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SERVICE EMPLOYEES INT'L UNION v. PHILIP MORRIS
December 21, 1999
SERVICE EMPLOYEES INT'L UNION HEALTH AND WELFARE FUND, ET AL., PLAINTIFFS,
PHILIP MORRIS INC., ET AL., DEFENDANTS. S.E.I.U. LOCAL 74 WELFARE FUND, ET AL., PLAINTIFFS, V. PHILIP MORRIS INC., ET AL., DEFENDANTS. MICHAEL H. HOLLAND, TRUSTEE OF THE UNITED MINE WORKERS OF AMERICA COMBINED BENEFIT FUND, ET AL., PLAINTIFFS, V. PHILIP MORRIS INC., ET AL., DEFENDANTS.
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 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 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
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.
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
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
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
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
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
A. Proximate Cause: Public Policy