NMi{a jj+("+'+)BIIdaatii't'l A$$Aie =d'l2I'S0SII tiC SmWS j74St13fA11LtJ!#Ty CwA3dR.i'S BbiIL}' 20 Ser.'IC TC41'C5S fGI hiS /bCC Omd=uW8. And $$,iCU6 Sl$A1EcSAdjFt the FAQYSTltS b4Y2 REtT 171O=jtqCIS pr'8ig==tS 7 S€I&Y3" PCISl1W !€(jt1tY t=nmCFS 813ft to SCCk SC&= for WS /IECI L+WA d=ap'S. li3u twf, at the Aacetnber 29, 29=J$ heazing, defepds= Vezificstly stateci dw ft f+ederat aauzt class s euaA
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daei-26-99 16.31 fr~-}~{TC6 If~€.25.2'~3 3ta;.~sra'i y T-644 P.161Z3 F-T61 bTAt#g{itb}i ftSAGYSR28, a : pmseaftFPlcd+wo17la= be 45=tcdb}'t}iB S'wC'S wtgcSxtt:AE t7f iTS aCdfon_ De~it~rb~ f~s, tkeiucsvauts f~sauu~san believe tba S.C. Ckde,4na. § a3-7430 aad ~ nr 42 U.S.C. § 1396k grant ti= anint=esz in tU pmeceds offt State's set3deuteut ofits aerictn. Tlle movasus sni=r3mmd*se statuscsy prstv=arts. TGase gFO.risions are design~ ta ~teet t3sc Stex's iuaax~c irs rceo~piug ~aaies i~ itse~fhac psid ~ bt~atf ofM~diossd ~iy~i~ T#agp iano ~,yXmisu4viduals sa inTrsest ist aaY;=oupad Stalt Med~=ttAies ar ist o4w=sxiuVai,Ytate or sa#teuscut pmceeds. Masaatvra, t1w sratutos da Aci* prns+itk *s earsiusive av=;e fos*e Swmm w*arrasm= sift% aWtt 4amugc5. Attd jtuc as~csri~c, t~y dr, s~t~ke a es4mkumv=oiaaascfu&ar Crder Dengiag Inzmv=s' Adaticsu to Iucezve»s" shnU be dettied. Tn the intesesra of ac}uving State S~eci&c Finatgyas defi~diat~e ~+Ia~t Setf~em~su~s~rui, tbe S~ ~spe~y re4s~esis aF=pt ntliAg by the L:mu't oA Oxis anstter sa t{s" the u= ft app.aw may = guss=iti to Rule 59C#} SCR£..I". CfiA12T.F•S M. CONAOIRTi S=th Ca2`uMnalutrscAeY L"icttetak TftNA Cr. ASUW{}R-M i3quty Alt=eY t#M=Uf 7.1s~tO1tY SM= M, Arst. DeputyAUamey Guaal KMNNTsTFI P. WOQIl1NG1`C?N, Sr. 1issE. Amsaay cvmmi 1 t30[t AsseMbIp Strcet P= LifftCa Baac 11549 Gsiumbia, SC 29211 903-73q-3680
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st Accordingly, the State has a viable claim for voluntary assumption of a special undertaking, and defendants' motion to dismiss on this basis is me 3. Causes of Action Four, Five, Six and Seven - Unfair Trade Practices Act and Anti-Trust-are not Pre-empted. The South Carolina Unfair Trade Practices Act and the State Anti-Trust Act, are not pre- enpted by the Labeling Act. Clearly, none of these c prohibition based on smoking are predicated on a"requirement or „ Cipollone, 505 U.S. 523-24; cf Burton v. R..T. Reynolds Tobacco Co., 884 F. Supp, 1515,1521 (D. Kan. 1995) (holding claims based on violations of Kansas Consumer Protection Act for deceptive advertising practices were not pre- empted by the Labeling Act). Accordingly, defendants' motion to dismiss this cause of action on this basis should be denied. 4. Cause of Actiou Ten--Negligent Misrepresentation, Concealment and Itlondisclosure-is not Pre-empted. Again, the Labeling Act only pre-empts state-law claims that would result in a "requirement or prohibition based on smoking or heaith ... with respect to advertising or promotion." 15 U.S.C. § 1334(b) {I996}. The Cipollone court held plaintift's claims that defendants concealed material facts were not pre-empted to the extent those claims relied on a state-law duty to disclose such facts through channels of communication other than advertising or promotion. See Cipollone, 505 U.S. at 528. As a result, the State's claims for negligent and fraudulent concealment are not pre-empted. Likewise, the State's misrepresentation claims which are based on false statements of " Thus, the fact that "the terxns of the warranty may have been set forth ui advertisements rather thaxi in separate documents is irrelevant to the Pre-emption issue ... because, although the breach of warranty claim is made with 'respect... to advertising', it does not rest on a duty impased under state law." Cipollone, 505 U.S. at 526. 39
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• Contrary to defendants' assertions, neither the Labeling Act nor Cipollone are properly read to be so broad. The limited reach of the Labeling Act's pre-emptive hand was re-affirmed by the United States Supreme Court in Medironic v. Lohr, 116 S. Ct. 2240 (1996): The pre-emptive statute in Cipollone was targeted at a limited set of state requirements-those "based on smoking and health"-and then only at a limited subset of the possible applications of those requirements--those involving the "advertising or promotion of any cigarettes the packages of which are labeled in conformity with the proF isions of' the federal statute. hlerltronic, 116 S. CY, at 2252 (citations omi#ted). Traditional pre-emption principles underscore the limited nature of the Labeling Act's pre-emptive ePfect.2$ The Cipollone Court also held that claims based on fraudulent mi tion or false representation of a material fact and concealment of a material fact are not pre-empted by the 1969 Amendments to the Labeling Act. See Cipollone, 505 U.S. at 528. Such claims are not 20 As noted in tvtediro3eic, the Supreme Court "has long presumed that Congress does not cavalierly pre-empt state-law causes of action..., especially 'in a field which the States have traditionally occupied. "' 116 S. Ct. at ating Rice v. Sanra Fe Etevator Corp., 331 U.S. 228, 23tI {i947}j; see also hfedaronic, I 16 S. Ct. at 2245 health and safety of each state's citizens "are primarily, and historically, matters of local concern."), at 518 (same); accord Philip Morris ea aL v Hrtrsleb¢rger e at., 1997 U.S. App. LEXIS 2175 1, at *22 {Ist Cir. Aug. 18, 1997) (noting that "States traditionally have had great latitude under their police powers" to protect the "lives, limbs, health, comfort and quiet" of citizens); Toole v. Brown & Ff tlliamson Tobacco Corp., 1997 U.S. Dist. LEXIS 15759, at * 13 {N.D. Ala. Oct. 8, 1997) (noting that the Court "has consistently described such a reluctance to infer pre-ernption in ambiguous cases"); Cosisno v. American Tobacco Ca., 870 F. Stpp. 1425, 1431 (ED. I..a. 3994} ("The presumption [against pre-emption] is very strong where, as here, pre-emption would displace the power of a state to protect the health and safety of its cit3aenry."}. A State's police powers shall not be superseded by the Labeling Act "unless that was the clear and manifest purpose of Congress." Medtrontc, 116 S. Ct, at 2250 (quoting Rice, 331 U.S, at 230) (emphasis added). Therefore, any questions of federal pre-emption of state police-power to protect the health and welfare of its citizens must be approached with great scrutiny. South Caro2ina courts have recognized the Iong-standing presumption against federal pre-esnption: Initially, the court notes that the presumption against federal pre-emption of state law is strong. Indeed, "this court should be reluctant to determine that state law has been pre-empted by federal legislation, since 'the exercise of federal supremacy is not lightly to be presumed.' " RrIng¢rd, et al. v. Exxon Co., U.,$.A., 819 F. Supp. 497, 501 (BS.C. 1992) (citations omitted); see also Irtedical Park t?BIGYN, P.A. ac Mike Rogin, et al., 321 S.C. 139, 467 SE.2d 261, 263 (Ct. App. 799b) ("A federal statute preempts state action in fields of traditional state regulation only if the clear and manifest intent of Congress in passing the federal statute was to occupy the field to the exclusion of the States °}. 36
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read as the defendants assert, the Supreme Court would have taken much greater steps than it did to limit the ability of states to protect their citizens from the massive fraudulent and criminal conduct visited on them by the tobacco industry, as showing that the Defendants engaged in extensive efforts to hide from and misrepresent to the public the health hazards associated with cigarettes and that the Defendants misled and defrauded the public and public health off eials regarding the relationship between smoking and health Additionally, there was persuasive evidence that Defendants utilized their attorneys to carry out and plan fraudulent activities and undertook to misuse the attorneytclient relationship to keep secret research and other activities which showed the true health dangers of smokittg. Report and Recommendation of Special Master on Plaintiffs' Motion to Compel Documents Listed in Plaintiffs' First Designation of Documents to be "Deemed Produced" at 3, May 30, 1997, .Sta7e c?(F'lorida ex al, v. American Tobacco Company et al (No. CL 95-1466 AH) (Fla. Cir. CL, Palm Beach County, filed Feb. 21, 1995) [attached as Exhibit D]; see atso Order Overruling Exceptions Taken to Reports and Recommendations of Special Master (April 28, 1997 Report and May 30, 1997 Report); Order Ratifying, Affuming, and Requiring Compliance with Reports and Recommendations of Special Master; Order Granting Stay with Directions to Counsel and Notification of case Status to Court of Appeal, June 26,1997, Florida et aL (No. CL 95-1466 AFI) [attached as Exhibit E]; Order Denying Petition for Common Law Certiorari, July 23, 1997, Florida et aL {h'o. CL 95-1466 AH} jattached as Exhibit F). Holding that the crime-fraud exception applied to another set of S documents from Liggett & Meyers-two of which were the subject of Judge Sarokin's order in Haines v. Liggetl Group, Inc., 140 F-R.D. 681 (D.1J.J. 1992)-- the court stated: Plaintiffs' theory, while set forth in several distinct counts, substantially relates to allegations that the Defendants engaged in extensive efforts to bide from and misrepresented [sic] to the public, the health hazards associated with cigarettes and that Defendants misled and defrauded the public and public health officials regarding the relationship between smoking and health. There is also evidence that the Defendants utilized attorneys in carrying out and planning fraudulent activities and undertook to misuse the attomeytclient relationship to keep secret research and other activities related to the true health dangers of smokiug. Report and Recommendation of the Special Master at 4, Apri Affirming, and Requiring Compliance with Report and Recommendation of Special Master; Order Granting Stay with Directions to Counsel and Notification of Case Statue to Court of Appeal; and Order Setting Additional Hearing Time, April 18, 1997, Forida et al. (No. CL 95-1466 AH) lattached as Exhibit H]; Order Denying Petition for Common Law Certiorari, July 23, 1997, Florida et al. {No. CL 95-1466 AH) jattached as Exhibit 1]. Gj; see also Order Overruling Exceptions to Report and Recommendation of Special Master; Order Rat Company et al. (No. CL 95-1466 AH) (Fla. Cir. Ct., Palm Bea The exception was also held to apply to another group of two documents cited in the Haines v. Liggett Group Inc., 140 F.R.D. 681 (D.N.J. 1992), opinion. See Report and Recommendation of Special Master at 2, July 28, 1997, State ojFlorida al al. v. American Tobacco Companv et a7. (No. CL 95-1466 AH} (Fla. Cir. Ct., Palm Beach County, filed Feb. 21, 1995) (holding that these documents were "inexorably linked" to the fraud demonstrated by the documents of the April 9, 1997 order referred to above) [attached as Exhibit J]; Order Overruling Defendants' Exception to Special Master's July 28,1997 Report and Recommendation, Order Ratifying and Reaflirming Report and Recommendation, and Order Entering Temporary Stay, Aug. 19, 1997, Florida et al. (No. CL 95-1466 AH) [attached as Exhibit K]. 35 ~ ~
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0 _J [material] facts.'); Burton, 884 F. Supp. at 1521 {holding that plaintif#'s fraudulent concealment claim was not pre-empted). The State's tenth cause of action is predicated on this duty not to deceive. Contrary to the defendants' theory, avenues by which to inform the public are not limited to advertising or promotion. The public can be informed in an infinite number of ways, especially by a well-financed, sophisticated, media-savvy entity like the tobacco industry 22 The defendants have the burden of proving that the methods put forth by the plaintiff to inform the public would constitute advertising or promotion. See Chicago Title Ins. Co. v. Resolution Trust Co., 8b& F. Supp, 135, 139 (D.S.C. 1994) (holding that in facial attacks on subject matter jurisdiction, the court must assume that the allegations of the pleadings are true, and then evaluate whether these allegations can support subject matter jurisdiction), The Cipollone Court did not believe that the only way a tobacco company could e "advertising or promotion." If this reading was intended, the Court would have held all failure-to-warn and fraudulent-concealment claims pre-empted. The Court announced no such holding. See Cipollone, 505 U.S. at 524-25 (holding that failure to warn claims "that rely solely on [the defendants'] testing and research practices or other actions unrelated to advertising or promotion" are not pre-empted); id. at 529 (holding claims based on fraudulent statements were not pre-empted because the phrase "smoking and health" did not encompass the more general duty to refrain from making fraudulent statements). 22 For example, cable te2evision, the Internet, physician publications, health-care organizations, journals like JAMA and New England Journal of Medicine (jou€nals that do not even permit cigarette advertising, and therefore, would have noting to do with the advertising or promotion of cigarettes), press releases, appearances before Congress (the 1994 hearings provided a prime opportunity) and state regulatory boards. 41
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YI. FEDERAL PRE-EMPTION BY T`HE IVIEDICAID ACT OF 1965,42 U.S.C. § 1396.2s (25) (1) Medicaid statute Pre-emption In their Motion to Dismiss, Defendants have contended that "[t]he causes of action set forth in the Amended Complaint are preempted by the Medicaid Act of 1965, 42 US.C. § 1396.'> Defendants' contention not only finds absolutely no support in the law, but also borders on the frivoloics. The Medicaid Act of 1965, 42 [J.S.C. § 1396, provides, inter alia, that: A State plan for medical assistance must (A) that the State or local agency administeri take all reasonable measures to ascertain the legal parties ... to pay for care and services under the plan .... that in any case where such a legal liability is found to exist ical assistance has been made available on behalf of the individual and where the amount of reimbursement the State can reasonably expect to recover exceeds the cost of such recovery, the State or local agency will seeA reimbursement for such assistance to the extent of such legal liability. those instances where it is economically practicable. Indeed, as the court noted in CammQnwvalth of LiassacJrusetts v. Pisilip Morris, Irrc., 942 F.Supp. 690, 696 (D. 42 tJ.S.C. § 1396a(a)(25). The plain language of this statute does not in any manner mandate or prescribe a particular means by which the State must pursue liable third parties. It simply states that if it wants to receive federal Medicaid fnnds, the State must pursue liable third parties in Nothing in Title XIX ji.e., the statute establishing MedicaidJ suggests that Congress intended that state suits to recover Medicaid funds from liable third parties should be thought of as presenting federal, rather than state, claims. On d ca Os js This section of this Memorandum responds to'AI 7, 11 k., 12 h. and 30 of the Motion to Dismiss of O Sro.km and Williamson, et aI. 47 I
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0 f action, both legal and equitable, be pled in the alternative. Typically, a plaintiff is not required to elect between remedies until a verdict has been rendered or, where different modes of trial are requ of discovery. Harper V. Ethridge, 290 S.C. 112, 348 S.E,2d 374 (1486)(claims for breach of fiduciary duty and equitable were joined with breach of contract claim). Even then, the court may delay consideration of the appropriateness of legal versus equitable remedies until all of the evidence is in but prior to rendition of a verdict. The basis for allowing i coexist to the final stage of the proceeding is to resolve any doubt at all as to which of several remedies may be appropriate. Id at 380. Similar, if not identical, considerations are present determination as to whether Plaintiff has an adequate remedy at law. This Court should allow discovery and developanent of the evidence prior to making that determination. XI. EXISTENCE OF Itil'I'Y a. Unjust EnrichmentlRestitution 32 Defendants have moved to dismiss Plaintiff's First Cause of Action (Unjust Enrichment/Restitution) on the ground that "Defendants owed no duty to Plaintiff." The issue of whether Defendants owed a duty to Plaintiff is not properly before this Court. Defendants have filed a Motion to Dismiss for failure to state a claim. There are three essential elements for the Unjust Enrichment/Restitution (quasi contract) cause of action. These three elements are: (1) ?A nongratuitous benefit conferred upon the defendant by the pl (2) Realization of that benefit by the defendant; and }xThis section of this Memorandum responds to ¶ 1 I b. of tl:e Motion to Dismiss of Brown and williamson, et al. 57
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s not based on fault. It does not require defendants to be guilty of a tort since n does not depend upon the existence of a wrong." 66 Am. Jur. 2d Restitution and Implied Contracts § 4 at 947. Restitutio equitable re-adjustment of property and benefits where defendants possess money or property that in good conscience they should not retain but should deliver to another. Omnibank ofhlantee v. United Southem &ank, 607 So.2d 76 (Miss. 1992). To recover in restitution, the plaintiff does not have to show that the defendants have a legal dwy to the smoker the health care costs of al ise. Based upon the foregoing it is clear that Plaintifi'will be able to show a conferred benefit sufficient to warrant a recovery in its favor based upon restitution. XIII. CHARACTER OF PLAINTIFF'S PARTICIPATION IN MEDICAID PROGItA11I's (VOLUNTARY PARTICIPATICN) A. The State's payment of the costs of inedical care of the indigent is not a voluntary act in any realistic sense. In 1111 d. and 12 b. of their Motion to Dismiss, Defendants contend that the State has no e its "participation in the Medicaid program is voluntary." Motion to Dismiss, I s nzay be true in the very strictest sense, the practical e State has no real choice but to participa 'S This section of this Memorandum responds to Vi 1! d., 11 e., 12 b. and 12 c. of the Motion to ss of Brown and Williamson, et al. '° 12 c. is similar in asserting that the State, "by its voluntary participation in the Medicaid program, assumed a nondelegable duty to its citizens to pay for their medical care for which Plaintiff`has no right to indemmnification." ¶ I 1 e. likewise has a similar thrust merely stated in a different way. defendants had a manifest duty to cover 61 ~
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matter ofpublic welfare that is of tremendous state interest and state involvement -- is a matter in which Congress has occupied the entire field. The only possibility for Pre-emption, the through the third avenue, that o€actual conflict or impossibility of compli federal and state laws. ith both the As demonstrated above, the Medicaid Act simply requires that if it wants to receive federal Medicaid funds, the State must pursue liable third parties in those instances where it is economically practicable. Since this is precisely what the State is doing by this lawsuit, contentions of actual conflict with 42 U.S.C. § 1396a(a)(25) are, qui ly, lacking in or impediments on the State proceeding in its own name to pursue liable third parties, as the tobace ting to do here, would be preempted on the ground that it creates an impossibility of compliance with the federal scheme. In short, then, there can be no good faith contention of Medicaid Act Pre-emption by the VII. DUE PROCESS s' Defendants' have moved to discniss Plaintiff s Amended Complaint in its entirety because, as they allege, "imposition of the relief sought in the Amended Complaint violates the Due Process Clause of the United States Constitution, Art. II § 7, the Due Process Clause of the Fourteenth Amendment of the United States Constitution, and the Due Process Clause of the South Carolina Constitution, Art. I, § 3." Defendants do not set forth in what way the Amended Complaint is violative of due zsroces, but it can be inferred from other similar cases that x'This section of this Memorandum responds to TT 9 and 31 of the Motion to Dismiss of Brown and Williamson, et al. 49
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(3) Retention by the defendant of the benefit under conditions that would make it inequitable for him to retain it without paying its value. Ellis v. Smith Grading and Paving, Inc., 294 S,C. 470, 366 S.E,2d 12, 15 (Ct, App. 1988), Webb v. First Federal Savings and Loan Ass'n af.4nderson, 300 S.C. 507, 388 S.E.2d 823, 825 (Ct. App.1989). The allegation of a duty owed by a Defendant to a Plaintiff is not a€equired element. Plaintiff has pled the three elements essential to state an unjust enrichment/restitution cause of e the essential elements ofnnjust emiclunentJrestitution (quasi-contract), the Plaintiff has, i ina. In any event, although duty is no alleged the existence of duties to the Plaintlff. See Amended Complaint Iff 40, 57 and 101 Defendants' Motion to Dismiss on this ground must, therefore, be denied. b. Negtigence" Defendants' move to dismiss Plaintiff's negligence claim upon an assertion that Defendants owed no duty to Plaintiff. In order to recover for e , it must be shown that: (a) the defendant owed a duty to the ptaintiff, (b) the defendant breached that duty; (c) the plaintiff suffered injury or damage; and (d) the defendant's breach proximately caused the injury. See e.g., Evans v. Rite,4id Corp., 452 S.E.2d 9, 12, 317 S.C. 154 (Ct. App. I994), "It is essential to liability for negligence that the some relationship recognized by law to support the duty owed by the tort-feasor." Barker af. Sauis, 345 S.E 2d 244, 244, 289 S.C. 121 (S.C. i986). Privity between the tort-feasor and the injured party, longer a requirement in tort actions, See Terlincde v. Neely, sponds to Tj 22 a.. of the Motion to Dismiss of Brown and 58
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ages,' those claims are not pre-empted. Preliminarily, the State points out that both the 1965 Act and the 1969 Act have two pre-emption provisions. One, subsection (a), addresses pre- emption regarding the labeling of cigarette packages, and the other, subsection (b), addresses pre- emption with respect to the "advertising and promotion" of cigarettes. The two pre-emption provisions of each of the 1965 and 1969 Acts are set forth below, side-by-side, to facilitate comparison. [19b5 Act] § 1334. Pre-emption. [t9b9 Act] § 1334. Pre-emption (a) Additional statements. No statement (a) Additional statements_ No statement relating to smoking and health, other than relating to smoking and health, other than the statement required by section 4 of this the statement required by section 4 of this Act [l5 USCS § 1333], shall be required on Act [15 USCS § 1333], shall be required on any cigarette package. any cigarette package. (b) State regulations. No statement relating (b) State regulations. No requsrement or to smoking and health shall be required in prohi.bition based on smoking and health the advertising of any cigarettes the shall be imposed under State law with packages of which are labeled in conformity respect to the advertising of promotion of with the provisions of this Act. any cigarettes the packages of which are labeled in conformify with the provisions of 15 U.S.C.S. § 1334 (1997) (quoting this Act. historical material after the text of the statute). 15 U.S.C.S. § 7334 (2997). The 1965 version of the Labeling Act "merely prohibited state and federal rulemaking bodies from mandating particular cautionary statements on cigarette labels (§ [1334](a)} or in cigarette advertising Q [1334]{b}).°" Cipollone c~ Liggetr Group, Inc., 505 U.S. 504, 518 {1992} s' Thus, the Court held that no common-law damage claims were pre-empted by the 1965 Act. 23 The availability of cigarette packages as a vehicle for communication provides the causal tie necessary for those claims that the Cipollar.e Court held were not pre-,.~nipted. For example, Cipollone held that fraudulent concealment claims were not pre-empted as long as the staie la vr basis for requiring disclosure of material facts was not based on advertising and promotion. 505 U.S. at 528. Packages are the perfect vehicle for such disclosure by the industry. 24 See also Cipollone, 505 U.S. at 518-19 (holding that the pre-emption provision of the 1965 Act "is best read as having superseded only positive enactments by legislatures or administrative agencies that mandate particular warning labels"). 45 t
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consistent with the relief the South Carolina Legislature intended to provide and seeks only the Court's help in giving full effect to the intent of the Legislature. All causes of action and prayers for relief in the Amended Complaint are b common law or specifically authorized by statute. By legislative enactment, the common law of England continues in fiu1I effect in South Carolina, See S:C C'ocle.4nn. §14-1-5(}. This is reflected in South Carolina case law as well, as the Supreme Court stated in Singleton v. State, "[T]he common law n and unambiguous legislative enactment." See, Singleton, 437 S.H.2d 53, 58, 313 S.C. 75 {1993}, aw causes of action nor the remedies sought have been changed by a s legislative enactcnent, all remain valid in South Carolina and no judicial recognition of this fact could violate the separati rce and effect in South Carolina unless changed by clear of powers provision of the South Carolina Constitution. The statutory reli 0 to the int fs erpreting statutes. See Department of Social Sen=ices i~ Johnson, 302 S.C. 199, 394 S.E.2d 721 (Ct. App. 1990). Courts have no legislative power, but non e as the Plaintiffs do not seek to have the court read into any statute something which is not there, nor to depart from the meaning of any of the statutes granting a cause of action or remedy. See State v. Carrigan, 284 S.C. 610, 328 S.E.2d 1985); Belk v. Nationwide Mutual Insurance Ci3, 271 S.C. 24, 244 S.E.2d Motion to Dismiss a Complaint on the basis that an interpretation of a statute at trial will violate the separation of powers doctrine is entirely premature and inappropriate, since retation is dependent on the application of the statute to the facts at hand. Accordingly, the Defendants' Motion to Dismiss the Amended Complaint on the basis 52
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0 enriehmenUrestitution on the ground that the Plaintiff failed to allege that the Defendants are liable in tort to Medicaid Unjust enrichment dern designation for the doctrine of quasi-contract. Ellis v. Smith Grading and Paving, Ine., 294 S,C. 470, 366 S.E.2d 12, 14 (Ct. App. 1988). There are three esse cause of action: (1) a non ferred uvon the ~ defendant by the plaintifl; (2 ion of that benefit by the defendant; and (3) retention by the defendant of the benefit under conditions that would make it ! vaiue. Seelrfoore-Hudson C1ldsmobiZelGhfC, Inc. v. Waterman, 298 S.C. 107, ~ "This section of this Memoranduni responds to In I t f. of the Motion to Dismiss of Brown and Williamson, et al. C. The voluntary payment rule should not apply to states in any event Finally, the State would point out that under the rule which the Defendants argue for, states could never recover restitution for funds paid out in furtherance of the public interest, because virtually everything a state does can be characterized as voluntary to a certain degree. This is so whether the state acts through its constitution, statutes, or judicial decrees. Even the federal government cannot issue commands directly to states. h'ew York v. United States, 505 U.S. 144,112 S.Ct. 2408 (1992). It would be a very bad rule of lan= indeed which precluded the State from recovering payments due it in order to protect the public interest, on the a ound that having voluntarily expended the funds in the public interest, the State can look to no one else for those funds. XIV. FAILURE TO PLEAD TORT LIABILITY OF DEFENDANTS TO MEDICAID RECIPIEilTTS'g The Defendants have moved to dismiss Piaintiff's cause of action for unjust 65
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346 S.B.2d 324, 326 (1986). In all of the causes of action to which this defense is directed the Plaintiff alleges the Defendants owed a duty of care to the Plaintiff arising, not out of a contract between the Plaintiff and the Defendant, but rather arisi e regarding the harmful nature of cigarettes or arising out of defendants voluntary undertaking. See Amended Complaint at 156. These duties are not contractual; therefore, the economic loss rule is not a bar to the Plaintiff's tort recovery. Clearly, therefore, the economic loss rule does not pose a bar to this action. XVIII. UNFAIR TRAITE PRACTICES ACT A. Damage Claims Defendants assert that Plaintifilacks standing because a UTPA action may not be brought in a representative capacity under S.C. Code Ann. § 34-5-144(a).~ The Amended Co t, ,1 state of the United States and Charles hf. Condon is the duly elected Attorney General of the 1 The State of South Carolina, by its Attorney General, seeks damages in the individual State of South Carolina. He brings this action pursuant to constituti specific statutory authority." from this litigation. Clearly, in order to characterize health care costs were State m capacity of the State of South Carolina, The monies represe a and Williamson, et al. 0 ded for tobacco related as being one pursued in a e some stake in the controversy. dum responds to ¶114 a, and 15 a, of the Motion to IL 72
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® regulation is subjected to heightened scrutiny: the differential treatment is justified by a valid factor unrelated to economic protectionism, and there exist no adequate nondiscriminatory alternatives to preserve the local interest. Id. "Second, if a state law 'regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidentai"' the regulation will be upheld unless the burdens on interstate commerce are clearly excessive in relation to the local interests and benefits. Id., at 1257 (quoting Pike v. Bruce Church, Inc., 397 [1.S. 137, 142 (I97a)). For the purposes of this response to the Defendants' motion, we shall assume that a State's request for injunctive relie;f, etc., as part of a prayer for relief is, in fact, an attempt to "regulate" which is sufficient to trigger Commerce Clause scrnrtiny. See BLACK'S LAW DICTIONARY 1286 (6th ed. 1990) ("Regniate°' is defined as "[tjo fix, establish, or control; to adjust by rule, method, or established mode; to direct by rule or restriction; to subject to governing principles or Iaw"). The only portions of the prayer for relief which would appear to be subject to Commerce Clause scrutiny is that contained inT VI, §§ e, f, g, h, i, o and t oftbe Amended Complaint. The other portions of the prayer for relief are requests for monetary damages and actual compensation for injury to South Carolina as a result of the Defendants' fraudulent practices, and are not be subject to Commerce Clause attack (otherwise a State could never recovery monetary damages for i g 6usinesses), e requested relief is non-discriminatory o so happens ~ that all oftbe Defendants are out-of-state businesses. Such a happen-stance is, however, ~ ger heightened scrutiny. The intent behind the requested relief is the prote ~ of the health and safety of South Ca ens, not economic protectionism and ot an attempt to benefit South Caroli e exne cotr~ O -L co 0 54 0 ~
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parties sufficient to warrant equitable indemnification. Whether this rises to the nature of a special relationship sufficient to warrant indemnification fact. Although the Plaintiff has alleged such a e a ies is needed for the right to exist, and Plaintiff has alleged a fault- based right to equitable indemnification as weil. The Amended Complaint alleges that the Defendants, by their tortious conduct, harmed the citizens of the State of South Carolina and caused the Plaintiff to pay millions of dollars of medical and other expense that were rightfully owed by the Defendants. See id. Again, the existence and nature of the right is fact-dependent and should be decided at trial. Most fatal to Defendant's Motion to Dismiss the Second Cause of Action is that reso 6) motion, and in fact, resolution on the pleadings of the issue of rohibited by South Carolina case law. The right of a party to indemnity may not be determined on the face of the pleadings, but must be determined by the facts in e e 'innsboro v. b3 aedeman-Singlefon, 307 S.C. 128,132,414 S.E.2d © 1984). See also, Jr,urdan R Bnggs `T~meghn Consracting, 476 S.E.2d 708, 711, 324 S.C. 309 (Ct.App. K"[T]he allegations of the Complaint are not determinative of...the right to indemn ."). The indemnity right exists but is not ripe until the negligence cided by the fact finder; accordingly resolution of the issue on a Rule 12 motion I- a iate and premature. See.TQtirdan v. Boggsr'draughn Contracting, Inc., 324 S.C. 309, 476 S.E.2d 708, ?I1 (Ct. App. 1996). b. Voluntary Undertaking South Carolina has recognized five types of exceptions to the general rule that one does 69 I
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that the Complaint violates the separation of powers provisions of the South Carolina Constitution Art., I § 8 is without merit and should be denied. IX. COMMERCE CLAUSE29 The Commerce Clause is an affirmative grant of power to the United States Congress to regulate commerce "among the several states." See U.S, CC}NST. Art. 1, §8, cI. 3. The clause, however, has been read to encompass a "negative," or "dormant," power which, in certain cases, circumscribes the States' ability to regulate, within its own borders, matters affecting interstate commerce. The Commerce Clause was designed to prevent economic protectionism, Camps h'e wfoundlOwQtonna. Inc, v. Town ol"Harris Clause, a State generally may not unjustifiably discriminate Its cardinal principle is that a State may not "benefit in-state economic interests by burdening out-of-state cornpetitors." West Lynn Crearner}•, Inc. v. Hecal};, 512 U.S. 186, 199 (1994). In 0 0 ate See Oregon Waste S},s., Inc. v. Z?ep't ofEnvZl. Quality, 511 IT.S, ___ U.S. `, 117 S. Ct. 1590,1599 (1997). (1994); see also City ofPhilrrdelphia v. Nex•Jersey, 437 U.S. 617, 623-24 (1978). Under the negative Commerce Clause, state regulation affecting interstate commerce is analyzed by one of two tests depending on the nature of the regulat [regulation] discriminates against interest commerce o aee, in its practical effect, or in its e rule of invalidity applies °' Chambers Me Inc. x Bryant, 52 fi 2d 1252, 1257 (4th Cir. 1995) (in henn the regulatio n4logfes of S.C., totes omitted). Such a situatio urdens out-of-state economic int s; if so, the ''4This section of this Memorandum responds to ¶ I9, of the Motion to Dismiss of Brown and Williamson, et al. 53 ~
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i Serv. Corn n., 374 S.E.2d 119,123,298 S.C. l71(S.C. 1989). The Defendants consider subrogation/assignment to be an adequate legal remedy available to the State in this case. To constitute an adequate legal remedy, however, that remedy "must be clear, complete and as practical and eff cient to the ends of jnstice and its prompt stration as the remedy in equity. So it has been held that equity will assume jurisdiction where one's remedy of law is not as complete as, or would be more difficult than, the remedy in is less complete and satisfaetor}:" 30A C.J.S. EquiJ}v § 24; see, Santee Cooper Resort, Inc v. South Carolina Public Service Conx're., 298 S.C. 179, 379 S.B.2d 118 ( I489). The subrogation/assignment remedy falls far short of adequate. Indeed it is no remedy at all. Furthermore, `the remedy" contemplated by the Defendants incomplete. It would reimburse the State only for those funds expended by Plaintiff on tobacco- related injuries, diseases or sickness suffered by qualified recipients under the Medicaid program. The State's damages include, however: damages for both past and future expenditures for n•iedical assistance provided ander South Carolina's Medicaid progran and the costs of caring for persons with tobacco- related diseases who receive services through hospitals, health care facilities, residential facilities and other similar facilities owned, operated, maintained andlor funded by the State of South Carolina. These damages also include the provision of sick leave and health insurance benefits provided by and through the State of South Carolina to its employees and retirees. Amended Complaint ¶ 33. In addition, Rules 8 and 18 of the South Carolina Rules of Civil Procedure specifically provide that a plaintiff may seek relief in the alternative by stating as many separate causes of as he has, "whether based on legal or on equitable grounds or on both." Rule 8, SCRCP. In this case, which is one of first impression in this State, it is certainly appropriate that all
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As defendants det extended the reach of its pre-emption provision with respect to advertising arad pronsa I- / Br, at 43-44. The Cipollone Court relied on this new language in concluding that certain warning claims relating to advertising and promotion were pre-empted. See 505 U.S. at 530-3 t. Most critically, the 1969 amendments only change the pre-emption language regarding advertisi omoti nded the Labeling Act in 1969 and language for cigarette packages remains identical to the original 1965 draft. The pre-emption analysis changed in 1969 only with respect to the "advertising or " of cigarettes. As noted by the CipoIlorae Court: "The phrase `jn]o requir prohibition' sweeps broadly and suggests no distinction between positive enactments and common law; to the contrary, those words easily encompass obligations that take the form of common-law rules." 505 U.S, at 521. However, because the wording of subsection (a) was not changed by the 1969 amendment (and does not contain the "requirement or prohibition" language), pre-emption for package-based claims remains unchanged. Since the pre-emption analysis did not change, the Cipollone Court's holding that the 1965 Act "did not pre-empt state- law darnage actions" is the law with regard to tort claims based on inadequate package warnings. 18DOI -9305- b sions of Law and Judgment as to Defendants' Motion for Summary Judgment (Delaware County Super. Ct., Dec. 30, 3997) {"T'he FlaintifPs are not pre-empted fro § 1334 (a) (19b9).") ?4 failure to warn claim, wi g> er-U.S.C. Attached as Eahibit L. t 46 uch claims are not pre-empted. See Dunn v. RJR Nabisco Holdings C'orp., No. /
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fo een unjustly enriched by not having to bear the by-products of their enterprise -- the enormous health care costs. The State's carrying this heavy burden clearly conferred on Defendants an economic benefit, added to their property and advantage, and saved them from great expense. The Defendants have so unfairly exploited the State's mandate to provide public health care that equity demands they make restitution by bearing the costs which have been borne by the State. Moreover, the State has demonstrably enriched tobacco companies. It has relieved them of the possibility of immense liability and litigation expenses from thousands of individual suits from addicted smokers and smokeless tobacco users by supplying those consumers with needed medical care. The nature of a defendant's duty met by a plaintiff seek sed not be such as would give rise to legal liability. See, e.g., United States r. Consolidated Edison Co., 680 F.2d 1 I22, 1127-28 (2d Cir. 1978) (defendant "had, if not an absolute, at least a m provide its customers with electricity. ....[D]istinguishing its general duty to provide service from an absolute legal duty to pay damages to individual customers would be hypertechnical and would ignore Con Edison's overriding responsibilities to the public."); Peninsular & Oriental Stea 'o. v. Overseas Oil Carriers, Inc., 553 F.2d 830, 835 (2d Cir. 1977) (ship aid of sick crewman of another ship entitled to restitution for costs. VJhile sick crewman's own ship "did not have an absolute duty to provide the sailor with medical attention, it had a manifest duty to do so."), ceri. denied, 434 U.S. 85} (1977); CizY oJ'Nesw York v. Keene Corp., 505 N.Y.S.2d 782, 787 (Sup.Ct. 1986) (allowing claims in restitution and indemnity fo asbestos removal even though future injuries were purely hypothetical: `since.., the ultimate responsibility is on the manufacturer, in equity the manufacturer has the duty to remove asbestos if proven hazardous.")uff'd, 513 N.Y.S.2d 1004 (App. Div. 1987). 60
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subjectto such regulations as ("The respective counties of this State shall make such provisi C: Cons1. Art. XII§3(1&6$) a e e for all those inhabitants who by reason of age, infirmities and misfortune may have a claim upon the sympathy and aid of society"). The following section, S. C: Code Ann.§ 44-7-760, provides for payment for service by "[e]very person who is financially able," clearly implying that no payment is required if a person is not financially able. S. t^ Code Ann. § 44-1-190, a 1969 statute dealing with issues of health care on a statewide basis, provides that "[n]o person shall be deprived of availability of health services solely because of inability to pay." Case law also recognizes the State's longstanding obligation to pay for health care for For instance, in Parker v. Bates, 216 S.C. 52, 56 S.E.2d 723, 726 (1949), the court noted that "[h]ospitalization and other aid to the sick have constituted approved governmental activities for many generatiorts. ..." To hold, as Defendants would have it, that this longstanding public function is a merely voluntary act by the State would represent a substantial anachronism. A view of the world in which governnrent takes no responsibility for the medical care of its citizens is so far at odds with the reality as it has been for over a century that it should simply be dismissed without further comment by this Court. B. Payments by the State were not made with full knowledge of all the facts. Defendants, in raising these defenses, rely on the "elementary principle that no action will lie to recover money voluntarily paid with full knowledge of all the facts." Town ofBennettsvitle v. Bledsoe, 226 S.C. 214, 84 S.E.2d 554, SS6 (1954) (citfng HardawIIy v. Southern R., 90 S.C. 475, 73 S.E. 1020, 1025). Even if the State's Medicaid payments are characterized as "voluntary," this rule is clearly inapplicable in this case. 63 I
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and, therefore, Piaintiff's claim for indemnification and claim of negligence based on "voluntary assumption of a special undertaking" should be dismissed. a. Equitable Indemnity The Defendant's Motion to Dismiss the Second Cause of Action misstates the law of equitable indemnity Inde is outh Carolina, as the nature of the relationship between the parties is a , and the issue of indemnification may not be decided on the pleadings. compensation a first party is liable to pay to a second party for the second party's loss to a third party. See First General Semces of C3aarleston, Inc, v. :tlfller v. ter, Ine., 314 S.C 439, 442, 445 S.E.2d 446,448 (S.C. 1994) (citing Winnsboro v. Ff'iedeman-SingTeton, 303 S.C. 52, 56, 398 5.E.2d 500, 502 (Ct. App. 1990), affirmed 307 S.C. 128,414 S.E.2d 118 (I992)). The right of a party to recover under equitable indemnification en due to the tortious activity of another, the party seeking indemnification is required to either defend against or bring an action to protect his interest, and has long been recognized in South Carolina. See Winnsboro, 307 S.C. at 13Q-32, 414 S.E.2d at 120-21. The indemnity rights is created by operation of law exists between the first and second p '.See 3f'innsboro, 303 S.C. at 57,398 S.E.2d at 503. The right to equitable indemnification does not arise iFthe indeninitee's negligence contributed to the injury. See Arlrty v_ Bolton et al., 257 S.C. 28, 183 S.E.2d 708, 710 (S.C. 1971), The Plaintiffbas alleged in the Amended Complaint that a special relationship exists between the State of South Carolina and the I3efendants. (Amended Complaint In 106 and 107), Specifically, Plaintiff alleges that the Defendants voluntarily entered a marketplace regulated by the State of South Carolina, subjecting themselves to the benefits and burdens of the sovereign tion of the State of South Carolina, and that this created a etween the 68 ~
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U1 271 S.E.2d 768, 770, 275 S.C. 395 (S.C. 1980); Stanley v. B. L. Montague Co., Inc., 382 S.E.2d 246, 247-49, 249 S.C. 51 (Ct. App. 1489). In the present action, the Defendants owed a duty to the State of South Carolina not to manufacture, market, advertise, and place in South Carolina's stream ofeornmerce unreasonably dangerous products which were likely to, and did, result in injury to citizens of the State of South en on the State's resources. That the I s State and the Defendants may not have e one another, as the Defendants seem to argue, is not a grounds for dismissal of the negligence ctainr. YII. BENEFIT CONFERRED OF DEFEI+FDAhIT' The Defendants are wrong in their assertion that the State did not confer a benefit upon Defendants. The concept of "conferred benefit" is construed broadly: A person confers a benefit upon the other if he. ., satisfies a debt or a duty of the other, or in any wa;> adds to the other's security or advantage. He confers a benefit not only where he adds to the property of another, but also where he saves the other from expense or loss. The word `benefit'therefore, denotes anyfornP or advantage. Restatement of Restitution § 1, cmt.b (1963) (emphasis added). Tobacco companies, through the production, promotion, and sale of their products, have ly created a massive public health crisis. The State, as guardian of the public health, has acted to meet this crisis through the provisions of necessary medical treatment. Indeed, once it entered the federal Medicaid program, the State was obligated to treat all indigents on a nondiscriminatory basis hi fi lfilling its duty, the State has assumed a -- a burden which in all equity and fairness should be borne by those whose lucrative ent I M Tt is section oi'tttis Memorandunr responds to TT 11 c. and 17 g. of the Motion to Dismiss of Brown and Williamson, et al. 59 e
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! frivolous. Defendant asserts that Plaintiff lacks standing because it is not a customer or competitor of defendants. `a I I § 39-5-140 S.C. Code Ann. provides that anypersgn who suffers an ascertainable loss may bring an action. There is nothing in the South Carolina Unfair Trade Practices Act that requires a Plaintiff to be a customer or compet 39-5-140 to customers or competitors. It did not do so and the courts cannot read into of money or property. The Legislature, had it seen fit could certainly have limited suit under § entity. The threshold requirement for suit is that the plainti is defined in § 39-5-10 as i er corporations, trusts, partnerships, incorporated or unincorporated associations and any other legal an exclusion that is not stated. A basic rule of statutory const strictly construed. [insert ci ase the Defendant asks that an cxcl sl tion are e implied. This cannot be allowed under South Carolina law. Under the express terms of the South Carolina Unfair Trade Practices Act, the Plaintiff has stated a valid claim for relief and the Defendants' Motion should be denied. °& This section of this memorandum responds to 7,14 f and 15 f. of the Motion to Dismiss of Brown and Williamson, et al. 78 I
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a 378 S.E.2d 279,280 (Ct. App. 1989) (citing Niggel Rs. Beach, Inc., 296 S.C. 530, 374 S.E_2d 507 (Ct. A other tobacco litigation cases. In the Opinion and e conferred which is either (1) at the defendant's request or (2) under circumstances where the plaintiff`reasonably relies on the defendant to pay for the benefit and the defendant understands or ought to understand that the plaintiff expects compensation and looks to him for payment. See iViggel,4ssociates. Ine., 296 S.C. 530, 374 S.E.2d 507, 509 (Ct. App. 1988). There is no requirement in South Carolina that the plaintiff must plead or prove actual tort liability on the part of the defendant to a third party and no South Carolina case so hoids. The ground asserted by Defendants-that Plaintiff's restitution cause of action should be dismissed because Plaintiff failed to allege that the Defendants are liable in tort to Medicaid e ofA. i 9 v. PQlo's ofNQrth Myrtle 988)). A nongratuitous benefit is a benefit I 0. o ssly rejected the Defendants' contention that the plaintifThad to allege that the Defendants were legally liable to the individual Medicaid recipients. Id at p. 17. There is simply no req any third party i for rolina case law. Defendant's Motion to Dismiss on this ground should, thus, be denied XV. DEDENI2AN'f'S' "LAWF[3L" PROFITS ON SALES44 Defendants assert that the Plaintiff s First Cause of Action, alleging unjust `°Tftis section of this Memorandum responds to T I l h. of the Motion to Dismiss of Brown and Williamson, et al e that Defendants are liab e overy on a unjust enrichment theory. The elements to a 66
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Defendants are complaining of the Plaintiff's method of proving damages. Defendants' argument has no merit for a number of reasons, "`Due process,' unlike some legal rules, unrelated to time, place and circums Cir. 1996). Defendants apparently object to the use of statistics and statistical models to establish damages. Defendants' argument is flawed for at least two reasons. First, the matter is simply not ripe for adjudication. Plaintiff has not yet prepared a damages model, so the Defendants cannot complain about Plaintiff's methods or application of those methods. Second, the use of statistics is a commonly accepted practice in complex litigation such as this. This matter was addressed in another case against tobacco company defendants by the United States District Court of Texas, Eastern Distr3ct. This court stated: Although the Court is not completely apprised on the manner in which the State seeks to provide damages, the basic damage allegations prooided thus far in the litigation counsel against a finding that this plaintiff is too remote. The State will attempt at trial to provide damages through the use of statistical evidence presented by way of a"datnage model." In general, the use of such evidence has been deemed permissible in this type of action. See In re Chevron USA, Inc., 109 F.3d 1ti16, 1t}ZL} (5th Cir. 1997); Hilao v. Estate of 03 F.3d 767 (9th Cir. 1996) (use of statistical data to provide damages claims would be impossible to resolve ). Texas v. The ffinerican Tobacco Co., Slip Op. No. 5-9SCV-91, at 18 (E.D, Tex. Sept. 8, 1997) h The court declined to grant Defendants' motion to dismiss, stating that Defendants could renew their argument once the State presented its case in chief and its damages model, Id. at p. I s-I9. The Chevron case, cited by the Texas District Court, involved over 3,000 plaintiffs seeking damages for personal injury, wrongful death, and property contamination. The court stated: 50
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0 Thus, the court should apply, at the most, relaxed scrutiny. The State has unquestioned power to protect the health and safety requests for relief are all directed towards achieving the State's legiti 0 e the cigarettes consumed by South Carolinians e intere Ie.3° The of cigarette use. Assuming that anufactured by the out-of-state defendants should not render the burden placed on interstate commerce excessive. Furth within the discre ie€has yet to be granted, and thus its exact scope remains of the court, the court has broad power to fashion appropriate relief in such a manner that the effect on interstate commerce would be trtinimized. And given that the relief has yet to be granted, and there has been no actual "regulation" by the State, the Defendants' motion to dismiss, or, more appropriately with regard to this particular challenge, strike, on Commerce Clause grounds is entirely premature and speculative, basis on which to grant the relief requested. For these reasons, the Defendants' motion in this regard should fail. X. AI)EQUACY OF REMEDY AT LAW 31 Q The Defendants have moved to dismiss PlaintifPs equitable claims on the ground that Plaintiff has an adequate remedy at law. It is true that equitable relief is generally available only where there is no adequate remedy at law. Santee Cooper Resort, Inc. v. South Carolina Fublic es 9-I3. "This section of this Memorandum responds to I I I a. and 12 g. of the Motion to Dismiss of Brown and WilIiamson, et aI. The issues raised by 119 c. relating to adequacy of the remedies at law in the context of the State's claim for inj mctive relief are dealt with infra at XYI(C), pp.49-96. 55
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not have a duty of affirmative action. Hubbard and Felix, Tf:e South Carolina Law of Torts 59 (1990). These five exceptions are 1) special relationship to victim, 2) special relationship to injurer, 3) creation of risk, 4) statutory imposition of duty, and 5) voluntary undertaking. Id. at 6fl-68. The existence of a voluntary undertaking is, thus, a separate ground for liability from that of a special relationship. Therefore, no special relationship must be pled or proved to assert a claim for negligence based on a voluntary undertaking. In an action based upon the voluntary undertaking of a duty it is in fact the undertaking itself that creates a relationship. As stated by Hubbard and Felix: Id. at 66 [emphasis added]. Because the undertaking itself creates the relations there is no need for the Plaintiff to establish any other "special relationship" in order to recover. The Plaintiff is required to plead a special relationship only when basing a claim solely There are two reasons for imposing a duty in these circumstances: (1) the undertaking creates a relationship involving a duty to protect the victim or control the injurer; and (2) the undertaking makes the victim worse off than he would have been, either because of the affirmative conduct itself or because of detrimental reliance on the affirmative conduct. hip itself and not on any undertaking by the Befendant. For example, where a guest sues a host for failing to render aid when the guest falls ill, the claim is based solely on the "special relationship" between host and guest, not on any affirmative undertaking on the part of the host. South Carolina cases holding defendants liable pursuant to an undertaking theory do so e ti relationship," defining the duty by the undertaking, not by the relationship between the parties. In Russell 1". City of Columbia, 305 S.C. 86, 406 5,E,2d 338 (1991), the South Carolina Supreme Court found that police officers (who at common law owe no duty to individual members of the public, but only to the public at large), 70
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9 The Amended Complaint, jM 127 and 131, make it clear that in the Fourth Cause of Action, the State of South Carolina is seeking its own damages. ¶ 127 reads in part: "---The State of South Carolina, thus, has borne, and will continue to bear, the massive financial costs of these illnesses and diseases, funding necessary medical care, facilities and services for certain of those aforementioned residents of the State ofSouttt Carolina injured by Defendants' cigarettes and unable to afford or otherwise obtain such necessary medical care, facilities and services, by virtue of which the State of South Carolina has suffered an ascertainable loss ofznoney derived from the Public Treasury." (Emphasis added) The Amended Complaint also alleges at T 13 1: "...the State of South Carolina has suffered and will continue to suffer substantial monetary damages for which the State of South Carolina is entitled an award..." The Fifth Cause of Action, by IM 135 and 139, clearly asserts that the Plaintiff is seeking its own damages, not damages in a representative capacity: "...The State of South Carolina, thus, has borne, and will continue to bear, the massive financial costs of these illnesses and diseases...by virtue of whic Carolina has suffered an ascertainable loss of money derived from the Amended Complaint, at ¶ 135. "the State of South Caroli damages for which the State of South Car Amended Complaint, at ~ 139. Thus, there e contention that this act capacity and Defendants' Motion in thi e should be denied.. onetary Defendants assert that Plaintiff is not a^person" within the definition of 39-5-10(a) S.C. Code Ann. and cannot bring a claim under § 39-5-140(a) S.C. Code Ann. °° cc ~ This section of this memorandum responds to ~N 14 b. and 15 b, of the Motion to Dismiss of Brown ~ and Williamson, et a3. „y 73 CO i (0
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Defendants assert entitlement to dis on the exemption contained in 39-5- 4{?(a) -(d) which serves to limit coverage of the South C excluding the activities falling within those exemp€io under all of the subsection 0 i of Rule 71 of the South Carolina Rules of Civil Procedure. Wnrd v. Dick Dyer and Assoc., 304 S.C.152, 403 S.E.2d 310 (1991) dealt with the § 39-5- 4fl (a) exemption relating to activities authorized by regulation or statute. The South Carolina Supreme Court agreed with a Tennessee Court construing a similar statutory exemption and found that only those activities which are specifically authorized by a regulation or another statute are exempt. The purpose of the exemption is to avoid conflict between laws, not to i I exclude from the Act's coverage every activity that is regulation. The Ward court noted that virtually every ac thus, the defendant`s interpretation of the exempti in Skinner v. Steele persuasive and applicable to the South Carolina statutory exemption. It further noted that its holding was buttressed by the fact that § 39-5-60 of the Act provides that "the powers and remedies provided by this article shall be cumulative and supplementary to all powers and remedies otherwise provided by Iau _" Id. In Bocook ChudoorMedia, Irrc v. Sun3miT OutdoarAlverzising, Ina., Defendants a'gue{ that they were exempt from UTPA because the acts in question were regulated by the Highway es by some degree and, v. Steele, The South Carolina Supreme Court in Ward found the reasoning of the Tennessee Court Unfair Trade Practices Act by fendants blanket claim o e ctively dep meaningful remedy. FYard v. Dick I3yer & Assoc., 403 S.E.2d at 312 {cit 730 S.W.2d 335 (Tenn.App. 1987)). ntrol Act. The South Carolina Court of Appeals refused to exempt the 81.
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XIX. ANTITRUST CLAINiS$' Defendants assert that Plaintiffs seventh cause of action (antitrust) fails to state facts sufficient to constitute a cause of action. Defendants assert si gr 0 DEFENDANTS ASSERT PLAINTIFF HAS FAILED TO ALLEGE THAT MOVING DEFENDANTS "COMBINED TO LESSEN COA'IPETITION OR TO CONTROL PRICES FOR PRODUCTS SOLD IN THIS STATE." Defendants incorrectly assert that the plaintiff must allege that "moving defendants combined to lessen competition or to control prices for products sold in this state," (emphasis added). Plaintiff is seeking relief under S.C. Code Ann. § 39-3-10, which declares that all that s which "tend to lessen, full and free com ported into this State" are declared to be against public po old. S.C. Code Ann. § 39-3-1 fl{b} declares that combinations designed or which tend to advance, reduce or control the price or cost to the producer or consumer are declared to be against public policy unlawful and void. Section 39-3-f 4 outlaws a much broader range of those that "combined to lessen competition or to control prices :" Nonetheless, the Plaintiffs have alleged conduct indicating the Defendants combined to lessen cornt?e sces for products sold in this state. For example, Paragraph 153 of the Amended Complaint alleges that Defendants and their untawfnIIv co control and restrain the design, testing, manufacture marketing and sale of cigarettes in order to euarantee a market for their onspirators have market price. protect their enormous rn ofits and maintain their ability to shift the health costs of ~'This section of this memorandum responds to 'M 17 a, through 17 e, of the Motion to Dismiss of Brown and va'illiarnson, et al. portation or sale of 85
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enrichment/restitution, should be dismissed on the ground that Defendants were legally and equitably entitled to receive payment for the tawful sale of their products. Defendants' assertion has nothing to do with whether or not Plaintiff has stated a valid claim for reGef The essential elements of unjust enrichment/restitution (quasi are set forth above. See, §X1, pp. 57-59, supra. Defendants continue to reap billions of dollars in profits from the sale of their cigarettes. Defendants have avoided regulations and have been able legally to promote the sale of cigarettes by continuing to mi cigarettes. In IT 102 through 104 of the Amended Com about the true qualities of their at Defendants have wrongfully forced the State of South Carolina to pay the health care costs of tobacco related diseases by avoiding their own duties to stand financially responsible for the harm done by their and that it is Defendants, not the taxpayers of the State of South Carolina, who should bear the costs of tobacco related diseases. Defendants have therefore been unjustly enriched to the extent that taxpayers of the State of South Carolina have had to pay these costs through massive expenditures of funds flowing through South Carolina's coffers. These benefits accruing to the Defendants are a result of their willful, intentional, and tortious conduct. Plaintiff has plead the essential elements of its First Cause of Action and has sufficiently stated a claim for which relief can be granted. Defendants' Motion to Dismiss must be denied. XSrI. EXISTENCE OF SPECIAL RELATIONSI3IP"' Defendants assert that, because no "special relationship" or other circumstance existed between the Plaintiff and Defendants, there was no duty of care owed by them to the Plaintiff ca ~) ~'`I'1i'ss section of this Memorandum responds to JJT1 12 a. and 13 a of the Motion to Dismiss of Brown W 0 and Williamson, et al. i ~ 67 ~
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real, personal or mixed, and any other article, commodity or thing of value wherever d shall include any trade or commerce directly or indtrecth? affecting the people of this State." S.C Code Ann. § 39-5-10(b) (Emphasis added). Very clearly, the types of activities enumerated in the Amended Complaint relat very essence of the distribution, of cigarettes and constitute the core essential of these Defendants' entire industry. The Defendant's Motion is therefore, patently meritless and should be denied. Certain Defendants are expected p trade or commerce in South Carolina. However, the definition includes ".,.any trade or commerce directly or indirectly affecting the people of this State." [emphasis added]. All of the activities of Defendants ofwhic.h Plaintiff complains has affected the people of this State even if certain of the acts were physically performed in other states. In addition, the term Trade-Commerce covers a broad range of identity. Debt collection d by the SCVTPA. In re Daniel, 137 B.R. 884 (1992). Leases created by e right to use and enjoy property fall within the definition of "trade and conmaerce." Burbach v. Investors Management C'orp., 484 S.E.2d 119, 121 (Ct. App. 1997). Charging interest for prepayment of a mortgage loan which had been used for construction and ce of a shopping center is trade and commerce within the ambit of SCUTPA. McTeer I I I v. Provident Life andAccident Ins. 712 F.Supp. 512 (D.S.C. 1989). 9. Defendants assert the fourth and fifth causes of action fail to the extent that exemptions set forth at § 39-5-40(a)(d) apply. s' ndum responds to 71 14 i, and 15 i. of the Motion to Dismiss of Brown 8o
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The Complaint in this case meets the legal test of stating a claim needed to protect and preserve the interests of the children and adolescents of the State of South The Co lleges that the Defendants' activiti through advertising, promotion eate successive aenerations of addicted smokers who add to the health care crisis facing the State. The industry also encourages by such means the illegal sale of cigarettes to minors. Intervention of equity is essential in addressing this extraordinary cvrong. As this Court is no doubt well aware, a cause of action for injunctive relief under South Carolina law requires, basically, the pleading of an irreparable injury and an inadequate remedy at Iaw. The Amended Complaint, at QT 83 through 92 provides considerable detail as to some of the facts alleged by the State: 3,000 new teenage smokers light up every day; the tobacco industry has y internal memoranda and advertising campaigns emphasizing glamour, health, and athletic appeal; the industry has developed products e drug; the youth campaigns by t industry emphasizin osed to health hazards are in propaganda is aimed at young people and their educators; all resulting in continued smoking among young people despite the efforts parents, educators, doctors, or the State- There can be no serious sufficient evidence to state a cause of ac e facts stated in the Amended Complaint detail fo ctiv e relief; and that the State will conti to suffer irreparable injury absent the action of this Court. In addition, monetary relief above does not address the dire consequence to future generations put at risk by Defendant's conduct. Only injunctive relief which addresses their conduct can protect both the State and its charges and that no adequate remedy of law currently exists. 92
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Defeadants` actions from the UTPA- The Court reasoned that the Highway Advertising Control Act was designed to regulate the size and location of the signs and not the acts complained of in the suit. The Highway Advertising Control Act was not designed to address or regulate unfair I brought under South Carolina Unfair Trade Practices Act seeking civil penalties for alleged sale of automobile with inaccurate odometer reading. The Supreme Court held that the Federal Motor Vehicle Information and Cost Savings Act did not supersede or otherwise limit consistent state law remedies for false odometer disclosures and that there was no conflict between South Carolina Unfair Trade Practices Act and the Federal Motor Vehicle Information and Cost Savings Act with respect to false odometer disclosures. See generaJ~y, State v. Waidner, 363 ong outaoor era11,I>, Bococ3k, 363 S.E.2d 390 (CLApp. 1987). In State v. Fritz= Waidner Sports Cars, 274 S.C. 332,263 S.E.2d 384 (1980) S.E.2d 387 (S.C. i984). Actions of seller in g buyer to haul cargo for it as an owner/operator inducing him to purchase a trailer from the seller did not come within exemption inasmuch as the transactions regulated under the South Carolina Unfair Trade Practices Act are of a dierent kind and character than those covered by the Interstate Commerce Act and regulations. T'ousZe,v v. North .4merican Van Lines, Inc. 752 F.2d 96 (4th Cir.1985}. In conclusion, the various grounds raised by Defendants concerning the Unfair Trade 0 B. STATUTORY PENALTIES$r Id be overruled. For the second Sixth Cause of Action stated in 11149 through 151 of the Amended sponds to 7126 a. through 16 d, of the Motion to Dismiss of I 82 I
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0 otherwise would be to forfeit nearly $2 billion ($2,000,000,000) in federal funds annually, while at the same either neglecting or grossly underficnding the medical care of the state's indiaent gersons.}7 When the State can more than double the funds available to it for indigent medical care by p g in the Medicaid program, the State is practically compelled to so participate. Furthermore, the State has a duty to provide services and support to protect the health, welfare and safety of its citizens. See S C Const. rlrt. XII § 1("The health, welfare, and safety of the lives and property of the people of this State and the conservation of its natural resources are matters of public concern. The General Assembly shall p agencies to function in these areas of public concern and determine the acti duties of such agencies"). The State has provided for the medical care of indigent persons for so long that such care I public duty than as a voluntary act of charity, cipation in oluntary" than the State's policy of providing indigent health care. At least as long ago as 1870, counties were required by state law "to provide suitable hospital acco io , where the indigent sick poor may receive medical and surgical aid, free of charge ...." Act No. 14 of 1870, 14 Stat. 421. S.C Code Ann. § 44-7-750, enacted in 1925, provides that county and municipal hospitals "shall be for the benefit of the inhabitants. ..:' hr 1868, the State Constitution likewis care by the State and its counties. e.g. S.C. Consz. Art. XII §I (1868) ("Institutions for the care of the insane and the poor shall always be fostered and supported by this State, and shall be " The State's share of Medicaid funding is currently about $727 million, or 28% a of the total. The federal share of nearly $2 billion is 72% of the annual total. If the State chose not to participate in the Medicaid program, the federal $2 billion would not come here anyway, but would go elsewhere. 62
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S:C Code Ann. § 39-5-10(a). defines "person" as including "natural persons, corporations, trusts, partnerships, incorporated or unincorporated assoc construction. Young v. Century Lincoln-Mercury, 302 S.C. 320,396 S.E.2d 105, 108 (1994). Also, as previously noted, with regard to authority of the State to pursue a damages remedy in general, the general rule is that: has been held that the South Carolina Unfair Trade Practices Act should be gi legal erataty." (Emphasis added) The word "person" as set forth in the Unfair Trade Practices Act is broadly defined. See, State ex rel. McLeod v. C&L Corp., 280 S.C. 519,313 S.E.2d 334,341 (1984). It In order to enforce its rights or redress its wrongs, as a political corporation, a state may ordinarily avail itself of any reniedv or form of actzon which would be open to a private suitor under similar circumstances. SIA C.J.S. States §308. [Emphasis added]- In this case there is no basis for treating the State any diff regard to availability of a remedy under the law. Also, the State of South Carolina is, clearly, a "legal entit itor with D nes "legal enti I I., other than a natural person, who has sufficient ex in legal contemplation that it can function legally, be sued or sue, and make d 0 agents..." "Entity" is defined in the South Carolina Corporations Code as including corporations, foreign corporations, unincorporated associations, business trusts, estates, partnerships, and two or more persons having a joint or economic interest and includes, specifically, state governments. § 33-I-4t}4{IQj S.C. CodeAnn. Thus, under South Carolina law the State of South Carolina is, clearly, an entity, it can sue and be sued, and it has a recognized existence. There is no basis whatsoever for Defendant's ~ 74 G
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The formulation of this rule as set forth in the Restatement of Restitution shows the rule's facial inapplicability to the present case: § 112. General Rule. A person who without mistake, coercion or request has itionally conferred a benefit upon another is not entitled to , except where the benefit was conferred under mal:ing such action necessary for the protection of terests of the other or of third persons. Restatement, Restitution, § 112 {? 937}. Both the South Carolina and the Restatement versions of the rule require the payment to be made without mistake, or as stated in the South Carolina cases, with "full knowledge of all the facts." For this reason alone, Defendants' reliance on this rule is ill-founded because clearly the State did not have "full knowledge of all the facts." The State had no idea, for example, that the tobacco companies were manipulating nicotine levels and at the same time targeting children as young as 13, all to establish a base of addicted consumers whose health costs would be borne by others. On the other hand, the Defendants, in accepting the benefit of the Stata's Medicaid payments, were well aware of their own many misdeeds.' Moreover, the general rule contains its own exception: even voluntary payments are subject to restitution if they were "necessary for the protection of the interests of...third persons." Restatement § 112, supra. The State doubts that even these Defendants would dispute that payments for medical assistance were "necessary for the protection of the interests of... third persons." Such being the case, the voluntary payment rule simply does not apply. i b i bl l th h ng pract ces over t e years were susta na e on y roug extensive fraud. The voluntary payment rule does not apply when payments are made as the result of fraud. See, e.g., Aloody v_ Sten:, 274 S.C. 45, 51 S.E.2d 163, 169 (1948); 66 Am.Jur.2d Restitution and Implied Contracts § 116, 0
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remained under the influence of the prior misrepresentations and wrongful conduct. There is nothing in § 15-3-570 which prohibits Plaintiff from using events occurring before May 12,1995, e or as a basis for establishing its causes of action. Next Defendants assert that Plaintiff has failed to state facts sufficient to constitute a cause of action for willfial violation of the UTPA. For the reasons set forth hereinabove, this is without merit. Finally, Defendants assert that Plaintiff cannot recover a penalty based on individual sales 5-110 S C: Cbde Antt. clearly authorizes recovery on behalf of the State of a civil penalty for each violation of § 39-5-110. Each sale of cigarettes is alleged by the Amended Complaint to have been influenced by the unfair and deceptive acts and practices engaged in by s Defendants. No sale escaped the all encompassing purview of Defendants' deceit and wrongfulconduct. In State ex rel. R9cLepd v. C & L Corp., 280 S.C. 519, 313 S.E.2d 334 (C the Court of Appeals concluded that a fnaximum penalty of $5,000 imposed for each of eleven real estate sales procured by unlawful practic punish each violation on a transacti early the intent of § 39-5-I I0 is to d in this case the previous and continuing unlawful practice ofI)efendants with regard to every cigarette sale in question. Thus, there is certain) allegations are well-founded, then imposi appropriate. At a minimum, the Motion is pre anction relating to each transaction is e the case on the merits to determine the appropriateness of linking each sa 0 nity to hear 84
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ay not engage in deceptive conduct and escape liability under the South Carolina Unfair Trade Practices Act merely asserting that the subject of the business enterprise itself is lawfitl. 5. Defendants assert that Plaintiff failed to allege conduct that would support a finding that Defendants "willfully" violated the UTPA." The Amended Complaint, at IM 129, 130,137 and 138, alleges willfitl the Defendants. These willful acts are outlined in In 126,134 of the Fifth Cause of Action in the Amended Complai CompIaint. '~q 53, 59, 61, 65, 66, 67, 71, 79 and 80 of the Amended § 39-5-110(c) S. C. Cbde Ann. provides that a"willful violation" occurs when the party committing the violation kn r should have known that his conduct was a violation of § 39-5- 20. The definition of "willful" violation used in § 39-5-110(c) creates a statutory standard of willfulness different from the common law standard. The standard is not one of actual knowledge but of constructive knowledge. I~ in the exercise of due diligence, a person of p would gaging in acts in trade or commerce could have ascertained that his conduct Act, then such conduct is "willful" within the meaning of the statute. State of South Carolina v. Nest Egg.Society Toda}^, Inc., 290 S.C. 124, 348 S.E.2d 381, 384 (Ct. App. 1986). In this case the Plaintiff will present overwhelming evidence that the actions of the Defendants were willful, However, since the Motion to Dismiss addresses the pleadings, Plaintiff's specific allegations of willfulness demonstrate that this ground for the Motion is 47This section of this memorandum responds to ¶¶ 14 e. and 15 e. of the Motion to Dismiss of Brown and Williamson, et al. 77
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themselves of the benefits of § 15-73-Zt}. In actions for strict liability, like with acti to il (1977) (seller is "subject to liability for physical harm caused to the ultimate user or consumer ... "). In this action the State is not seeking recovery for injuries to third parties; rather, the State is seeking to recover for injuries which it has sustained as a direct result of the Defendants' actions and omissions. B. "Sellers" of Products fendants are subject to the requirements of S. £> Code Section 15-73-i0(1 ) subjects °(olne who sells any product in a defective thereunder. The term "sale,' itio ili Brown, 396 S.E.2d 638, 641 (S.C. App. 1994). Rather, the terms "sells" and "sellers" are merely descriptive, and the strict liability statute will apply if the product is injected into the stream of commerce through other means. Id; see also Henderson v. Gould, Inc., 341 S.E.2d 806, 810 C am of commerce cigarettes for public use. That they may not have actually 1986). The Defendants manufactured, advertised and otherwise placed into South completed a "sale" to any particular sninker does not absolve them of liability under § 15-73-10. For these reasons, the Defendants' challenges to the State's strict C. Punitive Damages Plaintiff does not seek punitive damages with regard to this cause of action CO ~ Gs 0 -4 CO 4~k 103 t0
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could be held liable where they had undertook to assist the Plaintiff's decedent and had taken control of the situation from others who were attempting to render aid. In Bryant v. Cdry ofNorth Charleston, 304 S.C. 123, 403 S.E.2d 159 (Ct. App. 1991), the Court of Appeals held that the defendant City could be found liable to the plaintiff for injuries she sustained in tri barricade on a public sidewalk, even though the defendant did not own the sidewalk, where the defendant, through its actions, had voluntarily undertaken to maintain the sidewalk. In conclusion, because the South Carolina Appellate Courts have not seen fit to r that plaintiffs establish any "special" relationship to base a tort claim on voluntary assumption of a duty, the Defendant's Motion to Dismiss on this ground should be denied. XN'II. ECONOMIC LOSS RULE'2 The Defendants assert that the economic loss rule bars the Piaintift's causes of action based on voluntary assumption o€a special undertaking, negligent misrepresentation, negligence and strict liability in tort. The economic loss rule provides that there shall be no tort liability for ic loss. Tommy L C}rfffrn Plumbing & Heating Co. v. Jordan, Jones & Goulding, Irsc., 320S.C. 49, 463 S.E.2d 85, 88 (1995). The Supreme Court of South Carolina has limited e economic loss rale, however, to cases where the defendant's duty to the eated solely by contract. Id. at 88; Kennedy v. Cole<mbfa Lumber & Mfg. Co, 299 S.C. 335,384 S.E.2d 730,737 {I986}. Therefore, the determinative factor in the applicability of the economic loss rule is the source of the Defendants' duty to the Plaintiff. The breach of a duty arising independently of any contractual relationship between parties may support a tort action. See, e.b, South C'arolzna S'tate Ports Authority v Booz-A11en & Hamilton, Inc., 289 S.C_ 373, '' This section of this Memorandum responds to% 13 b., 21 g., 22 c., and 23 g. of the Motion to Dismiss o€Brown and Williamson, et al. 71
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care to vast segments of the State's population and the damages suffered by its as a result are clearly unique and distinct from the health consequences suffered on an individual basis by various members of the public. The Plaintiff has clearly satisfied the requirement that its injuries be distinct and different from those sustained by the general public and this ground for dismissal is, therefore, without merit. I}. Injury in exercise oPpublic right The Defendants claim that Plaintiff has not been injured in the exercise of a public right. There is no such pleading requi generally considered a public nuisance. State v. Turner, 198 S.C. 487, 1$ S.E.Zd 372 (1342). "whatever tends to endanger life, or generate disease, and affects the health of the commu t under South Carolina la egarding pursuit of an action for damages based on public nuisance so this ground must fail. Further, it is well settled that E. Negligent Conduct The Defendants state that as a matter of 0 ake a nuisance claim based upon conduct that is also alleged to constitute negligence andlor strict liability. No such pleading rule exists in South Carolina law and the Motion in this respect is, therefore, meritless. See, e.g.. Steele i_. Rogers, 306 S.C. 546, 413 S.E.2d 329 (Ct.App. 1992) (noting a finding by the lower court that conduct constituted both neffliRen cc); see, also, Teague v. Cleerakee Counzy Memorial Hospital, 272 S.C. 403, 252 S.E.2d 296 (1975) (alleged ce in that case was held to require proof of negligent conduct by Defendant). Quite t, obviously, public nuisances are usu ot always, created by wrongful conduct for which the wrongdoer may potentially be liable under other theories. F. Control over Products The Defendants also assert that once the products at issue were s 90 ~
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! A. Type of Harm The Defendants assert that Plaintiff has failed to allege a type of harm or type of conduct that constitutes either a public or private nuis e in South Carolina. This is plainly incorrect. It is well settled in South Carolina that whatever tends to endanger life or generate disease or which affects the health of the community may constitute a public nuisance. See, e.g., State v. Turner, 198 S.C. 487, 18 S.E.2d 372 {1942}. The allegations of the Complaint are clearly sufficient to meet that standard. B. Damage Claim Next, the Defendants assert that, as a matter of law, Plaintiff is not entitled to pursue a aim for money damages, but is linxited to the pursui tive relief. There is no rule of law, however, that precludes a damage remedy based on public nuisance so long as the claim seeks such damages as are appropriate the cause of action. See, e.g., Bowdirr v. George, 239 S.C. 429, 123 S.E.2d 528 (1962) (damages recoverable for public nuisance so long as they are of a those suffered by the public generally); Johnson ia Phitlips, 315 S.C. 407, 433 S.E.2d 895, 900 (Ct.App. 1993) (" ... special damages nrust be pleaded and proved in an action for public nuisance."} C. Unique or Special Charaefer of Damage The Defendants further assert that Plaintiff has failed to allege damages that are unique or as to entitle it to a recovery for public nuisartce. In fact, the Amended Complaint alleges that Plaintiff has incurred millions of dollars in damages in additional health care costs. These damages were incurred by virtue of the State's special and unique obligation by statute, contract and conirnon law to provide health care of its citizens in a number of contests. It is only the State of South Carolina that shoulders this obligation to provide health 89 ~
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• smoking to South Carolina. The Amended Complaint also alleges that defendants combined or acted in combination, olidation, affiliation, conspiracy or otherwise acted with a common purpose and design in at least forty-two (42) paragraphs of the Amended Complaint, including paragraphs €, 3, 4, 35, 36, 39, 4fi, 48, 54, 5€, 52, 53, 54, 57, 59, 6I, 62, G3, 64, 55, 67, 68, 71, 72, 75, 77, 78, 79, 80,81,82,84,85, 89,90,93,94,153,154,155,157, and 158. Paragraphs 6 through 31 allege that each defendant has materially participated with, conspired with, assisted, acted in concert with andlpr aided and abetted one or more of the other defendants in the design, testing, manufacture, Carolina_ Paragraph 45 of the Amended Conxp€ai e in South at five Defendants manufacture virtually 100 percent of the cigarettes marketed and sold in South Carolina. The wrongfizd combination of Defendants alleged throughout the Amended Complaint lessens competition in a market where Defendants control virtually 100 percent of the saies. Defendants by virtue of controlling virtually 100 percent of the sales are able to control the price ofcigarettes. Therefore, the Plaintiffs have clearly alleged the defendants engaged in conduct unlawful under the South Carolina Antitrust A.ct.`4 DEFENDANTS ASSERT TFIAT PLAIIVTIFF IS NOT A PERSON SN'HQ NLAY SUE UNDER S.C. CODE ANN. § 39-3-34. S.C. Ann. § 39-3-30 does not define "person." However, as previously noted, with regard to authority of the State to pursue a damages remedy in general, the general rale is that: In order e X,',UV, pp. 104-106, infra, regarding civil conspiracy, which details the unlawful ion on which this cause of action i 86
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In conclusion, the Plaintiff has clearly pled sufficient direct and indirect acts on the part of these two Defendants to overcome the Motion to Dismi XXYII. CLAIMS AGAIIVST HILL AIYI? KNOWLTON71 Rule $ of the South Caroli C forth a "short and p of Civil Procedure requires that the a co r is entitled to relief'. As shown below, Plaintif3"has set forth facts showing that it is entitled to relief as to Defendant Hill- Knowlton and Defendants' Motion to Dismiss must be denied. A_ Acts and Omissions Alleged Defendants move to Dismiss Hill & Knowlton on the ground that Plaintiff has failed to allege any specific acts or omissions on its part. The assertion is simply not true. Paragraph 27 of the Amended Complaint states that Hill & Knowlton "acted individually and as the agent, alter ego, aider and abettor andlor co-eonspirator of the tobacco industry, materially participating with, conspiring with, ss one or more of the other Defendants in concert with and/or aiding and abetting esign, testing, manufacture, marketing and sale of cigarettes for use in the State of South Carotina." Paragraph 35 of the Amended Complaint states that "at pertinent times, Defendant HiI Knowlton was the agent, servant, employee, alter ego, co-conspirator and aider and abettor of Defendants, including dants Tobacco Institute and Council for Tobacco Research, and acted individually andlor within the scope of said agency, servitude, employment and the -- i€us section or mis memo Brown and Williamson, et al. e Motion to Dis L110
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0 # Defendants assert that the fourth and fifth cause of action failed because plaintiff did not "rely" on any conduct of defendants. 49 The South Carolina Unfair Trade Practices Act does not require that Plaintiff "rely" on Defendants or their conduct. § 39-5-140 provides for recovery for "...any person who suffers any of an unfair or deceptive metho a by § 39-5-20." (Emphasis Proof of reii t required. As described above, unfair and deceptive acts and practices within the purview of the South Carolina Unfair Trade Practices Act include practices having a capacity or tendency to deceive, not only those where actual deception has oczurred. State er rel McLeod v. C&L Corp., Inc., 280 S.C. 519,313 S.E2d 334 (I984). Further, proof of common law fraud is not required to establish a L3TP A violation. Inman v. Ken Hyatt C7zr};sler-Plymouth, 294 S.C. 240,363 S.E.2d 691, 692 (1988); Dowd v. Imperial Chrysler-PI}msoerlb, Inc., 298 S.C. 439, 381 S.E.2d 212, 214 (Ct. App-1989). Clearly, there is no authority for Defendant's request that actual reliance by a Plaintiff is < required element for damages under the South Carolina Unfair Trade Practices Act, Defendant asserts the cause of action fails as to all defendants that have not engaged in trade or commerce in South Carolina within the meaning of UTPA.$° The SCUTPA provides that as used in this article "trade" and "commerce" shall include: le, sale or distribution of any services and any property, tan °g This section of this memorandum responds to V, 14 g. and 15 g. of the Motion to Dismiss of Brown and Williamson, et al. s0 This sectiorn of this memoraadnm responds to IR$ 14 h. and 15 h. of the Motion to Dismiss of Brown and Williamson, et a1. 79 ~
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0 I I [ I Complaint, Plaintiff seeks recovery of statutory penalty for the Defendants' vvillful violations of S C: Code /fnn. § 39-5-20 and 39-5-€10(a). Section 39-5-110(a) reads as follows: "If a court finds that any per: 0 nrtlawful by § 39-5-20, the Attorney General, upon ing or has w-illfully used a method, act or practice declared of the State a civil penalty of not exceeding five thousand dollars per violation." Plaintiff seeks recovery of the penalty for each cigarette sale occurring in South Carolina from May 12,1995, forward. Defendants first assert that no conduct ofrnovin8 Defendants described in the Amended Complaint has been declared unlawful and that, therefore, such conduct would not support i 0 ion of a penalty. This assertion is without merit. The Act does not set forth any requirement that only such conduct as has previously been declared unlawful and is re snpporti alty S.C. y. Clearl ion. State IIfSo ay recover on behalf Egg Socie 2 S.E.2d 381 (Ct. App. 1986); State er re7. McLeod t~ VIP Enterprises, 286 S.C. ill 501, 335 S.E.2d 243 {Ct. App. 1985); State ex re1. tic C & L Corporation, Inc., 280 S.C. 519,313 S.E.2d 334 (CL App. 1984). Plaintiff seeks a statutory penalty for every cigarette sale occurring from Iv1ay 12, 1945, forward pursuant to § 15-3-570 S C'. Code.4nn. Defendants assert that the cause of action fails to the extent that it is based on acts or omissions that occurred before May 12, 1996. Defendants apparently make this argument based on § 15-3-570 S.C. CodeAxn. This code section is in the nature of a limitation of action and not an evidentiary statute. Flaintiff s proof of violation of §39-5-20 may consist of evidence of acts both before and after May 12, 1995. The penalty may be imposed for the sales during the statutory period so long as the market 83 0
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I}. DEFENDANTS ASSERT PLAINTIFF CANNOT RECOVER STATUTORY PENALTIES. For the same reasons discussed in Section "C" supra, Plaintiffs are otherwise alleged to statutory penalties pursuant to S.C. Code A nn. § 39-3-180, which states that the penalty for violation of Article III of the Antitrust Act is the forfeiture of "not less than two hundred dollars, nor more than five thousand dollars, for even+ such offense ..." [emphasis added]. E. PLAINTIFF IS NOT LIMITED TO RESTITUTION. Defendants assert Plaintiff's recovery is limited to restitution. However, Defendants assertion is erroenous. Because Plaintiff is seeking recovery pursuant tutory penalties, including those set forth in S.C. Code Code Ann. § 39-3-10, etc., the Plaintiff is not limited to a recovery of restitution. Clearly, Plaintiff has alleged Defendant's conduct in violation of Article III of the Antitrust Act thus entitl Ann. § 39-3-180. XX. NUISANCE56 Plaintiff's Eighth Cause of Action alleges that the wrongful conduct described in the Amended Complaint constitutes a public nu outh Carol te spec] c Antitrust Act, S.C. o the health and welfare of the of South Carolina has suffered direct rent in kind and degree from the damaging health effects suffered by the public at large. As a result of such injuries, Plaintiff alleges it is entitled to an award of actual damages in an amount to be determined at the trial of this action. 56This section of this memorandum responds to % 1$ a, through 18 £ of the Motion to Dismiss of Brown and Williamson, et aI, 88
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sellers thereof lacked control over the products sufficient to create liability for nuisance. However, the Defendants on a continuing basis manufacture the subject products and place them in the stream of commerce in the State of South Carolina and conduct an ongoing enterprise directed toward inc e the basis for nui e specific acts of conduct relating to this e cause of action and the existence of interme the product distribution chain is simply irrelevant. The Defendants cannot be allowed to isolate themselves from their conduct by claiming that they are on longer responsible after they place their product in the hands of their distributors. XXI. INJUNCTIVE RELIEF 57 Defendants move this Court to laintift's Ninth Cause of Action which seeks elief, claiming that (1) Plaintiff failed to state facts sufficient to constitute a cause of action justifying i l tive not suffered irr p b Plaintifl`has an adequate remedy at law. Each of these will be dealt with in turn. and (3) A. Tlie Amended Complaint States Fact Sufficient to Constitute a Cause of Action for Injunctive Relief. o the sufficiency of a claim for relief turns an the allegations of the n the Defendants' characteri of it_ If the facts so pleaded state claims that are traditionally cognizable, that is enough. What the proof may show or may not show is irrelevant to this threshold decis s? This section of this memorandum responds to ~~ 19 a. through 19 c. of the Motion to Dismiss of Brown and Williamson, et al. 5' Defendants additional "grounds" for dismissal - Pre-emption and causation - are dealt with elsewhere in this Memorandum. j$ See pages b-7, supra. 91
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• was more familiar than we with the evidentiary atmosphere at trial im, we think, a better informed view than we have. This is ments of damage are intangibles and what on an observation of the of their testimony. law, do Littlejohn, supra. ial oourt's discretion is abused, amounting to an error of duty of this Court to set aside the award. Fennell v. Gamble v. Stevenson, 305 S.C. 104,406 S.E.2d 350 at 354-355 (1991) Quite obviously, none of the three stages of punitive damages review requ South Carolina Supreme Court involve the pleading stage of a case. Accordingly, the Motion io Dismiss as to the punitive damages claims must be denied. I co M ta 0 ~ 115 Om3 t -4 I
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to enforce its rights or redress its wrongs, as a political corporation, itself of any remedy or farm ofaction which would be open to a private suitor under similar C.J.S. States § 308 [emphasis added]. Furthermore, generally for the protection of all who are made victims of forbidden practices and the protection of the antitrust laws is not limited to consumers, purchasers, competitors or sellers. Blue Shield af'Yi`rgtnfrz iz McCready, 457 U.S. 465, 472 (1982). It is clear that the State has sufficiently alleged injury or damage within the parameters of S.C. Code Ann. § 39-3-30. There is no basis for treating the State any differently than a private suitor with regard to availability of a remedy I C. DEFENDANTS ASSERT THAT THE RELIEF SOUGHT BY THE PLAINTIFF IS INCONSISTENT WITH THE RELIEF PERMITTED UNDER THE A.N'I'I'1`RIIST ACT. Flaintiff s Seventh Cause of Action outlines numerous allegations of conduct by the Defendants in violation of the South Carolina Antitrust Act. S.C. CodeAnn. § 39-3-10, etc. Plaintiff seeks relief consistent with, including but not limited to, damages consistent with S.C. Code Ann, § 39-3-i 8{I. Penalties pursuant to this provision are outlined in the Code section which is a part of the Antitrust Act. Defendants assert that the relief under § 39-3-I S0 is only recoverable pursuant to conduct unlawful under Article III of the Antitrust Act. Clearly, Plaintiffs have set forth allegations of conduct by the Defendants in violation ofArticle III of the Antitrust Act, thus entitling Plaintiffs to reiiefunder S.C. Code Ann. § 39-3-1$0' on in § "A" at pp. 85-86, supra. 87
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0
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Complaint, 1199. Moreover, as noted by the Court in Lalvfotte, "3arafitl acts may become actionable ~ s ~ 1 and allocating its scarce fiscal resources wisely. Defendants have knowingly impaired this business of the State not only by selling a product that causes disease, but also by concertedly refusing to pay for the disease so caused and by concertedly thwarting efforts at effective regulation of the product. This is sufficient to constitute an actionable civil conspiracy. See id. (holding that allegations that defendants conspired to intend to injure plaintiff "by preventing the opening of their restaurant" should survive motion for summary judgment). S.E.2d at 713 (citation omitted). The State is, of course, in the bush civil conspiracy when the 'object is to ruin or damage the business of another."' Lalvfotte, 370 In short, all of the pleading requirements for an actionable civil satisfied by the State. Under the applicable standard for dete e ing motions to dismiss for failure to state a claim upon which relief may be granted, Defendants' Motion must, accordingly, be denied. Defendants attack the State's cause of action for ai that `ho such cause of action exists in South Car g 0 ismiss, ~ 25_ Defendants' contention is patently frivolous. The South Carolina Supreme Court implicitly recognized that : cause of action for aiding and abetting exists in Future Group, II v. Nationsbank, 478 S.E.2d 45 (S.C. 1996), when it reversed on the evidence the trial court's finding of aiding and abetting liability for a breach of fiduciary duty. Indeed, in Future Group, the South Carolina Supreme " This section of this memorandum responds to Paragraph 25 of the Motion to Dismiss of Brown and Willia vcon, etal. 106 I
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153 (Ct. App. 1984)}. Clearly, the State has is g burden and the Defendants' Motion B. Negligent Misrepresentation, Concealment and Nondisclosnre 43 The Defendants contend that the Pta"€ntiff's negligent misrepresentation, cause of action should be dismissed for failure to state certain elements of the cause of action. The Defendants contend, inter afia, that the Plaintiff has (1) failed to allege a pecuniary hip existed between the Defendants and the Plaintiff, (2) failed to plead sufficient facts ecuniary relationship as a matter of law, and (3) failed to plead sufficient facts to establish that the 1?efendants owed the Plaintiff a duty of care as a matter of law. (Motion to Dismiss at 14}. 1. Pecuniary Relationship. The Plaiustifi's Amended Complaint sets forth sufficient facts to show that each element of a cause of action for negligent misconduct, concealment and nondisclosure is present. The Defendants contention that a"pecuniary ' is a pleading requirement in South Carolina to state cause of action for negligent misrepresentation is frivolous. In fact, the requirement is that the Defendant have a pecuniary in The distinction is nlarnnloth. The Plaintiff has alleged that the Defendants made numerous false representations "prompted by their pecuniary interest in encouraging residents of the State of South Carolina, e cigarettes." (Amended Complaint at 1179). The entire 62This section of this memorandum responds to IN4,j21a. through 21 g. of the Motion to Dismiss of Brown and Williamson, et aI. 1 100
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RONALD L. MOTLEY JOSEPH F. RICE J. ANDERSON BERLY, III Ness, Motley, Loadholt, Richardson & Poole 151 Meeting Street, Suite 600 P. O. Box 1137 Charleston, SC 29402 803 / 724-94Q0 ROBERT ROSEN Rosen, Rosen & Hagood 134 Meeting Street, Suite 200 P. C}. Box 893 Charleston, SC 29402 8031577-6725 STEPHEN SCHMUTZ 24 Broad Street P. O. Box 1752 Charleston, SC 29402 8031577-5530 JAMES C. A29DERS James C. Anders, P.A. & Asso 1315 Blanding Street P. 0. Box 7485 Columbia, SC 29202 803 / 799-9400 11& JOHN B. WHITE, JR. 25014'fagnotia Street P. Q. Box 3565 Spartanburg, SC 29304 8641582-EI38 MARK W. BUYCK, JR. WilIcox, McLead, Buyck & Williams 248 W. Evans Street P. 0. Box 1909 Florence, SC 29503 803 I 552-3258 BEN C. HARRISON Harrison & Hayes P. O. Box 5367 Spartanburg, SC 29304 8641542-2990
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Court, when discussing the cause of action relied on the Restatement of Torts 2d, § 876(b). Future Group, 478 S.E.2d at 50. Restatement of Torts 2d, § 876(b) sets out elements of a cause of action fo pertinent part: For harm resulting to a subject to liability if he iability, providing in arn the tortious conduct of another, on (b) knows that the other's conduct constitutes a breach ofdn gives substantial assistance or encouragement to the other so to conduct hims e elements thus described are: (1) that the party whom defendant aids must perform a wrongful act that causes injury; (2) that defendant must be generally aware of its role as part of an overall illegal or tortious activity at the titne he provides the assistance; and (3) defendant must knowingly or substantially assist the principal violation." Hatberstane v. Welch, 705 F.2d 472, 477 (D.C. Cir. t983}(upholding finding of civil aider and abettor liabihty).d9 67 Under the facts of Future Group, it was a cause of action for aiding and abetting a breach of fiduciary duty. 68 The Comment to Restatement of Torts 2d, § 876(b) states as fot(ovrs_ Advice or encouragement to act operates as a moral support to a tortfeasor and if the act encouraged is known to be tortious it has the same effect upon the liability ion or physical assistance. If the encouragement or sing the resulting tort, the one giving it is ible for the consequences of the other's act. it is mereiy a le applies whether or not the other knows his act is tortious. ewise applies to a person who knowingly gives substantial aid to another who, as he knows, intends to do a tortious act. ~ Aiding and abetting differs from civil conspiracy in that aiding and abetting "focuses on whether a defendant knowingly gave `substantial assistance' to someone who performed wrongful conduct, not on whether the defendant agreed to join the wrongfui conduct " Halberstam, 705 F.2d at 478. 107
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context of this li n the corporate greed of the tobacco Defendants intent upon The South Carolina Court of Appeals has noted that "proof the statement was made in the course of the defendant's business, profession or employment is sufficient to show he has a p uniary interest in making it." tLAL1 Management Corp. v. Strasburger, 309 S.C. 213,420 S.E.2d 868, 874 {Ct. App. 1992). In YYinburn v. Insurance C'II, of N.A., 287 5.C. 435, 441, 339 S.E.2d 142,146 (CtApp- 1985), the South Carolina Court of Appeals held that "a duty to exists when the defendant has a pecuniary interest in the trans mphasis added]. Therefore, since the Plaintifi's Amended Complaint sets forth sufficient facts which establish a clear pecuniary interest in Defendant's Motion is without 2. Duty of Care Defendants assert that the negligent misrepresentation claim must be dismissed because Defendant owed Plaintiff no duty of care. The South Carolina Court of Appeals in AMA Management Corp. v. Strasburger, 309 S.C. 213, 420 S.E.2d 868, 874 (Ct.App. 1992) addressed the issue of dnty of care in this context as follows: If the Defendant has a pecuniary interest in making the statement and he possesses expertise or special knowledge that would ordinarily make it reasonable for another to rely on his judgment or ability to make carefizl inquiry, the law places on him a duty of care with respect to representations made to Plaintiff. Clearly, in this case, under the allegations of the Amended Complaint, the threshold requirement of Strasburger are sufficiently pled to overcome a Motion to Dismiss. The Defendants contend that the Plaintiff may not base the negligent misrepresentation, 101
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• The Amended Complaint alleges acts by these Defendants not just as individual defendants or principals but also as joint tortfeasors, agents, servants, employees, alter egos, co- conspirators andtor aiders and abettors. There are many types of imputed and vicarious liability under South Carolina law. A Defendant can be liable for the acts or omissions of subsidiaries where the subsidiary is a co- conspirator,joi and abettors, p ipal, agents andlor alter ego. Many cases have held corporations liable for the actions o er corporation in interest. See e.g., Luckenbach SS. Co., Inc., et aIL v. Yt'. R. Grace & Co., 267 F_ 676 (1920); Kincaid v. Landing Development Corpor¢tion, 289 S.C. 89, 344 S.E. 2d 869 (Ct.App. 1986}. Under South Carolina law, a corporation can be held vicariously liable for the intentional tort of its officers and agents. See Young v. Federal Deposit Insurance Corporation, 103 F.3d 1180, (4'h Cir. 1997). This case should not be dismissed at the pleading stage. If there are any facts tending to prove an agency relationship the question is one for the jury. Gamble v. Stevenson, 305 S.C. 104,406 S.E.2d 350 {1991}. in addition, Philip Morris Companies, as parent company ofPhitip Ivlorris, Inc. (Philip Morris USA) and Lorillard, as parent company of Lorillard Tobacco Company, are implicated in the Complaint by T1 94 which states: Not only were the parent corporations involved in the tobacco industry fraud through use of their wholly-owned subsidiaries as their alter egos, agents and co-conspirators, but they also acted to further the fraud. For instance, and without limitation, the general counsel of the parent corporations sat on the Committee of Counsel, the high policy committee of the tobacco industry conspiracy. The parent corporations dictated internal policy for their manufacturing subsidiaries. And the parent corporations made pronouncements on the issue of tobacco that were often inconsistent with their own internal knoudedge and documents. 109
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Despite Defendants' asserti standin 130 S.E.2d 486 (1963), arolina law. 0 .221, h Carolina Supreme Court applied the principle in the context of automobile drag racing, whereby liability was affixed to one of the defendant drag racers even though his car was not the one which actually collided with and inj nred a third party. The South Carolina Supreme Court reasoned that the drag race partic acting independently; rather they were engaged in a common endeavor -- tortious in nature - that was the prox cause of the inju S.E.2d at 487-89. Given that the foregoing aµthorities make clear that a cause of action for aiding and abetting e ion is to its must be denied. 0 uth Carolina law and that Defendants' sole challenge to this cause of e eenth Cause of Action XXVT. VICARIOUS LIABILITY OF PHILIP MORRIS COMPANIES, INC. AND LORILLARD, IIYC.'$ Defendants contend that Philip Pvlorris Companies and Lorillard should be dismissed based on principles of respondeat superior. This argument has no basis. Through the Amended Complaint the Plaintiff alleges that the Defendants, which includes Philip Morris and Lorillard, ated in, conspired with, assisted, acted in concert with andlor aided and abetted on or more of the other defendants in the conduct described and that unless otherwise noted each and lies to each and every defendant. See, e.g, In 3, 4, 14, 21, 35 and 40 Amended Complaint. 7° This section of this Memorandum responds to Paragraph 26 of the IYlotion to Dismiss of Brown and Williamson, et al. 108 !#ing liability in the civil context is a long- s
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! STATE OF SOUTH CAHOLIIYA } ) COUNTY OF ILICFIIsAND } STATE OF SOUTH CAROLINA, by CHARLES M. CONDON, ATTORNEY GENERAL, PIaint.iff, vs. BROWN & WILLIAMSON TOBACCO CORPORATION as successor by merger to THE AtvIERICAN TOBACCO COMPANY, et al. Defendants. IN THE COURT OF COMMON PLEAS ) CA. No. 97-CP-4EM168b } } ) } ) } ) } } ) } } ) 1 EXHIBITS TO PLAINTIFF'S MEMORANDUM IN OPPOSITION TO DEFENDANTS' MOTION TO DISMISS PURSUANT TO RULE 12(b)(6) VOLUMEI Exhibits A - M
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s 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 - , ~ 16 17 1& 19 20 21 22 ~ ~ 23 ~ 24 25 STATE OF MICtIZGACI IN THE CIRCUIT COURT FOR THE COUNTY OF INGHAM FRANK J. RELLEY ex rel. STATE OF ASZCHZGAN r Plaintiff(s), versus Docket No- 96-&4281-CZ HOh'. LAWRENCE M. GLAZER PHILIP MORRIS, INCORPORATED, et al. , D2fendant(s). I - - - - - - - - - - - - - - - - - OPINION OF THE COURT Lansing, Michigan - Tuesday, May 27, 1997 APPEAftANCES: Assistant Attorney General HY: STEWART H.FREEMA.Pi (P13652) CRAIG ATCHSNSDY (P23953) BRIAN D. BEYLIN (F34685) 600 Law Building 525 West Ottawa Street P.O. Box 30212 Lansing, Michigan 48909 On behalf of Plaintiff(s). Honigznan, Miller, Schwartz and Cohn BY: RICHARD E. ZUCRER*•'.AN (P26521) 2290 First National Building Datrolt, Michigan 48225-3583 AND 30th Judicial Circuit court 333 S. Capitol Ave., Suite C, LanSiBg, MI 48933 Page 1
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ignorant of the facts alleged to have been misrepresented. (Motion to Dismiss at 13). These two The Defendants point to published studies on the health hazards of cigarette smoking and Congress's action in placing health w igarette packages. In making this argument, Defendants ignore the nature of the representations that the State alleges to have relied upon. These include statements regarding the addictive, carcinogenic and pathologic qualities of ni pharnmacologically active nicotine in cigarettes; the development, manufacture and sale of less hazardous cigarettes; the status, purpose and activities of the Council for Tobacco Research; the state of scientific knowledge about the health hazards of smoking; and the control by tobacco industry lawyers of the affairs of the tobacco industry. The Defendants fail to explain how the State's knowledge of studies documenting the health risks of tobacco would render unreasonable the State's reliance on the Defendants' protestations that it was developing its own research on the topic, or their denials that they were making special efforts to market cigarettes to minors, or their denials that they were manipulating pharmacologically active nicotine. Certainly, whe ustry boasted of the existence of the Co ,co Research, and promoted its findings, the State reasonably relied on the industry to be truthft€l and accurate regarding the Council's status, purpose and activities. It is well-settled that the question of reliance is a jury issue to be resolved based on the se and is not a proper issue to be addressed on Motion to Dismiss. See Hubbard, F. Patrick and Felix, Robert L., Tlse South Carolina Law of Torts at 337 (1997) {citing T1nlimited 8ercc Irtc. v. Macklen Enter. Inc., 303 S.C. 384, 401 S.E-2d 153 (1991); Elders v. Parker, 286 S.C. 228, 332 S.E.2d 563 {Ct. App. 1985); SYarkey v. Bell, 281 S.C. 308, 313 S.E.2d 99
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provided the client is a co-conspirator, joint tortfeasor, aider and abettor, principal or agent, andtor alter ego.. Defendant Hill & Knowlton's Motion to Dismiss in this regard should, therefore, be denied. -NMX. PRAYER FOR RELIEF'rz All of the grounds for dismissal set forth regarding the Prayer for Relief are grounds which have previously been addressed with regard to the various specific causes of action. PUNITIVE DA144AGES " The Defendants' contentions in ,I~}j 34 and 35 oftheirMotion to Dismiss, concerning therefore, are not properly part of a Motion to Dismiss under Rule 12(b)(6), SCRCP. Moreover, even if these contentions could be properly made at the pleading stage, the South Carolina Supreme Court and the United States Supreme Court have repeatedly turned back challenges to the constitutionality of punitive damages. In S C Fnrn: Bur. Iogut. Ins. v. Love Chevrrrfet, _ S.C. , 47$ S.E.2d 57, 58-59 punitive damages, do not challenge the sufficiency of Plaintiff's Amended Complaint, th Carolina Supreme Court reviewed the principles announced in recent cases ® [, concerning punitive damages, holding that in addition to constitutional safeguards, the trial judge retains the discretion to reduce a jury's assessment of punitive damages. The Court went on to note that there are now three phases during a case where the trial '2 This section of this memorandum responds to ¶Tj 28 through 33 of the Motion to Dismiss of $rov n and Williamson, et al. " This section of this memorandum responds to NN 34 a, through 34 c. and 35 of the Motion to Dismiss of Brown and Williamson, et al. 113
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M' Hl #LRttP 6"_PZR;I i antitrust laws were enacted to protect against; 2 therefore, I simply conclude that the Attorney 3 General cannot bring an antitrust action based on 4 the allegations made in this fiompLaint. 5 The Michigan Antitrust Reform Act's language 6 creates a right of action in those injured, 7 "directly or indirectly." it is my conclusion that 8 that language was not intended to change the 9 long-standing doctrine of the federal antitrust laws 10 which I have just cited, rather, it clear2y was 11 intended to give a right of action to indirect 12 purchasers who are economically injured. The law 13 presumes that economic injury results from antitrust 14 vioS.ations, it does not presume that companies would 15 compete to make safer products. Regretably, that is 16 unproven speculation. So as a former teacher of 17 antitrust law, my view is that that count must be 18 dismissed. 19 Now, with.xesgect to the count asserting a 20 special duty voluntarily undertaken, after reviewing 21 the briefs of the parties several times and in 22 reviewing the Complaint several times, it'S my 23 conclusion that that count is simply not clearly 24 enough or specifically enough stated that I can 25 really make a decision; therefore, I am going to 30th Judicial Circuit Court 333 s. Capitol Ave., Suite C, Lansing, MI I Page 1 05sa8 '9i 25::;,~'i
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. - x:uctatY bttltKFL I 2 3 4 5 6 7 8 9 20 11 12 13 14 15 25 17 ; 18 19 20 21 22 23 24 i' 25 disposition. I will then accept a matifln to determine whether that claim is viable rather than attempt to determine it based on the pleadings and arguments at this point in time, . With respect to the ad damnum clause, I agree with the Defendants that it is technically an erroneous pleading, although harmless, and I will direct that the Plaintiffs refile the ad damnum clause in conformity with the court rules. Defendant moves to disqualify the Attorney General -- the,Attorney General's unlawfully retained contingent fee counsel, in Defendants' words. It is undisputed that the Attorney General has the authority to hire the services of private attorneys on a case by case basis antl to compensate them- Sprik V Regents, 43 Afich App 178, and many other cases have, thus, so held. It may be true, as the Defendants contend, that the Attorney General must deposit all proceeds of this suit into the State Treasury. Zf so, that does not invalidate the entire agreement between the Attorney General and the special assistants and, frankly, I don't see how it is any business of the Defendants. No fees are to be paid these at ,~tflrneys without 30th Judicial Circuit Court to ~ 333 S. Capitol Ave., Suite C, Lansing, MI 48933 th! O ~ Page 11 ~ V V C`.,/2a '97 15:36
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0 The central role Hill & Knowlton played in formulating and executing the tobacco industry response to the 1953 "Big Scare" and the role played in using cancer research as a public relations rather than a public health issue is described in 150 of the Amended Complaint. The role of Hill & Knowlton in creating, operating and controlling the Tobacco Industry Research Committee, the Counsel for Tobacco Research and the Tobacco Institute is described in ¶¶ 51 and 52 of the Amended Complaint. The uniawful and tortious activities of the Tobacco Industry Research Committee, the Council for Tobacco Research and the Tobacco Institute are outlined in the Amended Complaint including In 53 through 75. Further acts and omissions of Hill & Knowlton are described in each of the causes of to as one of the Defendants to the suit, is alleged to have materially participated with, cons nc ided or escribed in the Amended Complaint. Additional section of Plaintiff's Memorandum in Opposition to Defendant's Motion to abetted one or more of the other Defendants in the See, e.g. Amended Complaint 13. ~hich address some of the assertions in Defendants' Memorandum are Section IV I tortious acts and omissions and then claim that it is immune from liability simply because these acts and omissions were done "in the representation of its client." duty to Plaintiff. A principal, in the representation of its client, cannot (Proximate Cause), XII (Existence of a Special Relationship), XIII (Economic Los Rule), XIV (Unfair Trade Practices Act), XVII (Fraud and Concealment Claims), and XXI (Aiding and Abetting)_ B. Duty Defendant Hill & Knowlton asserts that "in the representation of its clients" it owed no N I
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I _-S 2 ~ 3 4 5 __ 6 7 - $ 9 -a 10 11 12 13 - 14 15 -.~ 16 17 I8 19 20 21 22 23 24 25 I approval by this Court, and the agreement between the Attorney General and these attorneys spells out the eight factors to be taken into account in determining those fees. The size of the award or settlement in this case, if any, is only one of thase eight factors to be taken into account. it cannot be said that the fees of these attorneys will be a percentage of the winnings, and in that sense this is clearly not a contingency fee agreement. The only contingency in the agreement is that the Plaintiff must receive some money in a judgment or no duty to pay any legal fees will arise Defendants simply have failed to cite any case or statute which prohibits this. Defendants argue that such an agreement is inferentially prohibited by the constitutional prohibition against the government prosecutor having a so-called direct interest in the outcome of a suit, but the Attorney General has no such direct interest, and it is the Attorney General who retains the authority to make all decisions on the conduct of this litigation, not the private counsel. The Defendants also argue that the Attorney General is loaning the credit of the,State to 30th Judicial Circuit Court 333 5. Capitol Ave., Suite C, Z.ansing, I>SI 48933 Page 12 05/28 '9? 15:36
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5 : Y, F'. 07 that f3ows from that which makes the Defendants' acts unlawful.. Second, the Plaintiff must establish that it is an efficient enforcer of the antitruat laws. That determination is predicated on the so-called 8 target area test announced in Austin versus Blue 7 Cross Blue Shield of Alabama. Citation omtnitted. g The target area test requires that an antitrust 9 Plaintiff both prove that he is within that sector 10 of the economy endangered by a breakdown of 11 competitive conditions in a particular industry and 12 that he is the target against which anticompetetive 13 activity is directed. Citations, again, omitted. 14 And finally, the Court said basically the Plaintiff 15 must show that it is a customer or competitor in a 16 relevant antitrust market. Those quotations are 17 from pages three and four -- I am sorry, that's not 18 right -- from pages 1374 and 1375. 19 Although the State of Michigan may nave 20 purchased or manufactured a small quantity of 21 cigarettes for its prison inmates at various times, 22 this lawsuit does not claim damages as a customer or 23 competitor of the Defendants. The claim is damages 24 for personal injuries to smokers, and a personal 25 injury is not an economic injury of4 the type which 30th Jud.iciai Circuit Court 333 S. Capitol Ave., Suite C, Lansing, MZ 48933 Page 6 ~75i2€: 'B7 15:3&
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gued in the present suit, nor need it be. The fact is that many lawsuits have unforeseen consequences upon other lawsuits. People argue res judicata and collateral estoppel based on a priar suit somewhere every day. That doesn't mean that those conseguences must be determined in the prior suit. I don't see any necessity to determine it in this suit. ' s Defendants also argue that the real patty in interest is the Michigan Department of Community Health. I disagree. This suit contains no issue of unique interest to the Department of Community Health. It is not an attack of the power or authority of that department, it simply seeks money which happened to be paid out by that department. It is of equal interest and importance to the State 17 as an entity whose treasuzy was a source of the I8 funds and certainly is of interest to the taxpayers 19 who supplied the funds in the first place. The 20 Plaintiff is granted summary disposition on that 21 issue. 22 Finally, with respect to the motion to dismiss 23 affirmative defenses based upon the Consumer 24 Protection Act, I am in complete agreement with the 25 Attorney General's position that the Consumer 30th Judicial Circuit Court 333 S. Capitol Ave., Suite C, Lansing, AST 48933 Page 14 {i;i28 '97 15:35
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I alleges that other facts exist which avoid a 2 liability. Michigan Court Rule 2.311(F){3} requires 3 thaty "the garty must state the facts ccnstituting,° 4 the affirmative defense. The facts must be 5 asserted, not merely legal conclusions. 6 SQ any assertion of a so-called affirmative - 7 defense which fails to assert facts outside of the 8 Flaintiff`s Complaint-is stricken without prejudice 9 to the Defendants' right to bring any motions for 10 summary disposition or other appropriate legal 11 relief based on the same issue that was raised in 12 that so-called affirmative defense. 13 Secondly, any assertion of fact in the 14 so-called affirmative defenses which contradicts or 15 denies an assertion of fact made in the Complaint is 16 17 18 19 20 stricken. It is not an affirmative defense under the authority of Stanke Versus State Farm, 200 Mich App 307. However, the stanke Court also ruled that leave to a.menct the answer should be freely granted under these cizcumstances so that the Defendant may 21 still assert the denials in a proper place and in a 22 proper manner, and I will grant Defendants' leave to 23 amend their answers to inciude such denials within 24 30 days. 25 Ncsw, after all those steps are taken, the 30th Judicial Circuit Court 333 S. Capitol Ave., Suite C, Lansing, 141 48933 Page 9 r,S/28 '97 15:36
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F7i Hl IL@~NtT (iLhLI2,~L -z=_- -- W -- o Cn I Tuesday, May 27, 1997 2 Lansing, Michigan 3 3:30 p.m. 4 PRflC££DINGS 5 THE COURT: Se seated, please. I am 6 announcing today decisions on the -- in effect, I 7 believe there were nine motions, including the 8 suhmotions which were argued last week in Kelley, 9 et al. versus Philip Morris, et al. 10 The first motion was the Plaintiff's motion 11 for summary disposition of nefendants' claim that 12 assignment andlor subrogation are the State's 13 exclusive remedies. 14 it has long been recognized that an 15 has a common law equitable right of subrogation in 16 Michigan. See, for example, the case of Commercial 17 Union Insurance veraus Medical Protective Company, a 18 1984 decision at 136 1+(ich Agg 412, and the cases 19 cited therein. 20 For purposes of subrogation, it does not 21 matter whether the duty to pay medical expenses 22 arose from a contrac: or a statute; therefore, if 23 equitable subrogation applies to an insurer who has 24 a contractual duty to pay, I don't see why it would 25 not also apply under common law to_the State of 30th Judicial Circuit Court 333 S. Capitol Ave., Suite C, Lansing, MI 4$933 Page 3
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court reviews the question of punitive damages, none of these being at the pleading stage: In light of Gamble, there are now three stages in this state to a trial court's First, the court must determine whether the e level of culpability warranting a punitive damage itive damages may not be submitted to the jury. If so, the jury should be adequately instructed to assess an appropriate amount of damages. Second, the trial judge must conduct a post-trial Gamble review to ensure that the award does not deprive the defendant of due process. If the award is determined to violate the defendant's due process rights, then the trial court must either grant a new trial absolute, or a new trial rzisi remittitur. If the award is determined not to violate the defendant's due process rights, then the trial court reaches the third inquiry, to wit, whether, in the exercise of its discretion, it finds the award excessive or inadequate. If the verdict is not excessive, it may stand. If ial judge finds the award excessive or inadequate, he may grant a new trial itur or remittitur. Hicks v. ,Yerring, supra. Id. 478 S.E.2d at 59. The eight-factor post-judgment revic required by Gamble, srrpra, is as follows: of a the jury's assessment of punitive d Hereafter, to ensure that a punitive damage award is proper, the trial court shall conduct a post-trial review and may consider the following: (1) defendant's degree of culpability; (2) duration of the conduct; (3) defendant's awareness or conceahnent; (4) the existence of similar past conduct; (5) likelihood the award will deter the defendant or others from like conduct; (6) whether the award is reasonably related to the harm likely to result from such conduct; (7) defendant's ability to pay; and finally, (8) as noted in Fdttslip, "other factors" deemed appropriate. Upon completing it grossly disproportionate to the seve its findings on the record. ostulate that no award be offense, the trial court shall set forth The amount of damages, actual or punitive, remains largely within the discretion of the jury, as reviewed by the trial judge. See Felsr:ell v. Littlejohn, 240 S.C. 189,125 S.E, 2d 408 (I962). We adhere to the precedent that this Court' review is limited. The rationale for vesting discretion in the trial court was aptly expressed in Luchi v. Youngblood, 266 S.C. 127, 138, 221 S.E. 2d 854, 860 (1976): The reasonableness of the verdict was challenged before the he reduced it. The fact he heard the evidence and 114
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I Michigan which had a statutory duty to pay. Since 2 the State is a third-party payer under the Medicaid 3 system and has such a duty the State would, thus, 4 have a common law right of subrogation after paying 5 a patient's medical bills even if the legislature 6 had not enacted a specific statutory right. 7 That being the case, under well-rscognized $ principals of statutory construction, the- 9 subrogation right found at MCI. 400.106(1)(B) is not 10 an exclusive remedy, but is a cumulative remedy and, 11 therefore, the Attorney General does have the right 12 to bring a subrogation suit with or without the 13 permission of the director of the Department of 14 Community Health. 15 S do not decide today what implications this 16 has for any defenses which would be available or I7 unavai2able to the Defendants in this case. i$ Furthermore, if the State possesses such a right, 19 there is no doubt that the Attorney General has the 20 authority to enforce that right by bringing an 21 original action. Therefore, the Plaintiff's motion 22 for summary disposition is granted on that issue. Z3 The second motion is really three motions, and 24 that is the DefenIIants' motion to dismiss Counts II, 25 V, and VI on summary disposition_ 30th Judicial Circuit Court 333 S. Capitol Ave., Suite C, Lansing, NI 48933 Page 4 P6i28 '97 15-35.
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- 1 2 1 3 7 4 5 6 ~ 7 8 9 10 11 _.r 12 13 14 15 : 16 17 # 18 19 20 21 22 23 - 24 25 Plaintiff may bring another motion, concerning the remaining legitimate affirmative defenses as to any lack of specificity. I am denying that section of Flaintiff's motion without prejudice today. With regard to the IIefend-ants' motion to strike the Attorney General's punitive damages and ad damnum clause, it is clear from many appellate decisions that punitive damages are simply not awardable in Michigan, no matter how egregious or horrifying the Defendants' conduct. The Federal 4isr.rict Court correctly stated the law rrhen, in the case of in Re: The disaster at the Detroit Metropolitan Airport, 750 Fed Supp 793, it stated, and I quote, "In Michigan, the courts of that state refuse to allow the recovery of punitive damages," close guote, citing Michigan Supreme Court and Court of Appeals' decisions, and a long line of such decisions. Plaintiffs have not been able to cite a single case to the contrary; therefore, I am striking the claim, for punitive damages. Plaintiff asks, in the alternative, if I do that, that it be allowed to amend its Complaint to claim exemplary damages. I will allow such an amendment without prejudice to the Defendants' ability to moce to strike or for suBInary co 30th Judicial Circuit Court ~ 333 S. Capitol Ave_, Suite C, Lansing MI 48933 O , ~ Page 10 y M 05/28 '97 1~:36
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^18y 28 '97i!l5=37 P.tl9 I dismiss that count without prejudice to the 2 Plaintiff's ability to refile it: and if the 3 Plaintiff decides to refile it, the following 4 questions should be kept in mi.nd and should be 5 clearly met by allegations in the new Complaint: 6 What conduct specifically of the Defendants created 7 a duty? To whom was the duty owed? What conduct of 8 the Defendants violated that duty? How did this 9 conduct proximately cause an injury, and what was 10 the injury? P2a.intiffs may have 30 days from,today 11 to refile an amended count, 12 With regard to Count VI, Count VI appears, to 13 me, to be an assertion of a right to a remedy rather 14 than an independent cause of action, I agree with 15 the Defendants on that proposition, but dismissal is 16 far too harsh a sanction. Plaintiff may simply t7 amend the Complaint to plead a remedy as a remedy 18 rather than a separate cause of action and, again, i9 this would be Cone within 30 days. 20 We come now to Plaintiff's motion for more 21 definite statement and to strike affirmative 22 defenses. Upon researching ana reflecting, it•s ray 23 conclusion that the law is pretty clear that an 24 affirmative defense is a factual assertion which 25 does not deny the allegation in the Complaint, but 30th Judicia? Circuit Court 333 S. Capitol Ave., Suite C, Lansing, MZ 48933 Page 8 C528 '97 1Scs$
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An agent's liability for its own torts is not affected by the fact that it acted on behalf of a principal or in a representative capacity. Gilbert v.Mfd-srutJ: Machinery Co., Inc., 227 S.E. 2d 189, 193, 267 S.C. 271 (I976); Lawlor t=. Scheper, 232 S.C. 94, 101 S.E. 2d 269, 271 {1957}; Auto Insurance rigency v. Interstate Agency Inc., 525 F.Snpp. 1104, 1108 (D.S.C. 1981). One who has c.ontracted for, advised, or directed the commission of a tort cannot disclaim responsibility for it. South Carolina Natural Gas Ca, v. Pkillips, 289 F.2d 143, 150 (4th Cir. 19b1}. One who hires another to comunit a wrong cannot disclaim liability for the harm inflicted. South Carolina Natural Gas Company v. Phillips, supra. Defendant's position whereby it attempts to distance itself from its own act is, therefore, without merit. C. Acts and Omissions of Clients The Defendant Hill and Knowlton asserts that it is entitled to dismissal because it cannot be held liable for the acts or omissions of its clients. The issue before the Court is whether the Amended Complaint states a claim against Defendant. Plaintiff has alleged, however, specific acts and omissions on the part of Defendant Hill & Knowlton. Also alleged is conduct in which Hill and Knowlton played the role of agent, aider and abettor, alter ego and co-conspirator. (Amended Complaint, f¶ 3, 27, and 35.) These allegatio taken as true upon Motion to Dismiss. In addition, a tortfeasor may be held liable for an ieient sin ising out of the tortfeasor's contractual reiationship, despite the absence of privity between the tortfeasor and the third party. The tortfeasor's liability rests on the tortfeasors duty to exercise due care. Barker v. Saulc, 289 S.C. 121, 345 S.E.2d 244 (1986). Also, as discussed in § X3,'VI, supra, there are many types of imputed and vicarious liability under South Carolina law. A Defendant can be liable for an act or omission of its client, 112 I
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r11 ", i I t. ~,_ ® 1 private persons in violation of the Constitution. 2 That is patent nonsense. All the Attorney General 3 is doing is promising to repay the special 4 assistants for the reasonable and necessary expenses 5 which they incurred in preparing to try this case, 6 as State agencies do every day with private 7 contractors who repair highways, construct bridgeS 8 or, indeed, perform a myriad of other services. The 9 Defendants' motion to disqualify is, therefore, 10 denied. 11 Plaintiff brings a motion to dismiss 12 affirmative defenses based upon the Attorney 13 General's lack of standing; and I treat this simply 14 as a motion for summary disposition. . 15 The Defendants argue that they could not 16 assert any recovery in this suit, if there is one, 17 as a bar to recovery in a subsequent individual 18 subrogation suit, should one be brought. When Z 19 asked Defendants' counsel if that is, indeed, his 20 position, he declined to take quite that firm a 21 22 23 24 25 position. Instead, he was willing to say only that ht be the case this mi this mi ht be their g g , pro2>Sem. I don't know if it's the case, I don't know whether it's a bar- The issue hasn;,t been briefed 0* 333 Nth Judicial Circuit Court 5. Capitol Ave., Suite C, Lansing, MI 48933 M 0 Page 13 s ~y (D 05/28 '97 i5:36
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1 2 3 - 5 - 6 7 - $ Protection Act's pre-suit notification provision was enacted for the purpose of giving prospective defendants the opportunity to negotiate an informal resolution or cease and desist, and that that is why the legislature authorized the courts to waive that requirement when good cause is shown. In the present case where the Michigan Attorney General is one of many State Attorneys General filing similar suits against the same 10 defendants and these suits go to the heart of the 11 past and present business conduct of these major 12 defendants in their national and, indeed, 13 international business, it is self-evident that such 14 a notice would have been futile, and I will waive 15 it. lb Z believe this resolves all of the motions 17 which were argued last week. I thank all counsel 18 for their brevity and courtesy which they showed 19 last week, and I encourage you to continue to do so. 20 MR. ATCHSNSDhT- Your Honor, shall the 21 Plaintiff prepare an Order? 22 TIiE COURT: Piainti€€s shall prepare en order 23 for the matters in which they prevailed, Defendants 24 shall prepare an Order for the matters in which they 25 prevailed. 30th Judicial Circuit Court 333 S. Capitol Ave., Suite C, Lansing, MI 48933 Page 15 05/28 '97 15:36
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P.27 1 MR. ATCHINSON: Thank you, Your Honor. 2 MR. ZUCKERMAN: Thank you. 3 (Proceedings concluded at 3:54 p.m. 4 CERTIFICATE OF REPORTER 5 6 STATE OF MICHIGAN ~ ) 8S _ 7 COUNTY OF INGHAM 7 s 9 I hereby certify that on the date and at the 10 place set forth herein I recorded stenographically 11 the proceedings held in the matter set forth herein, 12 and that the testimony so recorded was subsequently 13 transcribed by me with the use of computer-aided 14 transcription under my direction and supervision, 15 and that the.€oregoing is a full, true and accurate 26 transcript of my original stenotype notes. 17 I fnrther certify that I am not a relative or 18 employee of or an attorney for a party; or a 19 relative or employee of an attorney for a party; or 20 financially interested in the action. 21 22 4AT£: ndv We 23 (CSR-385 24 7 C'. ` Hearings Reporter 25 Notary Fublics County of Ingham My Commission Expires: December 25, 1998. 30th Judicial Circuit Court 333 S. Capitol Ave., Suite C, Lansing, MI 48933 Page 16 45r28 '97 15:36 .7. IL a
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In addition, the following documents should be deemed produced, since Defendants did not object to such documents; ` 30, 97 and 104 St'is further determined that the following documents do fall within the c~ime-€raud exception and that the ~ _ assertion as to tliese documents should be sustained: 40, 41, 55, 77, 81, 92, 95, 98, 99 and 100 DATED this J~i9'- day of May, 1997 Copies furnished: not privilege All parties on attached list
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# IN THE UNITED STATES DI3'TRIeP FOR THE EASTERN ItZSTXcT aF xEXARKANr, nr,"siox T1 IE STATE QP =LA& § vs. B ~ xa. s-'ss ~ ~ THE A3ffMCAN TOBACCO $ COMPANY, et aL § NEEMO12A1lDIfhi OPIIQIOR' AND t}TtI3Mt RE l}BMAAN'1'S' MOTIONS TO DMMISS C{3IFR°tS 1.3 AND COUNTS 4-11 OF -- 't°BE STA2'E'3 SECOND AMENDED CBMUPt.AINT following opinion. R[~' I .14ACKG Cr1ME ON TO BE CONSIDERED this day T?efentients• Motions to Uismiss Counts 1-3 (docket etttry # 5{S} and Gotmts 4-17 (docket ezRcp # 194) of the Stati<'s Second Amended Comgiainc' The Cmut held orat arguanent on April 14,1997. Aftrr reviewing the motions, the responses, and the raplies, the (:oart finds the xnotioas are svelt takcn iu pazt as cwlaineci in the The State of Tems ("5rate") brought this providing medical care sud other be€tefrts to its ci Medicaid program, as the result of the c&zeas' use to garettes aud smokeiess iobacco ' Defendants filed two mor.iaas to dismiss. The first motion seeks to dismzss the 1t.LC.4. allegations in coums 1-3 of the F'uat ?.mucnded Comgtaint. The second uuoiion seeks dfsfn"sssal of the balance of the State's claiau, being counts 4-14 of the First Amended Complaiat, Su'bsequznt to their filing ttsero matienu, the State filed its Second Amei}ded Complaint on April 7, i947.At the hearing on ctsese motioz;s, Dafezidatzts addressed rheir argUaezsf tcs the Stcund Auserbled Compiains.
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argues that i>acaase no uegiigeut or tianal harm was inflicted upon the State, to tl= rule af staxutory coasauctwn vv€tich states that a"legislaitva gcatzt of a new tight does not ordinarily eut off or preclude other Ti4DStaT{ittilT *,htS lA the 'd}SSetfAC of clear laViSgG to d18L fiffiCct," MM:I1C_,t eltrtit/EtLs v. R1fIH3ia.8 Shiaaing C:ts., 394 t3.S. 404 (1969). Ttt#5 statotricat, it is azgu, Aefendautg' position thstVtv.= and expressto trsttua govesaft Although shcc Covxi cacogmiua and agreat that dire aie impartant factirai distlufitFtssss bcty=itsiscase aui~4~i.~ths fws for pv,tposcstsfdecut"fngiFe Cxcdusivity isstie must center Ott the tuiIiz,atiuu IIfeVrruio unirxs in this caatfThe SuptemeCaurt has inst=vr.#ed #hatexprrasio Silvrrv. Nt-*v York aLZk BKr,hwae.373 U4.341, 357 (19G9~ S{1~4tad I Hermsn & MacF.eaay_ HuddSe~on 45913 S. 375,387 n. 23 (1983). Kstpingthis in miad. cnurts should apply this MO4*m ELS. LALS. v. Federal Latxfr Rctatmns Auxtiurity. 4 F.3d 268 (4th L;iz. 1993), Tltc rule is problematic, because it assumes 2isat a legts3ative body attisiders all oonesivable issnes that my tleriall tsycuFlyaddressing a #'ew. 5_ 482 F.2d 672 (D.C.M. 15731 g= denied. 415 FT.S. 951 (1974). R Sunstein, Law and Aistrariau ABer Chavmxi. 90 Caltsm. L Rev. 2()71, 2I49 tt. 182 {199t}}. it is clear flum thtse cases and cc;mmensaty that in order to c-0nstrae these statutary provisions emder either =a xim. pcopasod by tiu partics, the Coztts mttst at ali timcs be mindful4f thsir piupose, Upon reading 42 U.S.C. § 1346a(a)=Aj atid (H); 42 t3.S.C. $ 139ba(a)(45); the applicable xegulatior=s; anci, § 32,f#33 of the Texas Human Rzsources Code, it is vaithout qucsizon
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establishing the crime-fraud exception has been met and that there is sufficient evidence which, if believed by the trier of fact, would support Plaintiffs' theory of fraud. Plaintiffs' theory of fraud, while set forth in several distinct counts of the complaint, together with the evidence, which if believed by the trier of fact, would be sufficient to support the allegations in the complaint can be sumucarized as showing that the Defendants engaged in extensive &fforts to hide from and misrepresent to the public the health hazards associated with cigarettes and that the Defendants misled and defrauded the public and public health officials regarding the relationship between smoking and health. Additionally, there was persuasive evidence that Defendants utilized their a-ttqrneys to carry out and plan fraudulent activities and undertook to misuse the attorney/client relationship to keep secret research and other activities which showed the true health dangers of smoking. though it has been determined that the crime-fraud exception has been established, document by document analysis has been conducted, rather than concluding that the crime-fraud exception, once established, applies to each and every document. Accordingly, it is hereby determined that the following documents directly relate to, and are involved with the on-going crime-fraud and the Defendants assertion of privilege to the following documents must fail as a result of the crime-fraud exception to such privilege: 1, 2, 28, 34, 45, 49, 55 , 78, $4, 84, 89, 90, 91, 96, 102, 103, 105, 106, 107, 108, 109, 110, 111, 113, 114, 115, and 116 t I
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Artatat Yesset °Btue Cat° 372 F.2d (26, 527 (Stit Cir. 19fi7). The Stipreme Cnuzc fas he3d tbaz "j"jst spprsisi'x8 the saffic3eacy of the complaixit ... the accepted rtite [ia inazI a coraplsire should = be dismisud for FaRuze to sate a claim vssiess it appears beyond doubt d73t die p1dioff o$ prove no set of f3LL4 in support of his C33tRk which wott3d eutWz him to z'eW.' C?+c+Iev v, _Gth355 U.S. 41,45 {1B51}. In attercuimiag 9thech= a complaiut tvithstands a 12(b){6} motion to disutiss. the cotsrt "must asxept a31 weli-Pleaded fk= as Lnu atsd vjew them In the Ii& au3st fsvorabic to t6e ptaintttiF. A1so, the rovrt iua}r net ioak beyond the plesdiugs It iuft on a aoion.* Baker v. Pawl 1, 75 F.3ci 190, 196 tSflt C:ir. ttlMRiy'f UL I gut forth seve[aI argameuEs advocating dismissal ofthe action as a whole. Defeadauts c2aim the sstit mmot proceed as a direct acrion, because the State s excalnsive remedy is ihmugh 0 of tife'Texas Human itesources Code, I)efandants also contend that the &rasds suit arxsing from pasonai 3ajudesorBcatitsRcgcc3€y Caascd by the coasumptiwanfE€k6acco products, has been barred by ttte'I'ems legfslanFre vrith its eaaetraeuf ofthe Ftrsduct Liabiiity Act in 1993. Defcndants futther contend *at ihe State has not snffered a d3rect injury, ard thus cannot rccover because its injUry is too rematc, Finally, Dcfen.datt#s sssettthatthe Stste's direct ar.tioaviotatcs futsdmmeutat puaciptes ssfdtse process, The Court rejrxis these arguments based on the fotlowing analysis. A. SITBit(3GATTOBf AS THR 3TA'IZ."S EIGCLT78NE REMEDY The Stste 4sseekir,gin this suit to rccover payments atade through its Medicaid program for health care provided to rccipients for injuries allegedly caijesi by the consumption of tobacco 3 I
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IN THE CIRCUIT COURT, FIFTEENTH JUDICIAL CIRCUIT, IN AND FOR PALM BEACH COEf2JTY, FLORIDA ® STATE OF FLORIDA, et al. Plaintiffs, vs. CASE NO.: CL 95-1466 AX AMERICAPI TOBACCO COMP?.23Y, et al. Defendants. ~ REPORT AND RECOZ4M8t7DATION OF SPECIAL MASTER ON PLAINTIFFS' MOTIOPF TO COMPEL DOCt#Y032iTS LISTED IN PLAIN'PIFFS' FIRST DES2GNATIOH OF DOCULEHTS TO B& "DSSF3SD PRODIICBi)* After having considered argument of counsel at several hearings, together with extensive legal memoranda, and an in-camera review, torney work-product and joint defensejcommon interest privileges. THIS MATTER came before the undersigned Special Master upon Plaintiffs' Motion to Compel Defendants' to Deem Produced Certain Documents Listed in Plaintiffs' First Designation of --D.~.ocuments. The production of the documents which a.re the subject matter of the motion was objected to by Brown & Williamson and other Defendants, on the grounds that they were subject to the attorney/client, a Report and Recommendation was made on January 16; 1997. report determined that the Plaintiffs had madee a suff That preliminary showing to establish application of the crime-fraud exception to the forty-two (42) documents, which are the subject matter of this report. In rendering the report, it was determined that the requirements of United States v. Zolin, 491 U.B. 554, 109 S. Ct. Reporter, 2619 (1989) had been met. Exceptions to the January 16, 1997 Report and Recommendation were filed, howezcpr the Court, on February 28, 1997 overruled t
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the Report and Recommendation. The forty-two (42) documents which are the subject matter of this miXtion are contained in a notebook entitled "Designated Documents From Plaintiffs` First Listing Which Have Not Been Deemed ced Hy-Befendants° and the following numbers assigned to the documents under consideration: 1, 2, 26, 27, 28, 30, 34, 40, 41, 45, 49, 55, 56, 77, 78, 80, 81, 84, 89, 90, 91, 92, 95, 96, 97, 98, 99, 100, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 113, 114, 115, 116- . . Defendants have been afforded an opportunity to offer rebuttal evidence and argument on the application of the crime-fraud exception to the forty-two {42}- documents. in addition to the . ...,.. extensive material and arguments advanced by S}efendants prior to the January 16, 1997 Report and Recommendation, even more extensive rebuttal material was considered consisting of more than eight (8) boxes of material. The material included thousands of pages of in- 1 camera and ex parts evidence and included affidavits, transcripts of testimony, legal arguments and other documents submitted in t rebuttal to the prima facia showing that the crime-€raud exception to the attorney/client privilege should be recognized_„ ~ After having conducted a thorough review' of materials submitted, including Defendants' rebuttal and Plaintiffs' Response to Defendants' NRebuttal Presentation*, and after having given extensive consideration to all the arguments and submissions, it is hereby determined that the burden as set,forth in Florida Mi.n3ng & MateriaSs v. Continental Casualty Co., 556 So.2d 518 (Fla. 2d DCA 1990) and Haines v. Z.iggett, 975 F. 2d 811 (3rd Cir. 1992) in 2
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I t 666p98
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and that the privilege assertion as to these documents should be sustained. Numbers 9, 10, 12, 13, and 20. 4. Pursuant to the Court's Order, the Special Master was also I requi d"...inforsnation concerning public hazard, or which may be to review the subject,documents to determine whether they -use£ul to members of the public in protecting themselves from result from a public-hazard." Plaintiffs have argued that Chapter 69, Florida Statutes would rec_uire the thirteen (13) documents under consideration to be released to the public even if Defendants` attorney/client privilege were upheld as to such documents. It is hereby determined that Chapter 69, Florida Statutes (the Sunshine in Litigation Act) was not intended to and does not apply to documents protected by the attorney/client privilege and therefore the Sunshine in Litigation Act does not closure of the documents for which the privilege has been upheld. 5. It should be cautioned that this recommendation concerning the crime-fraud exception to the attorney/client privilege is not an adjudication on the merits, but rather a recommendation that there is sufficient evidence for a jury to consider and determine whether the -Defendants engaged in a£raud and whether prior tobacco industry lawyers were involved in such fraudulent activity. DATED this 9th day of April, 1997. Copies furnished; All parties on attached list
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• 1356 STATUTES AT LARGE (No. T55 Canaeat aed IbrmanewIams-1997 E16 -SECIION 10 - TREASUItER'S OFTTCE, STATE 1{!3. (TREAS: Invesbneots) The State T from accounts fur investment gurposes and may invest all moties m the same types of investments as set forlh in Sections 11 -4-bbt3 and 11 -9-b6I. 14.4. {TREAS: GetseisI Rese4ve Fund Tsansfer} The State Treasurers Office is authorized to transfer E3,373,537 of General Funds to the General Reserve Fund on Iuty I, 1997, to compiy with Article IIF, Section 36 of the Constitution. This amount of General Funds must be replaced as zhe fvst priority of any 1"Y 1996-97 surplus. 1[t.5. (TRbAS: Management Fees) The State Txeasarer is auhorized to chatSe a€ee for the operating and management costs associated with she LocaE Government Investment Pool, and the Deferred Compensation Frogcaat, and is fnt6eraudsorizedto resarsm and expend the fees to provide these services. The f= assessed may not exceed the cost of the provision ofRic3s seivices. 10.6. I)EI,ETI-1) E30 - SECTION 11- ATTORNEY GIIVERAL'S OFFICE 11.1. {ACr Coilection ofDehts, C7am3s or C3bligations} The Attoiney General is hereby authorized to contxaot for the collection of clebts, claims or obligations due to the Srate, or any ofit& departments or'sastitutions. 11.2. {AG: FTudag ofAttuneys} No depsmment ot agmey of the State Gova3unentshalt hire any classified orte3npotary attorney as an employee except upon the written approval of the AUAmey General and at a compensation approved by him AII such attorneys shall at all times be ander the supervision and controI of the Attorney General except as other .Yise provided by law unless obtaining prior approval by the Budget and Conanl Bosrdl 113. {AG: Engage Atromcy ote fiee Basis} No do}airuent or agency of the State Government shatl ertgage on a fee basis any attamey at law except upon the written approval of the Attorney General and upon such fee as slsall be approved by him. This shall not apply to the employment ofamaaseys in special cases in inferior coluts where the fee to be paid does not exceed two hundred fifty (5258.dQ) dollars or exceptions approved by the Budget and Cvairot Board. 11.4. (AG: Printing of Opinions & Index) The Attorney General is andtnrized to prart for public saIe, copies of his pn6lished opinions and index thereto at such charges as are established by the state psinter, in accordance with the. cost of the documents plus a twersty-five percent scuchatge. All proceeds from the sale of copies of apinions or indices shall Nc be the sha stal its repi adm to,t cost Attc repr+ thef 2: Co twot W 3. o anda p~p be api aa oti'ic7s tn ofthe
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fraud through the use of CTR Special Projects activities. I find that defendants' showing is insufficient to overcome pZaintiffs' prima €acie showing and that defendants' assertion of the attorney/client privilege, the work-product privilege, and the joint-defense privilege is unavailing due to the applicability of the crime-fraud exception. _. It should be cautioned that this recommendation concerning the crime-fraud exception to the attorney/client privilege is not an adjudication on the merits, but rather a recoamcendation that there is sufficient evidence for a jury to consider and determine whether the defendants engaged in a crime-fraud and whether prior tobacco industry lawyers were involved in such fraudulent activity. DATED this day of July, 1997. 6 rnished: All parties on attached list
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The Honorable Harold J. Cohen and All Counsel below: LZST OF COUNSEL Robert M. Montgomery, Jr., Ssq. Phone: (561) 832-2880 Montgomery f Larmoyeaux, P.A. FAX: (561) 832-0887 1016 Clearwater Place P.O. Drawer 3086 West Palm Beach, FL 33402 J. Anderson Barly, III, Ssq. Phone: {803} 577-6747 Ness, Motley, Loadholt, Richardson E Poole 151 Meeting Street, Ste. 600 Post Office 8ax 1137 Charleston, SC 29402 FAX: (803) 577-7513 Michael Maher, Ssq. Phone: (407) 839-0866 Mahsr, Gibson & Gailey 90 East Livingston, Suite 200 Orlando, FL 32801 FAX: (407) 425-7958 Murray R. Garnick, Ssq. Phone: (202) 942-5716 Arnold i Porter 555 Twelfth Street, N.W. Washington, DC : 20004-120; FAZ: (202) 942-5999 Stephen J. Rrigbaum. Ssq. Phone: (561) 659-7070 CarSton, Fields, Ward, S=anusl, Smith & Cutler, P.A. P.O. Box 150 West Palm Beach, FL 33402 FASc (561) 659-7368 Edward A. Moss, Ssq. Phone: (305) 358-5171 Anderson, Moss, Parks & Sherouse 25th Floor, 2isw World Tower 100 North Hiscayne Blvd. Miami, FL 33132 •FAX: (305) 358-7470 Wayne Hogaa, Ssquire Phone: (904) 632-2424 Brown, Terrell, Hogan, FAX: (904) 632-2027 Sllis, McClasmia i: Yegelaael 233 East Bay Street, Ste. 804 Jacksonville, FL 32202 (904) 353-4418 W.C. Gentry, Ssq. Phone: (904) 356-4100 Gentry, Phillips, Smith & Hodak 6 East Bay Street, Ste. 400 Jaci:sonville, FL 32201 FAX: (904) 358-1895 Justus W. Reid, Ssq. Phone: . f561) 659-7700 Raid, Metzger & Assoc., P.A. FAX: (561) 659-6377 250 Australian Avenue South Suite 700 West Palm Beach, FL 33401
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a p'V6409$ i 0
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! r-
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IN THE CIRCUIT COURT, FIFTEENTH ,TQDICIAL CIRCUIT, IN AND FOR PALM BEACH COUNTY, FLORIDA STATE OF FLORIDA, et al. vs. Plaintiffs, O COMPANY, Defendants. CIVIL DIVISION Case No: CL 95-1466 AH / REPORT AZID RECOMDi%!R}ATION OF SPECIAL MASTSR THIS MATTER came before the undersigned Special Master for hearing on April 7 and April 8, 1997, as a result of the Court's , Order of March 26, 1997. Pursuant to that Order, the Special Master was directed to expedite a hearing regarding twenty (20) documents submitted by Liggett as designated by the Plaintiffs in is action, which documents are alleged to relate to, (1) information concerning a public hazard, or (2) information which m3.ght be useful to members of the public in protecting themselves from injury whibh may result from a public hazard. The following twenty (20) documents designated by the Plaintiffs have been reviewed by the Special Master: ® 1. 2008121-2008141 Undated Memorandum regarding trial 2. strategy. 2006318-2006330 May 23, 1964 letter including a OD Os memorandum regarding consumer survey. W 0 ~ ~ ~ 3. 2000741-2000750 September 18, 1981 letter including notes N of the meeting of the Committee of 00 ~ General Counsel held September 10, 1981. ~ 2000149-2000171 October 11, 1965 letter including status reports of special projects.
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86301942 IIIIIII/IIIIII/
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psge 3 TGb€cco 4rdcr CL93-t466 AH court and set forth in this Court's April 18, 1997 {Order a "Global Settlement" will have absolutely no effect on the commencement of trial in this case scheduled to begin August 1, 1997 unless and until this sase is actually settled and dismissed by the Plainfi#fs. It is fully anticipated that any publicly announced "Globat SettSemeat" will not become finsi unless and until approved by The United States Congress and The Copy furnished: 'Fae Iieoorcbte R. wyuxm Ruttcr, sr., Speoist kiaster P.O. Box 02448fi West Patm $pch, F3.3340I ICobst hi Montgomuy, ir, Eaquve P-4. f5mm 3096 Wcst Patm 8cach, FS. 33402 WaPa<HaBaa E34uixc HraPm,tcaelt. et at 233 East Bay Shut, Suae 844 7acksonviFSc, F€.322fl2 WchxP Makcr. Esquim bfaYeer, Gss'bwn & fmx`key 90 Fis'ur'r4s.un, Su2tc 200 Lklagda. Fi. 3284t I. M6amn Hcrfy, Eaquire P.O.$oxit3? Caaslesmn, SC 29442 Stcphc¢ L Kxigbauns, Fsq++tt Culzo[4 Frids, ct at P.O. Box 150 Wcst Ps1m Bcarh, Ft. 33402 8dwud A. Mcss, Esquirc 25th Ftoer, Nev. wcrtaTo,vn 100 Nonh Biuayne Bi.+d. A4iam4 Fi.33132 R{wny K t's.micF, Esqyyir< Arnotd & Porttr 555 3 i2ah Snm Wss3,ington, DC 2UWQ lustuz ReEd, F~v;re Reid, Metxgc & Apsacia[rs, P A
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5. 2004953-2004960 May 1, 1987 index and February 22, 1988 report regarding additives. 2004997-2005006 March 22, 1988 report on additives used before 1969. 7. 2004973-2004996 February 22, 1988 report on additives used before 1969. 8. 2004961-2004972 February 22, 1988 report 'on -additives that may have been used prior to 1969. 9. 2006235-2006240 September 3, 1963 memorandum. 20. 2008203-2008210 January 13, 1964 memorandum. 11. 2008243-2008247 Notes from Committee of Counsel Meeting of June 23, 1981. 12. 2008248-2008255 Notes from Coarmittee CounseS Meeting ~ of September 23, 1981: 13. 2000788-2000791 Memorandum regarding January 10, 1983 N meeting regarding fees. 14. 2005509-2005510 March 14, 1978 letter regarding carbon monoxide analysis. 15. 2008157-2008164 January 23, 1964 memorandum. 16. 2006143 An undated memorandum. . 17. 2006048-2006050 February 22, 1980 letter. 18. 2004915-2004917 April 7, 1975 inner-office memorandum. 19. 2006651-2006652 November 20, 1963 memorandum. 20. 2008230-2008232 August 13, 1980 memorandum regarding Committee of Counsel Meeting of August 7, 1980. At the- commencement of the hearing on April 7, 1997, Defendants advised that no privilege was being asserted to numbers 5, 6, 7, 8, 36, 18, and 19, thereby leaving thirteen (13) Liggett documents for consideration by the Special Master on Defendants' assertion of attorney/client work-product 'andjor coaiaton legal interest privileges. The other seven (7) documents were released .i l
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The Honorable Harold J. Cohen and All Counse2 below. LZST OF COIItiBEL Robert M. Montgomery, Jr., Ssq. Phone: (561) 832-2880 Montgomery & Larmoyaaux. P.A. FAX: {561} 832-0887 1016 Clearwater Place - P.O. Drawer 3086 Weat Palm Beach, FL 33402 J. Anderson Barly. IS1, Esg. honet 803) 577-'6747 Hass, Motley, Loadholt, FAX: (803) S77-7513 Richardson & Poole 151 Meeting Street, Ste. 600 Post Office Box 1137 Charleston, SC 29402 Michael Maher, Ssq. hone: 407) 839-0866 13aher, Gibson i: fluiSey FAX: (407) 425-7958 90 Bast Livingston, Suite 200 Orlando, FL 32801 Murray R. tiarnick, Esq. Phone: (202) 942-5716 ArnoSd & Portez' FAX: (202) 942-5939 555 Twelfth Street, M.W. Washington, DC 20004-1202 . Stephen J. Trigbaum, 8sq. Phone: (561) 659-7070 Carlton, Fields, Ward, 8-nual, FAK: (561) 659-7368 Smith F.Cutler, P.A. P.O. Box 150 West Palm Beach, FL 33402 Edward A. Moss, Esg. hone: 305) 358-5171 Anderson, Moss, Parks & Sherouse FAX: (305) 358-7470 25th Floor, New World Tower 100 North Biscayne Blvd. , Miami, FL 33132 Wayne Hogan, Esquire hone: 904) 632-2424 Brown, Terrell, Hogan, FAx: (904}<632-2027 Ellis, MeClaarma & Yegelwel (904) 353-4418 233 East Bay Street, Ste. 604 Jacksonville, FL 32202 W.C. Gentry, Esq. Phone: (904) 356-4190 Gentry. Phillips, Smith F Hodak FAX: (904) 358-1895 6 East Bay Street, Ste. 400 Jacksonville, FL 32201 Justus W. Reid, Esq. Phone: (561) 659-7700 Reid, Metzger t Assoc., P.A- FAX: (561) 659-6377 250 Australian Avenue South Suite 700 West Palm Beach, FL 33401
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1943
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the ordinary IMOwttdge aamman to the cousmunily; and (2) tbe product is a common consumer product intended for personal cansumgtion, such as aigar, castor oil, akahal, tobacco and butter as idoatifxs3 in Lbnimert t to section 402A of the Rtsutauunt {Seco4 of Tarrs. TEx. CrY. f>RAC. & REM. CODE ANDt. §82.{X14(a). Mic ArL (3efltGS °QSDdi&3 liability 0C[fAII" as a~,y,,.~a,,c~,N t.ta,,n ,,~, ~ a,,g,,sinst a mamufawusr or seller for recovery of qni° `•+afi' ~++sb ORt of personal jn)ilrf's dE3Lh or property diIDi$C allegedly mdixd by a doflkiSm product whether tto action Is based in Sd?iCt tort l3Hbility , strict jILOdt1CiS liability, SSCgligPiIIL'er misc~~ bZCaCh of Li.pFCSS or impISC3 SYflTr'3£if}'+ or any other theories or CQm3iIIat'f4n of $1frOLSC6,L' TBx. CtY. PxnC. & FMd. CODE $$2.001(Z), Defendants contend that becanse the State's claim fcr damagas 3njtuies or tieath aIIegedly caused by tobacco products, die "in)terentiy unsafo' product defense faaua in § 82.004 bars the da;ms tfrz State is assexting Iere. In response, the State ca.tes three reasons for the A.at's not IarrSng the instant case.n The Court fmds two of the reasoas gersnasive and dGnies Defendar1ts' motiOn to tiismiss based on the ,Aci. The State controcts tb;tt the Act does not apply to any of its direct aiai }: Tn addition to the argvmants disccitstd in tftis Memorandum Opinion and Order, tFo State urges tirzt t,he intrerentfy nntafe product defense does not apply where an tttkeiw%se danger4tts gtntiuct ca¢sains tcgea'satt,y hvat&ets ingredients or whate the defendant has failed to makn the product safer. 12
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! The Honorable Harold aT. Cohen and All Counsel below: LIST OF CODRSEL Robert M. Montgomery, Jr., Esq. Montgomery & Larmoyeaux, P.A. 1016 Clearevater Place P.O. Drawer 3086 Wast Palm Beach, FL 33402 Phone: FA%: (561) 832-2880 (561) 832-0887 d. Anderson Serly, Iii, Esq. Phone: (803) 577-6747 Ness, Motley, Loadholt, Richardson a Poole - 151 Meeting Street, Ste. 600 Post Office Box 1137 Charleston, SC 29402 FAX: (803) 577-7513 Michael Maher, Esq. Phone: (407) 839-0866 Maher, Gibson & Guiley 90 East Livingston, Suite 200 "Orlando, FL 32801, FAX: (407) 425-7958 Murray R. Garnick, Esg. Phone: (202) 942-5716 Arnold & Porter 555 Twelfth Street, N.W. Washington, DC 20004-1202 FAX: (202) 942-5999 . ~ Stephen J. Rrighaum, Esg. " Phone: (561) 659-7070 Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. P.O. Box 150 West Palm Beach, FL 33402 , FAX: (561) 659-7368 Edward A. Moss, Esq. Phone: (305) 358-5171 Anderson, Moss, Parks & Sherouse 25th Floor, xex Aorld Tower FAX: (305) 358-7470 100 North Biscayne Blvd. Miami, FL 33132 . Wayne Hogan, Esquire Phone: (904) 632-2424 Brown, Terrall,-%ogan, FAX: (904) 632-2027 Ellis, %cclanna & Yegelxel 233 East Bay Street, Ste. 804 Jacksonville, FL 32202 (904) 353-4418 W.C. Gentry, Eaq. Phone: (904) 356-4100 Gentry, Phillips, Smith & 8adak 6 East Bay Street, Ste. 400 Jacksbnville, FL 32201 FAX: (904) 358-1895 Justus W. Reid, Esq. Phone; ,(561)-659-77.M1- Reid, Metzger & Assoc., P.A. 250 Australian Avenue South FAX: 4567,7 659-63?7
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i the trial court. Documents three and four of the Liggett log have already been found to be amongst the crime-fraud documents and therefore are the subject of my April 9, 1997 Report and Recommendation and Judge Cohen's Order of April 18, 1997 affirming and adopting my Report and Recommendation. The two additional documents from Judge Sarokin's opinion -whiehh are at issue here at this time are document numbers 01347203/7209 from Lorillard's privilege log in the Haines case and 10037184281/8432 from Philip Morris' privilege log in Hairnea. I find that these two documents are inexorably linked together with document number three, 2000741-2000750, -a,-Saptember 18, 1981 letter including notes of the meeting of the Committee of General Counsel held September~0, 1981 and document number four, 2000149- 2000171, and October 11, 196fi..letter including status reports of special projects. It is plaintiffs' contention that defendants used the CTR"s Special Projects program to further the alleged ongoing fraud and deception surrounding the publicly disclosed/promoted function and the operation of the CTR and that the defendants abused the attorney/client privilege in their efforts to effectuate their allegedly fraudulent scheme. Given plaintiffs' theories of fraud, conspiracy and racketeering, which, if believed by a jury based on the evidence presented would give rise to liability, after an in- camera inspection of these documents, the court finds there is . facie evidence that defendants were engaged in a fraud and that defendants obtained attorney assistance in furthe=ance of that
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! i products. Hefendants ara tobacco cosugauies and pubtic relations fums.2 Tlte State's Second Amended Comgiasnt seeks to imgosa liability against DefeudarsZs for their manutketunng, atlvert%siag, disiribuft and selling tobacco produets in the United States. In response to the 5 seVLY'dl traeirnc to iLI.+FYG~ss STANDARV 6GCb dis3IIIS54I of $ pb7aff3 cause of action for failt2te granted. A motion to tlismi s for failnre to state a ClaIIii 3dD21#S t}IS facts alleged in $L^ complaint biii challenges the pl814hff'S iig}32 24 r8Hef based uwn the facts. Crowe v. H~srv. 43 P.3d 198, 203 {Sth Cir. 1999}. "[T]be motion to dismiss for faiIwe to stute a claim is vSewod with disfavor and is }arcty grautal." WtucFtrT & Mu im, FmERAt. Pst.crtce & PttpCEDtMr: CrviT, 2n J1337 at 321 (194Q}. Professors Wr'sght and Milie€ gn on to :xotc that "cDurts = Fsluctanz to cEispom of (a] capiaint on techairai grouadt to . is disfavorcd ...(A] mation to dismisa flu the basis of ft g3eutii;sgs alone shotzid razety be F.2d 2(!3, 205 (5t Cir. 190).70 Fib Circuit has observed that "dismissat of a claim on the basis of barebanes gteadings is a`gzeeart dispGsition with a high mortality rate." Kaiscr 77 F'.2d 1iS9 {5#is L'ir. 1982) allotin£ Bar v, Z Specificalty, du defendants arc Tbe Amtriaan.'tobaoco Comgaay; R.I. lteynolds Tobacco Ccsmpaay; Brown & SYiliiamsm Tobacco Caipcaration; B.A.T. Tudxutries. p.l.c.; Philip Mcrris, Inc.; Liggeit Crtlug, Inc.; Iorillarti Tobacco Campany, Inc.; United States 'i'obacco Cosstpany; Eiiil & Knowlton, Zuc.; The Couwil for Tobacco 12rseareh-USk.. Inc. (Successror to Tobacco Institute $,esearch Commitcee); and'fhe Tcbacco Instituce, In.c. 2
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STATE oF FLORIDA, et al. Plaintiffs, vs. AMERI CAt3 TOBACCO COMPARY, et $.l. IN TkE CIRCUIT COURT, FIFTEENTH JUDICIAL CIRCUIT, IN AND FOR PALM BEACH COUNTY, FLORIDA CIVIL DIVISION Case No: CL 95-1466 AH Defendants. I REPORT AND RSCO14MSNDATIOR OF SPECIAL MASTER THIS MATTER came before the undersigned Special Master for hearing on April 21, 1997 pursuant to Plaintiffs' April 1, 1997 Motion for Review of Two Remaining Sarokin Documents in conjunction With Review of Documents Designated in Plaintiffs' Designation of Twenty {Z0) Liggett Documents for Expedited Review by the Special Master. Upon review of all the papers and submissions filed by the parties, including the Defendants' previous rebuttal submission and its ex garte filings, the following Iteport and Recommendation is hereby made: This Final Report and Recommendation is made after following the procedures outlined in U.S. v. ZDZin, 491 U.S. 554, 109 S.Ct. 2619 (1989), Ia'aines v. Licaett, 975 F.2d 811 t3rd Cir. 1992), and. In Re: A.H. Robins Co., Inc. ODaZkon ShieZd° IUD Products Lsabilitv Litigation, 107 F.R.D. 2(I#.Kan. 19$5). Z note that these two documents are "companion documents" to two other documents (numbers three and four) contained in the log of 20 Liggett documents already ruled upon by the undersigned, and
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products. In order to partzeipaxe ia the Medicaid program, a state must submit for approval a plan dealing with how to provide medical assas€encc under $tc progrsm. §n 42 U.S.C. § 1396. Each plail must iualudc certain provisiossa thaE are mandated by the fcderal govcrnment, One of rhese provisions requires that a sffi* '"ta1ce all reasonable azeastue to ascertain the Iepsi liability of third garties...to pay for care and servicea available underthc gian.` ;:' 42 US.C. § t39*aj(2Sj(!s). b 8dd3h0i~ fx SM#ttfe requires that if "]78bility is fOufld to wdkj...1he $We or local ar-=y will saek ¢zuabvrguaeai... to the extent o€scuh Iegad Iiabi{ity." 42 U.S.C. § 13'3ba(a}(2S)(B). Fumity, Congress has rCqOiredthe states to "pioS`3de f9r mandatory a$SSgllSFCIIt of rLSitS Cf{paymea{ for medeea3 suppert or othcr care owed to recipients.,.," 42 U.S.C. §]396s(a)C4S3. In acesrrdanae with these provisions, the State of Texas has enaeted a pro entitled "Subrogarion" that provides that "(c]he filing of aa appiicatioa for or receipt afm COILSRUiteS 0 or by the other pexsoa's negligence or wranz." v 32-433(a}(1}. In addition, the statuteprovidss: U A separatc and distipct cause oPaaion izt favcu of the state is hareby created, and the depar{rtient aa}', tvithont•vritteu eonsent, take direct ci*r€I aotiou in aay cotut of competrast ju'ssdictiors. A suit fsougtxt under this section need not be ancillary to ordepeademt upon anyothesactioa. T8X.HSIkS, RES. C{71)8 ANN, § 32.033(d). Defendarsts arguc $;at the pmvisior the .4''t8{e with it5 CXClu3ivC Ies$Cd}' to recover MedFOatd eXpeases. "€heybsse this position on caselaw from the Texas Suprame Conrt, certain rules of statutory cansltvatioa, and their reading of § 32.033. .T'Ete 5tate argues tttat its authority to bring this suit rootccd in tha common lav and that this asatharity has rsot been supplanted by § 32,031 The State also argues that the caselaw cited by the Defendants is
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,1 of claims that Defendants m3sl.ta and dtosivect the stan: and the public regarding aertas'n.facts about the ttWth risks of smokiag dg~ with ft Intent to iaducc the State and cansinners mbaac4 products by the aitzz= of ft Statc. TI= DTPA aticgatiaus in Count Fauitoen con.vs citizans of tlse Sm. 1Yse SEate does not aliege a nexus between the State and the purchase of nac have eu[eted. F'Srst, the complaint does not dassn'~ tLc regardiag mtp uan=d= tm WbIch ft State suay have been a party. Stcxind, the complaint does not d=t'be Ww dse 3tatc was to bearff fhm ttc purchase of tobacco products, tbe traasacuon between the cftzconTevnsumecs and T7ofendaats. As in ate the Coaact looFm to-t`tsa primary PuPW- OP the SP81ISaGtkt1 at fsS4F$ and finds d= !t was nOF fBi' the bCA0f1t Of thG $tBtC. Absent aay tyge of nexus between the State and dx #aasecticn at issua, tke Sata cannat qualify as a tonsumer. The Court dismiasts Count 14 of ft S=nfl Amended Caukg2attss. traasactian dte State was allegedly indueed tc rutw, tfiau #f= are insdficient atlegati C A final paiat raised by thaDcfeadants ts tLatioutase tabaecsr is a bighly regulated ptudueL tfic courts shouid leavc the q3usdons to be resolved by th3s suit to the Iegsfattue. In the first smtence ofthe3r argument, the De&miaurs state, "[t]he Attorney Goaual asks tius Court to step into the stD= ofthaTexaslegislanm andxesvrite state Iaw,sT3 TFse Court disapus with this prt3positi4n. By allowing this case to pnxc.cd, thc Court is n*st tevtitiug any law. To the canuary< it is only based on e{uasi-Mvtteign iut=sts to proceed. In the Court's flgini a basis for suit has long faeen available to the State. Therefflie, tFns is IIot tht type of rw:HcaI depa.t#uze from treft©nal thear'xes of liability that the Fifth Circu'st frowns upon. eeJDha=son 23 jjefendaztts &ief in Support at 36. 24
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U on April 7, 1997 to the Plaintiffs. After having considered the in-camera review, legal memoranda, argument of counsel and in-camera ex parte information from Defendants concerning the thirteen (13) documents in question, the following report and recommendation is hereby mades._. 1. The Special Master has previously coziducted an in-camera 'review of approximately forty-three (43) documents for which the Defendants claimed attorney/client and Work-product privilege and for which Plaintiffs argued that the crime-fraud exception applied. Following extensive arguments and legal memoranda, the Special Master rendered a Report and Recommendation on January 16, 1997 finding that the Plaintiffs had made a sufficient prima facia showing for application of the crime-fraud exception to the documents for which the attorney/client privilege was being asserted. In order to make such a determination, argument and memoranda from the party asserting the privilege (Defendants) need not have been taken and the decision c ave been based solely upon presentation by the party challenging the privilege (Plaintiffs). Thereafter, consideration of whether a prima facfa showing of the crime-fraud exception had been made would be determined by whether or not there was a good faith belief by a reasonable person that the materials may reveal evidence of a crime or fraud. Haines v. Liggett Group Inc.. 975 F2d 81 (3d Cir. 1992) 2. Following the Court's Order of March 26, 1997, Defendants submitted a memorandum in opposition to production of the Liggett documents together with an extensive appendix for in-camera and ex parte review by the Special Master, wherein Defendants provided an
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IN THE CIRCUIT COURT OF THE FIFTEBh*IIi " A71?IGIRL CIRCUIT, ITF IN AND FOR PALM BEACH COUNTY, FLORIDA CASE NO.: CL 95-I465 AH THE STATE OF FLORIDA, LAWTON M. CFIILES, 3R., Individualiy and as GOVERNOR OF'I'HE STATE OF FLORIDA, DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION, and THE AGENCY FOR HEALTH CARE AF?MINISTftATI0N, Plaintiff(s), THE AMERICAI+i?'OF3ACCO COMPANY, et al., Defendant(s). J _ * ) X" 5) i . 4 t#3 V ~ 8 ' WO A . t a" -*16) A! 9 W a ~ * 4 WSI M . ti j # .~ 19-02 t MOM a 2 Xi 1t 1 i f U L * a7 sv- . ~~ PRG7AL MASTER {AFRII, 28,1997 REPORT AI tD MAY 30.1447 REPOR'I'}e ORI)ER. RATf§'YI pMPI SPECIAL MASIZR: ORDER GRANTI] THIS CAUSE came on to be heard before me and Recommendations of Special Master dated and The Court heard srgtmtrnts on ilie Exceptions taken ptpaant to Rzile.1.49I3(g} and (It), Fia. R. Civ. P. Prtor to the hearing on Iune 23, I947-by agrcement of counsel for all parties this Court was presented with all materials that were available and furnished to the Sperdal2.+laster in makang his determinations resulting it the Reports and Recommenda.tions of Special Master dated April 28, 1997 and May 30,1997. All matters considered by the Special Master, including all matters reviewed by the Spe;,ial Master ex-parte andtor in-camera, and this Court are now filed with the Clerk of this Court Those matters designated ex-patte, in-camera, andlor under seal shall remain under seal at the office of the Clerk of this Court to be made available to the Appellate Court for review, if necessary, and to no other entities andtor individuals pending further Order of this Court or the Appellate CatirL Many of the arguments and Exceptions taken to the Reports aforementioned are similar to those made before this Court at a hearing hnld on April 14, 1997 which resulted in this Court's Order Overruling Exceptions to the Report and Recommendation of Special Master, etc. dated April 18, 1997. Once again, this Court finds the procedure employed by Special Master Rutter (a foriner Chief Judge 0 43'ITH DIRECTIO SEL cA 1~ 0 23rd day oflune, 149? tiponn the specific Reports 1997, to. which Exceptions were taken by aIt applicable T3efmdan#s of this Circuit) was proper. Argument and evidence, including ex-parte and in-camera subm DMfsTENDATIfl
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9 ' ~ Pagc9 • {I!d[( (1Vc[N7ing F.XLCP CF.95-1i&5 AH May I, 1997 from 10:00 A.M. until Noon and from 2:30 P DONE AND ORDERED at West Palm Beach, FIo Copy frnnishetl: 2Le liainnbic A WiEEimn Itmte, 3r., SpecFd bisttcx FA. 8az 021E86 West P.Im Seach, Ft. 33401 $aSai M Mentgomccxp,7t, Fsquue P.D.IA.xu 30&6 West Pdm 8carla, fl.33402 Wspn: Hogcq Esquire ,. Hrasra, Tttrcl6, et.t 233 £sst Bay Scset, Saite S04 3.daaarlfEe, f7. 32202 mcherl Mahet. Et¢zfuc Ai&ha. {?iT= & 0jHcy 90 Easi Livingrtaa,Srits 260 Orlando, Ff. 32$01 Iidwsd lG Meq Ps*uc 25as £1ou, New Wodd Toa= 100 Dtettks Bis~ne 81vd. bhicmi.fl.33i32 IusIIss Rnid„ ErynGe . . Rtid, &Setzger & i -., PA. 250 Av.toaianAve. Suuak, SuiEe 7700 WeaPatm 8nch, FL 33401 W.G Gmky, Esqui. Cm¢y, rris77;ps, a:F' P.O. Box 837 iackwnriGc, Fi. 32201 The NmwnLdc hiui€pn seuca¢enils. C'lest ~ Diari« Coure nLAgpeal, Fourth Drsvid a 1525 Patm Snt3a Iskca Blvd West Paim Berh, F(. 3340F ~ ~j
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o, b6CL0E9$
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0 0 ccrmpetitnrs ate the parties that have standing to suo, Befi a Dow Chemical Co$47 P.2d 1179, 1183 (5th Cir. 1988). The State may be a competitor in the health vatc markcc, but that h3a" is nor the market in which trade was rssuaintd. ascc+c4arect fi•cneral Cantraetorc v. C-~--1.i ~zrs. +~59 t3.S. 519, 53s EMl (noting dat the plaiuidf "vFas ac~her a coz~vmer or r.axz~gariWr in the msirket in which r:ac~ was ras~ainrd,") `Tfsv oattrr's focus must ba upon <oatpetition in the a2tage:ily resrrainsd aaarkor.' ~ s~ura, aa 1183. lrstiagly, tho Court finds tnat t&e Stata does not 2aava sranding to assorr the sasc and Pa~erai snauu~ e4 C. 1~T`YA CL.4IIvS~S In Cottnr Faurtecn of rhe ~nd Amended ~glatat, the sfate aIleges-D~Ecz~aists violated the Texas Derc~tive Trade I'rsctieas-C~osuztmer ~gn Act ("Y?T'PA°).c° The State alleges tSzar TJefendar~s °kuowcngly s~gecl in ank ~cd to engage in, false, m~leaQiu,~ or ~ve aczs or pzactces Evh4c3a are c~aelarcd un3atvfizS,"r° and t~sar said acfivity began at least as early as the 1950s and continaes to the gz~ Defe~dasns argue that because 2tte St3te is not a°co1~smer' wich3u the meaning of the DTPA, it has ~ standing to a~ert a elaust under the D'T`PA.. The Court agsces. Se.tion 27.Wa} of the Texas Basiaess and Commer~x Code provides that °ja1 ~,~*'c* may maintain act actic;n ... jfor] ec~m~ damages ~ damages for ~nental anguisls .,.." To re~xtver under the D'Pf'A ,, t~e glaintiff must be a"cnn.~' within the meatting of the DTPA. constsmer nndar the 1Y~'PA, the gtaicstif~' must have sought or acquired fg TB`~. BUS. & CQ:~3. C'.4DE $17-41-.63 (West 1987). 26 Second Ameu3ed Complaint, Par. 334. 22
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State withitg oxclusivottme€tyw}sish is found in § 3zA33 oftheTexas xnmsn Resoures Ctsde. S= State v. guhion. 309 S.W,Zd 4(3'ex.145T} {holding that svlsen a smttue pmvides a cause of ive). This aprasaio unfus txr extusin rJterhes. In orher wnrn if exzlvaicn of all ffthcrs. 2-ce O*rls v. Sf 0 4* 711 F.2d 692, 699 (5th Cir. 1983). In fvaher support of this positioa, I3sfendanis cite the Cfla$c to WiMmsn v. Stat~ 94 S.W.2d 265 {T'ec. Civ. App.1936. tvrit refuse{I). stm involved an aaeuspt by the State ofTaczs to zecon}t fundg fiom ft escare of an insane ILdIVidi73l. These fSiW.4 had beOn eXpCAdOd to p20Yide h6s7t2RF ('ATffitentCTnf2(1 ft IIISdw ptIISSiaiit IO SSBfe,*eg.18l8Lton. Z#ie $t82C 8rVedfaSt 2hd t# Ilada CoR3II7DB law tigZ3L to ?LCOvEit2teSC fuftdsfiumtE~ rsrate. The Supz=o GotutofTaxas ze}ectedtfnsargument and stated tEtat tbe ri& pnssuanttcsKStute. Wiseman.at2Sb. Thecoartwentontoholdthat the 6tdlitto2y fiamnvloZk 4haI p24'v'idtd for the ZCfiCYery of thG9C f}3AdS was Shic cumulative and 9sTi en CoIItTOls this case, and tharefore the Statemvstuiilfzo section32,€Y33 as its exciusiYetemedy. The S#aEba=ft tha3tie rule ia.id davm in ~'tsetuaa sttonldnotagply intttis case essentially for two rtasons. First, it argues that the case is distiugaistsabla, because the State attempted to recaver fctnds frcm an "innoeeut" party, the astate of an £nsar:e individual, rather than a 4nrtfee.sor. initial W the Ikfeadanis ststa that iftbc Siate possesosaoauunon3aw right to recover iha expeaditurrs at issue i¢ this case, "it would not have been necassaryfQr the Texas Eegislature to `aseate' a cause of action..." S}cfenclants Siiefia Support af'Iheir Ivlotion. to Disaaiss, at p_ 12. There is a simple answer for the Defeudants' cancerv.. The fegisiatnro cnacted § 32.033, because they vrsre direeted to da sa pursvant ta 42 L7S.C. §I39ba(a)(4S).
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EEB, k 1998 S:14PM NAOTLEY 151MTG 4 ! N4. 4664 P. STATE OF MARYi.ANII * IN THE CIRCUIT COURT Plaintiff * * FOR V. '# * HA.LTIAXDRB CITY * PHILIP MORRIS INC „ * et al. * Case No: 96122017/CL212+187 Defendants t t OPINION A2aD ORDER OF COURT Facts On May 1, 1996, the State of Maryland filed suit against Philip Morris Incorporated, Philip Morris Companies, Inc.; R. J. Reynolds Tobacco Company; R J R Nabisco, Inc.; Brown and Williamson Tobacco Corporation; British Pmerican Tobacco Company., LTD.; Batus Holdings, Inc.; B.A.T. Industries, P.L.C.; Lorillard Tobacco Company; Lorillard Corporation; Loews Corporation; The American Tobacco Company; American Brands, Inc., Liggett Group, Inc.; Liggett & Meyers, Inc.; The Brooke Group, Ltd.; Hili & ICnov2ton, Inc.; the Council for Tobacco Research - 0 g) (4 USA, Inc.; and The Tobacco Institute, Inc. 0 ~ ~ Several Defendants filed a Motion to Dismiss for lack of ~ 0 personal jurisdiction, and as a result of discussions between the Plaintiffs and certain Defendants, the action of the Plaintiffs was dismissed against Philip Morris Companies,
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FFB, 4.1998 5 :ISPtd K 4660 Nabisco, Inc.; Batus Holdings, Inc.; B.A.T. Industries, P.L.C.; Loews Corporation; and American Brands, Inc. The remaining Defendants then filed a Motion to Dismiss pursuant to Maryland Rule 2-322(b) alleging, inter a7i,a, that all of the coM¢non law, statutory, and equitable claims in the complaint fail to properly state a claim upon which relief may be granted. The Defendants allege that t3:a cossmton law tort c1 i contained in counts 6 through 13 of the Plaintiffs' complaint cannot be maintained in the name of the State of Maryland because the Plaintiffs are limited to the statutorily imposed remedy of subrogation contained in § 15-120 of the Maryland Health-General Code Annotated. The Defendants further allege that each of the nom¢aon law counts of the complaint are deficient and 0 be dismissed on independent grounds because most of the claims there asserted are barred by "the economic loss rule" in that the state has failed to show that Defendants owed any legally cognizable tort duty to the State. As to count 5, the Defendants allege that said count is deficient as an equitable claim because the State has an adequate remedy at law, and because the State has failed to allege essential elements for a claim of restitution based upon unjust enrichment. Finally, the Defendants argue that the Plaintiffs' statutory claims, as pled in counts 1 through 4 of the complaint and based upon the Maryland Consumer Protection Act, found in 1 Title 13 of the Maryland Coascier C Annotated, and the
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1-02-1988 4:01AS3 FRflM YOLAVG Rii..EY SXALEY317 639 28M S'C'ATE C}E INF)IA3HA ) Itv= TftE DELAWARE StIPERIt}R COURT )SS: COUNTY OF DELAWARE ) CAUSE NO. i8UE11-43Q5-C2'-06 [` CRAIG DUNN and PHILIP WILEY, } CaAdministrators of the } ESTATE OF MILDRED WILEY, ) DeoCased, and PEItLIP WILEY, ) ) IndMdually, ) PlainSiffs, ) RJR NABISCO HOLDINGS CQRPt}RA'Ft4NS, RT. REYNOLDS TOBACCO CC3., BAT INDUSTRIES PLC, BROWN & WILLIAMSON TOBACCO CORP., PFi3L.tP MORRIS COMPANIES INC., PHILIP MORRIS, INC., L[GGEFT GROUP, INC., L[CiGETL' & MYERS, FNC., BROOKS CRgIIP, Ltd., AMERICAN BRANDS, INC., AMERICAN TOBACCO CO., TASW CORP., LORrr.r.dR n TOBACCO CO., 2'F1E'f##BACCO INSTiTUTE, It+tC., and THE COUNCIL FOR TOBACCO ItESEARCH - U.S.A., INC., n for a ttse Befendaats. Argamenis were held on November 20,1997, and the Coesrt took the matter under advisement The Court, now bcutg duly and sufficiently advised in the premises, Finds as foliovrs: 02/{S2 '98 15=57 P. 2
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UR A IQAR 5-15FM NEMUMY lbtMTi: 4 N0.466D P. 4 Maryland Antitrust Act, found in Title 11 of the Maryland Commercial Law Code Annotated, fail to state a claim upon which relief can be granted because the State has no standing to assert either of these statutory claims. The parties having supplied memoranda of law in support of their respective positions, the matter was set for hearing on the Defendants' Motion to Dismiss and such hearing was conducted on January 29, 1997 during four (4) hours of argument. Purpase of the Motion to Dismiss In deciding the issues raised by Defendants in their Motion to Dismiss, the Court must first briefly examine the purpose and function of the Motion to Dismiss under the Maryland Rules. Maryland Rule 2-322, titled "Preliminary tKotionsR provides ection (b) that: ^fihe following defenses may be made by to dismiss before the answer, if an answer is required.... (2) failure to atate a claim upon which relief can be granted." The Rule further provides in subsection (c) that: "A motion under sections {a} and (b) of this Rule shall be deterznined before trial, except that a court may defer the determination of the defense of failure to state a claim upon which relief can be granted until trial. In disposing of the motion, the court may dismiss the action or grant such lesser or different relief as may be appropriate. If the court orders dismissal, an amended complaint may be f%Iedd only if the court expressly grants leave to amend. Id. o dismiss, a defendant is asserting that, even
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tlenymg tmjusE earicEsmat claim because no benefit abtalaed by fraud, duress or undue advaasage)E m als-o McNair v. Cedar Park, 993 F.2d 1217 (S#h Cir.1943). The State alleges in it5 Second Amonded Comgiaiatt'ascDefendansa}saveretaiaedb=wfits to the loss aftho State, because the State W paid mcdirat costs wm`bvrablo to satokYugrctated d'is= rafberthaa the I)efentiants. Hotvever, it is ft individual sgloi= ani aa she I?eftdsats who have received the pritnary and direct benefit oftix gaymentofttuirmedical exgeases. Moreover, the State's cqxaiure cannot be said to have alleged beuefit euioval by Defendants is too In srppartofits coateittion that Defeadaats have arceiveda 6eaeft to the State sdcXrimtat, the State fiuctser atFeges that in caring for tlzovictimaafstau3sias iaTexas, whichwas isornediaieTy necessary to satisfy the reqairettients of public hraith and safety, It has performed the I}efendants' manifest datyy tJndar such eirctunstanecs, the State argues d2t recovery is pravidgd for by Restaume.nt of Restitution § 115, known as the emergeaoysssistaaee doctrine: Apersoa tvhohas pesfnrruBdtheduiyofanuttser by sctppFyicg tiungs or services, atthough actiag witkiaut tlie atheras knowledge or aonscut, is entitled ta resdtutiou fromthc othecif (a) he acted uao#fics`anaiy and with iateatus ohargc $191efor, and (b) the things or sesvices supplied were 4,nmedit*1y necessary to satis£ythe requirements of public deceaoy,haalth, or safety. The Cauit has found no c&se nor hasi3se State cited any, ia which $fiexas court has addressed or adopted this theory of restithtt[onary recovery. Assuming that this doctrine is aognizabte under Texas ta4v, the Court is in doubt whether 13efeudauts are subject to a manifest duty to pravids medical cate to individual smokers while the State concedes that it is under a legal duty to do so. Yet, in the absence of any recognition of this theory of recovery in Tesss law, the Court declines to find that it is available as a cause of action to the Stato in this actioa. Aocordia$Iy, the CsstuT
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I v. Sahns-ivtanvilta Sales Cam., 714 F.2d 581, 583 (5th Cir I9$3), cut dy-u 465 U.S. 1102 (1984 Inshiscase• the State has ssmp#y dusted offalong zacognized Itga1 theory and seekstts use it to fiuthcr thc puiposc,s of9te s[atutts In questien and tI& tha alleged wrongs involved in this . AsxsaLed previous sedious afthis opiuissn.the Ieeatawrs has failad to supplant ttus type of action. Sn the Coust•s view, the I3cfeadants Impliedly ask the Court to do wi,at they Spacifi.cally caution t7aeCottt not to do; risaagc the law absasetlegislative intcntsugpotfing such a cltaage, '[13.e costreftesto Iiiketh4sacucmandfisxIs thatf= Defsadanta' mation ahali be deaied'ua this respect. A. RE,,'ITI'ETi'TtsT+Tt[3NaUSTVWCm4iEI9T Defendants gq=j dt3{ ttlt State's claim {4TSCCEivcry tiadCC tloflLhS of 2'CS[Stutj,0I2 $CdIIIiit2SL did not plead ftt it cvnfeaed szrybeZZCftt ugoa Def=dants. The Court ag=s, and grants DefeadaaW motion to dfsmiss the State's claim of restitettion and vnjn.5t ec¢iehmetit. 31se most recent defssurio+ o£un,ja.st mii Chris6, $32 S.WId 39,41 (i`ex. 1992). In tlmt cesc, the Texas Supreme Covrt tgiaecl, "[ajujust another by fraud, dcuess, or 1fo taking of an undue ad~ emc t:aurt Is that a garty msy recover nnder the tlseozy of tsnjsist enrichment whan one pcsson 2sas obtaincd a bGncfst fcam ohm soma reoomgewe be affordad for an usJlostunate Iass." g at 42. Defendants point out that subsequent courts have sttic#Iy czmstresed this defiaition of W}ust enrichment a= W R v GSnanzark Ca%, 958 S.W.3d 645 (rex. Apg. 1993, no writ) (affirZrang paut o€summary,}udgment
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Tia.155} OF SOT7T.EI CARQISNA 1357 GrsOr1& FermaamtL.*s-I997 E20 - SECTION 11- ATTC)RIYEY GENERAF.'S OFFICE necessary personnel, in conjunction with the Departmeut of Health & Human SErvicas, to pmeess sadfer3efer suspected Medicaid fraud cases to appropriate law enforcement officials for investigation andtor legal action, as deemed necessary. 11.8. (AG: Litigatian Expense) Notwithsmnding any other provision of taw, the Office ofthe Attorney Gene[aF may obtain reimbursement for 0 11.7. (AG: Medicaid Fraud} The Atrnmey General shall provi be remitted to the general funds of the-State and a fuil accounting kept s4serea£ 115. (AG: Asbestos Abatement Litigation) The Attorney General shall report to the Senate Finance and Ways snd Means Committees on the staws of that office's Asbestos Abatement Litigazfon. 11.6. (AG: State Grand Jurors Subsistence) Jururs of the state grand jur} shall receive daily subsistence expense equal to the maximum allowable by regulation of the Internal Revenue Code for the Columbia area when sutataoned or serving and be paid the sazne per diem and mileage as are members of stste baazds, commissions, and committees. representing the State in gimnal proceedings and in resenting ihe , State and its officers and agencies in civi'f aad =y proceedings. These costs may inalude, but arc not limited itures, clTosaftons; P=Sa t[anscriP+s, and personnel cosca. Reimbursemen€ of these costs may be obtained by the Office of the Attorney General frotn the budget of an agency or offecer that it is representing or from fnnds generally appropristed for legal expenses with the approval of the Budget and Control Board. ~ 11.9. DELEI'EII E21 - SECTION 12 - PROSECUTION COORDINATION t:t}ESDIISSiON 12.1. (PCC: Sofieitor Salacy) The amouat apgropriated in Shis section for salarFes ofSotieiusrs'shatt be paid to each fuli-rime Solicitaz. 12.2. {PCG: Soiieitor Expense AlFowance} Each solicitor shall receive two hundred fifty.doIIars ($2:SQ.{If#) per month as expense atlowancc. 12-#. {PE:C: Judicial Cftcuits State Suppo:t} The amount appropriated and autborized in this section for Judicial Circuits (16) State Support shall be apportioned among the circuits on a per capita basis and based upon the official census of 1996. Payment shall be made as soon after the beginning o€the first and third quarter as practical.
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noted that oncompassed within the term °CC,mman kaowledge" are those facts that are sn wcll known to the commnuity as to be bcyosul d3spt¢c. 14.at 3$& The Stam has alleged that the public was a% pLt3~i 6: tM because the I)efeadwts suppressed TelevaIIt safety infocmatirfu to cIIe goint ttsat cmmm cmid mt k.nopr as a mauer of common knowledge the full extent of heft-risks associase3 with mmokiag and the allegtd addictivcncss of tobacco use. Acoep6mg the attegarions in ft I'#aiutiff's SCard Amended Causpiaim as mm the Canrt f-ISSd5 that YfhiiC the himm IiS$S 4f tC1bSCCD CQDSmj}t= are gftwZy knotYI2.f5 dtc addiC.t:iYe of fAb8CC4 C{}E6f2mg$tm I8 L81C gCFfCi31l}' }no{RSt due Wt!C t:f3IIca$133a= and misrep€esenta4ioa by Defendants of iis product.c as ailaged by the State. Beea= the State bas pled that I)cfoudania mfscapresenied and =cealc3 the addictivc nature of its tabaeca grodac#s, tte State bas taken its cWm outside the purview of the Act, and the Act does not bar the State's Dlaiiii9. To hold otherwise would be staiRSg bC}'Dnd doubt that the State C3In pft?YC no &8L Cf f3Cfs ia support vf its ataims wbish would mAZle it to rclie£in light offt ActL goaielv. Gi6son. 355 U.S. 41, 45 (1957) ("In appraising etv suf5ci=7 of the r.rauzglaitu ... the accepted rule (%s tfiatj acompllint shfluld not bo dismissedd for F3flttt'e to state a claim nnless it apisears beyond doubt that the pia~ can pmvc no sct of facts in support of his claim which would emitle him to reiief.') This ruliag is not incosisist= with the Act's legisladve histary, which avideoces an inteuz on the pSZE of the legislature Il£lL to Zele'm those IltaIIifBC(ATe2S or seller from ltabillrf that I " "Like the dactgeLS of atcohol consumptwa, the dangozs of cigarette smaki 1014 been knflwn to the cammmity<" Atigood v. R.I. Revntsids Tnhaccn Cc,maanv, 8t3 F.3d 168, 172 (Sth Cir,), ort. dc' i, 117 S.Ct. 300 (1996). 14 ~
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to its cit4zens under Medicaid. Fmtheuno operate in an efficient and cest-e#I`cctive metltter improves the health and welfaFe of the people of Texas3 If the 4ega'nctas of 9u eomplaiat are found to be tEue, the econamy aftise State and the v+clfaxcofits people #avesufted at the hanrls uft6e Defendants Sm s~„., 324 LJ.S. 439 (1945)(q..w..-sorae9ge, taterest.s of state in economic grosimity an3d public welfare pmvided grounds to maietaia aatiixuat actian). it is clear to the Court oua the 5taze oan maaiatainthia actiann piastzaet to Its qtmsi-savaeig¢interosxs fosmdatco¢taxon, Isw. ` IfavinS decidecdihsi: qtassi~evereiga intcie#s = st stake In this suzf„'tfto Court musc ttext address whether the State'a common law aatian has bcca ssspglanted by a stattttosy remedy that sfiautdberdeeincdcY.elusiva. ThaetsuoftheDefetdarats'argameatisttfatanycommon lawaetien the State my have I3ad'rmi no longer be pursued, ba:ause the'Cexits Iegislatuze has provided the 5It should be uotedthatTexassdate courts have also recognized thatquasi-snvereigtt sts alt4wstutostv bring actions where thehealthaud welfare nf zts people areat stakc, ft {3'ex. App.-t3a13es 1988, deiiai} (discussiug the priaciplrs 4Tbe Defendants have also atiegedtlsat tfc Supxemo Court's decision in jJntced States v. St3itSard t Cn_ 332 US. 301 (I447), fotsciosss the Statc's action to zect,ver medical expenses. In smndard oil , the Cvurthetdtlw thc fede;al gnvcaumentcrsnls€nrst racaverfzindsexgaaded to tteata saldiertbatflad been W=d inan ae:.iIcatthatiavntved the defeudaat. The Court stated tisaazthere 4vas not a):derci teanmcn tawiightta 6tingaditectarkc+a agaiast the defnn.dant. U at 314. The Court is not persuaded thaz EStandard Ctiil enntmSs this case. First, it iavolvcd the federat governmaet rattter dana state. The Cattrtaotes that quasi-sovereigit Interests ha.ce xcever been heicita be the basis fot a suit hrcuOt by the fedtSal govemmeut. Iia»2ver, as aozed abave, the Supreme Court has rccvgaized 2Isat the Statefi have such iuterests. Second, quasi-savereign interests only azise vrheaasigaificant gartion of the populace is affec#cd. See jw= at 607. Standard t}Ft only mva3vcd one ai#izea. Cieatly thiswoutci not give rise to acause crfaotian based on quasi-sovereign inteestc. 'Intheir reply brief, the 33efen~ - thstthe 8tata has, in cextain r.iz-cimtstances, Befend.aats' Regiy Brief in Support of Their Mation 6
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FEB, 4. 1998 5:15Pm NEWOTLEY 151MTG 4 W NO, 4660 P, 5 if the allegations of the complaint are true, the plaintiff is not entitled to relief as a matter of law. Lubore v. RPM Assocs., 109 t+si.App, 312, 674 A.2d. 547 (1996). Thus, the question which must be addressed by this court is whether or not Plaintiff, assuming the truth of all relevant and va21-pleaded facts, has properly asserted claims in its complaint for which relief can granted. Brief Statement of the Case be The State of Maryland, as Plaintiff, brings the present action in its o+m right to recover money expended by the state through its medicaid program to treat its citizens who have suffered smoking related illnesses. The State submits its action in a thirteen 13 count complaint alleging inter aS.ia, various causes of action under the aommon law, as well as under the Maryland Consumer Protection Act (hereinafter referred to as the CPA) and the Maryland Antitrust Act (hereinafter referred to as the MATA). Zt is the State's position that it can maintain its action by virtue of the congnon law, where relevant, and under the CPA and the MATA, The State further argues that it is not restricted to bringing an action in subrogation, but can choose to bring the action either by means of statutory subrogation or pursuant to the consson law, and that it has selected a viable alternative in choosing to bring the action pursuant to the
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PEB. 4.199$ 9:16PM ~ N0. 4660 P. 6 cotsmon law and under the CPA and MATA. In claiming that it has selected a viable alternative to statutory subrogation, the State contends that it has the right under the common law of Maryland, as adopted from the common law of England pursuant to Article 5 of the Maryland Declaration of Rights, to pursue claims against Defendants in its am name, for hazas Defendants allegedly caused to individual third-party to pursue an alterna squarely upon the premise that'the catsuaon law of Maryland does, smokers in Maryland. Thus the State's claim that it is entitled statutory subrogation rests ct, provide the alternative remedy that the State is Conversely, Defendants argue that the State of Maryland, as Plaintiff in this action, cannot maintain this suit in its present form because the State is seeking to recover money it expended through the medicaid program, and as such its manner of recovery must be as set forth under the Maryland medicaid statute, contained in Maryland Heaith-ceneral Code Annotated S 15-120, which statute sets forth the procedure by sshich recovery of medicaid funds must be recovered, and that is by way of subrogation. The statute provides as follovs: "Zf a Program recipient has a cause of ac person, the Department shall be subragated to that cause of action to the extent of any paymants made by the Department on behalf of the Program recipient that 5
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FEB. 4,1998 5:16PM 0 NO, 4660 p. 9 exclusive. One of the earliest cases to clarify and establish the law in this area was Roselle Park Trust v. Ward Baking Corporation, 177 idd. 212, 9 A.2d 228 (1939). The case involved a dispute between the litigants as to the fair market value of stock certificates after the merger of two corporations, but the issue on appeal concerned whether or not a statutorily imposed limitation that a dissenting stockholder file a claim within a prescribed period of time was mandatory, or merely directory. Quoting in part from Sutherland on Statutory Construction, § 454, the Court of Appeals declared! TMWhen a statute is passed authorizing a proceeding which was not allowed by the general law before, and directing the mode in which an act shall be done, the mode pointed out must be strictly pursued. It is the condition on which alone a party can entitle himself to the benefit of the statute, that its directions shall be strictly complied with. Otherwise the steps taken will be void." Roselle Park, at 220, 231. There are many other Maryland cases that establish this rule of statutory construction, which is often expressed by the latin sic unius est exclusio alterius', or the enumeration of one thing implies the exclusion of all others. Office and Professional Employees International Union v. Mass Transit Administration, 295 24d_ 88, 96, 453 A.2d 1191, 1195 (1982); Makovi v_ Sherwin-Williams, 75 Md. App. 59, 544 A.2d 494 (1987). The rule as set forth applies even in instances where there may be an alternative cause of action recognized under general or N
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-02-i998 d-BiPM FRDM YOtNG RILEY DUDLEY 317 639 2005 Canada, 954 F.2d. 481 (7th Cit: 1991). The Plaintiffs have met their burden. Plaintiffs have I produced enough evidence to establish a genuine issue of material fact as to this issue. 8. The standard for the ideatifying.the Defendants' products is set nut in federal ims. The standard is set out in the cases of Suter v. PlainWb have produced enough evidence to establish a genuine issue of material fact as ttrmstrortg et crL, I.P.-89-11&4-C, and Covalt v. Curey-Catxada, 950 F.2d. 481 (7th Cir. 1991). 9. 10. The Plaintiffs are not pre-empted itom bringing $failure to warn aging, under U.S.C.S. § 1334 (a) {1969). There exists a genuine issue of material faci as to whether the Defendants' products manufactured and sold were defective products unreasonably dangerous to users and consumers. 11. In order for the Plaintiffs to maintain a viable cause of action based on negligence and strict liability, it is not neoessaty to prove that the user or consumer injured by the allegedly defective product specifically relied upon the representations made by the Defendants as to the safety of the product. Knowledge or reliance by the Plaintiffs is not an element of said cause of action. 12. A fonned conspiracy is a combination of two or more persons or entities engaged in a concerted action to accomplish an amIawfist purpose or to accomplish some uniawfut purpose by unlawful means. 13. No independent cause of action exisks in tort solely upon the existence of y, however, when damages result from a fonned conspiracy to co O each person or entity engaged in the conspiracy is liable for the acts of the other conspirators P. d {}1/f12 '3& 15:57
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rWz Or6u Rc: Speci.t Mettu': Rcpwt & Rcwmmrn6u'+-w+ t1,43-it6b Akt antered hereia. In the event no further stay is entered bytt€tc Fourth District filed andtr sea€ with the Clerk oCCaurt are to be ptocl distrihutod to r.&uase€ for the plaintiffs and any other inte fX)NE.4NDORDE4tEI3at West Palm S:acEt Cogy €tuzystud: 7Ae Ifianonbk R. Wffl'nm Rexia.&.. Speetaf Maacr r-o. oex ozuss Wct PrYae Dearb. F7. 33i0t Rabat AtL i.toardo®cry. 3. Esqutrs r.a.ons.as088 r St'at Fatm 8c.-A. A. 33402 WaPae Ua[Y+i. is9u€[e 8'a.ea, Tats2i, a si 23] Fitx 8aysaec4 SnNe 904 a&S,o+u~,FL =az :.xRearoa nedy:FsaAM 3'D. Goz 1137 Cnutam0.SC23uR eSt FrF+a 0404 F7:33t82 Sdw.cQ A.1+2ea, B:rAze 25d4 €bcr. tfmr tYOt€6 Tawt €W NaA BLayneBfrl. ~ ~ id"wtdL fi..33132 A{nsry it G.m1r$ FiQ¢uc Arnetd&Porar $55232ehSnnet ' Wswflooq, t]C IW04 Nruiu Rcd. Gquus ~ Btid. MsOSn t An,oeWd. P A. 754 AsetLVlun Avt SoG6it SuAe T3Q WeE talm 9ocF. fl: S1i44 W C GeWy. Fpmae Omqy. Pfd3lspsm a.i P 4 6oz 917 f I I l.cksnnvdk. Ff 32201 QS. 19, i2:,HrI€
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smWta does not provide the Stme with its exclusive recuetiy~ B. TEXA3 PItOH'ETCT S.iA8IT.1'fI' ACT Defendants contend that tb,o State's attempt to create a direct action faiLc because the Tnxa& Ytroduct i.iabiiity Act ("t3e Att') bara lawsttisa aris€ag from personal injories or death aiiegectlp caused by the consvmprlon of tobacco products. UAder the Act, a caanz~faoctucr or seJier is sot f4able for a marking or desrgn defect ctaim if the grodue[ tu questioa ia a cosrmoze consumer product that is inhcreutjy unsafe and the cmisw= knaws €t to be inherently nnsafe. This arg== reM on the; premix that the State's alleged tguries: are derivative of the claims of the individnal snwkers' claims and as such atc barnd by the Iaagaage of zho ,Acx.3° The State alleges s=t products Iiability, breach of eapmss and 'smplicd waaabt3r, negifgence, fra[ul. and sniarepirsenradon amang hs theories of 7iability pled in the Second Amended Complasnt.'t I3efendanis a#aim that the Act esrsblishes a broat7d prohibition against mbaaxa-rP.lated sstits. Section 82.4t}9{a} of the Tcass GK PraedCe and Rrmetlies Code states that "ia a products liability action, a mssrufa (1) tle- pvcloct is i>=eatfy 1, safa sud the gtodlct is k=wn to be c€nsafe by the ordinary consumer who aonsumes the product with `The Court should mention that tWerebas beeo agrestdeat offdiscussiffn ra language of § 32.€}33(st}, qt+otedabove. 'ilta Couctaeat ttoi address fIais reiterate what has b=n atatedpxoviosssiytfistdte common law provides the Staza witte aa independent direct action and § 32.033 daes not snpplacu it ta Tsx. CRY. 2'St1.C, & REM. CODE Atarz€.§82.ftQ1-.tx}5 (West 8upg. 1997). Defendants snte shat "[ijt is uncoatrovcrtible rhat the State's claim for clamag,es 'arise our of' gcrscaal alfeged€y caused by tobacco prodstcts.*ikfendante Briaf in Suppost ofTheir 2.'Ibtiou to Dismiss, at p. l$. 's 73efendants c:ontend Ehat the Act woutd serve to bar the causes of action alleged in Cauctts 5-17 of the Siatc's Sccoud Amended Complaint. 12 ~
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1-132-1998 4401PP1 FROtd Ya1NG RILEY 200S FINDINGS OF FAG'T 1. Defendants filed their joint motion for summary judgment and designation of all matters relied upon in support of motion for summaty judgment on or about September 2,1997. Z. On Octobes 20, 1997, the Pla4ntiffs filed their response to the defendanbs' motion for summary judg¢tent, their designation offacts and issuts and other supporting documentation. 3. On November 20, 1997, a fiearing was held before the Delaware Superior Court. Argwmnts were made by the Defendants in support of their motion for summary judgment and 7ean Lavengood. These affidavits establish that the Pleinti#W decedent was exposed to heavy by the P1ainEi#fs in opposition to the motion for sununa:yjudgment. 4. The Plaintiffs provided cvidence from the affidavits of Mary Jane of environmental tobacco smoke. This evidence was not rebutted by the Defendants. 5. The Plaiatiffs provided additional evideacc fmm the affidavits of Beth Brewer, 3ean Lavengood and Ivlaty Iane Slaughter. These affidavizs placed products from each of the Defendants in Building 16 during the relevant time period. 'fhis evidence was not rebutted by 6. The PlaintifT; have through the affidavit of David M. Bums, M.D., made a prima facie case that the Plaintiffs' decedent was killed by environmental tobacco smoke. This evidence was not rebutted by the Defendants. CONCLUSIONS OF LAW 7. The applicable standard for the determination of exposure to envitonmental tobacco smoke is found in the federal ca.ses construing Indiaaa law in asbestos alaiens. The standard is set out in the case of Surer v. efnrzrtrong, et a1., 1.P.-89-1189-C, and Covalt v Carey- P. 3 -£31r(T2 '98 25:57
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or 3suuage was a reasonably foreseexble cpnsequenux of the acz or om'sss'ioa." tLS. H'zfxk Cszcuit €Tssaiot Judges Ass'n, PA'risxrt ItjicY Irtscxtscricuvs (CavsL CASE.S) 112 {I995), W als4 CSg1e v. &ell Oil Co., 913 F.Snpp. 490,494 {E,I?1`ex. €995}. sttionalIy speaking, proAmate tat3se emhad'ics "isleas ofwhat,jttst3oe dernaads, orofwbat is adminisaatively possible and conveafeut" Y,'. KtCI-Ox, ET ht.., FRpSSEtANpKEEt'flri ONTHE €.hW OFToxiS § 4i, at Z44 {St€t ed. € 984). Fmbodiedintfie e0XMOPto€}VoYdmate eauseis dse aotion ibat aplahUffmust assstt a direct [e€atiousltip between the iujmp it claims to have sufyeral and the allegedly Iajuriovs conduct Iiohssesy SjmxjfimIavestar'Ptozrfxioa~, 503 ii.S.258, ZG8 (1992). It has $ezeraIly beeuleld that such a mWoaslsip cannot be established when "a glatatiff .,. camg€ain[sj of Ibatm flovrittg snrzelyfrom tdse3nisfor0utaesvisited tpon a th3rd person by thecle#'endsnt'S act..." at 26& 359. Such an injucyis consideted to be too rtmatem i whea de2eminingwh.etkera Plaffitffs znjnry istoo remote. F3zst, the lcss direct an ittjnry is, fhe more difficult it tvili be to auritaute dsmages to the coadtect of the dtfessdsnt as opposed to other faemrs. Sawod, sS,Iaw;ng"ind'ncct s€riuus" t~gmceed creausariSit ofmaltiple rnaoveries, bec~use the potential }slasati€iffs that are twtgerEiss#o apazliauiar astionmaysouudaysue In thniroarn right Finally, these remoteuess concerns genexaI€y do not arise vrhaII those directly injttred bnug s2t`€t because they can be counted onto='vssedicatc the iawas ptzvatesttarneys geae=al:' X at 269-274. At the outec, the Coars:mccs that tlaedefinitton of'puo}aumse caase" efted above could be satisfied by the $#afe In addition, a finding tltat the Injury allegedly sufferec€ by the State is tu the Holmes opinicra, the 3ispreme iliiy. Thm*fore, the Court must focmt its attention fln, the three concerns outlined ut lmes to deeide whezher the injtir`ies assetted in this matter are too xemote. 16 ~
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FEE. c 13H 5:16PM 1, 7 result from the occurrence that gave rise to the cause of action." Id. Defendants contend that where the legislature has created a remedy by statute, the statutorily created remedy is deemed to be exclusive and that the State is therefore limited to the remedy created under the Maryland medicaid statute. Defendants further argue that the State cannot maintain its common law tort cliams, in their present form, under the common law of Maryland, because under the common law of England, a plaintiff could not maintain a cause of action against a defendant for injuries that the defendant may have caused to a third party. Thus, Defendants argue that subrogation is the State's exclusive remedy, and to the extent that the State has failed to plead its common law tort claims by means of subrogation as set forth in the medicaid statute, it has failed to state a claim upon which relief can be granted. Consequently, the issues before this Court are as follous: I. Is the remedy of subrogation as set forth in Maryland Haalth-General Code Annotated § 15-120 the exclusive remedy available to the Plaintiff (the State of Maryland) in"this action where the Plaintiff seeks to recover reimbursement for funds expended through the Medical Assistance Program for the smoking related illnesses of program recipients? II. Does the Plaintiff have a cause of action under the common law of Maryland to recover in its ovn name for injuries allegedd to have been caused to individual rty medicaid program recipients by Defendants? I
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disIICisses Couat Nine afthe Second Ameuded Camglaint. B. PUBLIC NUMAl+i'CE The Stase aticges !n Count Tett af the Second Ara.atr3sd Cnmpiaint that 1)efeadants bave ,s namely ttLat the Elefendants imgropedy used th* own gmpecty, or tFd tho S= 4a mcka= and have caused daatage to the public heatth, thapublic sakty; and the geugaall weifffie of the citizens of the State of7em I3efeadanis argue that the State has not gkrf a proper claim far gublicmilsiaaebemso it}sas Fai2ed to plead ==tlat Oagatiaus mider Texas public nuisance law, injured in itsusro or emptoyuxsntnfitsgzvportp. The Attorney General in Taxas is aeichotired to hring suit it nuisance i of any place for certain, specifin prosczibsd act€vtties such as r. aid abate aa public 25.021 ss the uae inpF piostitution, astd_ the manuiaet=af obscene sn.aterTais. "Where an actionto ea}o3nanuisazzce is brought under sEatutvry authority,.the oase is limited to the pmvtsaons of the statvte. The oatp activities which uuy be enjoir,cd a:e thase which fef2 within the psvvisiona of the statute uvctn vthich the atsplication for plead essential alEegations under Texas public nuisance law, Spccificallp, the State failed to plead Court agrees cvith Defendants t.kaz the State has not ple{t a proper alai a the atIepki.aas mada in th.e prescut case, the St'ate may not maintain an action for iujunctive relief gursvErnt to § I25.022. Neithea may the State m4ntain ap ac#foa for damages undet a public nuisassee tireary. The Hecause none of the proseriW aetivities defined under this stutdory srhemt .W2d 679 ('Per. Civ. 27 I
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nfC-tJxc~ IN THE CIRCUIT COURT OF FIFTEENTH JUDICIAL CIRCtSIT, IN AND FOR PALM BEACH COtfNTY, Fi.t3RIDA CASE NC3.: CL 95-Iti66 AIi THE STA Individually and as DEPARTMENT OF BUS REGULA?'ION, and THE AGENCY FOR HEAL CARE ADMINISTRATIC3N, pI8lntiff(s), vs. THE AMERICAN TOBACCO COh+lPA2+TY, et at., Defsndent(s}. and it is estoretl herein rattfying and tra#Iirning the report of the Special Master and overruling their objections. The temporary stay entered herein is effective immediately and siSall expire autarnaticalty without ftrthuu or itur of this Court at Noaa, Friday, Augexst 22,1997 tsniess and until the Fourth District Cotut of Appeal extuids the stay n . y ~ . Is ED that this Court hemby enaers a tempnrery stay enabling the Defendants to atek-an addttioaal stay from the Fourth Distriot Court of Agpeal in the everu they seek to agpeal the orda Received T'ime I
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4-02-1988 4:02Ptd FRG1*4 YdxAVG RILEY IX.Ci.£Y 317 &39 2005 F.5 causing such damago, aot just those acts in which the particular individnsl may have participated. 14. 'yhem axists a genuine issue of m&terial fact as to whether the f3efeadants knowingly participated in a conspiracy to market, sell and distribute a defective product 15. tesen these tiheories. 16. The MoSX3Il for.S°IItfiIIlBty J should be Deruo3. IUDGMEN(' IT` IS THEREFORE ORDERED, ADJUDGED AND DECREED by the Court that the Motion for Summary Judgment filed by multiple Defendants is heaeby DENIED. I I I XC: All counsel of record Oz/02 '98 15:57
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FEB. 4.1998 `:l6PM 4 III_ Has the Plaintiff properly asserted a claim for restitution based upon unjust enrichment? Has the State properly asserted a cause of action pursuant to the Maryland Consumer Protection Act, found in Title 13 of the Maryland Commercial Law Code Annotated? Does the Plaintiff have standing to seek equitable relief, civi3l penalties and damages for Defendants alleged antitrust violations under the Maryland Antitrust Act, found in Title 11 of the Maryland Commercial Law Code Annotated? The Court will address these issues accordingly. Discussion I. is the rem,edy of suhrogation as set forth in Maryland Health-General Code Annotated § 15-102 the exclusive remedy available to the Plaintiff (the State of Maryland) in this action where the Plaintiff seeks to recover reimbursement for funds expended through the Medical Assistance Program for the smoking related illnesses of program recipients? The remedy of subrogation as set forth in Maryland Health- General Code Annotated $ 15-120 is the exclusive remedy available to the State of Maryland in seeking to recover reimbursesent for funds expended through the Medical Assistance Program for the smoking related illnesses of program recipients. The general rule under principles of statutory construction is that, absent a legislative intent to the contrary, the statutorily created remedy is deemed to be exclusive. Statutory Fiemedies'Are Generally Deemed to Be Exclusive Maryland courts have reiterated time and again the fundamental principle that, absent clear legislative intent to the contrary, statutorily created remedies are deemed to be
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atsd~- .~~~e, and t6e langctage of § 32.033 does not avidencE an }rntmt on tt[e part oftha Texas legislaUazt to pmvi8e an ezalusiva remody. The Court must statt with ihe question of wltettrr.r the State could maintain this action at comanors law in the absence trfauy sfautory proviston im otftertvrerds, ifthe Mediraid stalvte did not require the sta= to seatutim6uiseuseat, could a state pmtxed as the State of Texas Isaa in Us matter? Based otatFiaSupreme Conrt's deccsz oIIiulsifrZd L. Sa_ak& A€sn. Iac. v. Puerto eo.458 U.i1. $92 (#9s2}s the Court concludes that the StzSC could W= such an action. contravention of Yari E be mai¢~ the Court cI35~.°1tSS@61 in dEgt)r `1 9 gII"i iaterzsis as a basis furstaws to bring suit in the absence ©fspiutorg Quasi aovcccigu iutereo are to be distinguished finmG a 's general 6cT['P.rBigi or proprietary intarests. `°Phcy consist afa set of iztterests that fb SM has in the weEi-beiug of 4ts populace.' jA at 602. These itrtercsts raa relate to eirhcr tt~ ;pFcysisaP arec.tinamic we1l-being of the dttzunr~, tdU at5fl7. It is without question tFsatthese iaterests caacvolve audchange with time, and as such,tle Coiutmada vaty clesr its desirato mainta'sa adefuiition that is conducive to a case- tsy-case saal;ysL& The only hard and fast rutz ara fozt#iby the C4tu[ ist6at a State may not invoke this doctrine whta it is only anvmiaai patty assufing the ituerests af anot@ser. Id. Inshe instantcase, theC,ourt finds thatthe 3tate has scRforthIl avMieszt interest to ntaiutain an aatitcminirs qussi-sovereign rapacity. First, it is without question that ihe State is not a nominal party to ttsis suit. The State expeuds millions of dollars each year in order to provide medical earc
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T3t cotut begaa its analysis by rradiagthe fcderal and iast:uctiva r}so £act tSat the federal goveramont was atSowed to puxs= a d4Tect attian to =overfcusds expended psusnaai togrogmus such asMedieaid.' Also, it looYed at the mandatory nature of the fe3sra1 stata#e that dira.Ked tbe Srazo to seek re€albtusenrent Based on t'n.ase two "grcccsufionary measuFe insliTa{ed by the naanna in wiriw fisa State could cthasvisc pmoeed~Ia thu t is coffsiscent vvitii and Ysnbrstte purpose ofihe Medicaid tsgmbsuserueat provisiorss. 8asecid on the foregoing dis;ussaon, the Court rejects the agglisa#fan o€expressirr wtius to § 32.033 of the Texas Iiumsri Ftcsoartra Code. Stca= this madm was the baszs for the casut's dec`siou in wiseman6 that cass is also rejected. To s=+=7A jhc Court coacfudns tHatttaa manner in wfiic3sh iht State seeks to proceed is rooted in the comtuon law. To prevent the State imm pmceeding itt$togresnnt manttor does not further the purpose of the Medicaid reirubursameat Pavisi~ous, rather it htnder ia. To adopt the Befondants' posiztan, tlris Couit would have to ctsxerms`zze that Cong= and the 2`wXas l8gislature antitigated the reim6ur6eaaten# issues raised by this aase, cc= oommon law cause of action, and dezermined that a submeation the s4ence oFthc Statc's proceed itt all irimaw^. This is too much to ask. V Stares posiYxon)Ehat sha presence of a stantary right zscrrmafly does not extinguish tzottstarittorV rights is mnn rm,c,Saent with thc spuis of the reim6urs~cn~rcyisioss of the Medicaid ssacntc. The Texas legislature has not clearly evidenced au intent to create an exelnsive remedy in § 32,033, Therefore, the Court finds that the `See 42 Li.S.C. § 2652. 10
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rcek,Eessty without any knawledge of the truth but as a po a by che puty; (5) the garty acce<f in reifance zpon tlre ZCptCSeitt'dti€!Ai (6) the party theob'f $t1ffCSed SCt~S3ty. Q2'WfQfd E2it$ITlQ eQ.'OmWall CO. v, LW. Bate.aon Co.. 85'tP.2d 4&1, 985 (5th Cir. t488j, M deaie3.48$ i7.S.1tt33 (2984}. . raamessIngt}sss cha3Ieage to the sufftancy c+fthe StatL's plCadtng of frau4, the Couzt bears S a claim unless it sppears be}rorid doubt that the plainttffcaa {smva no set of facts in sugpozt of his icL S.Ik noicorivmcedslt2tthe Ststeeaaprave no set of facts th= would cacsftte a matetial repYcsentaziaa on the part of Dafeudants that would esuitle the 5trt: to tecovzr. 'Ffmfare, the Court dcnzes Defeadams' Motion to I?ismias with respect to Cvsints 2'we#ve and Thirtean. V! C€)hIOL-UIfIN 0 ffie Taxes Ikceptive Tta3ePzacfi ft sud stase ea#itrust laws; PioteC4on.Act£ test[RttiaBltmjvStecuiCFuneut pssb2ia ' Iit4tKfI13 to diS&m in all OCti£I3CSgeCL9 are dcilicd. ~~~ SIC'~PdE17 TIiI3 ~ DAY OP SEPTEN4BER,1497. 30 I
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FEE. 4, 7998 5:19PM AtO, 4660 P. H harm inflicted upon a third party u.S_ veteran of the army. The District Court held that the federal government could not rely on Maryland's hospital Iien statute to recover from the Defendant tortfeasor but that, pursuant to regulations of the Veterans Administration, it had to rely on the right of assigrmontf subrogation created therein. Because the soldier refused to assign his independent right of recovery from the tortfeasor to the federal government, the Court h2id that the government could not maintain its cause of-aCtion: "The operation of the Geterans' Administration regulation, intended to allov the Government to recover from tortfeasors, is conditioned at least, and expressly, on the voluntary giving of an assignment of the veteran's claim, which assignment was not given in the instant case. Absent federal legislation, or regulation promulgated under the authority of such federal statutes, no action can be brought against the tartfeasor or against the tortfeasor's insurer." Id. 333-334. ^ Finally, in National Railroad Passenger Corp_, supra, the Court reiterated its repeated and consistent earlier holdings and made it clear that Plaintiffs' cannot interpret statutes as creating causes of action other than those expressly given- Sn National Railroad, Plaintiffs' tried to persuade the court that they had an independent right under the Rail Passenger Service Act of 1970 (RPSA) 45 U.S.C.A. §S 501 et seq., to bring claims against Amtrak for grievances other than those expressly permitted by the statute due to some sort of "implied" right 15
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FEE. 4. 1998 5:I7FY NAPYoTLEY i5IMTG 4 10 fd7. 4660 F. il -~ ~ i H Thus, even in instances where there may be an alternate remedy at common law, the statutory remedy is presumed to be exclusive. The State cites Miles La.1as.. Inc v. Doe, et al., 315 Md. 704, 556 A.2d 1107 (1989) for the proposition that cos[srton law rights cannot be abrogated unless a legislature does so expressly in support of its claim that the medicaid statute does not negate the State's alleged right to pursue their claim under conacon law, However, that proposition is not accurate. The Court of Appeals merely said in Miles ^that repeal of the common law by implication is not favored." Id. at 723, 556. The State fails to acknowledge the fact that the Court says this is so merely because statutes are ordinarily drafted in such a way as to provide specific remedies, thus there is no need to "guess" whether common law rights have been superceded. In addition, as discussed in.fra, Miles is more illustrative on the issue of the Court's reluctance to alter the oomamon law of Maryland by judicial decree. Likewise, the State's use of the Court of SpQcial Appeals' holding in Roberts v. Total Health Care, Inc., 109 Md.App. 635, 675 A.2d 995 (1996) to support its proposition is inapposite. In Roberts, the Court merely affirmed the right of the State to assign its statutory subrogation claims to a third party, The question of whether or not the State could purse independent 10
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FEB. 4, 1998 S:I BPM Special Appeals reached the same conclusion and upheld the rule F as established by the Court of Appeals. 0 In Magan, a physiaian filed suit against an insurer for refusing to insure him under its duty to insure licensed physicians. The doctor based his claim upon what he asserted to be a cosrman law cause of action. The Court heLd that no common law cause of action existed to recover damages for an insurer's refusal to underwrite an insured and that "since the only underwriting obligation that exists is statutory, Magan's remedy is limited to § SSA [oP Md. Code Ann. Art. 48A, his statutory resnedy]." Id. at 309, 506. The Court then concludes its opinion by restating the rule under principles of statutory construction that, absent a legislative indication to the contrary, the statutory remedy is deemed to be exclusive. Id. at 310-311, 506-507. In applying tiia firmly established rule to the present case, clear that the remedy set forth in the Maryland medicaid statute is deemed to be exclusive. Furthermore, under the rules of statutory construction, the State is even more conclusively limited to the statutory remedy of subrogation if, as discussed infra, an alternate cause of action at common law does not exist. Altering Cocmnon Law Rights Is Frincipally a Legislative Function Altering comnan law rights, creating new causes of action, and providing new remedies for wrongs is generally a legislative 12
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FEI 4, 1998 5.20PI€ NElraOTLEr 1S1MTG 4 9 NO. 4660 limited to the specific statutory remedy for the kind of conduct alleged. The decision of the Court of Special Appeals was fully upheld and affirmed by the Court of Appeals in Makovi v. Sherwin- Williams, 316 Md. 603, 561 A.2d 179 (1S89). The rule as applied to the present case clearly indicates that the State is limited to the statutory remedy contained in Maryland's medicaid statute and that it is the role of the legislature, not the courts, to create an ind cause of action upon which Defendants may be sued. Nothing in the madzcaid statute precludes the State from asserting the common lav claims contained in Counts 6 through 13 of its complaint, the statute merely directs that the State must pursue those claims by means of subrogation. II. Does the Plaintiff have a cause of action under the common law of Maryland to recover in its oyn name for injuries alleged to have been caused to individual third party medicaid program recipients by Defendants? The State does not have a cause of action under the corrmon law of Maryland to recover from Defendants in its own name for ies Defendants allegedly caused to individual third party medicaid recipients. Under the coscnon law of England, as ra law of Maryland, a plaintiff did not have a right to recover damages from a defendant tortfeasor in his own name or of his own right as a result of a defendant's injuries to a third party because the damage was too remote and - 19
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FEB. 4.1998 5:I9PM NES~OTLEY ISN'FG 4 0 NO.4660 F. 18 the role af modifying or altering the comnan law of England as adopted hy Maryland rests solely with the legislature. Article 5 reads in pertinent part: "That the Inhabitants of Maryland are entitled to the Common Law of England, and the trial by Jury, according to the course of that Law, and to the benefit of such of the English statutes as existed on the Fourth day of July, seventeen hundred and seventy-six; and which, by experience, have been found applicable to their local and other circumstances, and have been introduced, used and practiced by the Courts of Law or Equity; and also of all Acts of Assembly in force on the first day of June, eighteen hundred and sixty-seven; except such as may have since expired, or may be inconsistent with the provisions of this Constitution; subject, nevarthaless, to the revision of, and amendment or repeal by, the Legislature of this State." Md.Const., D. of R., Art.5 The Court of Appeals has construed Article 5 of the Declaration a i C of Rights to mean that appellate courts are only empowered to alter the common law of Maryland. "when, in light of changed conditions or increased knowledge, the former rule has become the circumstances of modern life." Miles Lebs., Inc., supra, 315 N.d. at 724, 556 A.2d. at 1117 (1989). one significant example of where the Court of Appeals did alter the coicenoh law of Maryland by judicial decision was in the area of employment law through the velll known case of Adler v. American Standard Corporation, 291 Md. 31, 432 A.2d 464 (1981), where the Court declared that the common law was no longer suitable to the circumstances of Maryland citizens in that the employer was acting in contravention of clear public policy in an 17
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0 Pag< 2 :ob~ ordw CE.95-ti56 AH ted at extensi ve hearings over several months to the Specia3 Master who undoubtedly now has more exposure to all documents and submissions concerning the tobacco inductsy than any other jurist in the nation. Special 2viaster Rutter has reviewed boxes of materials and documents as reflected in his Reports. In addition, this {',ouR fJnds Special Master Rutter was correct as stated in In fact, i1ligliait in Special Master Rutter's Reports is a finding that goes beyond the "in futthesance° tonacco attorneys were not simply edvZsing bat acntalty ptmutBng. Judge Rutter's fmdings went beyond simply finditig that each and every commnnication was "elosety related" to crimeffraud. 'tYse Reports and Recommendations of Special Master Rtrtter utd'icafe a finding of acturtt partfcipatian and that each document was submitted to °document, by document anafysis." The Court finds that the requirement o uirements of Rule I.49C}, FIa R. Civ. P. s et in conjunction with the Special Master Rutter had a uniquely extensive record before him in making hts 2;8ports and Rec:otntnendations~ The Court cannot find that Special Master Rutter was erroneous in his conclusions. It is therefore ORDERED AND ADJUDGED that all Exceptions to the Reports and Recommendations of Special Master Rutter dated April 28, 1997 and May 30,1997 and argued to the Court on June 23, 1997 are OVERRULED (w ith the exception of RJR Nabisco's, et a2., Exceptions which have been remanded to Special Master Rutter for fiirther hearing under separate order). It is fttrther fl Reports and Recommendations of Special Master Rutter dated Apr2l 28, 1997 and May 30, 1997 are hereby ratlfied and reafi'itmed (except for the remand noted above) and all parties are directed to comgly with the recommendations contained therein. All documents as set forth in x the Reports are to be released ie thffPlaintiffs for filing in the Court record of this case FflRTIi'WI'I'H subject to the Stay Order entered by this Court as set forth LeForv It is further ORDERED AND ADJUDGED that a Stay is hereby entered concerning all directives inAhis Order (with the exception of the remand aforementioned) for a period of five (5) business days from today's date Defendants file a Notice of Appeal in the Appellate Court from the Orders entered herein within the ftve (5) business day period. In the event the Defendants file a Notice of Appeal as directed herein, the stay entered herein shaIl automatically continue pending further Order of this Court or pending further Order of the Appellate Cocsrt In the event no appeal is taken within the allotted time the stay entered herein shall be automatically lifted without further Court Order. It is further ORDERED AND ADJUDGED that the Appellate Court is hereby once again notiti this case shall commence on Friday, August 1, 1997 notwithstanding the publicly announced "Global Settlement" concerning the tobacco industry and the Plaintiffs and Defendants in this cause. As previously announced in open
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FEB, 4, 1998 5:18PM NEOCTLEY 151MTG 4 No. 4660 P. 15 right to recover damages under such circumstances. The Court emphasized that it was the role and responsibility of Congress, as the legislat e , and not that of the courts, to create an independent cause of action to enable the federal government to recover. The Court rejected the Government's argument that such a right should be created by the Court itself and declared: "Whatever the merits of the policy, its conversion into law is a proper subject for congressional action, not for any creative power of ours. Congress, not this Court or the other federal courts, is the custodian of and most often the exclusive arbiter of federal fairs...In view of these considerations, exercise of judicial power to establish the new liability not only would be intruding within a field properly within Congress' control and as to a matter concerning which it has seen fit to take no action." Id. at 316, 1612. In response to the Supreme Court's ruling in Standard Oil, Congress did create an independent right of recovery for the federal government in such instances under the Federal Medical Care Recovery Act (ENCRA) , 42 U.S.C. S 2651. Therefore, Congress properly discharged its responsibility to create the independent right sought by the federal government and confirmed that it was_ not the function of the courts to do so. Similarly, in United States v. Harleysville Mutual Casualty Compan , 150 F.Supp_ 326 {D.Md. 1857}, the U.S. District Court for the District of Maryland held likewise when the federal government attempted to recover from a defendant tortfeasor for national purse. By the sam.e token it is the 14
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FEB. 4. 1995 5:17?td NE4PC1?`I,EY i51MTG 4 N4.46n0 P. 12 common law causes of action in addition to the statutorily created remedy of subrogation was neither raised nor addressed_ ConsequentSy, the general rule still applies: when a legislature establishes a remedy in the clear language of a statute, that remedy is deemed to be excinsive_ atatutory Remedies Conclusively Deemed to be Exclusive Where No Alternate Remedy Exists At Common Law There is no doubt whatsoever that, where no alternate remedy exists at common law, any remedy created by statute is deemed to be exclusive_ In White v. Prince George's Co., supra, the Court of Appeals concluded that, despite the plaintiff's claims to the contrary, under the common law of Maryland no cause of action could be maintained to recover taxes paid in error under a mistake of law. Id_ at 266, 651. The Court articulated the law in stating: 1 "In other words, the question of whether the Legislature intended a particular statutory remedy to be exnlusive only arises where the claimant is pursuing a possible alternate remedy. Where the type of action which the plaintiff is attempting to bring as an alternative remedy to the special statutory remedy simply does not lie, logically no question of exclusiveness arises, in such a situation, it does not matter if the special statutory remedy is deemed inadequate or if some other exception to the general rule is present. If the only remedy presently available to a plaintiff is the special statutory remedy, that remedy obviously must be followed." Id_ Similarly, in Magan v. Medical Mutual Insurance Society of 81 Nlci, App. 301, 567 A.2d 503 (1989), the Court of 11
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U FEE, 4.1998 5;1aPm K 4660 P, function, not a judicial function, and vhere a statute provides a remedy, courts should not interpret the statute to subsume other remedies. National Railroad Passenger Corp. v. National Association of Railroad Passengers, 414 t7.S. 453, 94 S.Ct. 690 (197II)- This principle of restraint on judicially created causes of action was established by the United States Supreme Court and has been consistently applied in all jurisdictions, particularly in Maryland where, as reflected in the discussions above, Maryland appellate courts have refused to create new causes of action that did not exist under common law, particularly where remedy has already been created by statute. Perhaps the most significant and noteworthy Supreme Court case establishing this rule is United States v, Standard Oi2 of California, 332 U_S. 301, 67 S.Ct. 1604 (1947). In Standard oil the federal government brought suit against the defendant oil company for datnages as a result of tortious ies the oil company caused to a third party, who was a soldier in the artny, thereby forci pay the medical expenses of the soldier maintaining his salary, desp ral government to loss of se n to s. Although the Supreme Court recognized the fact that it may be wise fiscal policy for the government to have the right to recover in such ces, it also acknowledged that there was no common law 13 a
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its RICO claims or it wi21 g'aaf a jtadgaem: as a matter of 1aw under Fed. R. Civ. F. 50. ?.dditionatly: pmdm8 liulhor rdw8 bY Us Com the Fisiutt$ in Presmting evidattee on its CUbi% Sball not TC{~{Er to the DCfend&IIL4t conduct as OOStStiLUtf.4$ "OSlTl1t238l ads" `6S'dC~L2tC[IIIg aetivity," m` any atker ssmiiar characterization. Tfsa ds;eger of mdmr grejttdice wAuch may result from aFzy S11G}7. COIiBlt2$01} CbWi$ctn77$2im fi2 D13CtYey+a any pSAOShYC value flty IIIW }3aYC. III fltldiIIoII, l'.n,..+`+$ futibt3` rfSlm$ b}'iW5 E43AIL,1T1C plS2ntiff sb all ZiS3kA 3io tCiCTltiOII of any pOI8IIEE8j cl3Ft/IS Ar auvgod YIOlafIGflS tYf RICO in thG]tlF~j'S pIL''368C0. '%r6 dIC above i;t3jldltlOfLY.thE Court dCll1CS DcfimdwTS' II3Bx10Il to d=dm tb2 RI{D ctiitf135 of the Second AIIICdilCd CoII3j3la(tIC. }1, FEDERAL AND STA'1`I7 At+"i#1ItI15'I` CLADS I violated federal and scaxe auti[rsus laws by unreasonably resttrainirg mark= for tobaceo and health csre." Defendaats conrand that these claima must fall bnoausc (2) the Srarc bas uot sc:ffeuti an antitrust in,jury; a) the State Is not suiug as a consumer, competitor, or Qtb.er pardcipaat ht the Texas cigarctte nmimt; and, (3) the 5tata iS not a direct pnrchasar as rcguirvd by Tllizro4s jiAck Ces, v. Misttsis. 43T U.S. 720 (1977). The Court finds I)efeaduttrs' first and dsigwd to prcvem Ad=ss iam, a cmmpment of the standing iaguiry, is and Cozsata 'Four and F'iva of the Secaud Amonded CMnplaitZ l3S".4.WS1L finds •••a• the State 13EL no1mutc~ yi;ft wN of iffjury SSSLi aWdLLLLOi laws were SCCi7W argumiCIIGS jlCrSii3&i `$peci£'ieatty, she Stata atlegss T)efesitiatus violated 15 Lt.S.C. §i and T£K. BUS. & COM, CODE §15.05(a). Texas antitrust Iavr is hazmanized with federal amirfusc law, and the same analysis will apply to both feclfrat and snte claizns. Abboff T.abs. Sne, v. Segura, 907 S.W.2d 503 (T'ex. 1995). 20
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FEB. A" l99$ 5: i7PM common law in Maryland, 0 t particularly applies in instances where there was no recognized cause of action at conanon law. In White v. Prince George's County, 282 Md. 641, 387 A.2d 260 (1978), Plaintiffs filed suit to recover an excess of recordation taxes that they had accidentally paid, claiming that they had a right to do so under the common law of Maryland, in addition to the remedy which was provided by statute. In concluding that Plaintiffs' were limited to the statutory remedy for the recovery of such taxes, the Court held: "Where there exists a special statutory remedy for the resolution of a particular matter, as well as an ordinary action at law or in equity, whether the special statutory remedy is exclusive, and preempts resort to the ordinary civil action, is basically a question of legislative intent... In ascertaining that intent, it is a settled principle of statutory construction that, absent a legislative indication to the contrary, it will usually be deemed that the legislature 3.ntended the special statutory remedy to be exclusive. id. at 265, 649, The Court, in essence re-affirmed its original holding and reasoning in Roselle Park Trust, supra, where it stated: "But when the proceeding is permitted by the general law, and an act of the legislature directs a particular form and manner in which it shall be conducted, then it will depend on the terms of the act itself whether it shall be considered merely directory, subjecting the parties to some disability if it be not complied with, or whether it shall render the proceeding void. A statute that directs a thing to be done in a particular manner ordinarily implies that it shall not be done otherwise." Id. at 220, 231.
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I FEB. 4. i998 5:20PM xEWTiEY 15tMTG 4 ~ Na, 4660 P. 21 indirect a consequence of the act of the wrongdoer. At Common Law, Plaintiffs Had No Independent Right of Reeovery Against TortfQasors for Injuries to Third Parties At conunon law a plaintiff had no right to recover damages from a defendant tortfsasor as a result of the defendant's ries, harm, or lack of care to a third person, regardless of the fact that the defendant's actions may have put the plaintiff to what otherwise would have been unnecessary or increased expense. The best case on point to reflect this principle is that of laid, il Metc, 290 {16C6}. In Slaid, the plaintiff had agreed to provide and pay for the medical expense of all of the goor people in a small town. The defendant's wife conunitted a battery on one of the town paupers, which resulted in the plaintiff's being put to increased expense for the pauper's medical treatment as a result of the defendant tortfeasnris battery. The Court of Loapnon Pleas dismissed Plaintiff's claim upon Defendant's demurrer, and in affirming the decision, the appellate court held as follows; "It is not by means of any natural o between the plaintiff and the party injur plaintiff sustains any loss by the act of defendant's wife, but by means of the special contract by which he had undertaken to support town paupers. The damage is too remote and indirect ... That there is no precedent for such an action, where there must have been many occasions for bringing it, if maintainable, is a strong argument against it." Id. at 291. 20
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purrhase or Itase. Trx. Bus. & coia. Code Atsu § 17.45(4). `fbo goods Or t or kased =9 be the basis of the comgasiat. MeDufft v Biassmaame s83 s.W.2d 329 {7tlz App. i}ias. 1994, umr denied) "I)itact conuaeaual privily betvten an individual and the dcfcndaut is avt a tansideaacssn fn dcwrmmmg an tndividnsl's stafus as a consumer under the DI'PIe,." Watl3ora v. Seexs. Raebuck & Co., p'fU F.2d 1420. 142[ (3Lh C3r. 1992). Itaiflu, caasumer staus is d=mined by facusiag on the iudividsuf's re#atiaushtp to thz transacticsn. id. The Toxas Supstune Court has held tbac acqaiuiag goods or services need not iuvssl've a Queet .W.2d 890 {T'ox. ip$Sj. Jn ivfote v_ Q_rvx FA= Cu. 910 F.Supg. 291 (E.D. Tex. 1995), this Cotut uvaciuied pisiotiff's vbjeetiozes 0 a atagissrafo judge's report and ceconuncndasion and afl`umed the consumer under the DTPA. In Mrte, the ptamtiff was 3n,;uted arhRe workng for a ciriltug cOmpnn.y aa an a££shoxc iig in t6c Gulf of MCMM. Ch}°x BnmV Company opora[edd the pIa€fctrm and Dau Web= wat aa thyx consultant. P!a'm#iff wa8 muployed by hiallard Biiiiiag. P3auztiff sued S4nbster. 2aEaSlszd and C3zpx uuder the DTPA. Tha alSegatlan agaivst Wtbsei• surrwixde3 V:'ebster's cvoQact with Oryx to provide ftsctMantengitscors for drilling tha offshore weiis. Thus, the ffSu=l01Y at iSSllC was Tt38 con= to provide fm~=&tSZS for ft ddMug L+f 4f MflI8 welLs. In deaulining mhetb= fha piaivsifY' had cuasumor staad~ to sue 'tu'eFssccr, ;ht Caurc se In the in.4taa,.r =se, the tzasacuon
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-4 `. FEB. C 1998 5:21PE There 0 10 NO, 466D plaintiff was not permitted to maintain a cause of action against a defendant tortfeasor as a result of the tortfeasor putting plaintiff to increased medical expenses resulting from the tortfeasor's injuries to a third party. The case of Connecticut Mutual Life Insurance Company v. New York and New Hampshire Railroad Company, 25 Conn. 265, 65 Am.Dec. 571 (SH5S) is even more illustrative of the principles involved. In Connecticut Mutual, Plaintiff insurance company paid the proceeds of a life insurance policy to the estate of a third party as a result of a contract between the now dead third party and the plaintiff insurance cornpany. The third party's death was caused by the negligence of the defendant railroad company, as the third party died as a result of an accident while a passenger aboard the defendant's tr surance company attempted to recover its payment against the defendant railroad company, the court determined that the insurance company had no right to recover because the acts affected the insurer only through his artificial relationship with the third party, and thus that loss was a remote and indirect consequence of the act of tha wrong doer. The court stated: "The single question is, whether a plaintiff can successfully claim a legal injury to himself from another, because the latter has injured a third person in such a manner that the plaintiff's contract liabilities are therby affected. An individual slanders a merchant and ruins his business, is the 21
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FER. 4. 199$ 5:19YM NEWOTLEY 151MTG 4 110. 4 6 6 0 contained within the statute. In confirming the rule of its earlier holdings, the Supreme Court stated as follows: "A frequently stated principle of statutory construction is that when legislation expressly provides a particular remedy or remedies, courts should not expand the coverage to subsume other remedies. When a statute limits a thing to be done in a particular mode, it includes the negative of any other mode. This principle of statutory construction reflects the ancient maxim-eacpressio unius est exclusio alterius. Since the Act creates a public cause of action for the enforcement of its provisions and a private cause of action only under very limited circumstances, this maxim would clearly compel the conclusion that the remedies created in S 3fl7(a) are the exclusive means to enforce the duties and obligations imposed by the Act." Zd, at 457, 693. Accordingly, the Supreme Court affirmed the well grounded principles applied in the area of statutory construction that, absent a legislative indication to the contrary, statutorily created remedies are deemed to be exclusive. In adhering to the principles espoused by the U.S. Supreme Court, Maryland appellate courts have exercised similar restraint on judicially created causes of action. Although there are some situations in which the coatanon law of Maryland can be altered by judicial decision, Maryland appellate courts have done so only in extremely rare instances and under the most exceptional of circumstances. The Court of Appeals' adherence to the principle 0* rn of judicial restraint in this area is based upon Article S of the Q t,4 Maryland Declaration of Rights, which clearly establishes that t3i 16
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FEB. ?. 1998 55:20PM NEOMOTIEY 15IMTG 4 9 K 4BuQ, P. 19 area where there was no statutory authority to expressly or impliedly prohibit the employer's conduct. However, the Court established a clear limitation as to the instances where it was authorized to alter the common law by judicial decree, and when the plaintiff in the case of Makovi v. Shervin-Williams supra, argued that the holding of Adler should be extended, the Court of Special Appeals rejected Plaintiff's claims. In Makovi, Plaintiff brought suit against her employer for wrongful discharge based upon the fact that she was pregnant, In deciding that Plaintiff had no cause of action other than the statutorily prescribed remedies of federal civil rights statutes, and in refusing to create a new cause of action under comon law where aa remedy had already been created by statute, the Court of Special Appeals discussed the limitations of the holding in Adler= •'It does seem clear, however, that the [Adler] court was focusing on what it perceived to be a void in the law--a discharge not expressly and directly precluded by some specific statute but which nevertheless contravened some other general statement of public policy. If there were already an adequate alternative . remedy in existence, the legitimate interest of the employee that the Court identified as being deserving of recognition xould indeed have attainadd that recognition, and the newly created caacanon law remedy would be unnecessary to assure its protection. Makovi at 64, 497. I Thus, the Court of Special Appeals declined to extend the holding of Adler in Makovi and held that the plaintiff was
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FEB. 4.1~9$ a:23PM The "Accordingly, among the many shapes this concept took at common law was a demand for some direct relation between the injury asserted and the injurious conduct alleged. Thus a plaintiff who complained of harm flowing merely from the misfortunes visited upon a third person by the defendant's acts was generally said to stand at too remote distance to recover. Id. citing I J. Sutherland, Law of Damages 55-56 (1882)~ Clearly, the Supre2ne Court merely reiterates the same principles espoused time and again in Connecticut Mut. Lif., Itockinqham, supra, and numerous other cases from the English Courts of Costmon Pleas by articulating the standard into what has modernly been known as proximate cause. It is almost universally and unequivocably concl jurisdictions that defendant torfeasors crho cause harm to third persons are not the proximate cause of economic harms or increased expenses suffered by plaintiffs, regardless of the fact that such defendants may be the cause in fact of plaintiffs' losses- The Court articulates some of the policy reasons for this conclusion as follows: OTLEY ISlIdT6 4 W 110. 4660 i'. 28 judicial tools to limit a person's responsibility for the consequences of that person*s own acts. At bottom, the notion of proximate cause reflects "ideas of what justice demands, or of what is adtrcani.stratively possible and convenient. Id. quoting, W. iCeeton, D. Dobbs, R. Keeton, & D. t?un, Prosser and Keeton on the Law of Torts, § 41, p. 264 (5th ed. 1984). Court continues in stating: "First the less direct an injury is, the more difficult it becomes to ascertain the amount of a plaintiff's damages attributable to the violation, as distinct from other, independent factors. Second, quite apart from problems of proving factual causation, recognizing 27
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FkH. 4.1998 5;24PM NO, 4660 P. 32 general principle adhered to in Maryland is that a plaintiff must demonstrate the lack of art adequate legal remedy before seeking an equitable remedy_ Manning v. Potomac Electric Power Co., 230 Md. 415, 422, 187 A.2d 468 (1963); Klein v. PMsico, Znc., 845 £.2d 76, 80 {4th Cir. 1988}. No merito requirement of sho exception to the lack of an adequate remedy at law exists case. The State is not pursuing an action in quantum meruit, it is not in tiirect or even implied privity with Defendants an the issue for which its equitable claim is being asserted and, as discussed below, the damages sought are reooverable in tort. Yost v. £arly, 87 Md.App. 364, 589 A.2d 1291 (1991); Mass Transit Admin. V. Granite Constr. Co., 57 Md.App. 766, 471 A.2d 1121 (1994), The Statutory iietn~a of Subrogation is Not Inadequate The Court is also unpersuaded by the State's claims that the remedy of subrogation, as mandated by the Maryland medicaid statute, is not an adequate remedy at law because bringing thousands of individual lawsuits would be procedurally impractical. The Court agrees that this procedure may be inconvenient and somewhat burdensome. But the mere fact that a legal remedy is inconvenient does not render it inadequate, so long as the remedy can still be granted at law. Manning, supra, at 422, 472 (1963). 3 J.
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FEB. 4, 1998 5:22Pb4 NEWOTi.EY 161MTG 4 0 NO. 4666 has paicd the loss, against the wrong doer or party first liable as principal, is wholly inconsistent with the principle that the insurer jp2aintiff7 can in his own name recover for money paid, ...in an action against the wrong doer. For the insurer and the assured being in effect one person, each cannot maintain an action at the sarne time, and for the same loss where there can be but one satisifaction. Rockingham, supra, at 256. Accordingly, in the present action, the State had no right at common law, and consequently has no right now, to assert claims in its own name against Defendants as tortfeasors for the harms Defendants allegedly caused to third party smokers, unless such claims are made in the name of each of the individually injured third party medicaid program recipients under the equitable doctrine of subrogation. Modern Courts Have Adopted the Comareon Law Rule Barring Recovery From Tortfeasors for Injuries to Third Parties There are numerous federal and state cases illustrative of the fact that a plaintiff cannot recover from a defendant tortfoasor for harm levied upon third parties. As indicated by the United States Supreme Court in Holmes v. Security Investor . Protection Corporation, 503 U.S. 258, 268; 112 S.Ct. 1311, 1318 (1992), the basis for any determination of a tortfeasor's liability for a wrongful act begins with whether the tortfaasor is the proximate cause of the plaintiff's injury, not merely the cause in fact. The Court asserts: "Here we use proximate cause to label generically 26
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typa the aatitfnst laws weia intended to prevent and that fiaws front that .vhich maices the .. l1RIlARG MtLF#f3Cla i.D.. P. l1 ~A XBIIOiC11ISf l:Q. IenMiwj iarO a =Acat~ 0in6saation, or r,auspiraey to eliminaae camgttisi,tm., Snciuding 1110 d`+E mawn of product informasiou, mprdwg ft guatiry, sa€cxy and composirioa of cigarettes and t4h2ccA pipcku!'s, i1rleEry elimmatzg aSfcm3tivE products fLOm the tR&LkC#, 3YstrSGt7aS c.4ltStit€fnL` choice and cSAsi{lg C1}SSStImeES to sss€ftt' smokiag teIated ilincs= and be+atth-tazas costs. Plainsi€t's Second Ameorle3 Comptaiut, p. 87. 4f WfiCOflSpEitiYt A= made poniblG by ft vi0l3FIflA." 7b.C State alleges Defendants CIIpged in 8IItKt1IItpCtittl e CQ fauad diet plaimif€S had nt Mffbred antitru..¢ ia,jur+l eMI ttrough fhcy bad suffered itejttry-in-faci. M= Cost stz¢ed "jfjhe iqM sisoukt ufiecc tm anticoAnperlave effEat of tkbAr tha vIvilsiou or 334 (39M. The tbtut 3n Rtunswick t:aco. v The Statc`s alleged iajtuies are increased medical care costs caused by Medicaid raMP=tS ' cOnssW4s#ioa of tobacco procEucas. Assumfng urguerrda ft State fsas alleged tmlawfitl acas, ft Stste has not alleged an antiuust 'tu;ury of t6e fype the antiaust laws were designed to pra€'Ut. °(1}rluzy, a]tixough causatty zelared trF aa sn=asc violstian, ncvcTtheless w4I1 Dpt qualify ioucaaie rg an anti-tompeutcve sspecz at rtte jsracura uner scrufiay ....' Atlantic Itictifidd Ca ,EMM at 334. The Sfate`s loss m.nst be "t1a t,~ that t6e claimed vioiatiaas ... wouid be likely to cansc." P. azel - a alleged an antitrust %n,jetty of the type the azstifnzsc laws were iwmded to prevent. 'Ihe Counfinds that the State's an€ittusc claims also fail€or tEze teasou that the State is markt, tseiag ttae cigarecce and tobacc.a market. Consumers and 21 ~
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L FEI 4.1998 5:21Pm NAOTLEY 151MTG 4 40 NU. 4&80 wrong doer liable to all the persons, who, in consequence of their relations by contract to the bankrupt, can be clearly shown to have been damnified by the bankruptcy? Can a fire insurance company, who have been subject to loss by the burning of a building, resort to the responsible author of the injury, who had no design of affecting their interest, in their own name and legal right? Such are the complications of human affairs, so endless and far-reaching the atutual promises of man to man, in business and in matters of money and property, that rarely is a death produced by human agency, which does not affect the pecuniary interst of those to whom the deceased was bound by contract. To open the door of legal redress to wrongs received through the mere voluntary and factitious relation of a contractor with the iasnnediate subject of the injury, would be to. _.invite a system of litigation more portentous than our jurisprudence has yet known." Id. at 274-275. The Court further states: "It would be unfair to argue, that when two parties make a contract, they design to provide for an obligation to any other persons than themselves and those named expressly therein, or to such as are naturally within the direct scope of the duties and obligations prescribed by the agreement. On this point it is enough to say, that when an agreement is entered into, neither party contezrpIates the requirement from the other, of a duty towards all persons to whom he may have a relation by numberless contracts, and who may therefore be affected by breach to the other's undertakings. ..Ke decide, that in absence of any privity of contract between the plaintiffs and defendants, and of any direct obligation of the latter to the former growing out of the contract or relation bat.reen the insured [third party] and the defendants, the loss of the plaintiffs, although due to the acts of the railroad company [defendant]. -.was a remote and indirect consequence of the misconduct of the defendants and therefore not actionable. Id. at 276- 77. ' I Finally, in Rockingham Mutuai Fire Ins. Co. v. Bosher, 39 22
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PEB. C1998 5; 23PM NEIMOT1.EY 15! ~ NO, 4560 P. 30 all relevant facts as argued by the Plaintiff, it is clear that the State of Maryland has borne the tremendous burden of this health care crisis, in both lives and financial resources. Unfortunately, as Judge 8erger aptly stated in her opin the plaintiff's common law claims in West Virginia, without proper legal remedy, there exists no claim upon which relief can be granted. In light of this Court`s ruling on the issue of subrogation, ther ss Defendants' contention that all of the State's coizenon law tort claims should be dismissed on independent grounds. Accordingly, the Court declines to address this issue. ISZ. Has the Plaintiff properly asserted a claim for restitution basecd upon un The State has not properly asserted a claim for restitution based an unjust enrichment because the State has failed to allege facts sufficient to show that it conferred a benefit on Defendants such that it is entitled to equitable relief under the doctrine. The State Is Asserting An Equitable Claim for Money Damages The State argues that its claim for money damages in restitution is actually a legal claim and not a claim in equity, thus relieving the State of the requirement to demonstrate the lack of an adequate remedy at law as a predicate to pursuing its 29
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FFF. 4. 1998 5: 2iPM NO. 4660 P. 24 highest appellate court in Maine affirmed the same principles espoused in Slaid and Connecticut Mut. Life. In Rockingham, an insurer attempted to recover from the defendant tortfeasor the proceeds it paid to a third party pursuant to a s as a result of the defendnat tortfeasors intentional burning down of the third party's building, The court held that the insurer could not maintain an action in its own name and of its own independent right against the defendant tortfeasor because there existed no privity between the tortfeasor and the plaintiff, the conseuqence being too indirect and remote. Id. at 257. It should be noted that the holdings in all of the above cases interpreting cosenon law rights (or more accurately lack thereof) of a plaintiff to maintain an action against a defendant tortfeasor as a result of the tortfeasor's in7uries to a third party are based upon firmly rooted comnon law legal principles established by the English Courts of Cos[unon Pleas. The principle cases upon which the holdings were based are Yates v. Rhyts, 4 Bing. N.t. 272, 33 Eng. C.L., 349) and Mason u. Sainsbury, 3 Doug. 60. The English common law appellate courts (particularly Lord Mansfield in the famous and oft cited case of Mason v. Sainsbury) clearly established in these cases that plaintiffs (who were i. 23
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FEB, 4. 1998 5.22PM NOMDTLEY 151MTG 4 0 NO. 4660 P. 26 party. In Connecticut Mut. Life, supra, based upon the holdings of the common law courts in Yates and Sainsbury, the court stated as follows: "The cases in which insurers have been permitted to recover against the authors of these losssss, are not in contravention of these principles. They have recovered, not of their own legal right, but under a general doctrine of eq[uity jurisprudence, com=onZy knoxn as the doctrine of subrogati.on, applicable to all cases, wherein a party, who has indemnified another in pursuance of his obligation to do so, succeeds to, and is entitled to a cession of, all the maans of redress held by the party indemnified against the party who occasioned the loss. ...By virtue of this doctrine, there is no doubt of the right of an insurer, who has paid a loss, to use the name of the insured, in order to obtain redress from the author of the wrong; a right to be exercised for the party equitable entitled to its benefits, not to be enforced by its possessor in his own name, but by him as the successor to the remedies of the person whom he has indemnified. Having no independant claim on the wrong dosr, he might be successfully met by the superior equities of the wrong doer. Nothing can be plainer than that an indirect liability of this kind is an argument rather against the claim of a direct responsibility to the wrong doer, than a suggestion in its favor. Connecticut Mut. Lif., supra, at 277-278. Similarly, the court in Rockingham, supra, reached the same conclusion based upon the coscanon lasw precedent in holdin indemnifying plaintiff has no independent right of recovery against a defendant tortfeasor, but may only recover in the name of the injured party: "And the reason of the doctrine (of equitable jurisprudence, or subrogation] of the cases, in which it was held that an action may be maintained in the name of the owner, as the trustee of the insurer, who 25
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FEB. 4.199$ 5:22PM often insurers) had no independent right to maintain &69 action against a tortfeasor for harm caused by the torfeasor to a third party. Therefore, as established by the English courts and affirmed by early American courts interpreting and applying English conunan law, a plaintiff had no right under common law to ain a cause of action in his own name against a defendant tortfeasor for injuries that the defendant tortfeasor caused to a third party, regardless of the magnitude or increase in expenses the plaintiff was subject to as a result of the defendant's tortious conduct to the third person. Accordingly, the State of Maryland in the present action had no right at common law, and consequently has no right now, to assert claims in its own name against Defendants as alleged tortfeasors for the harm Defendants allegedly caused (whether intentional or not) to third party smokers. At Common Law, Plaintiffs Could Only Recover from Tortfeasors for Injuries to Third Parties by Means of Subrogation However, the same cases that conclude that a plaintiff has no right under common law to recover from a defendant tortfeasor as a result of injuries to a third party in the plaintiff's own name conclude that, in some instances, the plaintiff can recover from the defendant if the plaintiff has a legal right, under equitable principles of subrogation, to assert the legal claims of the injured third party in the name of the injured third 24
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FEP, 11998 5:23PM AEMflTLEF 151MTG 4 ! NO, 4660 claims of the complicated rules apportioning damages among plaintiffs removed at different levels of injury from the violative acts, to obviate the risk of multiple recoveries_ And finally, the need to grapple with these problems is simply unjustified by the general interest in detering injurious conduct, since directly injured victims can generally be counted on to vindicate the law as private attorneys general, without any of the problems attendant upon suits by plaintiffs injured more remotely. Id. at 270, 1319, quoting in part, from Associated General Contractors of Ca;., Inc, v. State Council of Carpenters, 459 U.S. 519 (1983) Accordingly, it is clear that for purposes of the case at bar, that federal and state courts follow the comnon law rule barring plaintiffs from recovering from defendant tortfeasors as a result of the defendants` injuries to third parties. In the absence of some speciall statute allowing recovery, the damages are deemed under the proximate cause analysis to be too remote and indirect for plainiffs to recover. Therefore the State of Maryland cannot recover damages from Defendants' as a result of Defendants' alleged tortious conduct toward third party smokers in Maryland in the present action because the damages are too remote and indirect a consequence of the acts of the rrrongdoers under both the common law of Mary2and, as adopted from the conmton law of England, and pursuant to the modern day proximate cause analysis as often articulated by federal and state courts. This does not mean that the Court is unmindful of the dilemma faced by the State and the magnitude of the harm which may have been caused by the defendants. Assuming the truth of 28
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FEB. 4. 1998 5.25PM NEI&OTLEY 151MTs 4 ~ NG. 46u local level encourage the function of those agencies at least to the r.ninimusn level set forth in the standards of this title." Md. Com.Law. Code Ann. $S 13- 102 (a) (1) . 13-1D2 (b) (1) - The state's pursuit of its cause of action against the Defendants under the CPA is consistent with the findings and purposes as established by the General Assembly. The State Is A "Person" Within the Meaning of the CPA And Duly Authorized to Pursue Its Claims Defendants argue that the State is not a"person" within the meanina and intent of the Act and cite the 5uperior Court in Washington for support on this issue. See Defendants' Motion to Dismiss, pg. 32 and Reply Memorandum in Support of the motion to Dismiss, pg. 26, n.27_ But the clear Ianguage of the Maryland CPA, as opposed to the Washington CPA, belies this proposition. The Maryland CPA defines °person" as: "an individual, corporation, business trust, estate, trust, partnership, association, two or more persons having a comston interest, or any other IegaZ or commercia2 entity." 2d.at § 13-101(h). The Washington CPA did not contain the clause italicized above. Black's Law Dictionary defines a legal entity as: "an entity, other than a natural person, who has sufficient existence in legal contemgS.ation that it can function legally, be sued or sue, and make decisions through agents... Hlack's Law Dictionary, 5th Ed. In light of the broad purposes of the Act as set forth by the General Assem'b1y, the clear inclusion of the
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chat Defendants ianproPcrly asedthsiracvn pavperty, or *at the Staie itself has been, injuced in its use or employmeat of its pmpszty. 5_" Wa1as Truckina Co. v. Staiksm. 474 S.W.2d 134 (TOR, 14'7IX VS'sSkcrv.T~Elc~Scry. Cr- 4938.WZd 20.27 ('feX. Cav. App.1373, no writ); aud. -H= v. Zlalias. 565 $.W3d 373,379 gex. Civ. App. 1978, no wxit). The overiy broatl definition of thc edemcmvfpablia utt3sauce zuged by thc Siata is simplynot fouud in Tem case law and the Court accept tbe BSatg'8 iuvita#ion it} exq=d a C, a in Ccstutt Eleven the Stste zlleges that Defendasscs voinmarily to honestly and aomWAly oa aIf rcuacch regazding o3gazeft smo3dng and health based upoztm the3r public promotit3eazteats to do sa. The Statc fiut'ier p3eads that by Ming to report on such rcsamth, by publishing aaci publicizing fraudulr.nt scieruem and Ming, in general, to comp~y with thc promiscs mado in the °Faaalc Staterucuf' and the iadusixy's votuntary code, I3efendants btaachcd ftsdtity. F'matly:t6t Statcattegastlmtd}efcadaBts krievr orshosr3d have kaovra that the State would rely on their pmuounuausnts and that this ralianoe would and rtid in fact proximately cause itsjury and damages to the State. The Stste's sanae cffaatiasnis prcmised ou the rule tat svhoever vffiunrarily iwdertakes an affiaczative course of action for the henef€t of auother has a duty to exercise reasonable c= that the otltef'S person or piopcf2y Wi11 not be injcued thereEry Calatual Snv. Ass'r v. Taylpr 544 5,W.2d 116 (Tex.. 1576). This raIo is embodied iu tFie 3testamsneat (Second) of Tots § 323 (I955)thai izts#xucts: t}ne who vndesrakec gatu3tausly or for c,ansideration, to mtder seivices to atsnthez wSuoh he shfluld recoguixc as ne-essary foz the prts 28
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FEB, 11,1998 a:23PM NAOTLEY 151V'tG 4 ~ NO. 4660 cause of action. However, despite conflicting legal authority on the issue af whether or not an exclusive claim for money damages based upon unjust enrichment is legal or equitable, this Court finds that the State actually resolved the issue in the language it chose to use in drafting its Complaint. The State alleges as follows in Count Five, paragraph 215 of its CosnpSaint. "The State of Maryland is therefore entitled to restitution from Defendants for the benefits the State of Maryland conferred on them, and to the extent required by equity to prevent Defendants' unjust enrichment as a result of their fraudulent and wrongful conduct." Taken in light of the ordinary interpretation of words and phrases in context, in addition to the legal doctrine of construction known as ejusdem generis, the Court finds this language dispositive of the fact that the State is asserting an equitable claim for restitution based on unjust enrichment. The State Must Show the Lack of An Adequate Remedy At Law The State next contends that, even if its claim for restitution is equitable, it is not required to demonstrate lack of an adequate remedy at law because, in essence, a modern trend- has developed such that the adequacy rule is no longer viable. See P2aintiff's Memorandum in Opposition, p.22, n.5. However, the Court finds this argument unpersuasive. Though there are some instances~wherein lack of an adequate remedy need not be shown to maintain a cause of action for unjust enrichment, the 30
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FEB, 4, 1998 5:26PM 0 NO, 4660 P. 38 term "3egal entity" in the definition of "person", and the fact that the Office of the Attorney General is expressly charged with pursuing causes of action in court on behalf of the State and citizens of Maryland, this Court concludes without reservation that the State is a person within the meaning the statute_ In addition, the CPA specifically authorizes the State to ta3te appropriate aetion against persons who engage in unfair or deceptive trade practices, as defined in S 13-301 of the Act, in "the sale [or offer for] sale, lease, rental, loan, or bailment of any consumer r realty, or consumer services.g Id. At 5 13-303. For purposes of the Motion to Dismiss, the State has properly pled in its complaint that Defendants' engaged in unfair and deceptive trade practices in their sale of tobacco products in Maryland, in violation of the Maryland CPA. The State Need Not Be A Consumer to Assert Claims Under the CPA Finally, contrary to Defendants' assertions, the State is entitled to seek injunctive relief, civil penalties, and damages under the Act, regardless of the fact that the State is not a consumer_ Section 5 13-408{a} sets forth the requirement for damages as follows: °In addition to any action by the Division or Attorney General authorized by this title and any other action othervise authorized by law, any person may bring an action to recover for injury ar loss sustained by him as the result of a practice prohibited by this title." Id. Thus, neither the State nor any other plaintiff is required to be a consumer in order to assert a cause of action for damages under
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0 ottfer*s pcrson or thlngs, is sub,jxt to iiabitily to the other for physiaal harm resulting from his faalure to exetcise reasonable care to pec€oam his undetoking, if (a) his fsilura to aseresse such care inceeases tbe:fsk ofsuch hamti, or (b)#ho3mmm isadm-ed beosuso ofthc orhez's reIiaace upon the nn3ertakiug. I Tr*M co nofthe Rttmtemesfuo nrcma"cW based only on an aciueztisemeai hfarco•tet', I3cftndants contend that states elaim is 3cficieutbscause svcn iftheru weroa duty I= wzfno undertaking for the beatfi# of the State, the State has not ssiffiuad phYsuxl Iam and ltas msdc no alFogation of pragesty dacnage,assl finally there is no aIlcgatiQn in the complaint that the Statotook aq actian in reliasuc on DGSeaiii..atW stae+t{enLT. FJRai3Se'he I..YWi1tiY{$;{ilia{l.Je{QnLiClltsS 22ID1$rsumeilt2-Vyft4i, the COFi~C33tT41'S5. Court need not address its SlibSeTIeSt Although Texas courts have adopta! § 323 of the Resratement as a basis of liability, thcy Izave not eodAndod irttt create a duty baud upon carporetc statements or advertising. As with the two common law claims discussed above, withoa.t recogoiEion ofsueis at ttuty by the Texas Supreme Court under this theory of tort lisbiiify, the Court is Ioat}se to find ihat the IIefondants' statcrosnts cscauda dury. Istatmeaee afthis xrquiremcntf the State asnttot maintain its Glttim. Accordingly, tho Court dismisscsConni Eleven ofttta Second AmmdtdGomiSSaint. D. F IieLLTt)Ii4QSRF2RM ENTATIt3R' The SM alleges in Caumb'i'sveiva and T6irteen artuai and constructive common law f=d as well assitttple a=td Ssoss naSligent misrepresentatious. Defendanss arguo tbat the State has failed e t The elements of frautl under Texas law are (1) a material repro,sentatiou; (2) the representation was fa#se; (3) when it was made the spcaker kssew that it was false or made it 29
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FEB. 4.1996 5.24PM NE*,`:-~_=i :-ATG 4 9 K 4669 P. 34 proposition. The Restatement of Restitution §2, ccu,ment b states in pertinent part: "A person confers a benefit upon another if he...satisfies a debt of the other or in any way adds to the others security or advantage. He confers a benefit not only where he adds to the property of another, but also where he saves the other from gxpense or loss. The word benefit therefore denotes any form of advantage.~ Id. In order to sustain a cause of action for unjust enrichment in Maryland, a plaintiff must show: 1) a benefit conferred on the defendant by the plaintiff; 2) an appreciation or knowledge by the defendant of the benefit; and, 3) the acceptance or retention by the defendant of the benefit under czrc=tstances that would make it inequitable for the defendant to retain the benefit without paymant of its value. Everhart v, Miles, 47 Md.App. 131, 136, 422 A.2d 28, 31 (1980); Granite Constr. Co., 57 Md.Agp_ 765, 774, 471 A_2d 1121, 1125 (1984); Kline v. Signet Bank, 102 Md,App. 727, 731, 651 A.2d 442, 445 (1995). Defendants interpret these requirements to mean that the State must show that Defendants were legally liable for the health care costs of individual snedicaid recipients; and that the state satisfied their legal obligation to those recipients by providing treatment to them under the medical assistance program. while this Court rejects Defendants' contention that the Stats must allege that Defendants were legally liable to the individual medicaid recipients, the allege a benefit conferred on Defendants
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M 1. E'f'.fCl .E.l1LSfi 151:MV1LEI SJlI/1TU 4 W L+U. YVVU Zn addition, as indicated by the State in its Memorandum in opposition on page 26z "Restitution developed 'as a series of innovations to fill gaps in the rest of the law.' Unjust enrichment lies when `a defendant ... enriches himself by means we condemn as unjust but for which we would not impose tort liability in the absence of enrichment." Id., quoting from Laycock, The Scope and Significance of Restitution, 87 Tax.L.Rev. 1277, 1?.94 (1984). In the instant case, the State is not precluded from tort recovery in the absence of a claim for unjust enriehment_ On the contrary, the State is pursuing numerous common law tort claims against Defendants for which the State can recover money damages from Defendants, if successful at trial, The fact that the State is required by statute to pursue its tort claims by means of subrogation does not alter the fact that the State is still able to pursue its claims. Consequently, there is an adequate remedy at law. The State Has Not Sufficiently Allaged That It Conferred a Benefit Upon Defendants Finally, the State alleges that it has conferred a benefit on Defendants by paying the staggering cost of medical treatment for medicaid recipients harmed by Defendants' tobacco products. The State claims that by sparing Defendants "the full political and social consequences as well as meeting the crippling expense of the public disaster jthey) were creating" it conferred a benefit on Defendants as defined in the Restatement of Restitution § 2 comment b. See Plaintiff's Memorandum in Opposition at p.27. The Court does_not agree with this .
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FEB. 4. 1998 5:26PR K 4660 P. C or practices in order to protect the public and foster fair and honest intrastate competititon .... It is also the intent of the General Assembly that, in deciding whether conduct restrains or monopolizes trade or coa¢nerce or may substantially lessen competition within the State, determination of the relevant market or effective area of competition may not be limited by the boundaries of the 5tate_ For the purpose and intent stated._.this subtitle shall be liberally construed to serve its beneficial purposes." Md. Com.Law Code Ann. ff 11-2d2(a){1}, 11-202(b)(1). The action filed by the State in the present case is consistent with the broad purposes set forth by the statute, as liberally construed pursuant to the requirements of the General Assembly. The State Has Standing to Pursue Its Claims Under the MAfiA, Regardless of Whether It Has Standing Under the Clayton Act Defendants argue that, in accordance with the construction of the federal courts in interpreting sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15, 26, the State of Maryland lacks standing to pursue its claims under the MATA. Their contention is based upon the fact that: (1) in accordance with the PSXTA, Maryland courts are to be "guided by the interpretation given by the federal courts to the various federal statutes dealing with the same or similar matters" (5 11-2tt2 (a) (2} } and; (2) pursuant to the interpretation of those federal statutes, the Supreme Court held in Illinois Brick, 431 U.S. 720, 97 S.Ct. 2061 (1977), and Associated General Contractors, supra, that indirect purchasers and plaintiffs at too remote a distance from the W 0 ~ ~ CO CO alleged antitrust violator cannot pursue claims under the Clayton Act. Defendants' reliance on these propositions is misplaced.
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ihe Bvid=oc Catc, Whish provides: '1'Ea attoMcY-tiimt grinloge is the oldest cmfi3mtiat cocnFmmica5cas privilege kmwa in the coama 1aw. LhstudS7atee v Zalin, 491 U.S. 554, 562, 109 S.CL 26I9, 2625 (1989); fiaEncs, 975 F3d`81. Its`st6a=farc nrX oudy so 3ntaeat taag n:eageiud by aacietp 6tu also one tradi#sona2ly dcemrd wartity of maa}niurn kgat protactim}. *ias purpose is to cmaoeazge fali and fraak eCUmEmicatian 6eiucea aamneps and @sas alie.ois and thtaaby pomote btoada pubiio intesssts m dse obsaavaaco of law and admiuaratian of ~jusdcc. 1'6e privilege rocogaizca ttsat soscnd kgat advice ac advocacy servrs pa6lic eads and 26ai sncL advice or advocacy depenQc upon ft lawsres being fril2; intonnod by the oiimt' 7Tpja7at Caa x Uauad Stattv, 449IJ.S. 383, 389,101 S.Ci 677, 682, 66 I.F.d 2d 584 (198I). '17sc prita'lage iesm tm ihe need for tht advocate and eouaaator to I3eow all Ihat rsiates to the client's reasms far cx1cing represenrtstioa if the pcufessioaal soission'is to be aaciad a2` T}anreut v tinsted 57ates, 4t5 US. 40. 51. 100 S.Ct 486, 913, 63 1..$d.2d 186 (1980). Tbe privilego's pzapose is to ruoomage t3u~s so mako a f.ult disdosn;s to ihtir auorneys. FYaher v. ITiFitrd Sratas, 425 U.S. 391, 4 t#3, 95 S.Ct. 1569,•1577.48 L.Ed.2d 39 {1976). flaftrer~975 F2d at96;see atsarlndenotr v. Stato. 297 So. 2k 871, 871-72 (FIa. 2d DCft 1974}; Dsaa x IJem, 607 Sa. 2d 494 (Fta. 4th DCA 1992), rrv disnusud, 618 So. Zd 248 {f7a. 1993). The soaat policy protecting ft pcivik7,•c is not witboct its 1ffiuY.t 'Ibepricalege "coas(esJ to opsase at aCartAMpofnt, aamoly, vshCas tia; dc&icCd advice rcfas not to prior wtaagdoing, lrtn to fututz wsroassow Zalln. 491 I7 S. at 562-63 (quoting S Iohn H. i3rigmaco, Evidenee ¢ 2298, at 573 (MdNmISI8an rcv. ad 1962 }. Tfw, Con&tSt+aft with the corarrim law, F4odda adopted the 'eriasafrmsd' exception to ft lasvElege in section 90.5Q2{4}fal of (4) 7hae is no tawyes-clirnt privilege tmda this aoctiau.vLcn: (a) '1}4- seviccs of the lawytr wao sou& or obtaincd to enable or aid aaywne to commit ar plan to Contra 2 w3saia tho r2ient knew was a¢Smc orfividr f 90362(4)(al F#a. Sta#. (1995). "!t is the pwp= of the crema-fiaad a+:ccpiiaa to the ztianay.clirat pxiralege to asuae that the 'aoal of ucrecy.' ... betvam lacuya and rli~t does not a=d to COmZIAmlcaSoas 'snadc far ft purpose of ge#iag advice fcr the oammicsiow of a fraod' ac uicae Zvlin 491 ET S. at 563. Ffaida #s ~i accard See Srseak v. W'F#fams, 30 So. 2d Z84, 287 {Fli 1947}; ha rc iYattser, 87 S.R 199, 202 (M.D. F1a.1988}. Mcaeorer, Flceida will be esgeciai2y vigi3anc sAth tnspecc ta ~j2io- cf •tto* P;^ ^$imt privilege as applied to caportEtions: Because ft natarc of iTz corporation diffrts signifxantly from the, individual person, the aua~y-di~t pcn•ilcgo wilt also difl'er in its appllaatian to the oarporaiioa and to tba nat€aal paaaa FirsG acorporation can acty act #hcoU& its ag=xs,w5aras a natural person can ser& Iegal advlca and tLm directly act (or aot: aex) tspon that adv= Scmad. a ccxpocatian rdies on ?ts at¢aacylzrbusinar advice more rhan tfic neAnal pasa Ttsus, it is I&dy Osat shc'zcFU of saaw" will bc cntagcd by visfuc of ihc tacptaatio's eentinzml contact withh its legat cflsmsrt Biscaveg fanlifstes the trvth-fmdin8 prbaess, and although this process eonss3tutes the core of any lif5gatiou, it must be tampefeci by tite established `msucs[ in ft ftoa flow af infocmattaa beteeen an amorney and ctlegt. `Any standard developed, tIU7CfOre. IAtist amiCe a 1talanCO benveec waxuaging corporations to sAdc legal advice and bgWg ysed >•s h9ef E hvterr iceopeEV° Thns tHisBHHbi•x.'+l•f ES=df f1i=.3ia~sei S+il~if<` h F11{QTlf1:N~flR R: h 1+e•. Il/g+N~SF Tff4<teCe Sn Time 3 u1, 23.11:35kY,
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qQZQ98 ~ u7~~
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86302018 0 I ~ nen ~ . V r 'NH111:~.. '~."' i ~ ' N'I II /
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! an application of exgrassia itrsiua would $vstrarathis pvrpose. As noudshovz, tht Ddmdsnts wouldfsmthfsCpat dir=shat the Staze basig individaal. subm~ cIaizns pucsnsntto § 32.433. AithWUA ft agpraaah may be praftrnd in situations wheaeasiagle mrtfmwrinfticts aone.titackartu agaizmt astagta intizvidetal who cecdves Mediraid the wrongs oftbird-partics in an afficicn# aad coss affective thatdxirpucpase isto reqtvre ssates suc~a~ Texas tc~ recove,rmonoy spcnt thaz cen be sttri6uteci ta t8a niandstes of ttse Medieaid statuta'a 1eimbatrsemaut ana iastiiutiug asutttmtallcges a}uoad bmd hatut to utt7iions tsfCidz=s. It would wiulpmeticxl, if I bich€fsa 42 p.s.C. § 139&a(a)(2i3 and New Jersey's reimbBncra=at statute were analyzed to detesrainc how sho State of New Tersey could proceed againsc a third party. The pmvIszon state from nvec cast pmhihf#ive and ineffieicnt ecssy Buysmme Couuc's decasiou 78 A.2d 226 (~ii.7. 1974 edge-beffi was afs: a Medicaid vided for subtogatittn.' r at 228. Itacvaver, no where in the.statse was thesra any i4eation ibat an indepsudent atssoat action could be braught bpihe State. T}ee ca[ut dete~ned thatthe StaYe could pursue eithrsof"two avenues" in seeking reimburscmenL U It wild y+.....,,1~iiDU~."5II~TID~TdT14A or IMSSSIC an action &£t.'[V against an 8Ue$E'd Tnrif8a9or. '~S= 42 C,B.R. § 433.139(f) {stafsngthat reimbuzscmeutsu=ko pursued but may be suspended Qr WrIItfnatEd only Eft{iG efforts arG iiDt cost CffCCSIYS). 7Zuthis masaer, § 32.U33 is ontiftd "Subrogaticsn." Howevar, the Siattis aorrect tattlo title ofiha statute alone does notsuppozr aconc2nsifln dm s&mgativn istkw, only remedy availab2e, See TEx_ GOV'T. COi3s ANN. § 311.024 {stating tbat the titIa of a st tute dcKs not expand or limit the meaning of the stanne}. ~
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circumvent the application of class certification procedures by the filed their claims. Accordingly, the Motion to Ineervene should be denied. Douglas W. Davis, Esquire Cynthia S. Cecil, Esquire HUNTON & WILLIAMS Riverfront Plaza, Fast Tower 951 East Byrd Stret Richmond, VA 23219-4074 (804) 788-8200 GLENN MURPHY GRAY & STEPP, L.L.P. 1901 AAssembly Street, Suite 390 Post Office Box 1550 Columbia, SC 29202-1550 (803) 765-1100 Robert E. Stepp Elizabeth fii. Howard La.ura W. Robinson Daniel B. White, Esquire GIBBES, GAIS.IVAN, WHITE & BOYD, P.A. 330 East Coffee Street Post Office Box 10589 Greenville SC 29603 (864) 271-9580
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0 Greenville, South Carolina, on October 29, 2997Y They filed an Amended Complaint on December 3, 1997, adding additional plaintiffsY On December 5, 1997, Intervenors moved to intervene into this case under Rules 19 and 20, SCRCPY The case brought by the Attorney General seeks the recovery of Medicaid and other '°publicIy-funded health care" benefits paid on behalf of South Carolina residents who have suffered aIieged smoking-related diseases.u There is no allegation either in the Greenville Amended Complaint, the Motion to Intervene or in the supporting Memorandum that any of the Intervenors are or were recipients of Medicaid or other publicly funded health care benefits. The Motion to Intervene also focuses on the alleged harm that would befall the Intervenors if the proposed national settlement {"Proposed Resotution"} now pending before Congress, and which the Attorney General supports, were enacted into law. Yet, the Proposed Resolution is e 2J . Patty Aksamit, et ai. v. Brown & Williamson Tobacco Corporation, Civil Action IVo. 6- 97-3636-21. 37 Although the Amended Complaint in the Greenville action and the Amended Complaint in this case are comparable in certain respects, they are by no means identical. For example, the Greenville Amended Complaint does not assert claims for unjust enrichment/restitution, indemnity, voluntary assumption of a special duty, statutory penalties for UTFA violations, violations of the South Carolina Antitrust Act or aiding and abetting. Nor does the Greenville Amended Complaint seek injunctive relief. In addition, the defendants in the two cases are not identical. !1 In their supporting memorandum ("Intervenors' move under Rules 19, 20 and 24. e 51 Am 11 Compl 00 . . . ~ ca 0 -2- N 0 a tn
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FEB. 4. 1998 5:27PM NEM6TLEY I51MTG 4 W NO= 4660 P. 44 Amend ~ Count 12 Strict Liability is herewith Granted, With Leave to Amend. Count 13 Conspiracy is herewith GAA11'LEL1, With Leave to Amend. All Subject to the Further Order of the Court. .htdge Roger W. Bravn e appears on the only. ~
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THE IlV'I'FRYENORS 5HO[3LD NOT BE PERMITTID TO INTERVENE AS A CLASS Intervenors purport to intervene on behalf of others "similarly situate3." That is, they are asking this Court to allow them to participate as a class despite the fact that they have filed an action in federal court in which the proposed class has not been certified and, based on precedent from the Supreme Court and other federal courts,!-' should not be certified. The determination of whether the Intervenors should be permitted to pursue any of their claims as a class should be determined by the federal court in which that is pending. The Intervenors should not be permitted to circumvent that process by seeking to intervene in this case as a class. VI. CONCLUSION The Intervenors have failed to meet the requirements for intervention by right or e They have not alleged that they are the recipients of Medicaid or other public medical assistance and therefore have no interest in, rights to protect or issues in common with the State's action. Additionally, the Intervenors' attempt to litigate issues not presented in the State's action would thwart, rather than promote, judicial economy as contemplated by the intervention rule. Finally, their attempt to intervene as a class is a transparent attempt to 14' See, e.g., Amchem Prods. Inc. v. Windsor, 117 S.Ct. 2231 (1997); Castano, 84 F.3d 734; Arch, 1997 U.S. Dist. LEXIS 7890. -9-
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FEB. d.199$ 5:25PM ID HO. 4560 that is not speculative in order to sustain a cause of action for unjust enrichment. In Francis 0, Day, Inc. V. Montgomery County, 102 Md.App. 514, 650 A.Zd 303 (1994), a subcontractor attempted to recover from Montgomery County under the theory of unjust enrichment, the value of work he performed on the infrastructure of a building after the subdivision developer defaulted on its obligation to pay. The subcontractor based his claim in part on the fact that a Montgomery County statute required him to perform the uork. In rejecting the subcontractor's claim and holding that he had not conferred a benefit on Montgomery County, the Court concluded: "[Ulnjust anriehment is an equitable doctrine and is inapplicable where the plaintiff in an action fails to provide the proof necessary to establish the value of the benefit conferred upon the defendant." Sd. at 529, 316. [Citations Om.itted] ~ Accordingly in the present case, bald assertions by the State that it theoretically spared Defendants thousands of individual lawsuits from medicaid recipients is too speculative and remote, without more, to constitute a benefit, knowingly acknowledged and accepted by Defendants, that would enable the State to recover under a claim of unjust enrichment. in addition, the Court notes that the courts in both California and Washington State reached similar conclusions on this issue. Conseguently, without more, the State's complaint fails to properly assert a claim for restitution based upon unjust enrichment.
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PEfl. 4.7998 5;25PM NO, 4580 P. 35 IV. Has the State properly asserted a cause of action pursuant to the Maryland Consumer Protection Act, found in Title 13 of the Maryland Commercia2 Law Code Annotated? The State of Maryland has properly asserted a cause of action against Defendants pursuant to the Maryland Consumer Protection Act, found in Title 13 of Maryland Com.-nerciaS Law Code Annota*_ed. The legislature established the authority of the State, through the Office of the Attorney General, to pursue claims under the CPA in clear and unambiguous statutory Ianguage. The State's Claims Are Consistent With the Purposes of the CPA Under the CPA, the State is entitled to pursue any and all causes of action that reasonably fall within the broad scope of the statute. Consumer Protection Division Office of Attorney General v. Consumer Publishing Co., 304 Md. 731, 501 A.2d 48 (1985); State v. Cottman Transmission Systems, Inc., 85 Md.App. 714, 507 A.2d 1190 (1991), cert. denied, 324 Md. 121 (1991); and State v, Andrews, 73 Md.App. $0, 89 n.7, 533 A.2d 282, 287 (1987). In 5 13-102 of the CPA, the legislature set forth its findings and purposes as follows: "1"he General Assenmbly of Maryland finds that consumer protection is one of the major issues which confront all levels of government, and that there has been mounting concern over the increase of deceptive practices in connection with the sales of merchandise, real property, and services and the extension of credit....Ii is the intention of this legislation to set certain minimum statewide standards for the protection of consumers across the State, and the General Assembly strongly urges that local subdivisions which have created consumer protection agencies at the
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FEE. 4.1998 5:26PY NAOTIEi 15tMTG 4 ~ hOAHO P. 39 the CFA. The State must merely allege that it has sustained an or loss as a result of I'>efendants' prohibitive conduct which, despite the difficulties of proof that may arise at trial, it has properly done in clai due to the tortious acts of Defendants. lost millions of dollars In addition, the State is entitled to injunctive relief and civil penalties pursuant to §§ 13-406(a) and 13-410(c) of the Act. Accordingly, this Court concludes that the State of Maryland has properly asserted its claims under the Maryland Consumer Protection Act, and is entitled to seek damages, injunctive relief, and civil penalties. V. Does the Plaintiff have standing to seek equitable relief, civil penalties and treble damages for Defendants alleged antitrust violations under the Maryland Antitrust Act, found in Title 11 of the Maryland Cossmeroiai Law Code Annotated? The State of Maryland has standing to seek equitable relief, and treble damages for Defendants' alleged violations under the Maryland Antitrust Act. As with the Maryland CPA, the legislature embodied its intent that the State have extensive authority to pursue causes of action under the MATA in clear and unambiguous statutory language. The State's Claims Are Consistent With the Fvmses of the MATA in section 11-202 of the MAfiA, the legislature set forth the purpose of the Act as follows: °The General Assembly of Maryland declares that the purpose of this subtitle is to complement the body of federal law governing restraints of trade, unfair competition, and unfair, deceptive, and fraudulent acts
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STATE OF SOUTH CAROLINA ) IN THE COURT OF COMMON PLEAS ) 97-CP-40-1586 COUNTY OF RICHLANI3 } State of South Carolina, By Charles M. ). Condon, Attorney General, ) } Plaintiff, ) ) vs. ) } Brown & Williamson Tobacco Corporation, et al., ) ) Defendants. ) DEFENDAN TS' ME4iORANDUM IN OPPOSITION TO MOTION TO INTERVENE This memorandum is submitted by certain defendants'-' in response to the Motion To Intervene filed by Patty Aksamit and others {"Intervenors"} on December 5, 1997. Defendants oppose the Motion to Intervene because Intervenors have not alleged a proper basis to intervene under Rule 24, SCRCP. L INTRODUCTIOt+I Intervenors, claiming to represent a class of individuals seek%ng to recover damages for alleged smoldng-related illnesses, filed a Complaint in the United States District Court in '-r Philip Morris Incorporated, Philip Morris Companies Inc., Lorillard, Inc., Lorillard Tobacco Company, R.7. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, individually and as successor by merger to The American Tobacco Company, United States Tobacco Company, The Council for Tobacco Research - U.S.A., Inc. (CTR), and Tobacco Institute, Inc. {"Defendants"}. Tobacco Institute, Inc., joins in this Memorandum without waiving any challenge to personal jurisdiction as set forth in its Rule 12(b)(2) motion.
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FEB. 4, 1998 5:27PM ?iU. 4660 P. 43 For the aforegoing reasons, it is this __ day of 1997 oRDERED that Defendants' Joint Motion to Dismiss as to: Count 1 Violations of the Maryland Consumer Protection Act as to all Defendants is herewith DENI£D- Count 2 vio2ations of 5 11-214ta3(1) Maryland Antitrust Act as to all Defendants is herewith DENIED. Count 3 violations of § 11-2t?4{a}t2T of Maryland Antitrust Act as to all Defendants is herewith DENIED. Count 4 Violations of 5 11-2D4(a)(2) of the Maryland Antitrust Act as to all Defendants is herewith DENIED. Count 5 Restitution based upon Unjust Enrichment is herewith GRANfiED, Aith Leave to Am:end_ Count 6 Breach of Voluntarily Undertaken Duty is herewith GRANTED, With Leave to Amend. Count 7 Fraud and Deceit is herewith GRANTED, With Leave to Amend. Count a Negligent Misrcpresentatien is herewith GRANTED, With Leave to Amend. Count 9 Breach of Express Warranty is herewith CRAN1`EA, With Leave to Amend. Count 10 Breach of Implied Warranty is herewith GRANTED, With Leave to Asnend. Count 11 Negligence is herewith GRANTED, With Leave to
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4, 1998 55:27PM ~ No, 4660 P. 41 While § 21-202(a)(2) of the MkTA does direct that MaryZand courts are to be guided by the interpretation of federal courts canstr3ing federal antitrust statutes, it does not direct that Maryland courts are to be bound by them. On the contrary, § SI- 202{a}(I) established that the MATA is intended to compZeffient the body of federal law; a clear indication of the fact that the General Assemb2y anticipated circumstances under which federal legislation may not provide a sufficient remedy for potential antitrust violations. Hence, the MATA and comparable federal legislation cannot and should not always be read in pari materia. 6raenbe2t Homes, Inc. v. Nyman Realty, Inc., 48 Md.App. 42, 426 A.2d 394 (1981); Quality Discount Tires, Inc. v. Firestone Tire and Rubber Co., 282 Md. 7, 382 A.2d 667 (1978). Therefore, although Maryland tribunals should look to the decisions of federal courts for guidance where relevant and appropriate, it is clear that Maryland courts are not to be bound by those decisions in construing the B9AfiA. Thus, the proposition put forth by Defendants' holdings in Illinois Brick and Associated GeneraZ Contractors, s+pra, bar the State of Maryland from asserting claims under the 21ATA, is without merit. Unlike the provisions drafted by Congress in 5 4 of the Clayton Act, the provisions of 5 I1- 2D9(h){2)(ii) of the MATA make it absolutely clear Mary2and legislature intended for the State action against potential antitrust violators regar
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Julianne Farnsworth, Esquire MCNAIR LAW FIRM, P.A. NationsBank Tower, 18th Floor Post Office Box 11390 Calumbia, SC 29211 (803) 794-1804
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Ff}R Jacob. Medinger & Finnegart Henry B. Smythe, Jr., Esquire Buist, Moore, Smythe & McGee, P.A. 5 Exchange Street Post Office Box 999 Charleston, SC 29402 FOR Shook Hardy & Bacon Joel Collins, Esquire Gray Culbreath, Esquire Cotlins & Lacy 1330 Lady Street, Suite 601 Post Office Box 12487 Columbia, SC 29211 FOR Liggett & Myers Inc.: The Brooke Group Limited: and Liggett GMu ~p Inc. Aaron H. Marks, Esquire Kasowitz, Benson, Torres & Frietfman, LLP 1301 Avenue of the Americas New York, NY 10019-6022 FOR Loewss CorRoration Monteith P. Todd, Esquire Sowell, Todd, Lafffitte, Beard & Watson, L.L.C. 1301 Gervais Street, Suite 901 Post Office Box 11449 Columbia, SC 29211 FOR UST lnc. Mark H. Wall, Esquire Ogletree, Deakins, Nash, Smoak & Stewart, L.L.P. 177 Meeting Street, Suite 310 Post Office Box 1808 Charleston, SC 29402 FOR Hill and Knowlton Thomas R. Gottshall, Esquire Sinkler & Boyd, P.A. 1426 Main Street, Suite 1200 Post Office Box 11889 Columbia, SC 29211-1889 ©oe Columbia, South February 5, 1998
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i to protect or assert an interest will be impaired or impeded by this action. The United States Congress is considering the Proposed Resolution - not this Court. It is not an issue in this case, nor is any claim of its constitutionality - if it were enacted - ripe for this Court's consideration. If the Proposed Resolution is ultimately enacted and if it ultimately contains the provisions to which the Intervenors object, the Intervenors can then file an action challenging the legislation, but this is not the basis for intervention now 9' C. Intervenors Have Alleged No Common Interest That The Ecisting Parties Will Not Adequatety Represent The Intervenors' allegation that the parties will not protect their interests is irrelevant. The interest the Intervenors have asserted in their Motion to Intervene relates to their opposition to the Proposed Resolution. As,just noted, that "interest" cannot be vindicated c e Attorney General seeks no relief in this Court regarding the Proposed Resolution, and there is no relief this Court can grant in that regard. That the Attorney General's continued support of the Proposed Resolution may, according to Intervenors, have an adverse impact on their rights is In ?' Although the Intervenors have characterized the impact of the Proposed Resolution on their claims, the effect of the enactment of that proposed legislation is not an issue before this Court. Moreover, while the Proposed Resolution would prohibit claims from being pursued as class actions, this provision would not impair the Intervenors' rights as a practical matter. The courts (especially the federal courts where Intervenors' case is pending) have generally concluded that such actions are not appropriate to litigate mass tort actions of this type. See, e.g., Castano v. American Tobacco Co., 84 F.3d 734 (5th Cir. I946)(decertifying a nationwide class of smokers claiming injury from addiction noting the myriad factual differences among smoker's choices and the resulting legal consequenoes of those differences); Arch v. American Tobacco Co., No. 96-5903, 1997 FU.S. Dist. L.MS 7890 (E.D. Pa. June 3, I997)(denying certification of a class of smokers claiming personal ies holding that "the individual issues raised not only predominate over the common issues but overwhelm the common issues"). -5-
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0 Mark H. Wall, Esquire OGLETREE, DEAKINS, NASH, SMOAK & STEWART, L.L.P. 177 Meeting Street, Suite 310 Post Office Box 1808 Charleston, SC 29402 (803) 853-1300 BY: Monteith P. Todd, Esquire SOWELL, TODD, LAFFI'1'TE, BEARD & WATSON, I,.L.C. 1301 Gervais Street, Suite 901 Post Office Box 11449 Columbia, SC 29211 (803) 424-1400 BY:_If I~AAAa 1 Y` f~` 3IGt`G~ da Attorneys for Lorillard, Inc. ~ Tobacco Company Carl B. Epps, III, Esquire Christopher I. Daniel, Esquire NELSON, MULLINS, RILEY & SCARBOROUGH, L.L.P. 1330 Iady Street, Third Floor Post Office Box 11070 Colambia, SC 29211 (803) 799-2000 a CC£) COrpora21oY1, as successor by merger to The American Tobacco Company -11-
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We think ILat Haina€ ooatcmplaus the uc af a PcrQmdZacsx ad'flse evidrarc rEaadacd in wzi.y*biAg the avidmce and rotsa€sat evidc8ce of the garties in doEaa)hft4vltcthe i3r evidzaee, i f bctiecsd by tlse IIser offaM vos$dix ss$ficirnt to svppaR a fm&ag of traud. As the Couc'F noted in Bourjaitp, the et5drtmary issue m apralunaay fAa qo=ima is `aat wfiethrr the proponxxu of cho avideate vms or iases his cau mthe m~ but wJaisa ft avida#iaeyR}ata havr bwa sausacQ.' 483 US. at 175. We think theHrttnes ptoadtco attamplW= that. The pruua sscsc cvidear: tstabiish t8e csine-fsaA cc~cptian toiln: alimtpavilegm SeXainrs, 973 F.2d at 95-96; rrt alsa thr!led,Servs. Auto. ilss }j v. Wcrlrp, 536 F.2d 2$ (Atastit 1474): Pearce v. Stone, 720 P.?d 542 (Assz Ct App_ 1986); $rate Fanm Fire 4~ Cas. Co. v. SSrpertor t'ourt (I'oylorj, 62 CaL Rptr. 2d 934 (CaL Ct App. I997}; Peoplr v. Supenor Corrrt {Saumarr d: RaseJ. 44 Cai. Rpcr. 2d 734 (CaL Ct Apg, f995); Dickerson v. SSrperior Coart, Santa Clara Cmmty, 1&5 CaL Rpt. 97 (CaL Ct. App. 1982)~ Zaw Offices ofBernardl3.J4fortey, P.C v MacFarlmee, "7 P.2d 1215 (Colo. 1982);bfutter of Surton, Ata 96M-8S-p24, 1996 SYI. 659t102 (I3o[. Sup¢. Ct Aug. 30, 194 +, Wallace, Saunders. dustin, Brown dcFnoehs, L'hartertdv. Zoutsburg Grdn Co., 824 P.2d 933 (Kaa. 1992); Levfn v. CQzSdB. Co., 469 N.W.2d. 512 (Mma. IFS1}; S7ate es ret Feabody Coat Com x Clan4 863 S.W.2d 64G (Mo. 1993} Natfonat FltfC Serv, Lrc v. Sunshtne Bitcutts. Inc., 694 A.2d 319 N.7. $upcr. Ct App. I3sv.1997); CaIdsvett v RNcr CXsi r Tiys3 Coy No. 01-94-flCS273-CV. 1996 RZ 227520 (fcx. App. May 2, 1996); arkla. Taa_v. Harris. 846 S.W.2d 623 (for, App. 1993). Only two ttatce lrave dcs~ See SYate v$right, 676 So. 2d 189 (LA. CL App. 1996); Purcell v Ikstricx.lstorney, 676 3Q_fi2d 436 (Mass. App. Ct 1993): see also Laasrlndwstrtes,167 F.RD. at 417. Sasod upon xfie foregeing cushoaities we cannot _ eoactuda that, in following flarnes, the tsSaf oastct deparicd from s1= csscntiat requircmtatc of law. Iadcad, the triat aocsst foltowad etaar7Y essab7isbed 1aw in ssscssing this isssse. The special maum found that t6ere cvas avtdeate that the •e€•a+•n*s ha`d fram aodmisa~ to the gublic the beakh risYs af amokin g and that their aamdu.ct constitzimd fiaad on 1bc public. 2'tkto was also evidtaco that the def=dants iuiCsacd d3:ir attornays in cauyiug a4 their assgvpr=eatatiooa and wuccalnseot to 1ap scrxcxFa:mrh md athacaaduct relatod to t6s smc tsatth dacgas of smottm:. Ttuxs, the masta found ocidonce su8'izeat to snggost the aiatds tlxotyoffraud and that eho aifacneys wae used to gerpatrmu the fraud 1Iu nqsaatzactmis af Halnes tsae met YCt(lt122EG{aL'4 C{ItW- The petitio¢ fae Qsrit of =torari is drnud. Gt3NTI'IiBR and PC31.EN. IL, rtmcca. NOT FINAL UNTIL TIIE DI&PtTSITION OF ANY TIMELY FILES3 MOTION FOR RE1EAIt1PIC's.
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FEP. 4. 1998 5:27PM PtEIPMOTLEY 1519TG 4 'W NO. 4660 P. 42 whether injuries sustained by the state vere remote and regardless of whether or not the State dealt directly with the alleged violator. The Maryland statute provides as follows: "T2ee United States, the State, and any political subdivision organized under the authority of the State may maintain an action...fcr dasnagss or for an injunction or both regardless of whether it dealt directly or indirectly with the person who has committed the violation.^ Id. Consequently, the fact that the so called ~indirect purchaser ruie" may bar the State from asserting federal antitrust claims does not mean that the State is barred from asserting antitrust claims under the tiATA. The State' a claims are properly made and actionable under § 11-2ffS(b){2}{ii} of the MA2R. In accordance with the liberally construed purposes of the Act, the State has properly alleged in its complaint that Defendants engaged in prohibited conduct as defined in § 11-204 of MATA. Furthermore, the State is a person and has standing to maintain its cause of action pursuant to § 11-203(b){2}(ii). Therefore, the State is entitled to seek injunctive relief, civil penalties, and treble damages under the Maryland Antitrust Act, - in acaordance with the clear and unambiguous language of the statute.
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See Intervenors' Mem. at 7. Intervenors, however, fail to recogni of Bcrklev's liberality ntial premise - judicial economy - is missing. Intervenors have class action in federal court. Before cation there, Intervenors seek to intervene as a efass into this case, which does not purport to be a class action (although the State seeks to tecover Medicaid or other medical assistance payments made on behalf of thousands of individuals). Intervenors seek to litigate here an issue that is simply not before either this Court or the federal district court in Greenville. sideration of "the pragmatic consequences of a decisi or deny intervention." Berkelev, 302 S.C. at 189, 394 S.E.2d at 714. Intervenors seek to impose on this already complex case the overlay of a satellite class action to litigate an issue that is not before the Court. It is difficult to see the economy to be achieved by permitting interYentio III. INTERVENORS' ALTERNATIVE REQUEST FOR PERMISSIVE INTERVESPPIt3N SHOULD BE REJECTED BECAUSE OF T'HE ABSENCE OF -COihL4It)NALITY BETWEEN THEIR CLAIhiS AND THE STATE'S CLAIMS Permissive intervention is only appropriate where the claims of the party attempting to intervene have a "question of law or fact in common" with the action into which intervention is sought. Rule 24(b)(2), SCRCP. Indeed, the Intervenors agree that "[a] mere general interest in the subject matter of the litigation is not sufficient." See Intervenors' Mem. at 10 (quoting South Carolina Tax Comm'n v. Union County Treasurer, 295 S,C. 257, 261, 368 S.E.2d 72, 75 (Ct. App. 1988)). -7-
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! CERTIFICATE OF SERVICE I do hereby certify that I have caused to be served a copy of Defendants' Memorandum in Opposition to Motion to Intervene on all counsel of record, as reflected below, by placing same in the United States mail, postage prepaid, this 5th day of February, 1998. - FOR Plainfi lrs James C. Anders, Esquire (IIANI3 DELIVERED) 1315 Blanding Street Post Office Box 7485 Columbia, SC 29202 FOR Intervenors David H. Wilkins, Esquire Timothy E. Madden, Esquire Wilkins & Madden, P.A. 408 East North Street Greenville, SC 29601-3098 William A. Jordan, Esquire William A. Jordan, LLC 667 North Academy Street Greenville, SC 29601 J. David Flowers, Esquire 7. David Flowers, P.A. Post Office Box 10842 Greenville, SC 29603-4842 Dick James, Esquire The Dick James Law Firm 611 North Main Street Greenville, SC 29601 John A. Hagins, Jr., Esquire Covington, Patrick, Hagins & Lewis, PA Post Office Box 2343 Greenville, SC 29602 FOR B.A.T. Indestries. PLC. and British American Holdinas Ltd Elbert S. Dorn, Esquire Turner, Padgett, Graham & Laney 1901 Main Street, 17th Floor Post Office Box 1473 Columbia, SC 29202 FOR British American 'i'obacco Co. Ltd. Wade H. Logan, Irf, Esquire Holmes & Thomson 200 Meeting Street, Suite 202 Post Office Box 858 Charleston, SC 29442-€1858 R F Inc.: Batus Holdinas, , Carl B. Epps, IiI, Esquire Christopher J. Daniel, Esquire Nelson, Mullins, Riley & Scarborough, L.L.P. 1330 Lady Street, Third Floor Post Office Box 11070 Columbia, SC 29211 FOR Chadbourne & Parke LLP Wilburn Brewer, Jr., Esquire Nexsen Pruet Jacobs & Pollard, LLP 1441 Main Street, Suite 1500 Post Office Drawer 2426 Columbia, SC 29202
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2 1988), relied upon so heavily by Intervenors, the Tax Com taxpayer's suit, both as of right and pe reason that the Commission sought inte . A t, 368 S.C.2d 72 (Ct. App. petitioned to intervene in a e appellate court, the main y legal precedent that may result from the r.ase." Id. at 26[, 36$ S.E.2d at 74. The court then noted that even assuming the interest asserted by the Commission would be impaired or impeded and further assuming that the Commission would be "bound by a judgment" entered in the case, the Commission's interest would be adequately represented by the existing parties. Id. 'I'he court therefore rejected the 's contention that it was entitled to intervene of right. Likewise, the Commissi 1 argument for permissive intervention was rejected because it had no 'cause of action or defense it could bring or assert.' Id. at 262, 368 S.E.2d at 76. Similarly, Intervenors have asserted . only an interest in avoiding Pe mces of the Proposed Resolution and have not advanced a claim related to the Proposed Resolution.'-°' Accordingly, Intervenors assert no interest at all, let alone a common interest, in thi the State will not adequately represent. D. Intervention Will Not Promote Judicial Economy Intervenors contend that Berkeley Electric Coog. v_ T 394 S.E.2d 712 (1990), mandates liberal interpretation of ttorney General or 2 S.C. 186, ention rules where "judicial economy will be promoted by the declaration of the rights of all parties who may be affecteri." L' The only justiciable interests or claims advanced by the Intervenors are those set forth the Greenville Amended Complaint. Those claims should be adjudicated by the federal court, not this Court. -6-
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.,r STATE OF SOUTH CAROLINA } IN THE COURT OF COMMON PLEAS } FOR THE FIFTH JUDICIAL CIRCUIT COUNTY OF RICHLAND } CASE NO. 97-CP-40-1686 STATE OF SOUTH CAROLINA, BY CHARLES M. CONDON, ATFORNEY GENERAL, Plaintiff, vs. BROWN & WILLIA14tSON TOBACCO J CORPC)RATION as a successor } by merger to THE AMERICAN ) TOBACCO COMPANY, et al., } } Defendants. } } ed, but not certifi , the Sfate of South Carolina (the State") on May 12, 9997. ovants`} are purported plaintiffs in a putative class action is nothing to "intervene " For the reasons e AUSE MOVANTS' MC3TION' Ta.IN'FEF2VENE"V1IAS NOT TIMELY FILED, RVENTI{}N SHOULD BE DENIED UNDER EITHER RULE 24(A) OR RULE court's permission, the motion must be timely; both subdivisions of Rule 24 of the South RtoYamber'1; consolida way of a Motion to Intervene in the United States District Court, Greenville Division, on Sk asked to intervene In the present action by S to have their pending federal court action . n January 26, '! 888. If ever there was an instance _, af__puft[ff"g;She ea€# before the horse, this is it tn ~ha abseWi
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Intervenors' opposition to the Proposed Resolution does not amount to even a"mere general interest" in the subject matter of the Ssate°s action. These individuals have not, therefore, established their entitlement to permissive intervention. IV. THE IFVTERVENt3RS HAVE NUT CflMPLIED WITH RE7I E 24(c) Rule 24(c) requires that a person desiring to intervene shall file a motion stating the ground on which intervention is sought and which "shatt be accompanied by a(p eading setting forth the claim or defense for which intervention is sought." Rule 24(c), SCRCP (emphasis supplied). The Motion to Intervene was not accompanied by a pleading.'-" If the "pleading" upon which Intervenors intend to rely is the Amended Complaint filed in the federal action, there is no need to litigate those claims here. Indeed, unlike the Amended Complaint filed by the Attorney General in this case, the federal pleadings actually recite the Interve the Proposed Resotution.'~' Therefore, to the extent the claims made by the Intervenors are justiciabie,=they can be fully litigated in the federal action. If, on the other hand, the "pleading" the Intervenors rely upon is their Motion to Intervene, the claim they advance -- their opposition to the Proposed Resolution - is not an issue before this Court as discussed earlier. In any event, there is no li6 ir claims in this Court since all of their justiciable claims are before the federal 43i ~~' Intervenors attached as exhibits to the supporting memorandum copies of the original and amended complaints filed in the Greenville case. These pleadings do not purport to be pleadings that the Intervenors propose to file in this case. Greenville Am. Compi. 12. `~ Defendants hasten to add that an objection to the Proposed Resolution is not a"claim" ea that can be resolved by either court. ~ -8-
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not alleged `an interest relating to the property ... which is the subject of the action' - Medicaid or other publicly funded medical payments. Rule 24(a)(2), SCRCP. Additionally, the centerpiece of the Intervenors' proposed intervention, their oppo to the Proposed Resolution (as well as the settlements with individual states), is simply not at issue in this case. "An interest that is collateral to the action or.contingent upon the future occurrence of a sequence of events is insufficient" as an interest upon which to base ederal Praccice I 24.Q3[2][a]{3d ed. 1997). . In this action, the Proposed Resotuti is -- its enactment by Congress in its present form - and therefore an objection to its enactment is tasa The Proposed Resolution Is Not An Issue In This Action Parties attempting to intervene as of right must allege that they are "so situated that the disposition of the action may as a practical matter impair or impede [their] ability to protect [their] interest." Rule 24(a)(2), SCRCP. Federal courts have interpreted the federal version of the South Carolina intervention statute to require 'a practical impairment of the ability to protect an interest and not a practical impairment of the ability to assert an interest." TPI Corp. v. Merchandise Mart of South Carolina Inc., 61 F.R.D. 684, 688 (B.S.C. 1974). The Intervenors' concerns about the terms of the Proposed Resolution and the settlements of other unrelated medical care reimbursement actions fail to demonstrate that their ability either $' (...continued) protect that interest, unless the applicant's interest is adequately represented by existing PartFes•" -4-
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impairment that would be caused by allowing the State to continue way a part of this case and cannot 'be a€fe intervention. ed, the national settlemen t in any ere is no reason for 111. PERMISSIVE INTERVENTION SHOULD Bi= DENIED FOR NUMEROUS REASONS IN ADDITION TO THOSE DISCUSSED ABOVE.. Rule 24(b) of the South Carolina Rules of Civi! Procedure provides for perrrfissiVe (b) Permissive (nterventiorc. Upon timely application anyone may be permitted to intervene in an action: (1) When a statute confers a conditional right to intervene; or (2) when an appiican,~'s claim or defense and the main action have a question of law or fact in common. When a party to an action re(ies for ground of claim or defense upon any statute or. executive order administered by a€ederal or state governmental officer or agency or upon any regulation, order, requirement or agreement issued or made pursuant to the statute or executive order, the officer or agency upon timely application may be permitted to intervene in the action. 1n exercising its discretion the court shall consider whether the intervention will unduly delay or prejudice the adjudication of the rights of the original parties. ovants. As e the grounds enti4 s a right are not met Whetherta permit inte discretionary with th t% s wholly but the decision should be made in light of the purpose of intervention. See-South Carolina Tax Comm'n v. Union Gity Treasurer; 285 S.C. 257, 262, 368 S.E.2d 72, 75 (Ct. App. 1988). The decision regarding whether to grant permissive intervention is always subject to the inherently discretionary considerations of equity and judicial economy. In essence, considerations-4ffrial conven'ience dominant the question of whether to allow permissive intervention. 6.la,MES W. MOORE, ivtoorte'S FE PRACTICE § 24.7Q[1] (3d ad. 1997). 13
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to do with the pain, suffering, and death of potentially hundreds oftho ds of individual claimants, whereas the State's action has nothing to do with that. The Movants wish to inject issues of individual causation and damages for the pain, suffering and death of , eds of thousands of individuals into the State's present action, which concerns reimbursement o€the State's money to the State treasury: More is required than simply having a claim against a cxtrnmon. defendant for the s ty of tort to intervene. For example, even though one plaintiff has a negligence claim a defendant for running over him with a car, that does not entitle another plaintiff ased on a negligence claim for haiting slipped on the defendant's stdewalk. 4 B. BECAUSE A POSSIBLE UNFAVORABLE RESOLUTION OF LITIGATION BETWEEN OTHER PERSONS IS NOT ADEQUATE TO DEMONSTRATE A POSSIBLE IttiIPAIRAtiENT OF ONE'S RIGHTS, INTERVENTION SHOULD BE DENIED. re particularly, ahope that one can have a role in forging the outcome of a case is. not sufficient to state an interest in the transactions of the underlying case. A desire to influence the settlement of the State's case against the tobacco companies, much less the proposed national resolution,,is not a valid reason to permit'intervention, especially~f intervention is sought to protect the viability of one's own suit. In United States v. National Bank & Trust Co. of Central Pa:, 3f9-F, Supp. 930 {E.D. Pa. 1970), the govemrnent had=- : brought an antitrust lawsetit against the defendant. The prospective tntervenor had his own private antitrust lawsuit pending. Because he wanted to compel terms in a consent judgment between the United States and the defendant which would advance his own
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d wi!l be adequate." United Nuclear Corn omitted). One court has further delineated w on, 696 F.2d 141 (Sst Cir. 1982) {(citation inadequate represent The concept of adequate representation embraces many factors. One aspect. "adequate representation" is inherent to plaintiffs ability. Factors here include that (1) plaintiffs counsel be qualified, experienced, and generally able to conduct the lifigation, (2) there be no evidence of collusion of conflicting interests between the representatives and the class, (3) the representative must display some minimat level of interest in the action, familiarity with the practices challenged, and the ability to assist in decision-ma&ing as to the conduct of the litigation, and (4) the representatives possess the ability to bear the cost and expenses of litigation. Leach v. Standard Register Co., 94 F.R.D. 'P32 (W.D. Ark. 1982) (citation omitted). Gonsidering these factors it is beyond dispute thatthe State is an adequate representative. There has been no showing at atl that the State is uninterested in this case or that its counsel are unqualified. As a contingency case, the fourth factor is certainEy satisfied. The Court should find that the State is at least as satisfactory a litigant as the Movants and should, thus, find that the State provides adequate representation. Simply charging ; inadequate representation does not justify intervention in a tawsuit. Not only must the current party be inadequate, but the prospective intervenor must add something to the lawsuit. For example, in Clements, the court explained that intervention would be denied; rt, because the Movants would not have contributed significantly to the development of the factual issues. Here, the only contribution to be made by the Movants is their names to the caption. are allowed to intervene will have no effect whatsoever on the Movants' rights. With the exception of the `prejudice" to their purported class action ich they fear might be caused by the proposed national settlement, the Movants c~a ~ ias 12 a ~ 0 ~ ~
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i attempt to influence ("intervene") in the national settlement by writing their Congressmen and going to the halls of Congress and lobbying its members. For all these reasons, the Movants cannot show that their Motion is timely. Thus, . Movants are not entitled to either Intervention by Right or Permissive Intervention. IL INTERVENTION AS A(trtATTER OF RIGHT SHOULD BE BENIED SINCE THE S HAVE NO QIRECT AND SUBSTANTIAL INTEREST IN THIS LAWSUlT SiNCEAt1IYTAhtGENTEAL tNTEREST (S Af}EQUATELY REPRESENTEL} BY TATE. Rule 24{a}(2)' of the South Carolina Rules of Civil Procedure provides: (a) Intervention of Right. Upon timely application anyone shall be permitted to intervene in an action: ...(2) whest the applicant claims an Interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action may as a practical matter impair or impede his ability to protect that interest, unless the applicant's interest is adequately represented by existing parties. "A party seeking to intervene under Rule 24(a)(2), SCRCP, must: 1) establish timely ion; 2) assert an interest relating to the property or transaction which is the subject of the action; 3) demonstrate that it is in a position such that without intervention, sition of the action may impair or impede its ability to protect that interest: and 4) demonstrate that its interest is inadequately represented by other parties.' SCONEC v: . Columi3ia Organic Chemical Co.. 310 S.C. 495, 498, 427 S.E.2d 661,663 {1993). `Eaifure ur requirements precludes interveit " ld. at st}Q, 427 S.E.2d at 684. The Movants' contention that they satisfy all four parts of the test for intervention under Rule 24(a)(2) is wrong. In actuality, they do not satisfy any part of the test. A. BECAUSE THE MOVANTS HAVE NO INTEREST IN THE PROPERTY OR TRANSACTIONS THAT ARE THE SUBJECT OF THIS CASE, INTERVENTION AS A R1GtiT SHOULD 8E DENIED. 'The Movants concede ihat Rule 24(a){i } is inapp(ica6le. 6
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n Columbia, South Carolina 24211 Thomas R. Gottshall, Sinkler & Boyd Palmetto Center 1426 Main Street, Suite 1200 Columbia, South Carolina 29201 Christopher Daniels, Esquire • Nelson, Mut€ins, Riley & Scarborough P. O. Box 1147€1 COiumbia, South Carolina 2921 l Wiibum Srewer, Esquire Nexsen, Pruet, Jacobs & Pollard, LLP P. Q. Drawer 242§ Columbia, South Carolina 29202-242 Robert Rosen
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Movants in this matter belong in this category a e putative parties to a purported class action which they brought in federal court- it can hardly be contended that they cannot receive a speedy and just adjud€cat€on of their rights in that forum. I]€€nois v. Bristol-Myers Co.._47fl F. Supp.127fi, 1279 (D.D.C.1972), is an of a eourt's denying intervention on the basis of other remedies being available. There, €1€inois had begun an antitrust €awsuit on behalf of its citizen consumers. The appellants sought to intervene to represent certain segments of the public interest that they alleged the state could not represent The tria€ court denied that motion. It wrote that one of the prospective €ntervenors•'hajdj adequate remed esaier-retaner class action certified by the District Court in the same order that certified the Illinois class action at issue ...." That fact was cited by the court as Justi{ying the decision to deny permissive intervention. !ri one strongly worded appellate decision, the court applied the same analysis in -: upho€ding a deniat of Intervention. When one can bring another action, there is no error in denying intervention: `VYhen an appellant has other adequate means of asserting its . rights, a charge of abuse of discretion in the denial of a motion for permissive intervention would appear to be almost untenable on its face.° Kor€oth v. Briscoe, 523 F.2d 1271, 1279 n.25 (5th Cir. 1975) (citation om€tted); see also Head v. Jellico Housing Auth., 870 F.2d 1117 (6th Gir. 1989). This case is directly on point since the Individual parties here plainly have anothei• adequate remedy and are in fact utilizing it. "Thus, If a court finds there is another remedy available to the applicant to protect his rights, the court will likely deny intervention, especially if such intervention will resultin delay in the existing action ` 6 Jnn,tEs W. MOORE, is
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out on pages 64-66 of i#s A Complaint. The State seeks a i3ride a equitable re€ief, but the monetary relief it requests is stated in part V€, a. and b. of the Amended Complaint. This monetary relief is not sought by the State on behalf of persons who have incurred damage andlor personal injury due to smoking. Quite to the contrary, it is sought solely on behalf of the State itself to recoup its own aggregated expenditures. On the other hand, the.State can only guess at what causes of action the Movants would seek to assert in the present action, since the Movants have failed to comply with Ethe South Carolina Rules of Civil Procedure. Rule 24(c) plainly requires that a motion to intervene'"be accompanied by a pte.1ding setting forth the claim or defense for a Which intervention is s4ught.' That cannot mean attaching the pleadings front another action, since those obviously w€€I not be the pleadings to be filed in this action if the Movants' request is granted. At any rate, even if the Movants could somehow assure the Courtthattheywouldsimp€ycopytheirfederatcourtpteadingsifa€€awedtointerverte,their . are vastly different from those forwhich the State seeks compensation. Numbered -paragraph 3 of the Movants' AMENDED COMPLAINT CLASS ACTtt?N filed in the U.S. District Court states: This case is brought by victims, andlor on behalf of victims, who have suffered <,_i€€nesses; disease or death as a result of_expi?syie ta the defendant tobacco ci5iiiparsies' products. This case is necessary"ae afi act€on seoarate from the Attorney General's case nending in state t.aurt. because that action ignores the 'pain. suffering and death of hundreds of thousands of citizens of this state and, in -- fact, attempts to add to their devastation by agreeing with the tobacco industry that "the real victims of tobacco exposure should riever receive their day In court. (Movants' Amended Complaint at para. 3(errsphas€s added).) The Movants were half-right when they made this statement They are wrong when they assert that the present a could affect their rights, but they are right when they say that their action has everything
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The Movants also cannot satisfy the third factor of timeliness, relating to the stage to which the litigation has progressed. Their suggestion that this case is still in its infancy is incorrect. Eight months have passed since this case was filed and it has moved forward , steadily. Indeed, as noted by the Movants in their memorandum, "a trial date is to-be set soon in this action '(Nlesno. in Support of Intervention at 4.) Finally, as to the fourth timeliness factor, involving the weighing of the relative prejudice to the parties if intervention is granted or denied, the granting of the Movants' ect a purported class action that has not been certified and indeed cannot 4 likely be certified into the present action would bu& prejudicial to the State's action, whereas there would be no prejudice whatever to the Movants if their motion is denied. As explained below, these two cases are not in any way similar except in their complexity. To rperrnit the Movants to intervene in this action would greatly complicate an already complex n araetion and frustrate the State's urgent need for a prompt resolution af.this matter.. On_the eother hand, denying their motion will not adversely affect the Movants €n any way. Indeed, the Movants are already parties to a lawsuit that is proceeding in federal court where they certainly can receive a speedy and just reanedy. Even without becorning parties to the - present action, the Movants will have their day in court. The thrust of the Movants' position seems to be that if they are denied 8o present suit it may be settled in such a way that it will affect their own ability to sue the tobacco companies. The lNovants, however, base that argument on their erionazi[is understanding of the terms of the proposed naCsoiral settlement, not on any settlement that inight occur in this case. Like the fvSovants' timeliness argument, this one is also nonsensical. If allowed to proceed without intervention, there is no evidence that the State
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vants have no interest whatever In the property or transaction which is the subject of this action. "(ntervention of right requires a direct, substantial, legally protectable e proceedings." Co(umbia.4roanic Chemical Co., 310 S.C. 455, 427 S.E.2d at 664. The reference in the Rule to an interest in the prgperty that is the subject of th.e case is meant to refer to cases in which title to a-particuiar piece of property such as land or real property is at stake. 7C CaiatttEs H7, ET AL., FEDERAL PRACI'iCE RND PROCEDURE, §§ 19g7-08 (2d ed. 1986). In such cases, it would be inequitable to allow one's interests to be decided in a lawsuit between only a few of the ctaimants. There is no property at stake in this case at all as that ferm is employed by the Rules of Civil Procedure. Neither have the Movants demonstrated an interest in the transactions that are the subject of this case. °Transaction" should be read to refer to the events underlying the lawsuit. Purcell v. BankRtiantic Financial Coro.. 85 F.3d 1503 ('t'!th Cir. 1996). When a ; movant's interest is without relevance to the underlying facts of the case into -which 'fnterventEon is so motion should be denied. See Norwalk Core v. Nonriatk Sd. of Educ.E, 298 F. Supp. 208 (D. Conn. 1968). Even if the Rule is intefpreted liberally so that "transacflon" might refer to all the reievant coriduct of the Defendants, intervention would still be Iniproper. The causes of action brought by the State are for damages pecuiiar to the State. The Movants s State's claim in their memorandum as 6eing-one in which the State "seeks dica( bills paid on behalf of persons in the State of South Carolina who have incurred damage andfor personal due to smoking tobacco products "(Memo. in. Support of Intervention at 5.) That is incorrect. The relief requested by the State is set
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0 e at all, much less on any particular terms. indeed, if the State were to settle its suit, it is difficult to see how the putative class action plaintiffs could be adversely affected. This is because since the State seeks to recover its own Medicaid money spent for tobacco related disease and the class plaintiffs would be seeking recovery of the•ir money they themselves spent. En other words, there is no common relief sought by these two very different cases. Moreover, it is important to distinguish between a possible settlement of this suit and any potential national settlement enacted by Congress. A settlement of this case s obviously would be no bar to a lawsuit by thosb who were not parties to the settlement agreement. The State cannot, as part of a civil settlement, compromise the rights of its citizens to proceed with their own lawsuits. Additionally, even if they were made parties to this case, the Movants would have no better ability to contrai the terms otany settlement reached by the State and the. Defendants. The Mflvants' real concern is apparently that the proposed national settlement will be adopted and that the setttemerctwil! give tobacca companies a"shield" to lawsuits such • as the Movants'. This total misconception of the proposed national settlecnent-wtaich has been espoused by opponents to the proposed Ccrngressionai action. Moreover, the I settlement is, in reality, a proposed statute to be adopted by thb United States Congress. It Is in no way a form of judicial resolution and a federal statute cannot be enacted by the state as a s permitted to inteevem. r ncst -the Movants are e different influence over the enactment of the national settEemen#. lndeed, the Movants have every rightand can, right this minute,
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Carolina Rules of Civil Procedure require this. While there is no concrete definition of. "timely," the South Carolina Supreme Court has given this advice: [A] court must consider the following factors in determinin a motion to intervene is timely: 1) the time that has passed applicant knew or should have known of his or her interest in the s reason for the detay; 3) the stage to which the litigation has progres 4) the prejudice the original parties would suffer from granting inte ari'd the applicant would suffer from denying intervention. SCDHEC v. Columbia Organic Chemical Co. (1993). All four timeliness factors weigh against interventi s whether e the 2}the 1, 664 As to the first two, the Movants offer no explanation whatever in either their motion ~ or their memorandum to explain their delay in moving to intervene since the date of the we(t-pu6(icized filing of this action in May 1997. On the contrary, they merely assert that their motion is timely because it was filed within three months after filing their osvn case in federal court in Novemi}er 1997. Of course, that analysis of'Yimety" is nonsensical. There Is no requirement that a prospective intervenor even be a litigant in another case, and, indeed; rarely'ss another case pending when intervention is sought. Thus, any other case to which the- mov.ant t provide a marking point for judging timeliness. Were it otherswise, a prospective'sntervenor could simply file a spurious action rneotareiy move to mtervene in__a.norner, men€onous case even as me 1ury _~ deliberated and perhaps even later. - Not only is timeliness not judged 8y.the-tapse-between the filing of he interveno~~s -..- ion and the date of the.Motion to Intervene, it is not necessardy judged by the.age af the underEying action. Rather, whether a Motion to -interverie is timely is a function of how much time has passed since the prospective intervenor knows or should know of a co ~ w 0 ~ a ~ c
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ed above, timeliness of a motion to intervene is a requiremen nder Rule 24(b). For the reasons already discussed, Movants'rno#ion is not timely. Thus, even permissive Intervention should be denied. A. BECAUSE THE MOVANTS ARE ALREADY PARTfES TO ANOTHER PEttBING ACTION, INTERVENTION SHOULD BE DENIED TO PREVENT AN ENt}RMOUS WASTE OF JUDICIAL RESOURCES. Permitting Intervention here would only serve to increase the burden on the courts and the parties. The Movants have already brought a purported federal class action which ire discovery and time to resolve. Indeed, the current state of class action law suggests this case will never achieve a and therefore, there will be nothing to intervene` into the State's lawsuit an a hodge podge of individual personal inJury cases. SeeAmchem Products. tnc.. et atL v. George Windsor, et al., 117 S.Ct. 2231 and Dianne Castano, et aI. v. The American Tobacco Cornonany, et at., 84 F.3d 734. Moreover, allowing the Movants to intervene would result in a duplication of their own discovery as welt as a colossal waste of time and energy for everyone involved. It is for that reason that the general rule provides that permissive intervention should be denied when another action is air pending since the intervenor has another remedy available. See 7C CHARLES A. WRIGHT -,__Eriit.; FEDERAL PRAcT[cEAhtD PRocEDUtza, § 1913, at 385-88 (2d ed, 1986). Numerous courts have held that intervention Is not required when the intervenor is already a party to other litigation. Goodyear Farms v. U.S.. 24'f F.2d 484 {14th Cir.1857}; tNer'si3ian Homes Coro. v. Nicholas W. Prassas & Co., 89 F.R.D. 852 (1981); U.S. v. Nat'l Bank & Trust Co. of Central Pa., 318 F.Supp. 930 (0. Pa.1970); see CHARLES A. WRIGHT ET AL., FEDERAL PRACTIc= AND PROCEDURE §-1913, pp. 386-87 n.20 (2d ed., 1988}. The 3.4
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F SOUTH CAROLINA COUNTY OF RICf ILAN } } ) STATE OF SOUTH CAROLINA, BY CHARLES K CONDON, ATTORNEY GENERAL, 1lejendants. CERTZI:`ICATE OI' SERVICE ify t2sat I served a copy of the Plaintitf's Memorandum in v, 'Pluintijj; BROWN & WILLIAMSON TOBACCO CORPORATION as successor by merger to . THE A2r+1EItICAN TOBACCC) COMPANY, et al., Resistence to Motion to Interevene on the Defendants in the above-captioned matter by s , 9 Civil No. 47-CP-4fl-f 5$5 following attorneys of record: Vlade H. Logan, III, Esquire Holmes & Thomson 200 Meeting Street, Su3te 202 P. O. Bax 858 Charleston, SC 29402-0858 Daniel B. Wiiite, Esquire Gibbes, Gallivan, White & Boyd P. t3. Box i{}5S9 Greenville, SC 29603 ; United States Postal Senice with proper postage aft-txed IN THE COURT OF COMMON PLEAS
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Henry B. Smythe, Esquire Buist, Moore, Smythe & McGee P. 4. Box 999 Charleston, South Carolina 2940 , Esquire Turner, Padget, Graham & Laney F, O. Box 5478 Florence, South Carolina 29502-5478 Carl B. Epps, IIi, Esquire Nelson, Mullins, Riley & Scarborough 1330 Lady Street„3rd Floor F. O. Box 11070 Columbia, SC 29211 Robert E. Stepp, Esquire Elizabeth Howard, Esquire Laura Robinson, Esquire Glenn, Murphy, Gray & Stepp 1901 Assembly Street, Suite 390 P. O. Box 1550 Columbia, SC 292Q2-1550 Elbert S. F3orn, Esquire Turner, Padgec. Ciraham & Laney 1901 Main Street, 17th Floor P. 0. Box 1473 Columbia, SC 29202 Monteith P. Todd, Esquire Sowelt, Todd, Laffitte, $eard & irlatson 1301 Gervais Street, Suite 901 P. O. Box 11449 Columbia. SC 29211 Joel Collins. Esquire Gray Cutbreatli, Esquire Caliins & Lacy 133€} Lady Street, Suite 601 Columbia, South Carolina 29201
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Respectfully Submitted, ROSEN CHARLES N. CONDON Attorney General 1000 Assembly Sfreet P.O. Box 11549 Columbia, SC 29211 (803) 734-3880 F. RICE ERSON BERLY,111 Ness, 3vtotley, Loadholt, Richardson & Poole 151 Meeting Street, Suite 600 P.O. Box 1137 Charleston, SC 29402 (803) 720-9000 STEVE SCFlfvItlTZ 24 Broad Street P.O. Box 1752 Charleston, SC 29402 (843) 577-5530 Rosen, Rosen, & Hagood, PA 134 Meeting Street, Suite 200 F.O. Box 893 Charleston, SC 29402 (803) 577-6726 S C. ANDERS landing Street Box 7485 - mbia, SC 29201 . 98-54€lQ ayes ox 5367 Spartanburg, SC 29304 (8031542-2890 JOHN B. WHITE, JR. KtfEe, White & Anthony 250 Magnolia Street P.O. Box 3565 Spartanburg, SC 29304 (803) 582-8138 MARK W. BUYCK, JR. YViiEcax, Mc' eod, Buyck & Williams 24$ W. Evans Street P.t?. Box 1909 Florence, SC 29503 (803) 6"62-3258 24
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lawsuit, the movant sou ovant had no interest in the underl he court denied intervention on the basis that lawsuit. Similarty, Movants have asked to ene for the sole purpose of having a hand in any potential settlement of this case in - hopes that they can prevent the enactment of a statutory bar to their pending tawsuit Although, Movants would have no extra influence on the proposed national settietnent as litigants here, theyshould not even be permitted to intenrene to influence a possiblejudicial settlement of this case for lack of interest. A similar resolution was had in S.E.C. v. Vesco, 58 E,R.D. 182 {S.C?.N.Y. 1973). The Movants sought intervention and asked that they be allowed to participate in a2l the A discussions and negotiations between the parties in the injunctive action and that they be consulted before any prospective orders for relie€rvere submitted to the court. There the Court wrote: This is, a complex securities fraud action involving numerous individual and corporate defendants. To permit shareholders to intervene in the proceedings and participate in the fashioning of temporary and permanent relief would only serve to multiply the issues and the parties involved and inhibit the Commission's efforts to proceed with promptdisposltion of this action. Piaintiffs are,in no way prejudice by denial of their application to intervene since they are free to bring and, indeed, have already filed derivative actions in this Court for redress of their damage claims. Moreover, there is no showing that the Securities and Exchange . Commission will oris even Eiketyto take any position which would be antagonistic to the interest of plaintt€fs. fd. at 183, The Movants putative class member movants seek to intervene here forsimilar reasons, and for similar reasons should be refused, C. BECAUSE THE STATE WILL ADEQUATELY REPRESENT WHATEVER MINIMAL, INDIRECT INTERESTS THE MOVANTS HAVE, INTERVENTION SHOULD BE DENIED. 10
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MOORE, MaoRE'S denied if an applicant will not make any uniq •tnte ntribution to the evidence presented at trial. If a potential intervenor wi!l essentially repeat the same sort of testimony given by - existing parties, intervention is coccnterp,roductive since it wil litigation cinnecessarity "(d.; see also Arev v. Finney, 967 F.2d 418 {1oth Cir. I 2 IV, INTERVENTION MUST BE DENIED SINCE.THE MOVANTS HAVE FA1LED TO COMPLY WlTF{ THE REQUIREMENTS OF RULE 24(C). Rule 24(c) requires that the motion to intervene shall not only stats the grounds for the intervention but "saii be accomparsied by pleadings setting forth the claim or defense .. ; for which interventioti is sought ° S.C.R. Civ. P. 24(c) (emphasis added}. There is no question but that the motion was not accompanied by a proper pleading. Indeed, the Movant has simply attached his pleading in his other case. A number of cases have held that it is.not sufficient for the motion to adopt by reference some pleading already on file. Retired Chicaao Police Ass'n v. Ci of Chicaao, 7 F.3d 5$4 (7th Gir.1893) istrict court did not abuse its discretion in refusing to accept procedurally defective motions to intervenej; Shevtin v. Schewe, 809 i'.2d 447 (7th Cir. 1987) (ruling that fatture'fa attach pleading setting forth claim or defense was fatal to its motion to intervene); Mulfins v. C3eSoto3Secs. Co., 2 F.R.D. 502 (1942) (motion to intez.xen"s was:::. accompanied by a distinct pleading and adopted the pleading already filed by Plaintiff is not sufficient to satisfy Ruie 24(C). The failure to-sztbrnit, along with the Motion to Intervene, a pleading setti claim or defense into which Movants seek to intervene is a fatal infrrnity. In tvtuti~v_. - DeSoto Secs. Co., 2 F.R.f?. 502, 506-07 (W.D. La. 1942), the prospective intervenors 0 ~ 0 22 w ~
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ts have not met their burden of show'sng'that the State will not adequately represen ir interests in this case, a prerequisite to.just€fy intervention of right. €vtore.is required to show inadequate representation than a vague fear that the ing case w€€t be resolved less favorably than if intervention were granted: "Ydhen a ed intervenor possesses the same ultimate objections as an ex€sting litigant, the intervenor's interests are presumed to be adequately represented absent a showing of adversity of interest, collusion, or nonfeasance." League of United Latin Am. Citizens, Council #4434 v. Clements, 884 F.2d 985 (5th G€r.1989)_ Furthermore, the Movants must "produce something more than speculation as tcS'the purported €nadequacy.' Moosehead 3 Sanitary Dist. v. S.G. Ph€€lins Corp., 610 F.2d 48, 54 (1st Cir. 1979). In this case, there has been no allegation that the State has interests adverse to the Movants', has colluded with the Defendants, or has been sleeping at the oars. The Movants' position is supported only by the belief their apparent fear that the State will, in some way, compromise the rights of its citizens to sue. This "fear" is totally groundless as demonstrated by the settlement agreements reached to date against the tobacco industry in these AG type actions -Rh€ss€ssipp€, Florida and Texas. As the court can readily see, the rights of the underlying citizens to sue were not affected. ,This speculative evidence is even more flimsy considering that the Movants wish to intervene as a party on the side of the State. "1"he state is charged with representing the public interest, and one consequence is that a prospective intervenort€iat bas€callyasserts the public interest faces a presumption that the state's representation of the public interest
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recisely the same. It specifically referenced lndividuals smoking histories by creating disparate questions undermining class cohesion. Among cither obstacles, the Supreme Court held that such groups fal] to satisfy both the predominance requirement of Rule '23(b)(3), id, at 2249, _ t1.S. at , and the reguirement of Rule 23(a)(4) that the namerd parties "wi1( fairly and adequately protect the interests of the class, "id. at 2250, _ U.$- at __. See also Castano v. American Tobacco Co., 84 F.3rd 734, 752 (5th Cir. 1996) ((class certification of nicotine dependant persons reversed without opportunity for further ' consideration of the lssue by the district court, since 'class treatment is not superior to individual adjudication"). Thus, the net result ofTntervention in this action would be to add over seventy individual Iawsuits to the State's action, each with its own defenses, Issues, discovery, questions of causation, and proof of damages. B. PERMISSIVE INTERVENTION SHOULD ALSO BE DENIED BECAUSE, WHELE Ti-tE. STATE OF SOUTH CAROLINA SEEKS A SPEEDY TRiAL, INTERVENTION CAN DO NOTHING BUT CAUSE DELAY. .:3t is elementary that the Court; in exercising its discretion, must consider whether . the intervention will unduly delay or prejudice the original parties. The State of South Carolina has brought an action which is of the utmost importance to the citizens and taxpayers of the State of South Carolina. It is particularly important to the children of South . . :. ._.,. _ . _....._._ ._._; ~. Carolina which take up sm©king at an alarming rate. The matter can he read}% for #rial in the very near future as much of the discovery on the issue of liability has largely been accomplished iri other cases, and the parties to the litigation are well aware of the legal and factual issues and are ready to proceed to trial on an expedited basis. To allow intervenors to delay this trial while defendants seek to discover every item of personal behavior, toxic exposures, smoking history, etc., ad nausearn, would serve no useful 17
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e and emotional hardship. The Dafe ee their personal smoking histories, whether or not they at#enipted.to quit, work piace "or environmental exposures to toxic substances, family histories and behavior, atternative causation issues, and many other issues which are not relevan resent action and which should not be admitted into evidence. The present action 3s not an action for damages for personal injuries to individual people. It is an action for the aggregate recovery of the State's own money. The purported class action will ultimately involve many lals concerning particutarpersons and involve an enfiretydifferent body of evidence and an entirely different group of defenses. fthese predictions are confirmed by Castano v. American Tobacco Co., 84 F,3d 734 (5th Cir. 1996). The Fifth Circuit concluded that the district court had abused its discretion in certifying. a class of plaintiffs in tobacco litigation. As the Court can see from even a casual reading of this decision, the Plaintiffs in Castano proposed a four-phased same would presumably be attempted by the Plaintiffs in this case. In phase one, a jurywou€d deiermine_common issues of core liability, including issues of law and fact relating to the Defendant tobacco companies' course of conduct, fraud, negligence, and atl of the theories set forth in the Complaint. In phase two, the jury would determirie compensatory damages in sample ptaintiPfcases. Tiie jury then would establish a ratio of punitive damages to compensatory damages. Phase three would entail a complicated procedure to determine compensatorydamages forindividual class members. In phase four, the Courtwould appiyfhe punitive damage ratio based on individual damage awards and would conduct a reviewof the reasonableness of the award. See id. at 736-38. The Fifth Circuit determined that this proposal was unworkable for multiple reason. See 20 v
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ply stated that they wishe e; one does not seek intervention into his own claims. Absent a particular list of petition, as amended, and the motions filed by pla'intiffs.'" That generic request was another good'and separate reason to deny the interrention ' id. at 507 (citation omitted). . Simitarly, Movants have not even made a generic request to adopt Plaintiffs entire case. Instead, tvlovants submitted a copy of their own pleadings from federal court Of course, the pleadings from federal court do not constitute a pleading Into which Movants seek to the claims and defenses already a part of this lawsuit into uvhlch Movants seek to intervene, the Court must den er Rule 19 or 2tt. Movants appear to have abandoned Rule 19 , BECAUSE THE tvtATTER HAS APPARENTLY BEEPtABAI`lDONED,THlS CQt1RT SHOULD NOT CONSIDER MOVANTS` JOINDER REQUEST. In the Motion to Intervene and the Memorandum {introduc#ion}, the Movants cite Rule 19 (Joinder of Persons Needed for Just Adjudication) and Rule 20 (Permissive Joinder of Parties). Movants fail, however, to make any argument or cite any authority that s and 20 as bases for their addition to the suit. In any event, there can be no serious argumentthat Movants are necessary parties. Complete reliefcan be granted without their addition as parties. .tleither Plaintiff nor Defendants have asserted th_pk Moyanfs- are necessary parties. Rule 20 only applies to existing parties. Valentine y. Valentine, 3 19 S.C. 169, 4&0 S.E.2d 218 (1995). "adopt the allegations and prayers contained in the ft CONCLUSION For all the foregoing reasons, Movants' Motion to Intervene should be denied. 23
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MooRE'S FEaEaALpaAe-acE § 24. 1Q(2j[d] {3d sd. i 997}, see atso AAeyer Goldberg. lnc, v Fisher Foods, 79 7 F.2d 290 (Stts Cir.1983) (denying intervention because applicants could protect their interest by objecting to any. compromise of an antitrust action in bankruptcy . f court); Head v. Jeilico i-tousing Auth., 870, F.2d 1717 (8th Cir. 1989) (finding no abuse o€ discretion to deny motion to intervene because applicant availed herself of other means of asserting her rights by filing a separate action); Worlds v. DerYt of Health & Rehabilitative 5ervs. 929. F.2d 591 (11 th Cir. 1991) (fact that rejected intervenor filed separate lawsuit bolstered support for denial of permissive intervention on grounds of undue delay}. Obviously if the Movants in this ri°3atterare denied intervention, a judgment , in the present action will not bind them in some other proceeding. Brotherhood of R.R. Trainmen v. Baltimore & O.R. Co., 67 S. Ct. 1387, 331 U.S. 519 (1947); 7C CHARLESA. 1NRtGHT ET AL., FEDERAL €'RAC77CE AND PROCEDURE, § 1913, at 388 (2d ad. 1986). Moreover, since the Movants have disregarded the requirement of Rule 23(c) by failing to submit with their motion "a pleading setting forth the claim . . . for which intervention is sought,` it ts p 'ible to know whether they intend to seek class certification in tis proceeding if their requestfor intervention is granted. However, Pt is a virtual certainty that their case will never be certified as a class action in either a federal or state court. In light of the United States Supreme Court`s recent ruling in mchetn Products, Inc, v. Windsor, 117 S.Ct 2231, _ U.S. _(1997) and the Fifth Cir~it`s , holding in Castano v. American "fobacco Ca., 84 F.3d 734 (5th Cir. 1996), it is virtualiy, iimpossible that any targegroupof individuals with diverse medical conditions and damages can ever be certified as a class. Atthough Amchem dealt with exposure to asbestos, rather . than the tvtovants` c7aim of exposure to tobacco products, the problems of class certification 1fi
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purpose and-woutd be contrary to the interest of the people of the State of South Carofina. One federal court" held that, in considering this issue, it "must consider the effect of intervention on the existing parties and its potential to delay progress of the case" and a of intervention Nvould clearly interfere with its rapid disposition:' Dillard v. Cgy of oie , 926 F. Supp. 1053 (M.D. Ala. 1995). Rule 'f of the South Carolina Rules of Civil Procedure charges the Court with the sponsi e jc€st" and the 'speedy" determination of the action. The court must balance whatever delay there will be against the advantages of the disposition of all the claims or defenses in one litigation. It is cTear from the Movants' Complaint that it seeks to litigate claims of an entire class of plaintiffs who claim to have suffered personal as, a result of smoiung. It can hardly be disputed that joining this claim with the much narrower claim of the Plaintiff that it is entitled to reimbursement for Medicare er.penses +ai!( delay the trial and prejudice the adjudication of the rights of the original parties. C: THE COMPLICATING EFFECT OF A4t)tT(C}NAL ISSUES OUTWEIGHS ANY ADVANTAGE OF THE SINGLE DlSPOS1T3ON OF THE COMMON ISSUE. complicati ous courts have held that intervention should be denied where the effect, of the additional issues outweighs any_.advantage..of-the single disposition of the common issue. In SEC v. Everest Management Corp ,.475 F.2d 1236 (2d Cir. 1972), the court held that private parties would not be atiawed-tff intervene in an SEC-enforcement proceeding for this reason. "The SEG's-worldoad, despite its limited budget and staff, would be substantially increased if such intervention were allowed. Additional issues would have to be tried in the main action .... The intervention of a is
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private plaintiff might tend to discourage or at least compiicate efforts to obtain a consent decree." Intersention has been refused when it would have brought into the lawsuit added complexity and a clouding of the issues. Stadin v. Union Elec. Co., 309 F.2d 9'[ 2(&th Gir.), , cert. denied 83 S. Ct.1238, 373 U.S. 916"(5962). Otheicourts have held that intervention will frequently be denied if collateral or extrinsic issues wiit be brought in. Fisher Foods, Inc. v. Ohio E3ep't of Liouor Control, 555 F.Supp. 641 (11. Ohio 1982). The Second Circuit held in U.S. v:, Hooker Cherris. & Plastics Corp., 749 F.2d 968 (2nd dr. 1S&4), that °common sense demands that consideration also be given to matters that shape a particularactionorparticutartypeofaction. Num2rousdecisionsdenyinterventionofright where the intervention may cause the existing Iitigation to become overly complex or inefficient or where the intervention would delay and confuse the litigafion.' Judge Tamm held in Wilderness Soc'v v. Morton, 463 F.2d 1261 (D.C. Cir. 1972) that intervention can e manageable lawsuit become an unmanageable cowlick" See also 6.fAMEs W. MoaRE's FEDERA. PRACTICE § 24.03jbj[bJ[Hj (3d ad. 1997). Other judges have denied intervention in order to prevent a lawsuit from becoming'fruitlessly complex or unending.° Smuck v. Hobson, 408 F.2d 175 (D.C. Cir. 1969). Here, the Movants wish to inter)ect into this case the individual cases of approximatety-seventy members of their class or, if the Gtiurt sra tiolds a fewer number, who wit4 then, in the midst of the State of South Carolina's case against the tobacco industry, present their personal cases as Individuats or as representatives of a class assuming a class could even attain certification. It could hardly be contended that this would not disrupt the pioceedings and make the case completely unmanageable. The Movants would attempt to put up evidence concerning medical expenses, pain and 19
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id. at 744-52. The court noted that it s no surprise that historically certification of mass tort litigation classes has been disfavored: 'The traditional concern over the rights of defendants in mass tort class actions is magnified in the instant case." td, at 745. Se also Amchem Products. Inc. et al. v. Georqe Windosr. et a3., 117 S.Ct 2231. ' O. THE COURT SHOULD CONSIDER WHETHER TNE APPLICAt}tT WOULD BENEFIT BY INTERVENTION AND DENY INTERVENTION. f A number of cases'have held that the trial court did not abuse its discretion in denying a motion to intervene where the movant failed to explain what additional benefit he would gain from permissive intervention. Mit chetl v. tJ,cCorstin, 728 F.2d 9422 (9 2 th Cir. + 9884), 7C Cji,uRt EsA. WRiGHr EzAt., FEDaRat. Pt3ACTieaAND PROCEDURE § 1913, at 385 (2d . ed. 1986). Clearly, if the party seeking intervention is already a party to other.iitigation in which his rights can be fully determined and other adequate remedy available to him to protect his rights, he gains nothing by intervening in this action. Indeed, the cost of the .-..Iitigation may increase and the rights of the putative class may not be protected. . E: 1NTERVENTEt?N 1S IMPROPER HERE BECAUSE MOVANTS WOULD ADD MO T!-tING TO THIS CASE. Some courts have held that a court should, in deciding a motion for permissive intervention, consider whether the applicant's input is Eikeiy to make a significant artd useful ~ . contribution to the development of the underlying factual and legal issues or, alternatively, is likely to be counterproductive. League of United Latin Am. Citizens. Counci2 #4434 v. CEements, 884 F.2d 185 (5th Cir. 1989) (not aIIowing county to intervene in action under Voting Rights Act which involved election process because its input would not significantly help develop relevant factual issues). When an applicant may be able to provide unique a e to- the court, the result would be different. 6.lAMES A. 21
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ZR THE AZSTRZCT tDtRtT QF APFEAL O$ THE STA2E OF FL4RT4A FOLTL2TH Y7ISTR.SGT, P.O. BOX 3355, WEST PALM SSACEr, FL 33402 THE A2KSR2Cli2i 2`DB}1C:Xt CQMPAAtX, etc., et a1. Fetitiozier(at, THE STATE t!F FLORIDA, at aI. •Respondestt{s}. Jtziy 23. 3.897 SY OW38R OF T8$ CCSDRTz CASE kio. 97-02328 L.T. CASE NO. $b-2466 AR PAi3d BBACH Writ of Ccnrmran I,aw Certiorari is hereby deaied. See The Ameriean Tobacco CompsuY v. The State of F2ori.da, Case i4o. 57-24D5, (Fia. 4th DCIs .Tttly 23, 1997). . sdvrasst -8: • b4oss Stephen iCrigbaam DIIirz.zy R. QaLYtiCk Oustua W. Reid eTose 8. t4arciuez Robert M. Mcatg=u=y, Jr. Wil.itam C. Gentry J. Andersaa Aer2y, IIZ Wayne YLOSaA MiiphaeZ Maher Sdaa i.. Caruso lion. xarcid cT. Aabaa 1HG I I PLAIi+IT1FFS __r- -
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PAPER M1M10E FROM 20%P<7ST CONSUMER CONT04T 6M0£98
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Booz-Allen & Hamilton, Inc., 986) .... ......... ............. ..•,.•.••.•••••••.•.•...•....... .......----°71, 98 I' Sprineefd v. Williams PlumbBngSupply Co., 249 S.C• 130, 153 S.E.2d 184 (1967) .............. ............................... •....... ••••........... .........,,........ 5, 32 Stanley v. B. L. Montague Co., Inc., 382 S.fi.2c9 246,299 S.C• 51 (Ct. App. 1989) ...............................................................................59 Starkey v. Bell, 281 S.C• 308, 313 S.E.2d 153 (Ct. A.pp• 1984) .... ................... ..............................°°----............... 99 State v. Beach Co., 271 S.C. 425,248 S.E.2d 115 (1978) ..............................................................•.°. .............13 State v. Broad River Power Co., 157 S.C. 1, 153 S.E. 537 (1929) .....•• .................................................................. ° .......13, 97 State Fc Brown, 278 S.C. 281, 294 S.E.2d 781 (1982) ...... ........••.,..,,•..•... . ...7b .. .......................... .......................... .... State ir. Carrigan, 284 S.C. 610,328 S.E.2d 119 (Ct. App. 3985) ......................._..--.........................--..,...............°52 State v. Carson, 274 5.C. 316,262 S.E.2d 918 {1980} .........°-••..° ............. ....-°............................. ....-°..-.-...... .....14 State v. First It'ational Bank oftZncharage, 660 P.2d 406 (Alaska 1982) .... .......... ....---- ..... ......... .-........................... ....... ..........................12 State v, Fritz Waidner Sports Cars, Inc., 274 S.C 332, 263 S.E.2d 384 {1980} ....................................•.•......................•.•..................°.82, 76 S7ate v. F. W, Fitch, 17 N.W.2d 380 (Iowa 1945) ..... .......... ......... ........... ......... ....•.............. ........... 2 .... ---. . . ----............ .. State v. Pacifrc Guano Co., 22 S.C. 50 (t884) ........ --.... ......._ ....................................................................... .... ......1Q State v. Turner, 198 S.C. 487,18 S.E.2d 372 (I942) ......... ...• .......................•.................................... °...... 89, 90 00 ~ W 0 j XF ~ ~ 3
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! 532, 544 (D.S.C.1984). Southern Packaging goes on to hold t plaintiff to show irreparable injury to obtain a permanent i 1 ion, a essary for a inadequacy of legal remedy may be established by showing an irreparable injury. Id In conducting this analysis in the present case, the Court would not reach the issue of the entitlement to a permanent injunction by the State unless and until the Plaintiff succeeds on the merits. The State has every confidence it will prevaiL As to the second element, determining whether the plain threatened, where it can be averted only by the protective and preventive process of an The right to an 0 a e proof will demonstrate that it does not. Under the third element, the public interest, equity can only weigh in favor of the State and in favor of South Carolina teenagers. The Defendants cannot argue with a straight face that somehow it is in the public interest to allow our children to continue to be induced and encouraged to smoke. The public health community has been crying out for increased restrictions for years, but the real restrictions must be placed upon the conduct of the Defendants. Under the fourth element -- the balancing of the equities -- the equitable scales should tip heavily in favor of the State and in favor of protection of youth -- a traditional realm of protection for the courts where other avenues have failed. 'ongress ofRaei¢I Equality i> Douglas, 318 F.2d 95, 98 (5th Cir. 1963). The plaintiff need not show that the harm is inevitable and irreparable. Southern Packaging v. United States, 588 F.Supp. 532,544 (D.S.C.19£4). In conclusion, the State has alleged that the defendants have for many years engaged in, encouraged, aided and abetted intentional, sophisticated campaigns targeting youth. In doing so, they have created successive generations of addicted customers who ultimately become the 95 :-
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assertion that the State is not a`person" under the UTPA. 3. Defendants assert that the attorney general is limited to the pursuit of injunctive relief or statutory penalties under UTPA and cannot recover treble damages.45 § 39-5-I44 S. C Code f1nn, reads in part as follows: Any person who suffers any ascertainable loss...as a result of the use...o deceptive method, act or practice...rnay bring an action... If the court finds emplo} rccent of the unfair or deceptive method, act or practice was a willful or knowing ion of § 39-5-20, the court shall award three times the actual damages sustained and may provide such other relief as it deems necessary and proper. Upon the finding by the court of a violation of this article, the court shall award ... reasonable attorney's fees and costs. (Emphasis The State of South Caroli son as that word is defined in the South Carolina Unfair Trade Practices Act. Basic black letter law, as cited supra allows to the State the same remedies and forms of action as are available to private suitors. There is no preclusion in the Act which limits the availability of the damage remedy to non-governmental plaintiffs and South Carolina can, therefore, seek recovery against Defendants under § 39-5-140 S.G: Code f1nn., which explicitly allows recovery of treble damages, reasonable attorneys' fees and costs. Defendants assert that since the manufacture, distribution, marketing and sale of cigarettes is permitted that those acts cannot constitute an unfair or deceptive act or practice in violation of UTPA.' The manufacture, distribution, marketing and sale of many products is permitted in the State of South Caroiiata. However, unfair methods of competition and unfair or deceptive acts or practices in the conduct of the trade or commerce with regard to any such products, inclading a` This section of this memorandum responds to M 14 c. and 15 c. of the Motion to Dismiss of Brown and Williamson, et al. '6 This section of this memorandum responds to IM 14 d. and 15 c. of the Motion to Dismiss of Brown and Williamson, et al. 75
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L1MTEI) STATES CODE 15 U.S.C- § 1334 .................................................................................................... .....33, 39, 42, 45 42 U.S.C. § 1396 et seq. .° ....... ........°.......... ............. ........... ------------ -°--16, 17, 47, 48, 49 42 [3.S.C. § 2651 ........... ...................................................................... ----I8 I STATE CAROLLIlTA STATUTES S.C. Code Ann. § 15-3-570 .......................... .......... .............. ........... ._...,......,....... --,.--............. 83, 84 S.C- Code Ann, § 15-73-1 Q .................. ............ .......................................................... ....... ........... 1f}3 S.C-Code Ann. § 15-73-20.°° .......................................-----........................--...................102,103 S.C. Code Ann, § 33-I-4Qt}(14) .................................................................................................... 74 S.C- Code Ann, § 39-3-1 t3 .................................................................................................... .........85 S.C. Code Ann. § 39-3-10(b) ............._........ ....,...,...,..,...,..,...,......_........,...,.,......,...,.,.,.....,......... -85 S.C. Code Ann, § 39-3-30 .................................................................................................... .........86 S.C. Code Ann, § 39-3-180 .................................................................................................... .87, 88 S.C. Code Ann. § 39-5-10 ................................................................. °---- ......--.78 S-C- Code Ann. § 39-5-1(}{a} ..................................................................................................73 , 74 S-C- Code Ann. § 39-5-20 ---.--.--- ........................................................... ..........................76, 79, 83 S.C. Code Ann, § 39-5-40(a)(d) ........ ---- ....._......... .........,....,,............... .-......... --.......... .....-...-..81 S-C. Code Ann. § 39-5-60 .................................................................................................... .........81 S.C. Code Ann. § 39-5-110 .................................................................. ° -......-.......84 S.C. Code Ann. § 39-5-110{a} ......................... ....-....................-.---.................................. -.... ....83 S.C. Code Ann. § 39-5-110{c} ......,_.._,,.°.-...__ ...........................................................................77 I
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the contrary, the language of the statute itself shows the congressional intent rather plainly to have been to commit the collection process to those remedies available for such purposes under state law. 42 U.S.C. § i 34fia(a)(25){A}, (B). Accordingly, Defendants' contention that the Medicaid statute preempts the State's claim to recover its tobacco-related health care expenditures is wholly without merit and cannot provide a ground for Rule 12{b}(5) dismissal. In fact, Defendants' Pre-emption ar e ious choice not to research the Pre-emption issue o s choice to i controlling principles that were revealed when it did research the Pre-emption issue. The principle of Pre-empti course, springs from the Supremacy Clause and "invalidates state laws that interfere with, or are contrary to federal law." Ftillstsoraugh Cc unty, Florida v. Automated h7edicAl Laboratories, Inc., 471 U.S. 707, 105 S.Ct. 2371 (1985). Under the Supremacy Clause, state law may be preempted only in one of three ways. First, Congress may preempt state law by express preemptive language in its legislation. Second, in the absence of express preemptive language, Congress's intent to preempt all state law in a particular area may be inferred where the scheme of federal regulation is sufficiently comprehensive to make reasonable the inference that Congress "left no room for supplementary state regulation." Third, even where Congress has not completely displaced state law in a particular area, the state law is nullified to the extent that it actually conflicts with federal law. Such conflict arises when compliance with both federal and state regulations is a physical impossibility or when state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. See Hillsborough Cottnty, 471 U.S. at 713, 105 S.Ct. 2371 (1985). Defendants cannot in good faith contend that the language of the Medicaid Act expressly preempts state law. Similarly, Defendants cannot in good faith contend that health care -- a 48
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original wrongdoer if such intervention ought to have been foreseen in the exercise of due care"} Thus, the line of causation in this case is simple and direct: the Defendants, faced forty (40) or more years ago with strong evidence of the health hazards presented by the consumption of tobacco products, not only covered up that evidence but, in addition, intensified its efforts to target adolescents to ins died as a result of smoking. Another equally foreseeable development was that the State became responsible for the medical care of many of the persons injured by Defendants' practices." This ave a market. Defendants also engaged in conduct designed to lull the residents of South Carolina and state regulators into relying on and believing the tobacco industry's pronouncements regarding research and the effects of smoking on health. The readily foreseeable result was that many people became il 0 e a person "may be held liable for anything which appears to have been a natural and probable consequence of his negligence [or other wrongful conduct]." GreenvilleMemorzal.4uditoriurra v. Martin, 301 S.t 242, 391 S.E.2d 546, 548 (1990). In addition, the issue of proximate cause is one which is almost never resolved upon a motion to dismiss or motion for summary judgement: Generally, negligence claims are not susceptible of sumrnary adjudication because of the many questions normally present in such cases concerning the reasonableness of a party's conduct, foreseeability, and proximate cause. 6-PL2lvtcjore's Federal Practice 15b. ] 7[42] at 56-94b (1985); see 65A C.J.S. Negligence § 253(I) at 778 (19bb), I- Folkens v. Hunt, 290 S.C. 194, 348 S.E.2d 839, 842 {Gt. App. 19$6}. "The circumstance is somewhat similar to the liability of a tortfeasor to a parent for medical ~ expenses paid on behalf of an injured minor child. Q 31
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May 28 '97W5.35 P. 03 1 2 3 EXAMINATION INDEX t FAGE 12 13 No examination was conducted. 14 15 15 I7 28 EXHIBIT INDEX 19 20 EXHISIT OFFERED ADMITTED 21 no exhibits were marked. 22 23 24 25 Winston & Strawn BY: THOMAS J. FR£DERICR 35 West Wacker Drive Chicago, Illinois 60601-9703 On behalf af Defendant(s) R.J. Reynolds Tobacco Company, Lorillard Tobacco Company and Lorillard, Inc., incorrectly named as Lorillard Corporation. 30th Judicial Circuit Court 333 8. Capitol Ave., Suite C, Lansing, MI 48933 Page 2 ,28 '9Y 15
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concealment and nondisclosure claim upon alleged misrepresentations made to third parties and not to the Plaintiff. The Plaintiff has addressed this issue fnlly with regard to the fraudulent entation cause of action and the same authorities are applicable with regard to negligent resentation. Section 15-73-20 provides that a user or consumer who discovers the defect in a product and is XXIIL STRICT LIABILITY `'` A. Use and Consumption by Third Parties S. C Code Ann. § 15-73-20 does not operate to bar the State's claim fo ndants contend that the Plaintiff had no right to rely on any misrepresentations of the Defendants and that Plaintiff}vas not ignorant of the facts alleged to have been misrepresented by the Defendants. As stated above, the well-settled law of South Carolina holds that the legitimacy of reliance is a jury issue to be resolved based on the facts of each case and is not a proper ground for dismissing a cause of action. See I3ubbard, F. Patrick and Felix, Robert L., The South Carolina Law of Torts at 337 (1997) (citations ofnitted). Like aware of the dangerous condition, easonably use the product and is thereby e is barred from recovery. As is pled in detail in the Amended Complaint, the citizens, officials, regulators, etc., of the State of South Carolina were unaware of the truly dangerous condition of the Defendants' products; therefore, the Defendants may not avail As a result of the Defendants' own acts, statements, affircnations, o Defendants engaged in a carefully planned course of conduct to conceal the true dangerous condition of their products. Their fraudulent conduct caused the damages incurred by the State. 63This section of this memorandum re,-ponds to " 23 a. tt rough 23 e, of the Motion to Dismiss of Brown and Williamson, et al. 102 11
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XXIV. CIVII. C4IYSPIIZACYgII Defendants motion to dismiss the State's conspiracy cause of action must fail for the very le reason that the factual elements of a civil conspiracy claim have all been properly plead. Browrz u. Leverette. 35 698 (S.C. 1987)(dismiss where facts set forth or any inferences reasonably drawn therefrom would entitle plaintiff to relief). South Carolina law requi e ence of three factual elements for an actionable civil conspiracy: {1} a combination of two or more persons, (2) for the purpose of injuring plaintiff, (3) which causes plaintiff special damage. LaAtotte v. Punch Line of C'olumbia, Inc., 370 S.E2d 711,713 (S.C. F98&). There can be no good faith dispute that the State has sufficiently alleged that the named Defendants have combined to carry out the acts alleged in the Amended Compl ions of the combination by Defendants include the Tobacco Industry Research Committee F Council for Tobacco Research and its sub-co see, e.g., Amended ged65 Complaint, IT 51-55, 68, 70-71 & 93; the Tobacco Institute and its sub-committees, see, e.g, Amended Complaint, IT 51-52, 63, 69, 89 & 93-94; the Special Projects program, see, e.g., Amended Complaint, TJ 72-75 & 93; and the Special Accounts program, see, e.g., Amended Complaint, 7172-77 & 93. The State has also alleged that Defendants have combined in fact, see, e.g., Amended Complaint, n 46, 48, 50, 62, 77-78 & . 94. Similarly, there can be no good faith dispute that the State has sufficiently alleged that this combination by Defendants occurred for the purpose or intent to injure the State. For 64 This se ction of this memorandum responds to 7~ 24a. through 24 e. of the Motion to Dismiss of Brown and Williamson, et a1. °5 The conspiracy cause of action, at j 197, specifically realleges and incorporates by reference the preceding allegations of the Amended Complaint. 104
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The applicability of inferential statistics have long been recognized by the courts. See e.g., Castaneda v. Particla, 430 U.S. 482, 97 S. Ct. 1272, 51 L.Ed.2d 498 (1977) (using statistical data to provide discrimination in jury selection); Capaci v. Katz & Besthoff Ine., 711 F.2d 647, b53-57 (5th Cir. 1983) (using census data in gender discrimination case); Exxon Corp v. Texas 1rlotorEzchange, Inc., 628 F.2d 500 (5th Cir. 1980) (using statistical sampling in trademark infringement suit); Ageloff v. Delta Airlines, IrFe., 860 F.2d 374 (11 th Cir. 1985) (using evidence of life-expectancy tables to determine damages); G.M. Brod rY Co., Inc. v. US Home C'orp., 759 F.2d 1526, 1538-40 (11 th Cir_ 1985 (using expert testimony as to profit projections based on industry norms); United ,States v. 449 Cases Containing Tomato Paste, 212 F.2d 567 (2d. Cir. 1954) (approving inspector's testing of samples, rather than requiring the opening of all cases). Chevron, 109 F.3d at 1019-20. The Plaintiff in this case has incurred millions of dollars in damages because of the wrongful acts of the Defendants. These wrongful acts, and the type of damage incurred by the Plaintiff, are fully detailed in Plaintiff's Amended Complaint. Defendants should not be heard at the pleadings stage to dispute P[aintiff s proof of damages. Because the use of statistics is accepted generally, and because the Defendants cannot have any quarrel with the specific s do not know what they are yet), Defendants' contentions regarding due proces ations are meritless and Defendants' Motion to Dismiss on due process grounds should be denied. VIII. SEPARATION OF PaWERSza The Defendants claim the relief requested would violate the separation of powers provisions of the South Carolina Constitution Art. i§ 8, because the relief sought is not within the power of the courts of South Carolina to grant. They are, quite simply, wrong. The Plaintiff has not asked the court to create a new common law remedy, rather, only to apply exi common law remedies to new fact patterns. Further, Plaintiff seeks statutory relief that is ao os '$This section of this Memorandum responds to T, 9 of the Motion to Dismiss of Brown and O Williamson et al. i i- , -4 51 ~ ~ ~
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Il'DU & 1qqR q'VA1'A ~n ~ ~"' --, Am'NO, 7320 P. 5 I STATE OF S't3LJTIH CAROLINA CC3i3NT5.' OF RICHI,AND State oY South Carolina, By Charles M. Condon, Atrorstey General, VS. Brown & WiIliatnsost Tobacco Corporation as sucoessor by merger to The Anacicaa Tobacco Company, AutAican Brands, Iac„ Brmm & Williaznsou Tobacco Coaporaaon, Bri€iafi Americzn Tobacco Comgaay Ltd., Bzitlsh- Ameruan 73old'mgs Ltd.. 11A.T. Inshustrias, PI,C, Hatus fTo3d.iugs Fno., Fhitip Morris Tzscoxgorated (Philip Morris U.S.A.), Phitip Morris Companies 7ua,f R.J. Reynolds Tobacco Company, RJit Nabisco Iw., Liggett & Myers Ine., The Brooke Group Lias.i¢ad, L'zggett Crzoup Inc., Loviltard TIlcorpotateQ, Loril3szd Tobacco Company, Loevrs Corporation.l3Aited Statas Tobacco Company. 'tTST Inc., The Council for Tobacco R,eseazcIIi- t7.S.A. Fac. (successor in interese to the Tobacen Industry Iteseaieh Committee), Tobacco Institute I=., FilI & ~ ) C13 ~ ) ) nv- cs } 3 } ) -I ca ) Xno4vison Inc., 8hook, Hsrcty & Bacon, a limited ? liability pasinershig, Jacob, Mr.dimg" & } .Finnegan, a,partnrshig faclud5ng professional } corporations, Chaatbottrne & Parke, a limited } liability paatciership, and John Doe Tobacco ) ColporBrioms $A° ctLrough ) I3efeadaats. ) RUER GRAlw3'1'7NG STAY OF I%aCEEDPIGS WHEREAS, Pla3##"sff State of South Caralins by C6arIes iSg. Coudon, Actaroey
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cigarettes is un]awful. § 39-5-20 S. C. Code Ann. The manufacture, distribution, marketing or sale of real estate, automobiles, electrical devices, automobile repair services, billboard advertising, steam pressure cleaning machines, and peach trees are all permitted in South Carolina. Practices regarding each of fhese products has been the subject of actions under the South Carolina Unfair Practices Trade Act. State ex rel Century Lirtcoln-Mercury, supra at 108. Under the South Carolina Unfair Trade Practic Waidner.Spflrls Cars, Inc., 274 S.C. 332, 263 S.E.2d 384 (1980) (automobiles); State v. Brown, 278 S.C. 281, 294 S.E.2d 781(1982) (electrical devices); Young v. Century Lincoln-Mercur}', Inc.,302 S.C. 320,396 S.E.2d 105 (1990) (automobile repair services); Bocook Outdoor Media v. S'ummey OutdoorEldvertising, 294 S.C.169, 363 S.E.2d 390 (1987) ((billboard advertising); PotornacL.easing Co. v. Bone., 294 S.C. 494, 366 S.E.2d 26 (1988) (steam pressure cleaning machine); ffaley Nzrrsery Compaty. Inc. v. Forrest, 298 S.C. 520, 381 S.E.2d 906 (1989) (peach trees). It is not the fact of manufacture, distribution, marketing and sale of cigarettes of which the Plaintiff complains, but it is the manner in which Defendant accomplishes those acts by engaging in specific deceptive and urafair acts and practices which constitute violations of the South Carolina Unfair Trade Practices Act. (See 7,1125 and 133 of the Amended Complaint). A trade practice is "unfair" when it is offensive to public policy or when it is immoral, unethical or oppressive; a practice is "deceptive" when it has a tendency to deceive. Young v. McLeod v. C&.L Corp., Inc., 280 S.C. 519,313 S.E.2d 334 (1 o requirement that a claim or representation was intended to deceive, or did, in fact, E_ L I deceive, but only that it had the capacity, effect or tendency to deceive. Even a truthful statement may be deceptive if it has the capacity or tendency to deceive. 76 I
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in=depth discus of each of the thirteen (13) documents for which the privilege has been asserted. This, of course, was in addition to the extensive oral argument presented by counsel. 3. After extensive consideration of all arguments and submissions, it is.hereby determined that the burden as set £orth in Haines v. Laggett, for establishing the erime-fraud exception has' been met and that there is sufficient evidence which, if believed by the trier of fact, wou2d-be sufficient to support Plaintiffs• theory af fraud. Plaintiffs' theory, whiie set forth in several distinct counts, substantially relates to allegations that the Defendants `engaged in extensive efforts`ta hide from and misrepresented to the public, the health hazards associated with cigarettes and that Defe:~dants misled and defrauded the public and public health officials regarding the relationship between smoking and health. There is also evidence that the Defendants utilized orneys in carrying out and planning fraudulent activities and undertook to misuse the attorney/client relationship to keep secret research and other activities related to the true health dangers of smoking. it is therefore determined that the following Liggett documents directly relate to and are involved with the ongoing crime-fraud -and the Defendants` assertion of privilege to the following documents must fail as a result of the crime-fraud exception to such privilege: ers 1, 2, 3, 4, 11, 14, 15, and 17. It is the further determination of the Special Mastei that the I documents do not fall within the crime-fraud exception
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example, paragraph 39 states: At all pertinent times, Defenclrrnts purposefully and intentionally engaged in these activities, and continue to do so, knowing full and well that when the State of South Carolina's residents used those cigarettes as they were intended to be used, that the State of South Carolina's residents would be substantially certain to suffer injury, disease, and illness, including cancer, emphysema, heart disease and other illnesses causing disability and death and that the State of South Carolina itself would thereby he injured, economicrtIlv and otherwise. Amended Complaint, ¶ 39 (emphasis added). Similarly, paragraph 40 states: Also, at all pertinent times, Defendants purposefully and intentionally engaged in these activities, and continue to do so, knowirPg full and well that the State of South Carolina would unofficiously confer a benefit upon defendants by providing or paying for healthcare and other necessary medical goods and services for certain of the State of South Carolina's residents thus harmed by the intended use of Defendants' cigarettes, and, in the absence of performance of such duty by Defendants, that the State of South Carolina itself thereby would be directly and indirecllv Izarmed. Amended Compiaint, 140 (emphasis added). Finally, the State has alleged specific damages arising firom the civil conspiracy itself, ... the State of South Carolina has suffered special damages different in kind and degree from the damaging health effects suffered by the public at large in that it has borne and will continue to bear the massive costs of these illnesses and diseases by providing necessary ntedicaE care, facilities and services for certain of those aforementioned residents of the State of South Carolina injured by Defendants' cigarettes and unable to afford and otherwise obtain such necessary medical care, facilities and services.... I Amended Complaint, ¶ 199. These special damages arise directly, proximately and distinctly from the civil conspiracy itself inasmuch in the absence of the alleged civil conspiracy the tobacco industry's four-decades-long effort at misrepresenting the health effects of smoking would have been uncovered early on (or perhaps never undertalten in the first place) and state regulators would have been able to undertake appropriate regulatory action. See Amended 105
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and all others similarly situated°§` despite the fact that the class they purport to represent has not been, and should not be, certified by the federal court before which their case is pending. When asked by the Court during the hearing on January 8, 1998, for the Defendants' position on the proposed intervention, counsel responded that Defendants opposed the motion as then pled. Intervenors' pleadings have not changed since then. Likewise, Defendants' II. INT'F:RYEiVt)I25 MAY NOT IN'TERVENE OF RIGHT A. In this ot Alleged An Interest In The State Medicaid Or Other At LSsite in 'f'his ACteotl edicaid or other publicly funded medical expenses paid on behalf of individuals for alleged smoking-related illnesses. But, the Intervenors have not alleged that they are the recipients or beneficiaries of such funds. Instead, the Intervenors, although not certified as class representatives, purportt to represent "ja]ny and all persons who have been addicted to, lrarmed, or killed by tobacco products that were designed, tested, manufactured, distributed andtor siald by any of the defendants with in [sic] the geographic territory of the State of South Carolina."2 Because the Intervenors have not pled that they are Medicaid or other public health care recipients, they cannot meet the threshold requirement for intervention of righ0` The Intervenors simply have sr Motion To Intervene at 3. '-' Greenville Am. Compl. I 28(a). ~ Rule 24(a)(2) provides for intervention of right, °when the applicant claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action may as a practical matter impair or impede his ability to (continued...) -3-
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ONCS QYCESS[FtflQ, FZO[p21olEi Ct. 95-kS66 A}3 First, this Court finds the procedure employed by Special Master Rutter (a former Chief Judge of this Circuit) was proper. Every reasonable opportunity to present argument and evidence, including ex-parte and in- camera submissions by Defendants,was carefutiy and thoroughly explored. Second, the legal standard used by the Special Master was correct, in the Report. Third, the extensive record received by the Special Master sup S case cited : ORDERED AND ADJUDGED that all Exceptions to the Report and Recommendation of Special are overruled. It is fiuther . ORDERED AND ADJUDGED the Report and Recommendation of Special Master dated April 9, 1997 is hereby ratified and affirmed and all parties are directed to comply with the recommendations contained therein Document numbers i, Z, 3, 4, 11, 14, 15 and 17 are to be released to the Plaintiffs for filing in the Court record of this case F4RTHWITII subject to the stay order entered by this Court as set forth below. It is further ORDERED AND ADJUDGED that a stay is hereby entered concerning all directives in this Order for a period of five (5) business days from today's date provided the Defendants fiie a Notice of Appeal in the a Appellate Court from the Orders entered Iterein within the fi've (5) business day period. In the event the Defendants file a Notice of Appeal as directed herein, the stay entered herein shall automatically continue pending further Order of this Court or pending fnrther Order of the Appellate Court. In the event no appeal is taken witlun e stay entered herein shall be automatically lifted without {utther Court Order. It is further ORDERED ANI} ADJUDGED that this Court once agaut ratifies and reai5rms the tiial date I comm 7 and that Motions for Summary Judgment and other substantive and procedural pretrial motions will commence on June 23,1997. The Trial Court hereby notifies the Appellate Court of the aforementioned dates and respectfulfy recommends that any appeal taken from this Order be handled on an expedited basis. Three hundred potential jurors are being summoned to the Pafm Beach County Courthouse for August 1, 1997. Extensive strangemeatta for VisitinglSeruor Trial Judges have been made to assist the Fifteenth Judicial Circuit with its Civil Division caseload during the trial of this case. The Court is not unmind$il of news media accounts of alleged "secret settlement negotiations" taking place at this time concerning many of the major parties in this case- It should be clear to all parties, oottnsel, and the Appellate Court that alleged "secret settlement negotiations" will have absolutely no effect on the commencement of trial in this case scheduled to begin August 1, 1997 or the motion hearings scheduled to begin on June 23,1997 unless the oase is actually settled and dismissed by the PlaintifFs. It is furtfter - ORDERED AND ADJUDGED that an additional day for motion hearings is hereby set on Thursday, ~
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U z IN THE CIRCUIT COURT OF THE FIFT-EENTH • JUDICIAL CIRCUI'I, gt IN AND FOR PALM BEACH COUNTY, FLORIDA CASE NQ.: CL THE STATE OF FLORIBA, LAWTON M. CHILES, JR., Individually and as GOVERNOR OF THE STATE OF FLORIDA, DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION, and THE AGENCY FQR HEALTH CARE AI)MIINISTRATfON, PIainf'sfl(s), vs. THE AMERICAN TOBACCO COMPANY, et al., Defendant(s). on to be heard before me on the I4fh day of Ap 6 The Court heard arguments on the Exceptions iakenpnrsvant to Rule. 2.44t1(g} and 0, Fla. R. Civ. P. Following the hearing on April 14,1997 by agreement of couasel for all parties this Court was presented with all materials that were available and fiun`sshed to the Special Master in making his determinations resulting in the Report and Recommendation of Special Master dated Apri19,1997. AII inattecs cansidered by the Special Master, including all maners reviewed by the Special Master ax-parTe andjor in-camera, and this Court are now filed with the Clerk of this Covrtm l'fiose matters designated ex-parte, in-camera, andlor under seal shall remain under seal at the office of tfie - Cierk of this Court to be made available to the Appellate Court for review, if Recomrnenda6on of Special Master dated Apri19,1997 and the Exceptions taken to the in this csse. other entities andior individuals pending Rrtlter order of this Court. e I3efendacMs' Exceptions to the Report and Recommendation of Special Master fall into three categories: 0 alleged "faulty procedure" employed by the Special Master in determining whether or not the crime/fraud exception to the attorney client privilege applies; the applicatibn of 4n alleged lfffi~proper legal standard, i.e., the alleged use of the wrong burden of proof; and the allegation that the finding of the crimetfraud exception to the attorney client privilege is not supported by the record,
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Although the tourt is not completely apprised on the asaa= in whieh the State seeks to prove damages, the Isssia damage allegations pmvided thus far in the litigation counsel against a finding ilsatitdsplaiatiffis too temote. The State will aitempt at trial to prove clauiagesthmugh the use of atatistiaal evidenae gre==d by way of a"dantage atodct.° In geneca[, the use of such evideace has been deeme i gerasissible in this type of aciiou. So In zaC.'fsevren.1(t9 F.3d 1016. 1[tZ0 {5tls Cir. 1947}, see also JEJo v. Fstate of Mamos, 103 F.3d 767 (9th Gir.199S)(use of sarisdcal tTata.tn Eaove damagesP=msUewl=m=6crof 3n.divtdvaf olaims would be lszagossihie to raolve}. Aswill be adtiressd it arsothessee#ou of this opiaicmxthis Is not to say that ttte man= inwhich theStatcaceisstaprovedamag°swdtl satisfyatllegaE~. T}u fi.acf#:onlybalds that at tbis stsge in the Iltigation dacnages are not sufficiently diff"icult to calculate to warraat dismissal ofthis action. Thecefore, having eonsidrrad the coxuxras of Hgaemg, the policy underlying the requi==S ofpxvximate cause, and thenature of this suit as awhoIe, the3njury allegedly incurred by the State to to wamaw disutissal. The tkfatdauts' motion in this respect s#a11 be denied. I}. DUE PROCESS 'Phe Court is Qfihe opinion that ft is grecaattiue to address Defendants' conten€ion that the 3tate'sgmposedd=dadiaav'snlatesfimdameatai Friucigies af due gractss. At this tizue, #ha State has not fsd1y developed and has not gr=ited to the Court a futal version of its damages model. Thus, the Court is tetuctaat to render adecision that the use of such a damages model to prove aggregate damages violates fuaGam.erital prnciplcs of due pro=. Accordingly, the Court denies this aspect of the Defeadants' mQuon at thi.. time subject to rernevred argumeut auc.e the State 18 ~
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tt ts-oFeat in tiu Court that the second and third conceuss addressed itt HaItncs are not in t6isrzse. With respect to multiple xccoveay, ttus can be none iairhis type of satio3s. M M As the 5tata points out in its bEief, the State ofTexm is cbe only party that can racover Medicaid benefita that have 6exn paid a a result of Skc varongfu2 canduct of a third partlr. SM Pfaiatiffs Response, at p. 2.5. Based on the natue of $sis oam ofaetian, the third cauaeru discussed in cs Is also a65= Asdisoursed In the pceviatrsseasioa.theSmte haagsft action based on its yssssi-sovereign iustx= iaprowctingihe Iieattb,wdfate,andwdl-bs3ag ofilsePOPtetace ofcihe State. 'fh#s eosamott law concept proyidss the State with anWq=dcnt cause oiact%oa to z=ver the damages it has allegedly inc=d. It is clearfhat bxaz€set}ce State is pnoecediuguaderihis thmy, there can be no better pasty to' prpsecute this matter. In fwl, no othcr party is euspewerad to bring this ryTe of actic4a,. With respcet to the difficutty the thau if the matter was brougitt on a ciaim-by-claim irasis Flowevcr, diffinutty in and of 3taetfdoes not bar this action. that assert quass-sov e 0 iudividuals, but it is this harm and a states interest in protecting against it that provides the basis for the action. There will always be individvsl harm found within the causat chain. Thfs c2se is a perfect axampte of that fact. Novertheiess, the Court recognizes that scma tomp2ex cases may present damage qnffitions tlsa.t are compIItsted to the exrertt tfiat the injury a3leged can tinIy be classified as too remote. Bsse3d ou the facts =d 'udtatstiatt gresentiy lsefore the Couxt, it is the opinion of this Cnsut thm this case does not present snfSaient diificultics. 17 ~
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concrai or misrrpreseat a product's ahazacteristios.16 to give a blauket exemption to t4bacca psadttcts, the twa prang quatiller would not have bEe¢ ptaced in § 82.Ot34 of the Atx, aad the Act would have hwiuded an express exemption. See 45 Baylor L. Itev. 633, 645-46 (1993). C, PROXIMATE CAUSE AND ]}IItECf' II^tJtFRY Deftdmnts contondthat chein,iuryailcgtdiysuZcaed bythe State ahsrw ti be considered too remote w a matter of Iaw. raeiratgtuaent isroQted in erxtcepts ofpffxiusate cause and~ related priacigle of `4einotates.' Tbay state that because the State's injuty is dependezt on individual smok= beonming sidc, there are too manyste;ss in the catuai eFraltt to allow the State to proteccl.;7 To allovrthis suit to go foruard in this msssaet, it is 8rgued, would violate Eatiitionai principles of Wit€iom D. Pasraz, eausation. The Sfate asserr; that tha presence a fegislateue had i ass nac trwk the causal chain, ratha tt is a fareseeaitle consequejce aftke I7afendauts' conciuat that has had a substantial inbtiugiag a6onttise hacm to the S incscier to establish liability foraSIegesi iqjtnies, a . It has been stated that "ja] a omission ts a iu,jurieg or demegas if it appears fram the evideace that the injury 's No CommesN of Itep. Seidlits, tbe Havse sponuiz of tlic tegiSt2ti4II rin o Tex3E4 Befarc dte House State Affairs C m 73id Leg., RS, (Feb. 15, I9}3). 'r1'he Defendants asurtthat there are four steps in the chain of causation for this case. Fssst tha Defan3snu at2egedty cflmusittc3wrongs. Serknd, these vaoztgs caused a p4rtion of the population of TeKu to stttolte. Third, a portion of these ss,ok= beaatne sick as s resuis oftheir aativity. And fourth, satue pfttsese people were iudigeut, and tiss State paid their mu#zoai bills, Sej~- Defetulants' Bzi.ef in Support of Motion to t}ismiss, p. 2t3. 15 ~
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presenes its Completed damage madei and Its caso in chicf3s eoAtpterad. The Court is not degging De<endants' satisfietl under RIC:4. P`inatly, Iiefadanfs arguat6aEft complaint does not allega ft exdstenee Of aviable "=%erprise arthe aaassayrelat[ossship batrvecti the "estmvisc" and the alleged predicate acts. T= Court rejectsl']efendants' azgumoatcatftxzs time. trcatmcm for personal fnjuiias. 8eratsl, Defusda= contend ft groximaze cause i<ust, Ilefeodants amtend thaz privare civil muls ttruler RICO are availab3o only to plalutiffs who have suffered iujnry to tfuir "busi= or pmp~," and $o es rufi apply to claims for mcdiaai minnrs, insimidating svitu.csse; in prospeekve legal pmcecfflags, and alsshuctian Defendants move to diamiss the attcgadnns forsesrerat reasans. wzdin$ tobacco prodim tF¢ottgh ft raa.ils !sE 8 menner calattlated to p7zc a them ZV. STATCTIOItY CT AIMS A. RIGO CecmI=aoftf=SeeandAmmdedComptaintsllegaDofcndaWsviolatcd IS t3.S.C. §1962 {a}, (b}, (c) and {dj ftI2adcetecrkHuencesiaadCorre:pt orgau~ Act C`AIGO"). Generally, the Statn alleges I)efea3atsts cnvz~d ftt apauav afrsclcttcaing fram December 15,1953 thmugh the msent ThmccgJt mulagia predicate sets 4ncludinp$ ftuar Rllu, Ytim and mail fratid, btzbCry3 State on its RICU claim. In feci, the Court is not fianvtncEd Ihe 8zatr s= ae shott*ingof#hetssential eletreentsofRIEXiattrizl.linwet+er,rak'sng#te SFste'sallegszions 6fItIC{] 2efr•dtn from ruling on tIiC RICO claims until afteL hI871kdff IS3E Coi1Tjtl6ted its case claimaoutside the pmsence of da jury. rlt tiiispnint, the Court will either allow Plaintifftn pnzsue 19 ~
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0 Defemdaoxs, such as fcaud and zsusreplesentatian. Decause those s3asms are not product hsbttity claims wiEhin the mPan'4 lig of the Act as shay do not ariso out csf pasonai iuj€iq, death or grcrezcy damage bua out of an it~t againu ft sovereign, As stated in Section I(.A), SUM ft Couzc fsads t13at tic State may mainrain tis action in its quasa-sovarciga capacity to prate..i the physical aad ecoakimic wdl-§etug of its citizemy. The slaiass am not brarsght by the iajtued consumer. As snctt, the Court ia uot persuaded tfw ttvs action Is a"pro~ Itattiflty atsian" within tht meaning of tlu ArtL and dvs is not E=td by the t,ct. 'Tfo S'rare argtus, attersiativtiy, ttffi am if the Sfato's staiass d3ci arise out of the getsamT ind`rviduai smokars, the "intuacnttY utisafe" vzcstluct dcf not apply vrhen a mamlfamurer or selter has suppressed IDater"saI iafunaation relevaat to a product's safety, so that the ozxlicrasy cansnn;rx does not passess fa11 I:nowledgC of ft pmdVWs inherent dangerousness. According m the allegs#iaas in the Second A:meaded tramptaiuc, Dcfwr]anu wpgres.~sed WvrmazM that esrab3ishcs tlte aMCtivo nairsie of oigsxem and eqp4ed il To cvmo af is inherently unsafe and (2) that the product is knowsz to be unsafe by t6a ardinazg consumzr who cantstmes the product wich the ordinary knawiedga common to the cAatiAtuuty, l1 j~s,rwi 8 u"IlL011gh their IilfUvidiFBl dftCISISiFfg 2S}d pAft relations e= Supzema Court collectively, through the Tobacco Twciuue, the Cigsreue Companies have successfully c+ted and sold cigarectns bq eancealing and misrepiesent'sag ft highty addicAve nature of .' Yta~s Scctoisd Amended C.omplamt, par. 139; -Frtrm the 195Us and iug of this snit, ft Gigarcite Companies have entered into 0bf4PSL8IC vCiCIIitflc and medical }IIf4IID3t1t3II relating to Td_ par. 153. 13
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Defendants assert that the reli aintiff is inconsistent with the relief permitted emder the Antitrust Act..........................•••.,•. Defendants assert Plaintiff cannot recover statutory penalties ........ ••........ Plainfiffis not limited to restitution.............................•............................ XX. NUISANCE .................................................................................................... ....... A. Type of IHarm..........--•- ......................................... ............................. ...•... B- Dasnage Claim ....... •............ • ...................................................................... C. Unique or Special Character of Damage ............. •-••.......... .............. .......... D. Injury in exercise ofgublic right .... ..•• ..............................................•........ E. Negligent Conduct ............................... •....... ............._.................. F. Control over Products ......................................... .................................. •..- 87 88 88 88 89 89 89 90 90 90 X~. INJUNCTIVE RELIEF ....... •....--• ......................................................................... 91 A. The Amended Complaint States Fact Sufficient to Constitute a Cause of Action for Injunctive Relief...,• .............•--......•......-.........,.•.............-......... 91 B. The State of South Carolina is Suffering Irreparable Injury at the Hands of the Cigarette Indus'tD . ........................................................................... 93 C- The State Has No Adequate Remedy at Law ...--.-..-......._- .................... 94 =i. FRAUD AND CONCEALMENT CLAIMS ...... .......... .••.,.......... ..--.......... ..,........ 96 A. Fraudulent Misrepresentation, Concealment and Nondisclosure ..........•.. 96 (a) (b) ...... .....-.,..... 96 The Defendants have failed to establish that the statements were made solely to third parties ...................................... 97 South Carolina courts have consistently held that a party eld liable for fraudulent misrepresentations to on s ............................................................... •. • • • .. 98 1 (2) Right to Rely and Ignorance of Falsity ................... ••.•.... -............ • 98
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I cDEC. 4, 1998 9.02AMt OL*rLRp~4r cPav & srEPP L.L.P KtdO. 732D '''P. 7/7 Mtdinger & F'innegdn, LLP> Lhadbcutne & Parke LLP, and John Doe Tobacco Cargvrati4ns "A° through "Z," who are Reiewed Parties herein are s#ayed. ~ TI. Arsy applicable time sehetiulo shall ha'tuIled for the time the s#ay is iu sff=t. j SeECic.r= has achieved "SFft Specific Pinalitp° (as defined in Se : (A) the MSA) in this state, or (B) the MSA has been terminated with respect to this stsio pursuant to a'stbsecdon XtMa)(1) of the MSA. TV. Nothing in this Order shall preuent any party hereto purpose of effeetuaring the Settlement witlt the wrw of the MSA. IT IS SO t3ItDE12ED. COSum$3a. South CarFSlmB L24*'J.A-' 3 , 1998 or
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Omnfbank ofMantee v. LTnited Southern I3ank, 607 So.2d 76 {Rliiss. 1992} •-..•-.-......-•----.-.....«..•• ......................... « ......«.««....... ....... ---- .......... 6t Parker v. Bates, 216 S.C• 52, 56 S•E-2d 723 (1949) .... ........._......................... ...-.......... --............. .......... -•--.-....... •.63 Parr v. Parr, 268 S.C. 56, 231 S.E.2d 695 (1977) .......... ........................ ......•......-°.°°--........... «.................•.-«.34 People v. West Englewood Trust and,Sax=ings Banlc 187 h-E- 525 (Ill. 1933) ....,.....««............ ...«..«..,....,...«........... ......... -...... -......... ......... ................-i i Potomac Leasing Co. v. Glasco Industries, Inc., 294 S-C- 494,366 S-E.2d 26 (1988)............................................_«...............................-.--••-.....« 76 Preer v. Mims, 476 5•E-2d 472 (I996) ....--.,•..-.« ................_.....,.,,,.....................,..............................•--..-.---....,-.-• 27 Priest v. Brown, 396 S.E-2d 638 (S.C. App. I99fl)..............._....,,..................•••-.............««............................• --.-Ifl3 Pru3tt v. t4lorow, 288 S.C. 298, 342 S.E.2d 400 (1986) .... ................................... ....... .«..-........... •.-......... .---..«.98 Russell v. City of Columbia, 305 S.C. 86,406 S.E.2d 338 (1991) ......_...•.........«...« . .................. «........... ........ ................ ....70 S C Farm Bur. hluf. Ins. v. Love Chevrolet, S.C. 1478 S.E.2.d 57 (1996) ............_.... « .................. ........ ..-.......... «.._.l 13 c. v. South Carolina Pubtic Service Comm., ) .................. .......••------ ..................... ..... .•-.---- -......... .......... .................. 56 Santee Cooper Resort, Inc. v. South Carolina Public Service Comm., 298 S.C. 179,379 S.E.2d 118 {1989} .................................................««......................••.......«.....55 Singleton v State, 437 S.E.2d 53 (1993) ..... ««......,,.,,_............. .............. ....««.«.................•....... «................... .«.......52 Skipper v. Hartley, 242 S-C. 221,130 S.E.2d 486 (1963)....• ........................•-....................................__..........«......ID8
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4. 1998 GL*rAFW GRaY & sr~a L.L.P nN4. t319'''P. 14/15 uiErgar to The American Tobacco Compaay), Lortila•rd Tobacco Company, Philip Morn's 7ueorPorated (socuetumes reftred to in the Complaint as Philip Morris U.S.A,), R.3. Reynolds Tobacco Company and Iaggett Group Im . aze s4natornes to a Masus Settlement Agreement {"iv1SA'} (a copy of which is attached hereto), providing for, among other fhings, tIse Setttern= of ali claims pending in this action (the "Setttementa'); WFEREAS, pursuant to the MSA. Plaintiff az€d certa¢i Aefeac3anfs have joiWy moved for or oowet,ed to a sLsy of pracesiiags herein to permit the parties to seek to efferhuate ihe Sottlement; NOW, THEREFORP,1°I' IS HEREBY ORDERED AS F4LId)PJS: . r I. This action and all ctazm and proceedings between azdd among the State of South Carolina by Charles M. Candaa, AczorASy General; and 13efemlaau Brown & Williamson Tobacco Corporation (indiv"sdaa(ly and as successor by merger to The American Tobacco Company), Fortune Brands, 3rao, (f!lcta. American Erands, Inc.), British Auteriean Tobacco (taresmeats} Limtted, (formetly Imosvn as British-American Tobacco Company Limited), British-American Tobacco NoIdings) I,imited (re&rmd to in the Complaint as F Br3tisfrAmerican Holdiags Lt<t.), $.A.T- Iudustries, g.l.c., 8atw4Holdengs, Inc., .Pizilig ' MCIrris IS1C41'pt1I2ted (si3mCtSri12S !a Morris Companies Inc., R.7. lteyntsttts Tobaeco C.osmgany, RM Nabisco, Zne., Liggetc & , Myess Ina., Srookc Gtouls Ltd., Liggett Group Inc., Lor¢31ard, Inc., InrilLuii Tobacco Tobacco Institute, Inc., Iiil1 aad Knowbau, Ine.. Shoak, ;5k 2~3 -~ q -- U.S,A., Inc.,1'fc a Bacon L.L.P., Jacob,
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Kirk v. Clark, 191 S.C. 205,4 S.E.2d 13,16 (1939). This case articulates the broad basi courts. Clearly, at this pleading stage Plaintiff has met its burden which, if proven, would provide a substantial basis for this court to impose injunctive relief in some form. C. The State Has No Adequate Remedy at Law. In Kirk v. Clarke, this court recognized that while a legal remedy may exist, ient one, equity may step in. This is clearly such an inst al of stopping nicotine addiction in children before it doubtless argue that because there is a youth access law in the State of South Carolina all the State need do is enforce its law to stop the problem of pediatric addiction to nicotine. This is not only overly simplistic, it is untrue for a number of reasons. The issue of youth access is the precise instance where the "available legal remedy ... reduces itself to a matter of words, rather than to a matter of efficacy." Kirk, supra, at 16. The Plaintiff alleges, and eventually will prove, that the laws of the State of South Carolina are totally inefficient and unsuited to acco started. The State asks this Court to use its power to enforce limits on the Defendants' ability to instill a desire for tobacco products in the first instance, recognizing that once adolescents have a desire for a product, they will find a way to gain access. This case presents the compelling application of the first and foremost maxi suffer a wrong without a remedy." Although premature at the Motion to Dismi ultimately grant n s "equity will no determining whether or not to 'ot3rt must consider (1) whether the plaintiff has actually succeeded on the merits, (2)wkether the plaintiff has an adequate remedy at law, (3) the public interest, and (4) the balance of the equities. Southern Packaging v. United States, 588 F.Supp. 94
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State v. Waidner, 363 S.E-2d 387 (S-C. 1980) ..... -.•........ ...................... ............................... ...... ......... .•..-.•--...82 ....... State ex reL Burgum v, Hooker, 87 N.W.2d 337 (N.D. 1957) ........ .......... ---- .................. ....-.........,............. •.--..---......... .-..---....._ 12 State ex ret. McLeod v- C & L Corporation, Inc., 280 S.C. 519,313 S.E-2d 334 (1984)..» ........................................,..•.................83, 84, 74, 79 State ex reZl u YIP Enterprises, 286 S.C. 541, 335 S.E.2d 243 (Ca.. 1985).. ......................_......_........................°.°...............76,83 S'iate oflow4 ex. rel., Department ofHuman Services v, Srooks, 412 N.W.2d 613 (Iowa 1987) .................................. ............. ...... ........•-....... ............. .......... .-........ 19 State of South Carolina v. Nest Egg Society Trrd w, Inc., 290 S.C. 124,348 S.E.2d 381 {Cf• App. 1986) ...... ........................................... ......•-............ ••77, 83 Stead v. Fortner, 99 33.E. 680 (III. 1912) .................... .....••........ -...---........ .................... ...,........................ --.............. 12 Steele v. Rogers, 306 S.C. 546,413 S.E.2d 329 (Ct-App. I992) ............--.° ........... .....................-.-............. ......... 9o Stiles v. tlnorato, 457 S.E.2d 601,318 S.C. 297 (1995} ..• ..........................................................................................5 Teague v. Cherokee Coua€ty,iFemor•ial Hospital, 272 S.C. 403, 252 S.E.2d 296 (1975) ......_........ ---.........°°.......-............... ..................... ...--....... 96 Terlinde v. Neely, 271 S.E.2d 768,275 S.C. 395 (1980) • ................ .......... ..........._............ ..,.......................,....... ..-.-55 Tommy, L. Griffin Plumbing & Heating Co v. Jordan, Jones & Goulding, Inc., 320 S.C. 49,463 S-E.2d 85 (1995) ..................................... --71 --71........ -° ......................................... ..- Toussaint v. Ham, 357 S.E-2d 8, 292 S.C. 415 (1987) ................ ................ _......... ............. .....................,.........,.........6 Town of Bennettsville v. Bledsoe, ~ 226 S.C• 214, 84 S-E.2d 554 (1954) ..... ............................_.................... ................... ................ ._63 0 3 -4 .P. Yii ~ F,
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The State of South Carolina is Suffering Irreparable Injury at the Hands of the Cigarette lndustry. The Plaintiff has alleged that the children of South Carolina are smoking cigarettes, an addictive drug, at an alarming rate. Seventy-one percent (71 °to) of those who smoke are regular smokers before the age of 18 and a full eighty-nine percent (89%) of smokers begin by age 18. For the Defendants to argue that 'as a matter of law' the State has not suffered an irreparable by virtue of this constant influx of young smokers into the realm of nicotine addiction s ig€€ores the entire thrust of the State's case. The public health epidemic caused by cigarettes is begun by pediatric addiction to nicotine. This prob2em is so severe in our nati State, that it should no longer be in dispute The simple fact that is that if children do not begin smoking, the overwhelming likelihood is that they will not begin smoking as adults. The Defendants' argument - that smoking or ice -- is a red herring. The State urges this court to conclude that damage to the health and welfare of the children of this State constitutes, if anything ever will able (and ongoing) injury. The factual scenario before this Court is precisely the type o and equity should interuene. The S.ate contends that the actions of the Defendant ctions young people as potential markets must be thwarted. As aptly stated by the South Carolina Supreme Court: Whether a wrong is irreparable, in the sense that equity may intervene, and whether there is an adequate remedy at law for a wrong, are questions that are not decided by narrow and artificial rnales.... and if the available legal remedy in a case reduces itself to a matter of words, rather than to a matter of efficacy, se of its impracticability, or because the threatened acts may continue during rogress of an action at law, or because successive actions at law would be necessary to protect the plairtti{j`s rights, equity will hold the existence of legal remedy is not an obstacle to the exertion of the equitable power. 93 ~
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0 ing-reiated illnesses. Such conduct is in violation o£the laws of the State of e sale of cigarettes to minors, it inflicts untold human suffering e State of South Carolina, and it has created a health care burden for the State totaling hundreds of millions of dollars. It i Defendants from promoting the sale of cigarettes to minors. Such s to prevent substantial injury to minors, such substantial injury being the real and realized danger that minors will become addicted to cigarettes and thereby have their health and their lives ed t is equally clear that if such an injunction is not granted, the children who are recruited will be i r ans. tnere is no a For the reasons stated above, the Defendants' Motion to Dismiss the Injunctive claim stated in the Amended Complaint must be denied. XX[I. FRAUD AND CONCEALMENT CLAINIS A. Fraudulent Misrepresentation, Concealment and Nondisclosure ~ 1. Privi The Defendants' contend that the Plaintiffs fraudulent misrepresentation, concealment and nondisclosure cause of action should be dismissed because the "Plaintiff failed to state facts sufficient to constitute a cause of action to the extent the Plaintiffs cause of action is based on alleged misrepresentations made to third parties and not directly to the-Plaintiff." (Motion to Dismiss at 13). In the Amended Complaint, the Plaintiff alleges that the Defendants have made material affirmative misrepresentati fact, opinion, intention a iat re 0 residents of the State of 607 his section of this memorandum responds to 'ff 20a. through 20 c. of the Motion to Dismiss of Brown and Wiiliamson, et al. iionally failed to disc?osee material matters of 1 96
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South Carolina through their own public pronouncements and comm through the public pronouncements and comm ions of their agents, aiders and abettors and co-conspirators. (Amended Complaint at 53). The Defendants' argum two reasons set forth below: (a) The Defendants have failed to establish that the statements were made solely to third parties. The Defendants did not specify any person or entity they consider to be third parties in their Motion to Dismiss. In contrast, the Plaintiff `s Amended Complaint clearly states to whom the Defendants' misrepresentations were di -the public at large, includi regulators and residents of the State of South Carolina. (Amended Complaint at § 53). The state regulators clearly are not third parties in regard to this cause of action. This suit has been brought by the Attorney General of South Carolina in his capacity as the chief law officer of the State in order to obtain reimbursement for all monies paid by the State for medical assistance to Medicaid and other publiciy-fanded heath care recipients who suffer, or who have suffered from tobacco-related disease as a result of the actions of the Defendants. As chief law officer of the State, the Attorney General is authorized by statute and common law "to maintain all suits and proceedings as he deems necessary for the enforcement of the laws of the State, the preservation of public order and the protection of public rights." State v. Broad River Power Co., 157 S.C. 1, 153 S.E. 537, 560 (1929). Because the public pronouncements and ions made by the Defendants were directed at the public at large residents of the State of South Carolina and federal and state regulators, the Plainti e hi expended hundreds of millions of dollars in health care costs in treating tobacco-€elated illnesses, clearly has the right to bring a fraudulent misrepresentation cause of action against the 97
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P. 06 3 2 3 4 5 6 7 S 9 IO lI 12 13 14 15 16 : 17 is 19 20 21 22 23 24 25 The Plaintiff alleges that the Defendants conspired to suppress the possibility of compet to produce a safer cigarette. The Plaintiff alleges that this contributed to the injuries suffered by smokers in Michigan and that, therefore, the Plaintiff suffered an injury cognizable under the antitrust laws. In construing the t+tichigan Antitrust Reform Act and any other Michigan antitrust laws, it is standard doctrine that we look to the substantial body of cases construing the federal antitrust laws. On the question presented in this motion, Z find that the case of Florida Seed Company versus Monsanto, 105 F3rd, 1372, a 1997 federal appellate decision, accurately describes the stand The Court stated, and I quote: We follow a two-pronged approach in deciding whether a Plaintiff has antitrust standing. First, the P3aintiff must establish that it has suffered a so-called antitrust injury. As the Supreme Court has made clear to have standing, antitrust plaintiffs must prove more than injury casually linked to an illegal practice or presence in the market. Plaintiffs must prove antitrust injury, which is to say injury of the type that the antitrust laws were intended to prevent and 3tsth Judicial Circuit Court 333 S. Capitol Ave., Suite C, Lansing, MI 48933 OD C) W O ~ Page 5 co V {?5s28 '87 15:36
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Defendants based on such statements. (b) South Carolina courts have consistently held that a party may be held liable for fraudulent misrepresentations to third persons. In Pruitt v. Morrow, 288 S.C. 298,342 S.E.2d 400 (1986), the South Carolina Supreme Court allowed a subsequent purchaser of a house and lot to sue the original builder/seller for ffaud even though there was no privity. Also, in South Carolina State Portr Iuthority v. Booz- rfllen & Hamilton, Ine., 289 S.C. 373, 346 S.E.2d 324 (1986), the South Carolina Supreme Court determined that the Defendant, a consulting firm, could be held liable to the PI Carolina State Ports Authority, for ne misrepresentation despite the fact that there was no privit}:6' Based on this clear authori law, the Defendants' contention that the Plaintiff has failed to sufficiently state a cause of action because the fraudulent statements and non-disclosures were allegedly directed toward third is simply contrary to current law. 2. Right to Rely and Ignorance of Falsity. The Defendants also contend that the Plaintiff's fraudulent misrepresentation, concealment and nondisclosure cause of action should be dismissed because (I) the Plaintiff had on any alleged misrepresentations of the Defendants and (2) the Plaintiff was not " Defendant Booz .Allen & Hamilton, Inc. had contracted with the Georgia Ports Authority to compile a report comparing the merits of the ports located at Savannah, Georgia and Charleston, South Carolina. The report, which was highly favorable to the Savannah, Georgia port and highly critical of the Charleston, South Carolina port, was istributed to customers and potential customers of the ports. Plaintiff South Carolina State Ports Authority brought suit against the Defendant Booz-Allen & on, Ine, alleging negligent misrepresentation. The Supreme Court held that the sufficient grounds to maintain a cause of action against the Defendant for negligent misrepresentation even though there was no privity. South Carolina State Ports Authority v. Booa :9dlen & Hamilton, Inc., 289 S.C. 373, 346 S.E.2d 324 (1986). 98
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