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December 21, 1999


The opinion of the court was delivered by: Kessler, District Judge.


The matter is now before the Court on the motions to dismiss filed by seven of the eight tobacco companies,*fn2 the Council for Tobacco Research — U.S.A., Inc., and the Tobacco Institute, Inc. No other pleadings have been filed nor any discovery undertaken. It should be noted at the outset that motions to dismiss for failure to state a claim upon which relief can be granted are generally viewed with disfavor and rarely granted. Doe v. U.S. Dep't of Justice, 753 F.2d 1092, 1102 (D.C.Cir. 1985) (citing 2A James Wm. Moore et al., Moore's Federal Practice § 12.08 (2d ed. 1948 & Supp. 1984)).

The law is clear that at this early stage, "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) (emphasis added); Davis v. Monroe County Bd. of Educ., 526 U.S. 629, 119 S.Ct. 1661, 1676, 143 L.Ed.2d 839 (1999). Moreover, the law is equally clear that "we must accept as true all of the material allegations in the plaintiffs' complaint . . . Defendants' factual allegations, if in agreement with plaintiffs', only reinforce plaintiffs' case; if in disagreement, they must be ignored. Thus, at this stage of the proceedings, the only relevant factual allegations are the plaintiffs'." Ramirez de Arellano v. Weinberger, 745 F.2d 1500, 1506 (D.C.Cir. 1984), vacated on other grounds, 471 U.S. 1113, 105 S.Ct. 2353, 86 L.Ed.2d 255 (1985); Shear v. National Rifle Ass'n of Am., 606 F.2d 1251, 1253 (D.C.Cir. 1979). Despite the sweeping breadth and seriousness of Plaintiffs' assertions, their validity is not for this Court to judge at this time.

Upon consideration of the motions, oppositions, replies, the applicable case law, the arguments presented at the oral hearing, and the entire record herein, for the reasons discussed below, Defendants' motions to dismiss for failure to state a claim [98-704: # 9; 98-1569: # 5; 98-1716: # 10] are denied as to the RICO claims, granted as to the fraud claim although Plaintiffs will be given an opportunity to correct the deficiency in their pleadings, and granted as to all other claims. Defendants' motions to dismiss for failure to join necessary parties [98-704: # 10; 98-1716: # 11] are denied. Defendants' Motion to Dismiss for Insufficiency of Service of Process [98-1569: # 7] is denied.

I. Plaintiffs' Factual Allegations

The Plaintiffs (or "Funds") are non-profit, multi-employer, labor union health and welfare trust funds, and trustees of the United Mine Workers of America Combined Benefit Fund. They were created by their respective parent labor unions to provide health insurance coverage to union members and their families ("participants"). Contributions to the Funds are made by employers pursuant to collective bargaining agreements. See, e.g., Compl.*fn3 at ¶¶ 12-21.

The Funds are governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001-1461. Some of the Funds self-insure (i.e., pay for medical expenses directly out of their own coffers), while others contract with third-party health insurance companies (e.g., Blue Cross Blue Shield) to provide health insurance coverage to their participants. Some Funds have self-insured in the past but now contract with third-party insurance companies, and vice versa.

Defendants are eight major United States and British tobacco manufacturers, as well as the Council for Tobacco Research and the Tobacco Institute, two organizations created and funded by the tobacco companies. Compl. at ¶¶ 22-33.

Plaintiffs have filed a 151-page complaint describing in considerable detail what is alleged to be a four-decade long conspiracy, dating from at least 1953, to intentionally and willfully deceive and mislead the American public as well as the Funds and their participants about the medically harmful nature of tobacco products, the addictive nature of nicotine, and the possibility of manufacturing and marketing safer and less addictive tobacco products. Compl. at ¶ 3, 4.

A summary of Plaintiffs' allegations is necessary to fully convey the scope of their claims as well as the nature of the injuries they claim to have suffered.

Plaintiffs commence their complaint with an outline of what they allege to be the "staggering loss of life, premature disability, disease, illness and economic loss, attributable in part to the increased medical costs attributable to cigarettes and smokeless tobacco." Compl. at ¶ 7. In addition to causing more than 85% of all lung cancer, smoking is responsible for at least 30% of all deaths from cancer. Smoking is also the cause of more than 80% of deaths from pulmonary diseases such as emphysema and bronchitis, and is responsible for thousands of deaths annually from cardiovascular disease, including stroke, heart attack, peripheral vascular disease, and aortic aneurysm. According to the Federal Centers for Disease Control and Prevention, each year cigarette smoking kills more than 400,000 Americans, exceeding the combined deaths caused by automobile accidents, AIDS, alcohol use, use of illegal drugs, homicide, suicide, and fires. This figure of 400,000 deaths per year exceeds the total number of American lives lost in all the wars this country has fought in this century. Compl. at ¶¶ 7, 38-41.

Nicotine has been recognized as an addictive drug by the Food and Drug Administration ("FDA"), the U.S. Surgeon General, the World Health Organization, the American Medical Association, and other major medical organizations. They all acknowledge that tobacco use is a form of drug dependence that causes severe adverse health consequences and increased medical costs. Compl. at ¶ 43.

Plaintiffs allege that until January of 1998, the tobacco industry denied the addictive and lethal nature of their products. Plaintiffs cite to the sworn testimony given in 1994 by the chief executive officers of the Defendant companies, before the House of Representatives Subcommittee on Health and Environment (which is part of the Committee on Energy and Commerce), stating that cigarette smoking is not addictive and that the companies did not manipulate or increase the level of nicotine in cigarettes. Compl. at ¶¶ 44, 61-63, 65-68.

Plaintiffs allege that Defendants' plan was set in motion in 1954, as several scientific studies were issued that sounded warnings about the health hazards of cigarettes. Compl. at ¶ 71-72. The Defendant tobacco companies created a joint research organization, the Tobacco Institute Research Committee ("TIRC"), which in 1964 changed its name to the Council for Tobacco Research — USA ("CTR"). On January 4, 1954, as a result of a December 1953 hotel meeting of the chief executive officers of the leading cigarette manufacturers, all the companies, except Liggett, issued full page newspaper advertisements throughout the country, asserting that there was no proof that cigarette smoking was one of the causes of lung cancer, and announcing the formation of TIRC to provide independent research into all aspects of tobacco use and health. Compl. at ¶¶ 72, 76, 81-82. Thereafter, the industry continued to assure the American public, through an extensive public relations campaign, that there were no solid facts to prove the relationship between smoking and health problems, and that TIRC/CTR, as an independent and totally autonomous research organization, would provide trustworthy, reliable, and objective information. Compl. at ¶¶ 91-101.

Plaintiffs allege that despite these promises to report objective facts on smoking and health, the tobacco companies were already aware of the harmful and often lethal effects of smoking. Plaintiffs cite numerous internal memoranda from industry scientists at Philip Morris, Brown & Williamson, and Liggett, demonstrating the extensive knowledge on the part of those companies about the carcinogenic nature of cigarettes and the addictive nature of nicotine. Compl. at ¶¶ 85-89.

Plaintiffs allege that in 1968, worried about the growing public concern over the relationship between smoking and health problems, the tobacco companies agreed, in a so-called "Gentlemen's Agreement", that no individual company would perform research on smoking, health, and the development of "safe" cigarettes, and that any such information that existed would be suppressed and concealed. Compl. at ¶¶ 105-107.

Plaintiffs allege that TIRC/CTR was neither disinterested nor objective. They cite to internal industry memoranda demonstrating that the research organization was used to promote favorable research, to suppress negative research whenever possible, to attack negative research when it could not be suppressed, and to aid public relations and lobbying efforts on behalf of the industry. Compl. at ¶¶ 108-115, 117-120. In particular, according to internal Philip Morris correspondence, TIRC/CTR was to avoid research projects that would develop new tests for carcinogenicity, relate human disease to smoking, or conduct experiments which required large doses of carcinogens to show the addictive effect of smoking. Compl. at ¶ 116.

Plaintiffs allege that, as part of Defendants' ongoing conspiracy to deceive and mislead the American public, several tobacco companies, including Philip Morris, Reynolds, and Liggett, refused to produce or market various types of "safer cigarettes" that their researchers had developed after 20 years of effort. Compl. at ¶¶ 130-144. A memorandum written by counsel for the tobacco industry in 1987 stated that the marketing by Reynolds of a smokeless cigarette could "have significant effects on the industry's joint defense efforts" and that the "industry position has always been that there is no alternative design for a cigarette as we know them [sic]." Compl. at ¶ 146.

Plaintiffs allege that the tobacco companies have known since at least the early 1960s of the addictive properties of nicotine, and cite numerous internal research memoranda by industry scientists to that effect, as well as a 1963 memorandum stating that "nicotine is addictive. We are, then, in the business of selling nicotine, an addictive drug effective in the release of stress mechanisms." Compl. at ¶¶ 148, 158.

Plaintiffs allege that despite this knowledge, the industry suppressed the publication of negative information about their products by ordering their scientists to keep their work secret, by closing down laboratories and destroying the animals which were used to gather the research, by forbidding scientists from publishing their data and threatening them with retaliation if they did, by involving lawyers in the research so they could later invoke the attorney-client privilege to hide any harmful research results, and by transferring potentially sensitive research to Switzerland and England. Compl. at ¶¶ 112, 114, 119-122, 124, 127, 151-155. In 1963, the General Counsel for Brown & Williamson advised the company to disclose to the U.S. Surgeon General, who was preparing his first official report on smoking and health, what the company knew about the addictiveness of nicotine and the adverse effects of smoking on health. The company rejected the advice. Compl. at ¶¶ 156-57.

Plaintiffs allege that the tobacco companies have developed and used highly sophisticated technologies designed to deliver nicotine in quantities that are more than sufficient to create and sustain addiction in the vast majority of individuals who smoke regularly. Compl. at ¶ 173. In particular, the Commissioner of the FDA told a Congressional Subcommittee that Brown & Williamson developed a new and more potent tobacco plant called "Y-1", despite the company's denial that it had engaged in any breeding of tobacco for high or low nicotine levels. Compl. at ¶¶ 174, 175. This genetically-engineered tobacco plant had a nicotine content more than twice the average found naturally in flue-cured tobacco. Compl. at ¶ 177. In addition, despite denials from Brown & Williamson, its internal documents reveal that it and other companies add certain ammonia compounds during the manufacturing process, which increase the delivery and potency of nicotine, and almost double the nicotine transfer efficiency of cigarettes. Compl. at ¶ 182.

Plaintiffs allege that just as the tobacco companies have the capability to manipulate the amount of nicotine in cigarettes, the rate at which nicotine is delivered, and the addition of nicotine to any part of a cigarette, they also have the capability, with existing technology, to remove all or virtually all of the nicotine from their products. Compl. at ¶¶ 184, 185.

Plaintiffs allege that the tobacco companies have marketed low tar and low nicotine cigarettes which, in reality, have higher concentrations of nicotine, by weight, than high yield cigarettes. Compl. at ¶ 191.

Finally, Plaintiffs allege that the tobacco companies, as part of their conspiracy, fraud, and market manipulation, have used deceptive advertising to aggressively market addictive tobacco products to particular populations, such as minors. Compl. at ¶ 204. Using popular cartoons such as Joe Camel and popular figures such as the "Winston Man",*fn4 the tobacco industry has aimed its advertising at young people. Compl. at ¶¶ 206-207. Citing numerous internal industry documents analyzing the teen-age market and how to attract it, the use of "stealth" advertisements in movies, and the distribution of promotional items, Plaintiffs claim that the industry's overall strategy was to intentionally replace the hundreds of thousands of tobacco users who die each year by unfairly and illegally targeting marketing and promotional efforts at minors, who are generally not as cognizant of their mortality as are adults. Compl. at ¶¶ 205, 210-217, 219-221, 225, 227, 228.

These are the allegations which, for purposes of the pending motions to dismiss, must be assumed to be true.

II. Plaintiffs' Legal Theories

Plaintiffs seek to recoup healthcare funds expended on tobacco-related illnesses under several theories. Their first theory (Counts I, II, and III of the Amended Complaint) is based on the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(a), (c), and (d). Plaintiffs argue that Defendants engaged in a pattern and conspiracy of racketeering activity, and that they used proceeds from such activities to affect interstate and foreign commerce (e.g., pay lobbyists, make campaign contributions, perpetuate misinformation, manipulate nicotine levels, and shift healthcare costs to the Funds).

Plaintiffs' second theory of recovery (Counts IV and V) is based on federal and local antitrust laws: the Sherman Act, 15 U.S.C. § 1,*fn5 and D.C.Code §§ 28-4501-4508. Plaintiffs argue that Defendants conspired to unreasonably restrain trade in the tobacco products and healthcare markets by suppressing research about tobacco-related illnesses and hindering the development of nicotine-replacement products. Plaintiffs claim that Defendants' avoidance of the healthcare costs incurred by use of their products constitutes unreasonable restraint of trade in the healthcare market.

Plaintiffs' third theory of recovery (Count VI) is based on common law fraud. Plaintiffs argue that despite Defendants' express public promise to assume the responsibility to discover and disclose information about tobacco use, they intentionally and recklessly misrepresented and concealed such information.

Plaintiffs' fourth theory of recovery (Counts VII and VIII) is based on the common law concept of special duty. Plaintiffs argue that Defendants voluntarily assumed a duty to protect the public health by their public promise to pursue research regarding the effects of smoking. Plaintiffs claim that Defendants negligently and intentionally breached this special duty by misrepresenting and concealing such information.

Plaintiffs' fifth theory of recovery (Count IX) is indemnity. Plaintiffs allege that Defendants must indemnify them for tobacco-related healthcare costs because Defendants had a duty to pay such costs, and it would be unjust for Defendants not to indemnify Plaintiffs for discharging that duty.

Plaintiffs' sixth and final theory of recovery (Count X) is unjust enrichment. Plaintiffs allege that Defendants have been unjustly enriched by the transference of tobacco-related healthcare costs to Plaintiffs.

III. Analysis

The fundamental question posed in the pending motions is whether Plaintiffs can recover for the economic injuries they have suffered as a result of the tobacco companies' lengthy conspiracy to mislead and deceive the American public about the strong evidence of the following: that nicotine is highly addictive, that the companies manipulated nicotine levels in cigarettes in order to create and sustain addiction, that smoking cigarettes is harmful to the health of all users, and that use of tobacco products must inevitably lead to substantially increased medical costs.*fn6

Another way to examine this fundamental question is to ask whether our legal system can accomplish a task of such magnitude. Is it sufficiently flexible and responsive to the practical and doctrinal challenges posed by this case to devise a framework that allows Plaintiffs to have their "day in court", to tell their story to a jury, and — if Plaintiffs can prove the facts they have alleged — to obtain compensation for the injuries they have suffered? This task is particularly daunting in light of the allegations that, by virtue of their participation in a sophisticated and well-organized conspiracy, spanning a period of some forty-five years, Defendants played a major role in precipitating this nation's healthcare finance crisis,*fn7 thereby undermining the financial health and stability of Plaintiffs' industry.

This Court is of course well aware that four Circuit Courts of Appeals*fn8 have examined this issue in cases very similar to the ones before this Court (although some of the theories advanced by the plaintiffs in those cases vary somewhat from those advanced in these cases). Each of those courts concluded that the plaintiffs had no cause of action against the tobacco companies. Although rationales and emphases varied somewhat from case to case, all the Circuits ruled that, as a matter of law, plaintiffs' claims were too remote for the legal system to recognize, that the cases were too complex for ascertainment and apportionment of damages, and that there was too great a risk of multiple recoveries.

While this Court has studied the four Circuit opinions with great care and respect, they are of course not binding. Since our Court of Appeals has not yet had an opportunity to grapple with these questions, this Court writes on a clean slate until our Circuit speaks.

With all due respect to the four Circuit Courts that have spoken, this Court concludes that their rulings underestimate the inherent ability and flexibility of our common-law based legal system*fn9 to respond to the demands of a case as difficult as this. Over the years our legal system, which has grown less rigid and formalistic, has risen to the many challenges that have emerged in our increasingly complex and technological world. Indeed, one of the glories, and strengths, of our legal system has been its ability, over time, to respond to new problems — whether they arise from handling the logistical difficulties of mass tort class actions,*fn10 the technological difficulties of restructuring the AT & T communications system*fn11 and policing the information superhighway,*fn12 the scientific difficulties of assessing the validity of expert witness testimony,*fn13 or the profound ethical and moral difficulties of deciding reproductive technology and genetics issues.*fn14 In each of these instances, all involving cases of enormous public concern, courts and judges have accepted the challenges thrust before them and have carried out one of the primary functions of the legal system: to provide a procedurally fair forum in which parties can seek redress for their perceived wrongs.

More than a century ago, Justice Oliver Wendell Holmes eloquently described the growth and responsiveness of this country's legal system:

  The life of the law has not been logic: it has been
  experience. The felt necessities of the time, the
  prevalent moral and political theories, intuitions of
  public policy, avowed or unconscious, even the
  prejudices which judges share with their fellow-men,
  have had a good deal more to do than the syllogism in
  determining the rules by which men should be
  governed. The law embodies the story of a nation's
  development through many centuries, and it cannot be
  dealt with as if it contained only the axioms and
  corollaries of a book of mathematics. Oliver Wendell
  Holmes, The Common Law (1881), reprinted in 3
  The Collected Works of Justice Holmes 115 (Sheldon
  M. Novick ed., Chicago, The University of Chicago
  Press 1995).

The instant cases present just such a challenge to the ability of the courts to adjudicate an extremely complex case of enormous public interest and concern, in which great wrongs are alleged and damages — if warranted — will be difficult to ascertain.

However, we are not without guidance since the Supreme Court has provided the analytical framework for examining the viability of Plaintiffs' claims in two seminal cases: Associated Gen. Contractors of Cal., Inc. v. California State Council of Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983) (hereinafter AGC), and Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992). After determining that the standing requirements for RICO and antitrust claims are similar, the Supreme Court concluded that the standing analysis drawn from common-law principles of proximate cause and remoteness of injury is the most appropriate in evaluating such claims. AGC, 459 U.S. at 536-45, 103 S.Ct. 897;*fn15 Holmes, 503 U.S. at 267-70, 112 S.Ct. 1311; Steamfitters Local Union, 171 F.3d at 921. Consequently, it is clear that the analysis of the remoteness issue, which is central to determining the viability of the majority of Plaintiffs' claims,*fn16 should be conducted under the rubric of standing doctrine.

In measuring proximate cause by the degree of remoteness of injury, the Supreme Court pointed out that, "[a]t bottom, the notion of proximate cause reflects `ideas of what justice demands, or of what is administratively possible and convenient.'" 503 U.S. at 268, 112 S.Ct. 1311 (quoting W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of Torts § 41, at 264 (5th ed. 1984)). In other words, when a claim is too remote, there can be no proximate cause and, ultimately, no standing. Proximate cause itself is composed of the two elements by which we evaluate remoteness: public policy ("what justice demands"), and*fn17 identification of the plaintiff best suited to most efficiently present the damage claims ("administrative convenience").*fn18

A. Proximate Cause: Public Policy

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