The opinion of the court was delivered by: Gladys Kessler, District Judge.
Plaintiff, the United States of America ("the Government"),
brings suit against eleven tobacco-related entities ("Defendants")*fn1
to recover health care expenditures the Government
has paid for or will pay for to treat tobacco-related illnesses
allegedly caused by Defendants' tortious conduct. The Government
also asks this Court to enjoin Defendants from engaging in fraudulent
and other unlawful conduct and to order Defendants to disgorge the
proceeds of their past unlawful activity.
The Government makes four claims against Defendants under
three statutes. The first statute, the Medical Care Recovery Act
("MCRA"), 42 U.S.C. § 2651-2653, provides the Government with a
cause of action to recover certain specified health care costs it
pays to treat individuals injured by a third-party's tortious
conduct (Count 1). The second statute is a series of amendments
referred to as the Medicare Secondary Payer provisions ("MSP"),
42 U.S.C. § 1395y, which provides the Government with a cause of
action to recover Medicare expenditures when a third-party caused
an injury requiring treatment and a "primary payer" was obligated
to pay for the treatment (Count 2). The third statute is the
Racketeer Influenced and Corrupt Organizations Act ("RICO"),
18 U.S.C. § 1961-1968 (Counts 3 and 4), which provides parties
with a cause of action to recover treble damages due to injuries they
received from a defendant's unlawful racketeering activity, and to
seek other equitable remedies to prevent future unlawful acts.
This matter is now before the Court on Defendants' motions to
dismiss for failure to state a claim.*fn2 Upon consideration
of the motions, oppositions, replies, the applicable case law, the
arguments presented at the motions hearing, and the entire record
herein, for the reasons discussed below, the Non-Liggett Defendants'
motion to dismiss for failure to state a claim [#72] is granted
as to the MCRA claim (Count 1), granted as to the MSP claim
(Count 2), and denied as to the RICO claims (Counts 3 and 4).
Liggett's separate motion to dismiss for failure to state a claim [#70]
Summary of Legal Conclusions
The United States Government has brought this massive civil
action against the tobacco industry, seeking billions of dollars
in damages for what it alleges to be a lengthy unlawful conspiracy
to deceive the American public about the health effects of smoking
and the addictiveness of nicotine. In order to prevail on these
allegations, the Government has offered three distinct legal
theories of liability. Two of these theories are being rejected,
and therefore, Counts 1 and 2 of the Complaint will be dismissed.
A significant portion of the Government's case, however, will go
forward, namely its claims under RICO for disgorgement of all
profits Defendants derived from activities, beginning in 1953 and
continuing to the present, related to the alleged pattern of
racketeering activity. Consequently, Counts 3 and 4 of the
Complaint will proceed. In sum, while the Government's theories
of liability have been limited, the extent of Defendants'
potential liability remains, in the estimation of both parties, in
the billions of dollars. The scope and complexity of this case
will continue to pose significant challenges to the parties and to
1. The Government's Medical Care Recovery Act claim will be dismissed.
The congressional intent in enacting MCRA in 1962 — at which time
Medicare did not exist and the Federal Employees Health Benefits Act
("FEHBA")*fn3 was still in its infancy — was to provide
a means for the Government to recover from third-party tortfeasors*fn4
medical expenses it had furnished for (primarily military)
employees. Applying the principles from a recent U.S. Supreme Court
decision, FDA v. Brown & Williamson Tobacco Corp., —
U.S. —, 120 S.Ct. 1291 (2000), this Court concludes that Congress
did not intend that MCRA be used as a mechanism to recover Medicare or
FEHBA costs. The Court reaches this conclusion after examining the broad
context in which MCRA has existed for 38 years — including its
legislative history, the construction given it by those agencies charged
with its interpretation, a body of long-standing state and federal case
law, and its total non-enforcement by the Department of Justice for
thirty-seven of those thirty-eight years.
2. The Government's Medicare Secondary Payer claim will also be
dismissed. MSP permits the Government to seek reimbursement from
insurance entities, when Medicare has paid for health care
expenses for which those entities should have paid. Although MSP
also allows the Government to bring suit against non-insurance
entities required to pay for health care costs under a "self-insured
plan," the Government's Complaint contains no allegation that Defendants
have at any time maintained a "self-insured plan," as that term is
defined by MSP and the relevant regulations. Further, it is clear
that Congress did not intend MSP to be used as an across-the-board
procedural vehicle for suing tortfeasors, which is precisely how the
Government attempts to use the statute in this case.
3. The Government's Racketeer Influenced and Corrupt Organization Act
claims will be permitted to go forward. The Government has adequately
alleged, which is all it must do at this early stage in the litigation,
the necessary elements of a RICO claim: that Defendants formed an
"enterprise" which engaged in the requisite "pattern of racketeering
activity." In addition, given the nature and scope of Defendants' alleged
prior misconduct, the Government has adequately pleaded its basis for
requesting injunctive relief, including the specific remedy of
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 (1957); see also Davis v. Monroe County
Bd. of Educ., 526 U.S. 629, 654 (1999). At the motion to dismiss
stage, "the only relevant factual allegations are the plaintiffs'," and they
must be presumed to be true. Ramirez de Arellano v. Weinberger,
745 F.2d 1500, 1506 (D.C. Cir. 1984), vacated on other grounds,
471 U.S. 1113 (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 the Government's allegations, their validity is not for this
Court to judge at this time.
The Government's Complaint describes in detail what it
alleges to be a four-decade long conspiracy, dating from at least
1953, to intentionally and willfully deceive and mislead the
American public about, among other things, the harmful nature of
tobacco products, the addictive nature of nicotine, and the
possibility of manufacturing safer and less addictive tobacco
products. Complaint ("Compl.") at ¶ 3. Defendants'
conspiratorial activity includes making numerous "false and
deceptive" statements and concealing documents and research in an
attempt to cover-up their deceit. Compl. at ¶ 5. According to
the Government, Defendants continue to "prosper and profit" from their
actions and will continue to do so into the future, unless restrained
by this Court. Compl. at ¶ 6. The specifics of the alleged
conspiracy are described below.
"In the 1940's and early 1950's, scientific researchers
published findings that indicated a relationship between cigarette
smoking and diseases, including lung cancer." Compl. at ¶ 30.
Tobacco companies "closely monitored" this research, conscious
that if the public became aware of these findings, the companies'
profits would likely decline and they would "face the prospect of
civil liability and government regulation." Compl. at ¶ 31.
To combat these possibilities, the chief executives of Defendants
American Tobacco, Brown & Williamson, Lorillard, Philip Morris,
and R.J. Reynolds met in late 1953 in New York City, where they
devised a concerted strategy to preserve and expand the market
for, and profits from, cigarettes. Compl. at ¶ 32.
According to the Government, the underlying strategy Defendants adopted
was simple: to deny that smoking caused disease and to consistently
maintain that whether smoking caused disease was an "open question."
Compl. at ¶ 34. To maintain and further this strategy, Defendants
issued deceptive press releases, published false and misleading articles,
destroyed and concealed documents which indicated that there was in fact a
correlation between smoking and disease, and aggressively targeted children
as potential new smokers. Compl. at ¶ 36.
One of the first major steps Defendants took was to announce
the formation of an entity initially known as the Tobacco Industry
Research Committee ("TIRC") and which later became known as the
Council for Tobacco Research ("CTR" or "Council").*fn6
This entity, which Defendants publicized widely as an objective
research body, published in January 1954 a full-page statement
that ran in 448 newspapers throughout the United States. Titled
"A Frank Statement to Cigarette Smokers," the statement asserted
that, according to "distinguished authorities," "there is no proof
that cigarette smoking is one of the causes" of lung cancer.
Compl. at ¶ 37. Defendants further stated: "We believe the
products we make are not injurious to health" — even though
Defendants' own employees had by this time "identified the
carcinogenic substances in tobacco smoke." Compl. at ¶¶ 37, 38.
Promising to aid and assist research into all phases of tobacco
use and health and to provide complete information to the public,
the publication stated that the newly formed Council would perform
independent, objective, and reliable research about the allegations
against smoking. Compl. at ¶ 37.*fn7
The Government alleges that these projects were designed
largely to generate research data and witnesses for use in
defending lawsuits and opposing tobacco regulation, rather than to
ascertain or improve the safety of Defendants' products. To
accomplish this objective, Defendants put attorneys in control of
the Council's research and devised strategies to withhold from
civil discovery critical information about the health effects of
cigarette smoking by improperly invoking the attorney-client
privilege and work-product doctrine. Id. If CTR research
ever "threatened to confirm the link between smoking and disease,"
Defendants exerted pressure on the scientists conducting the
research, so as to alter the results, terminate the research,
and/or conceal the findings. Compl. at ¶ 67.
In 1958, Defendants created another entity, the Tobacco Institute
("TI"), a "public relations organization" whose function was to keep
the public, the medical establishment, the media and the government
in the dark about tobacco's health risks, especially the "connection
between smoking and disease." Compl. at ¶ 42.
Defendants also entered into what they termed a "gentleman's
agreement" not to perform in-house research on smoking, health, or
the development of "safe" cigarettes. Compl. at ¶ 45. Each
Defendant enforced this agreement — a central tenet of the
conspiracy — by obstructing research efforts by any other company.
Even when individual companies performed limited in-house research,
the fundamental understanding remained intact: information that would
tend to establish the harm caused by cigarette smoking would be suppressed
and concealed. Compl. at ¶ 48.
The Government alleges that over the course of the conspiracy, Defendants
have made numerous misstatements concerning one item in particular:
nicotine. Defendants continually denied that nicotine is addictive, even
in the face of overwhelming evidence to the contrary. Compl. at ¶¶
71-72. For example, Defendant Brown & Williamson acknowledged internally
in 1963 that "we are . . . in the business of selling nicotine, an addictive
drug." Comp. at ¶ 72. Researchers hired by Philip Morris in the
1980's concluded that "in terms of addictiveness, `nicotine looked like
heroin'." Compl. at ¶ 73. Instead of making these results public,
however, Defendant Philip Morris threatened the researchers with legal
action, killed the lab animals, removed the lab equipment and closed the
lab down entirely. Id.
And in 1963, Defendant Brown & Williamson deliberately withheld from the
Surgeon General research on the addictiveness of nicotine. Compl. at ¶
74. When the Surgeon General finally concluded, based on independent
research, that nicotine is in fact addictive, TI attacked and criticized
the report as "an unproven attempt to find some way to differentiate smoking
from other behaviors." Id. Defendants have engaged in these and
numerous other acts of deception because they recognize that "getting
smokers addicted to nicotine is what preserves the market for cigarettes and
ensures their profits." Compl. at ¶ 71.
The Government also alleges that Defendants suppressed
research regarding less hazardous cigarettes. Phillip Morris, for
example, conducted research which concluded that a "medically
acceptable low-carcinogen cigarette may be possible," but this
finding was never released to the public. Compl. at ¶ 105.
Indeed, Defendants have refused to acknowledge the possibility of
such a cigarette. Compl. at ¶¶ 108, 109.
The Government charges that Defendants have "aggressively
targeted their campaigns to children." Compl. at ¶ 96. R.J.
Reynolds' Joe Camel campaign is just one of the most well-known
examples of such tactics. Compl. at ¶ 97. Defendants have
advertised in stores near high schools, promoted brands heavily
during spring and summer breaks, given away cigarettes at places
where young persons congregate, paid for product placement in
movies with youth audiences, placed advertisements in magazines
with high youth readership, and sponsored sporting events, rock
concerts, and other events of interest to children. Compl. at ¶
96. Defendants have consistently made false and misleading
statements that their expenditures on advertising and marketing
were directed exclusively at convincing current smokers to switch
brands, not at enticing children. Compl. at ¶ 100.
The Government maintains that all the above misstatements,
and fraudulent and conspiratorial activity are ongoing. Although
Defendants have now admitted that there is "a substantial body of
evidence which supports the judgment that cigarette smoking plays
a causal role in the development of lung cancer and other diseases
in smokers," Compl. at ¶ 116, and have conceded that cigarettes
are "addictive," as that term is used by the public at large.
Compl. at ¶ 120, Defendants still market their products in
deceptive and unlawful ways; they conceal documents relating to
the health effects of cigarettes, nicotine and the true nature of
CTR; and they continue to pose a threat "to the health and
well-being of the American public." Compl. at ¶ 124.
The Government alleges that the harm caused by the
Defendants' decades-long conspiracy has compelled numerous
entities, including the government, to expend immense resources to
treat, alleviate and minimize the resulting disease and
devastation. Compl. at ¶ 6. In this action, the Government seeks
to recover some or all of the "$20 billion annually" it has spent
to treat the "injuries and diseases caused by defendants'
products." Compl. at ¶ 5. It also seeks various forms of
equitable relief, including the disgorgement of Defendants'
profits, to deter Defendants and others from engaging in similar
conduct in the future.
IV. Defendants' Motion To Dismiss*fn8
A. The Government's Medical Care Recovery Act Claim
In 1962, Congress enacted the Medical Care Recovery Act
("MCRA"), which provides in pertinent part:
In any case in which the United States is authorized or
required by law to furnish [or pay for]*fn9 hospital,
medical, surgical, or dental care and treatment . . . to a
person who is injured or suffers a disease, . . . under
circumstances creating a tort liability upon some third
person . . . to pay damages therefore, the United States
shall have a right to recover (independent of the rights of
the injured or diseased person) from said third person, or
that person's insurer,
the reasonable value of the care and treatment so furnished,
to be furnished, paid for, or to be paid for and shall, as
to this right be subrogated to any right or claim that the
injured or diseased person . . . has against such third
person . . .
42 U.S.C. § 2651(a), Pub.L. No. 87-693, § 1, 76 Stat. 593 (1962).
At first blush, MCRA's language might seem quite clear. The
statute generally provides the Government with a means to recover
from tortfeasors the health care costs it has expended on behalf
of victims of tortious conduct. If the Government has "paid for"
or "furnished" such care, it may seek reimbursement from the
individual or entity that caused the injury. The statute is
broadly worded: Congress could have restricted the Government's
ability to obtain reimbursement in any number of ways, both
substantively and procedurally, but it did not.
However, the specific question before this Court — and it is a
difficult one the resolution of which has enormous ramifications
— is whether MCRA, a statute enacted in 1962 and amended in a
minor fashion in 1996, covers, or was intended by Congress to cover,
payments made by the United States Government under Medicare and the
Federal Employees Health Benefits Act ("FEHBA")*fn10 to treat
tobacco-related illnesses allegedly caused by Defendants' tortious conduct.
Only a few months ago, the Supreme Court grappled with an
equally difficult issue of statutory interpretation in FDA v.
Brown & Williamson Tobacco Corp., ___ U.S. ___, 120 S.Ct. 1291
(2000), a case in which it had to decide whether the Food and Drug
Administration possessed authority to regulate tobacco products as
customarily marketed. While this Court fully recognizes that the
present case, unlike Brown & Williamson, does not involve "an
administrative agency's construction of a statute," thereby
triggering the two-step Chevron analysis,*fn11 120
S.Ct. at 1300 (citing Chevron U.S.A. Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984)), the general analytical
approach followed in Brown & Williamson as it relates to statutory
construction and congressional intent is nevertheless instructive
and illuminating. Like the Supreme Court in Brown & Williamson,
this Court's obligation is to ascertain congressional intent by
viewing a particular statute in the context of relevant congressional
action taken during and subsequent to its enactment. Accordingly, there
are significant principles articulated by the Brown & Williamson
Court that speak to how the instant case should be resolved.
One such principle is that subsequent legislative action may shed light
on congressional intent. "At the time a statute is enacted, it may have
a range of plausible meanings. Over time, however, subsequent acts can
shape or focus those meanings." 120 S.Ct. at 1306.*fn12 In
adopting subsequent statutes, Congress is presumed to act "against the
backdrop" of agency statements regarding the parameters of the agency's
authority to act under the original statute. Id. at 1306-07.
Another such principle is that agency "interpretations and
practices" should be given "considerable weight where they involve
the contemporaneous construction of a statute and where they have
been in long use." Davis v. United States, 495 U.S. 472, 484
(1990). In fact, congressional action (or inaction) can, in certain
circumstances, be viewed by courts as having "effectively ratified"
an agency's long-standing position. 120 S.Ct. at 1307.*fn13
A final principle announced by the Supreme Court — and one
which has more concrete application in the instant case — is that
Congress, "for better or for worse, has created a distinct regulatory
scheme for tobacco products." 120 S.Ct. at 1315. In conjunction with
this scheme, "Congress has persistently acted to preclude a meaningful
role for any administrative agency in making policy on the subject of
tobacco and health." Id. at 1313; see also
id. at 1309 (Congress' intent was to "preclude any administrative
agency from exercising significant policymaking authority on the subject