Blue Cross Blue Shield New Jersey v. Philip Morris Inc. [American Tobacco Co.]
(3rd Party Rec US Dist Ct, E NY 1998 Dismissed) Citation: 36 F Supp 2d 560 (ED NY, 30 March 1999); 344 F3d 211 (16 Sep 2003);This health care reimbursement suit was filed by Blue Cross and Blue Shield of New Jersey, Inc., and BCBS of seventeen other states and the District of Columbia, against American Tobacco Co., Philip Morris, R.J. Reynolds, Brown & Williamson, British American Tobacco, Lorillard, Liggett, United States Tobacco, the Tobacco Institute, the Center for Tobacco Research on April 29, 1998.
The plaintiffs alleged that the defendants were responsible for the medical treatment costs for diseases caused by tobacco use. The defendants conducted a misinformation campaign regarding the adverse health effects and addictiveness of tobacco use through acts of mail and wire fraud, intimidating witnesses against them, and the use of interstate and foreign travel. They conspired to suppress the research and marketing of less harmful cigarettes. The plaintiffs claimed Racketeer Influenced Corrupt Organization Act violations, and violations of the Clayton and Sherman Antitrust Acts, state law claims, fraudulent misrepresentation and concealment, breach of special duty, unjust enrichment, and conspiracy. The plaintiffs sought treble recoveries of medical expenses paid, legal fees and costs.
The case was heard in the U.S. District Court for the Eastern District of New York. The defendants moved to dismiss for failure to state a claim. On March 30, 1999, the judge (36 F Supp 560) denied the motion. He ruled that the defendant manufacturers and trade associations constituted a single enterprise, and that the plaintiffs had standing to bring a claim under RICO for business and monetary damages. He found that the allegations did support a claim under RICO. The injury was foreseeable, and therefore not too remote. The plaintiffs were likely to have precise records of the costs paid and the large population represented would allow for an accurate calculation of the portion attributable to smoking. The defendants argued in the alternative that the plaintiffs claims should be subrogated to the injuries done to the individual insurance beneficiaries. The judge rejected this idea as an inadequate enforcement of RICO and inappropriate given the plaintiffs' active role in the national health care. The judge dismissed the state claims as unmanageable in a case this size.
In September, 2000, the judge granted summary judgment to the defendants for damages for RICO, tax, Medicaid/Medicare, and pre-judgement interest claims. The judge also granted sumary judgment against the plaintiffs' state law claims on the grounds of statute of limitations. The RICO claim was dismissed on an investment theory.
In February 2001, the judge denied the defendants' summary judgment motion to dismiss state law claims in those plaintiffs' claims which had been severed.
In March 2001, the judge lifted the stay of punitive damages and ruled that the same jury would consider liability and damages (including punitives) in separate phases of the trial.
The trial commenced on March 19, 2001. The jury found defendants guilty of consumer fraud resulting in award to plaintiffs consisting of $17.8 million direct and $11.8 million subrogated damages on June 4, 2001. Jury found defendants not guilty of related RICO charges of fraud and racketeering that could have resulted in $600 million award. In October, 2001, the judge denied the defendant's post trial motion. He entered judgment in November, 2001. The judge ordered that plaintiffs' attorneys were entitled to $37.8 million in fees in February, 2002.
The United States Court of Appeals for the Second Circuit Court (344 F3d 211) reversed the judgment on September 16, 2003. It dismissed the plaintiff's subrogation claim and requested guidance from the New York Court of Appeals on the other. The court held that the plaintiffs failed to identify the individual plan members they were representing to allow the defendants to investigate and defend the action. The plaintiffs' standing to bring the action was not affected by the fact that they were not consumers. The proof of causation and damages was legally sufficient unless individualized proof was required under the state consumer protection statute. The court certified this question to the New York Court of Appeals, along with the question if the plaintiffs' claims were too remote.
The New York Court of Appeals found that the third-party claims were too remote on October 19, 2004. The plaintiffs could not use the state's consumer protection statute to pursue a direct claim to reimburse them for medical expenses incurred by their insured from the defendant. A party had to actually injured to be the one to bring suit, but that injury could be a business injury or a consumer injury.
The Second Circuit Court of Appeals reversed the judgment, including the attorney fee, and remanded to the District Court award on December 22, 2004. The Circuit Court instructed the District Court to enter a judgment in favor of the Defendants on all claims.
The District Court entered a joint Stipulation of Dismissal and final judgment in favor of the defendants on February 2, 2005.